10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2025

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

Commission file number 001-40336

Karat Packaging Inc.

(Exact name of registrant as specified in its charter)

Delaware	83-2237832
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
6185 Kimball Avenue Chino, CA	91708
(Address of principal executive offices)	(Zip Code)

(626) 965-8882

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value	KRT	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of Common Stock, $0.001 par value, outstanding on May 7, 2025 was 20,059,505 shares.

Table of Contents

		Page
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements	2
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	30
Item 4.	Controls and Procedures	30
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	31
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 3.	Defaults Upon Senior Securities	31
Item 4.	Mine Safety Disclosures	32
Item 5.	Other Information	32
Item 6.	Exhibits	32
SIGNATURES		33

1

KARAT PACKAGING INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands, except share and per share data)

PART I - FINANCIAL INFORMATION

	March 31, 2025		December 31, 2024
Assets
Current assets
Cash and cash equivalents (including $8,611 and $1,703 associated with variable interest entity at March 31, 2025 and December 31, 2024, respectively)	$	32,473	$	31,584
Short-term investments (including $3,537 and $11,128 associated with variable interest entity at March 31, 2025 and December 31, 2024, respectively)	23,800		28,343
Accounts receivable, net of allowance for bad debt of $672 and $758 at March 31, 2025 and December 31, 2024, respectively	32,401		26,736
Inventories	79,906		70,722
Prepaid expenses and other current assets (including $172 and $27 associated with variable interest entity at March 31, 2025 and December 31, 2024, respectively)	3,399		3,612
Total current assets	171,979		160,997
Property and equipment, net (including $42,668 and $42,972 associated with variable interest entity at March 31, 2025 and December 31, 2024, respectively)	86,155		87,982
Deposits	172		36
Goodwill	3,510		3,510
Intangible assets, net	293		300
Operating right-of-use assets	48,831		40,628
Deferred tax asset	196		—
Other non-current assets (including $9 and $34 associated with variable interest entity at March 31, 2025 and December 31, 2024, respectively)	1,080		1,069
Total assets	$	312,216	$	294,522
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable (including $19 and $16 associated with variable interest entity at March 31, 2025 and December 31, 2024, respectively)	$	24,518	$	17,831
Accrued expenses (including $186 and $489 associated with variable interest entity at March 31, 2025 and December 31, 2024, respectively)	14,868		13,555
Related party payable	5,057		3,130
Income taxes payable (including $6 and $3 associated with variable interest entity at March 31, 2025 and December 31, 2024, respectively)	2,189		65
Deferred revenue	1,137		742
Long-term debt, current portion (including $1,190 and $1,179 associated with variable interest entity at March 31, 2025 and December 31, 2024, respectively)	1,190		1,179
Operating lease liabilities, current portion	10,996		8,977
Other current liabilities (including $37 and $916 associated with variable interest entity at March 31, 2025 and December 31, 2024, respectively)	128		968
Total current liabilities	60,083		46,447

2

	March 31, 2025		December 31, 2024
Deferred tax liability	622		426
Long-term debt, net of current portion and debt discount of $125 and $141 at March 31, 2025 and December 31, 2024, respectively (including $46,988 and $47,279 associated with variable interest entity at March 31, 2025 and December 31, 2024, respectively, and debt discount of $125 and $141 associated with variable interest entity at March 31, 2025 and December 31, 2024, respectively)	46,988		47,279
Operating lease liabilities, net of current portion	41,535		35,435
Other non-current liabilities (including $1,249 and $1,198 associated with variable interest entity at March 31, 2025 and December 31, 2024 respectively)	2,777		2,736
Total liabilities	152,005		132,323
Commitments and Contingencies (Note 14)
Karat Packaging Inc. stockholders’ equity
Preferred stock, 0.001 par value, 10,000,000 shares authorized, no shares issued and outstanding, as of both March 31, 2025 and December 31, 2024	—		—
Common stock, 0.001 par value, 100,000,000 shares authorized, 20,059,505 and 20,036,505 shares issued and outstanding, respectively, as of both March 31, 2025 and December 31, 2024	20		20
Additional paid in capital	89,803		89,457
Treasury stock, 0.001 par value, 23,000 shares as of both March 31, 2025 and December 31, 2024	(248)		(248)
Retained earnings	63,732		66,340
Total Karat Packaging Inc. stockholders’ equity	153,307		155,569
Noncontrolling interest	6,904		6,630
Total stockholders’ equity	160,211		162,199
Total liabilities and stockholders’ equity	$	312,216	$	294,522

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements. 

3

KARAT PACKAGING INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(In thousands, except share and per share data)

	Three Months Ended March 31,
	2025		2024
Net sales	$	103,624	$	95,613
Cost of goods sold	62,862		58,011
Gross profit	40,762		37,602
Operating expenses
Selling expenses	14,411		10,763
General and administrative expenses (including $677 and $556 associated with variable interest entity for the three months ended March 31, 2025 and 2024, respectively)	18,548		16,769
Impairment expense and (gain) loss, net, on disposal of property and equipment	(17)		1,994
Total operating expenses	32,942		29,526
Operating income	7,820		8,076
Other income (expenses)
Rental income (including $446 and $255 associated with variable interest entity for the three months ended March 31, 2025 and 2024, respectively)	776		291
Other income, net	44		55
Gain on foreign currency transactions	239		122
Interest income (including $226 and $213 associated with variable interest entity for the three months ended March 31, 2025 and 2024, respectively)	566		431
Interest expense (including $500 and $517 associated with variable interest entity for the three months ended March 31, 2025 and 2024, respectively)	(509)		(524)
Total other income, net	1,116		375
Income before provision for income taxes	8,936		8,451
Provision for income taxes	2,121		1,975
Net income	6,815		6,476
Net income attributable to noncontrolling interest	406		310
Net income attributable to Karat Packaging Inc.	$	6,409	$	6,166
Basic and diluted earnings per share:
Basic	$	0.32	$	0.31
Diluted	$	0.32	$	0.31
Weighted average common shares outstanding, basic	20,036,505		19,969,606
Weighted average common shares outstanding, diluted	20,198,654		20,075,485

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements. 

4

KARAT PACKAGING INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(In thousands, except share and per share data)

	Common Stock			Treasury Stock			Additional Paid-in Capital		Retained Earnings		Total Stockholders’ Equity Attributable to Karat Packaging Inc.		Noncontrolling Interest		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
Balance, January 1, 2024	19,988,482	$	20	(23,000)	$	(248)	$	86,667	$	67,679	$	154,118	$	8,572	$	162,690
Cash dividends declared ($0.30 per share)	—	—		—	—		—		(5,992)		(5,992)		—		(5,992)
Issuance of common stock upon vesting of restricted stock units	3,750	—		—	—		—		—		—		—		—
Stock-based compensation	—	—		—	—		375		—		375		—		375
Exercise of stock options	2,800	—		—	—		52		—		52		—		52
Global Wells noncontrolling membership interest redemption	—	—		—	—		—		(316)		(316)		(2,893)		(3,209)
Net income	—	—		—	—		—		6,166		6,166		310		6,476
Balance, March 31, 2024	19,995,032	$	20	(23,000)	$	(248)	$	87,094	$	67,537	$	154,403	$	5,989	$	160,392
	Common Stock			Treasury Stock			Additional Paid-in Capital		Retained Earnings		Total Stockholders’ Equity Attributable to Karat Packaging Inc.		Noncontrolling Interest		Total Stockholders’ Equity
	Shares	Amount		Shares	Amount
Balance, January 1, 2025	20,059,505	$	20	(23,000)	$	(248)	$	89,457	$	66,340	$	155,569	$	6,630	$	162,199
Cash dividends declared ($0.45 per share)	—	—		—	—		—		(9,017)		(9,017)		—		(9,017)
Stock-based compensation	—	—		—	—		346		—		346		—		346
Global Wells noncontrolling-interest tax withholding	—	—		—	—		—		—		—		(132)		(132)
Net income	—	—		—	—		—		6,409		6,409		406		6,815
Balance, March 31, 2025	20,059,505	$	20	(23,000)	$	(248)	$	89,803	$	63,732	$	153,307	$	6,904	$	160,211

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.

5

KARAT PACKAGING, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)

	Three Months Ended March 31,
	2025		2024
Cash flows from operating activities
Net income	$	6,815	$	6,476
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization (including $304 and $303 associated with variable interest entity for the three months ended March 31, 2025 and 2024, respectively)	2,688		2,629
Adjustments to allowance for bad debt	222		(12)
Adjustments to inventory reserve	90		40
(Recovery) write-off of inventory	(83)		293
Impairment of operating right-of-use asset	—		1,993
(Gain) loss, net, on disposal of property and equipment	(17)		1
Amortization of loan fees (including $15 associated with variable interest entity for both the three months ended March 31, 2025 and 2024)	23		23
Accrued interest on certificates of deposit (including $0 and $38 associated with variable interest entity for the three months ended March 31, 2025 and 2024, respectively)	(48)		(126)
Unrealized loss from investment in publicly-traded equity securities	46		—
Stock-based compensation	346		375
Amortization of operating right-of-use assets	2,253		1,466
Government grant income (including $8 and $0 associated with variable interest entity for the three months ended March 31, 2025 and 2024, respectively)	(18)		—
(Increase) decrease in operating assets
Accounts receivable	(5,887)		(2,336)
Inventories	(9,191)		(8,077)
Prepaid expenses and other current assets (including $112 and $4 associated with variable interest entity for the three months ended March 31, 2025 and 2024, respectively)	257		1,727
Other non-current assets (including $25 and $14 associated with variable interest entity for the three months ended March 31, 2025 and 2024, respectively)	(24)		(190)
Increase (decrease) in operating liabilities
Accounts payable (including $3 and $5 associated with variable interest entity for the three months ended March 31, 2025 and 2024, respectively)	6,734		3,367
Accrued expenses (including $303 and $420 associated with variable interest entity for the three months ended March 31, 2025 and 2024, respectively)	1,313		742
Related party payable	1,927		(6)
Income taxes payable (including $3 and $0 associated with variable interest entity for the three months ended March 31, 2025 and 2024, respectively)	2,124		—
Deferred revenue	395		(507)
Operating lease liabilities	(2,337)		(1,474)
Other liabilities (including $59 and $0 associated with variable interest entity for the three months ended March 31, 2025 and 2024, respectively)	98		155
Net cash provided by operating activities	$	7,726	$	6,559

6

	Three Months Ended March 31,
	2025		2024
Cash flows from investing activities
Purchases of property and equipment	(107)		(163)
Proceeds from disposal of property and equipment	59		23
Deposits paid for property and equipment	(989)		(761)
Purchases of publicly-traded equity securities	(212)		—
Proceeds from disposal of publicly-traded equity securities	191		—
Purchases of short-term investments (including $87 and $7,000 associated with variable interest entity for the three months ended March 31, 2025 and 2024, respectively)	(8,148)		(12,190)
Redemption of short-term investments (including $7,678 and $0 associated with variable interest entity for the three months ended March 31, 2025 and 2024, respectively)	12,739		5,144
Net cash provided by (used in) investing activities	$	3,533	$	(7,947)
Cash flows from financing activities
Payment of long-term debt (including $295 and $278 associated with variable interest entity for the three months ended March 31, 2025 and 2024, respectively)	(295)		(278)
Payments for lender fees	(47)		—
Proceeds from exercise of common stock options	—		52
Dividends paid to shareholders	(9,017)		(5,992)
Payment of Global Wells noncontrolling-interest tax withholding (including $132 and $0 associated with variable interest entity for the three months ended March 31, 2025 and 2024, respectively)	(132)		—
Payment of Global Wells noncontrolling membership interest redemption (including $0 and $2,010 associated with variable interest entity for the three months ended March 31, 2025 and 2024, respectively)	—		(2,326)
Payment of Global Wells noncontrolling membership interest redemption gain tax withholding (including $879 and $0 associated with variable interest entity for the three months ended March 31, 2025 and 2024, respectively)	(879)		—
Net cash used in financing activities	$	(10,370)	$	(8,544)
Net increase (decrease) in cash and cash equivalents	$	889	$	(9,932)
Cash and cash equivalents
Beginning of period	$	31,584	$	23,076
End of period	$	32,473	$	13,144
Supplemental disclosures of non-cash investing and financing activities:
Transfers from deposits to property and equipment	$	853	$	1,148
Non-cash purchases of property and equipment	$	37	$	159
Supplemental disclosures of cash flow information:
Income tax refund	$	—	$	13
Cash paid for interest	$	477	$	502

The accompanying notes to the condensed consolidated financial statements are an integral part of these statements. 

7

KARAT PACKAGING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Nature of Operations

Lollicup USA Inc. (“Lollicup”) was incorporated in 2001 in California. Karat Packaging Inc. (“Karat Packaging”) was incorporated in 2018 in Delaware and became the holding company for Lollicup (collectively, the “Company”) through a share exchange with the shareholders of Lollicup. The Company's shares are listed on the NASDAQ Global Market under the symbol "KRT".

The Company is a manufacturer and distributor of single-use disposable products used in a variety of restaurant and foodservice settings. The Company supplies a wide range of products such as food and take-out containers, bags, boxes, tableware, cups, lids, cutlery, and straws. The products are available in plastic, paper, biopolymer-based, and other compostable forms. In addition to manufacturing and distribution, the Company offers customized solutions to customers, including new product design and development, custom printing, distribution of specialty food and beverages products, such as syrups, boba, and coffee drinks, as well as logistics services.

The Company supplies products to national and regional distributors, restaurant chains, supermarkets, as well as to small businesses including convenience stores, mom-and-pop restaurants, coffee houses, bubble tea cafes, pizza parlors, and frozen yogurt shops.

The Company currently operates manufacturing facilities and distribution centers in Chino, California, Rockwall, Texas, and Kapolei, Hawaii. In addition, the Company operates seven other distribution centers located in Puyallup, Washington; Summerville, South Carolina; Branchburg, New Jersey; Kapolei, Hawaii; Aurora, Illinois; Mesa, Arizona; and Sugar Land, Texas. The Company entered into a lease agreement on March 3, 2025 for an additional distribution center in Chino, California, which is expected to be fully operational by end of May 2025.

2. Summary of Significant Accounting Policies

Basis of Presentation: The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles as promulgated in the United States of America (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, these condensed consolidated financial statements do not include all the information and footnotes required by US GAAP for complete financial statements. The financial information as of March 31, 2025 and for the three months ended March 31, 2025 and 2024 is unaudited; however, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement have been included. Operating results for the three months ended March 31, 2025 are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2025.

The condensed consolidated balance sheet at December 31, 2024 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by US GAAP for complete financial statements. These financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2024, as included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 14, 2025.

Principles of Consolidation: The condensed consolidated financial statements include the accounts of Karat Packaging and its wholly-owned and controlled operating subsidiaries: Lollicup, Lollicup Franchising, LLC, and Global Wells Investment Group ("Global Wells"), a variable interest entity wherein the Company is the primary beneficiary. All intercompany accounts and transactions have been eliminated.

Estimates and Assumptions: Management uses estimates and assumptions in preparing financial statements in accordance with US GAAP. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ materially from the estimates that were assumed in preparing the condensed consolidated financial statements.

Reporting Segments: The Company manages and evaluates its operations in one reportable segment. This segment consists of manufacturing and distribution of a broad portfolio of single-use products that are used to serve food and beverages and are available in plastic, paper, biopolymer-based, and other compostable forms. It also consists of the distribution of certain specialty food and beverage products, such as syrup, boba, and coffee drinks, as well as restaurant and warehouse supplies.

8

KARAT PACKAGING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Variable Interest Entities: The Company has a variable interest in Global Wells located in Rockwall, Texas. In 2017, Lollicup along with three other unrelated parties formed Global Wells, of which Lollicup received a 13.5% ownership interest and a 25% voting interest. On February 29, 2024, Global Wells and one of its members (the "Selling Member") entered into a membership interest redemption agreement, under which the Selling Member sold and Global Wells purchased and redeemed all of the Selling Member's 10.8% ownership interest in Global Wells for a total cash consideration of $3,208,000, subject to tax withholding. Subsequent to the redemption, the ownership interests and voting power of the remaining members of Global Wells were adjusted proportionally, with Lollicup's ownership interest increasing to 15.1% and voting interest increasing to 33.3%. During the year ended December 31, 2024, a total cash payment of $2,325,000, net of tax withholding, was made to the Selling Member in full consideration of the redemption.

The purpose of Global Wells is to own, construct, and manage warehouses and manufacturing facilities. Global Wells’ operating agreement may require its members to make additional contributions upon the unanimous decision of the members or when the cash in Global Wells’ bank account falls below $50,000. In the event that a member is unable to make an additional capital contribution, the other members will be required to make contributions to offset the amount that member cannot contribute, up to $25,000.

Global Wells was determined to be a variable interest entity in accordance with ASC Topic 810, Consolidations, however, at the time the investment was made, it was determined that Lollicup was not the primary beneficiary. In 2018, Lollicup entered into an operating lease with Global Wells (the “Texas Lease”). In 2020, the Company entered into another operating lease with Global Wells (the “New Jersey Lease”).

Upon entering into the Texas Lease with Lollicup on March 23, 2018, it was determined that Lollicup holds current and potential rights that give it the power to direct activities of Global Wells that most significantly impact Global Wells’ economic performance, the ability to receive significant benefits, and the obligation to absorb potentially significant losses, resulting in Lollicup having a controlling financial interest in Global Wells. As a result, Lollicup was deemed to be the primary beneficiary of Global Wells and has consolidated Global Wells under the risk and reward model of ASC 810, for the period from March 23, 2018. The monthly lease payments for both the Texas Lease and New Jersey Lease are eliminated upon consolidation.

Assets recognized as a result of consolidating Global Wells do not represent additional assets that could be used to satisfy claims against the Company’s general assets. Conversely, liabilities recognized as a result of consolidating Global Wells do not represent additional claims of the Company’s general assets; rather they represent claims against the specific assets of Global Wells. See Note 8 — Long-Term Debt for a description of the two term loans that Global Wells had with financial institutions as of March 31, 2025.

Noncontrolling Interests: The Company consolidates its variable interest entity, Global Wells, in which the Company is the primary beneficiary. Noncontrolling interests represent third-party equity ownership interests in Global Wells. The Company recognizes noncontrolling interests as equity in the condensed consolidated financial statements separate from the Company’s stockholders’ equity. The amount of net income attributable to noncontrolling interests is disclosed in the condensed consolidated statements of income. Tax payments made by the Company on behalf of the noncontrolling interests are deducted from their equity balances, as shown in the condensed consolidated statements of stockholders’ equity.

Revenue Recognition: The Company generates revenues from product sales to customers that include national and regional chains, distributors, small local restaurants, and those that purchase for individual consumption primarily through our online stores. The Company considers revenue disaggregated by customer type to most accurately reflect the nature and uncertainty of its revenue and cash flows that are affected by economic factors. For the three months ended March 31, 2025 and 2024, net sales disaggregated by customer type consist of the amounts shown below.

	Three Months Ended March 31,
	2025		2024
	(in thousands)
Chains and distributors	79,599		74,297
Online	17,791		14,879
Retail	6,234		6,437
	$	103,624	$	95,613

9

KARAT PACKAGING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

•Chains and distributors revenue: National and regional chains revenue is derived from chain restaurants, supermarkets, and other businesses with multiple locations. Distributors revenue is derived from distributors across the U.S. that purchase the Company’s products for resale and distribution to restaurants, supermarkets, and other businesses. Chain accounts often order through their distribution partners. Revenue from transactions with chains and distributors is recognized at a point in time upon transfer of control of promised products to customers. Transfer of control typically occurs when the title and risk of loss passes to the customer.

•Online revenue: Online revenue is derived from the Company's online storefront on www.lollicupstore.com, and through the Company's mobile app, as well as other e-commerce platforms with customers largely consisting of small businesses such as small mom-and-pop restaurants, coffee houses, bubble tea cafes, pizza parlors, and frozen yogurt shops. Revenue from online transactions is recognized at a point in time upon transfer of control of promised products to customers. Transfer of control typically occurs when the title and risk of loss passes to the customer. For online sales on third-party e-commerce platforms, the Company is the principal in the three-party arrangement and control of the products remains with the Company until transferring to the end customer or upon return from the end customer. Online platform fees are recognized as selling expenses.

•Retail revenue: Retail revenue is derived primarily from regional and local restaurants, small mom-and-pop restaurants, coffee houses, bubble tea cafes, pizza parlors, and frozen yogurt shops. Revenue from retail transactions is recognized at a point in time upon transfer of control of promised products to customers. Transfer of control typically occurs when the title and risk of loss passes to the customer.

For all of the Company's revenue streams, shipping terms generally indicate when the title and risk of loss have passed, which is generally when products are delivered to customers.

In addition to product sales, the Company also generates revenue from logistics services which is the transportation and delivery of shipping containers from ports to local retail customers. Logistics services revenue is recognized over time due to the continuous transfer of control to the customer. As control transfers over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. During the three months ended March 31, 2025 and 2024, the Company recognized logistics services revenue of $1,273,000 and $1,239,000, respectively.

The Company’s contract liabilities consist primarily of rebates, sales incentives, cooperative advertising, and deferred revenue. As of March 31, 2025 and December 31, 2024, the Company had accrued $414,000 and $377,000, respectively, related to rebates, sales incentives and cooperative advertising, included in accrued expenses in the condensed consolidated balance sheets. During the three months ended March 31, 2025 and 2024, the Company recognized revenue of $517,000 and $739,000, respectively, related to previously deferred revenue at the beginning of each respective period.

Fair Value Measurements: The Company has financial instruments classified within the fair value hierarchy, which consist of the following:

•At both March 31, 2025 and December 31, 2024, the Company had money market accounts and investments in publicly-traded equity securities classified as Level 1 and certificates of deposit classified as Level 2 within the fair value hierarchy.

The short-term investments comprise of certificates of deposits with an original maturity of longer than 3 months and are reported at their carrying value as current assets on the condensed consolidated balance sheets. The carrying value of these short-term investments approximates fair value as they were purchased near or on the respective balance sheet dates.

The following table summarizes the Company’s fair value measurements by level at March 31, 2025 for the assets measured at fair value on a recurring basis:

	Level 1		Level 2		Level 3
	(in thousands)
Cash equivalents	$	2,448	$	25,543	$	—
Short-term investments	—		23,800		—
Publicly-traded equity securities	57		—		—
Fair value, March 31, 2025	$	2,505	$	49,343	$	—

10

KARAT PACKAGING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following table summarize the Company’s fair value measurements by level at December 31, 2024 for the assets measured at fair value on a recurring basis:

	Level 1		Level 2		Level 3
	(in thousands)
Cash equivalents	$	725	$	22,525	$	—
Short-term investments	—		28,343		—
Publicly-traded equity securities	31		—		—
Fair value, December 31, 2024	$	756	$	50,868	$	—

The Company has not elected the fair value option as presented by ASC 825, Fair Value Option for Financial Assets and Financial Liabilities, for the financial assets and liabilities that are not otherwise required to be carried at fair value. Under ASC 820, material financial assets and liabilities not carried at fair value, including accounts receivable, accounts payable, related-party payable, accrued expenses, other payables and borrowings under promissory notes and Line of Credit (as defined below), are reported at their carrying value.

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, related-party payable, accrued expenses, and other payables at March 31, 2025 and December 31, 2024, approximated fair value because of the short maturity of these instruments. The following is a summary of the carrying amount and estimated fair value of the $23,000,000 and $28,700,000 term loans that mature in September 2026 and July 2027, respectively (the "2026 Term Loan" and "2027 Term Loan," respectively):

	March 31, 2025
	Carrying Amount		Estimated Fair Value
	(in thousands)
2026 Term Loan	$	20,723	$	19,910
2027 Term Loan	27,455		27,305
	$	48,178	$	47,215

	December 31, 2024
	Carrying Amount		Estimated Fair Value
	(in thousands)
2026 Term Loan	$	20,881	$	19,846
2027 Term Loan	27,577		27,174
	$	48,458	$	47,020

The fair value of these financial instruments was determined using Level 2 inputs.

Certain long-lived non-financial assets and liabilities may be required to be measured at fair value on a nonrecurring basis in certain circumstances, including when there is evidence of impairment. These non-financial assets and liabilities may include assets acquired in a business combination or long-lived assets that are determined to be impaired. The Company recorded an impairment against its operating ROU assets of $1,993,000 during the three months ended March 31, 2024. See Note 11 — Leases for further information about this impairment charge. For the three months ended March 31, 2025, management concluded that an impairment of long-lived assets was not required. With the exception of the ROU impairment, the Company did not have any non-financial assets or liabilities that had been measured at fair value subsequent to initial recognition as of March 31, 2025 or December 31, 2024.

New and Recently Adopted Accounting Standards: The Company is an emerging growth company as that term is used in the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"), and as such, the Company has elected to take advantage of certain reduced public company reporting requirements. In addition, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards, as a result, the Company will adopt new or revised accounting standards on the relevant dates in which adoption of such standards is required for private companies.

11

KARAT PACKAGING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In November 2023, the FASB issued ASU 2023-07 Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The new guidance requires enhanced disclosure of significant expenses that are regularly reported to the chief operating decision maker and the nature of segment expense information used to manage operations. The Company adopted this new standard for its annual period beginning January 1, 2024 and its interim period beginning January 1, 2025. The adoption of this new standard resulted in additional required disclosures, described further in Note 15 — Segment Report.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The new guidance requires disaggregated information about the effective tax rate reconciliation and additional information on taxes paid that meet a quantitative threshold. The new guidance is effective for public companies for annual reporting periods beginning after December 15, 2024, and for non-public companies for annual reporting periods beginning after December 15, 2025, with early adoption permitted for both. The Company will adopt the new standard in annual reporting period beginning after December 15, 2025, and is currently evaluating the impacts of the new guidance on its disclosures within the consolidated financial statements.

In November 2024, the FASB issued ASU 2024-03 Income Statement Expenses (Topic 220): Disaggregation of Income Statement Expenses. The new guidance requires enhanced disclosure of disaggregated information about specific expense categories in the notes to financial statements on an annual and interim basis. The new guidance is effective for all public companies for annual reporting periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The Company will adopt the new standard in annual reporting period beginning after December 15, 2026. The application of this new guidance is not expected to have a material impact on the Company’s consolidated balance sheets, statements of income or cash flows, as the guidance pertains to disclosures only.

3. Inventories

Inventories consist of the following:

	March 31, 2025		December 31, 2024
	(in thousands)
Raw materials	$	6,498	$	6,640
Semi-finished goods	1,403		1,885
Finished goods	72,735		62,837
Subtotal	80,636		71,362
Less: inventory reserve	(730)		(640)
Total inventories	$	79,906	$	70,722

4. Property and Equipment

	March 31, 2025		December 31, 2024
	(in thousands)
Machinery and equipment	$	67,024	$	66,928
Leasehold improvements	19,212		19,193
Vehicles	8,383		8,395
Furniture and fixtures	1,015		1,015
Building	38,779		38,779
Land	11,907		11,907
Computer hardware and software	113		94
Construction in progress	723		431
	147,156		146,742
Less: accumulated depreciation and amortization	(61,001)		(58,760)
Total property and equipment, net	$	86,155	$	87,982

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KARAT PACKAGING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Depreciation and amortization expense is reported within general and administrative expense except for depreciation and amortization expense related to manufacturing facilities and equipment, which is included in cost of goods sold on the accompanying condensed consolidated statements of income.

For the three months ended March 31, 2025 and 2024, depreciation and amortization expense reported within general and administrative expense was $1,132,000 and $1,013,000, respectively, and depreciation and amortization expense reported within cost of goods sold was $1,549,000 and $1,609,000, respectively.

5. Goodwill

The following table summarizes the activity in the Company's goodwill from December 31, 2024 to March 31, 2025:

	(in thousands)
Balance at December 31, 2024	$	3,510
Goodwill acquired	—
Balance at March 31, 2025	$	3,510

6. Line of Credit

Pursuant to the terms of the Business Loan Agreement, dated February 23, 2018, between Lollicup, as borrower, and Hanmi Bank, as lender (as amended, the “Loan Agreement”), the Company has a line of credit with a maximum borrowing capacity of $20,000,000 (the “Line of Credit”) secured by the Company’s assets. The Company is not required to pay a commitment (unused) fee on the undrawn portion of the Line of Credit and interest is payable monthly. The Company is required to comply with certain financial covenants, including a minimum current ratio, minimum debt to earnings before interest, taxes, depreciation and amortization ("EBITDA") ratio and a minimum fixed charge coverage ratio.

On March 3, 2025, the Company amended the Line of Credit. Prior to March 3, 2025, the revolving loan facility had a maximum borrowing capacity of $40,000,000 and interest accrued at an annual rate of one month term Secured Overnight Financing Rate ("SOFR") plus 2.50%, with a SOFR floor of 1.00%. The amendment on March 3, 2025, among other things, (1) extended the maturity date to March 14, 2027, (2) reduced the maximum borrowing capacity of the revolving loan facility to $20,000,000, and (3) revised the interest on any Line of Credit borrowings to an annual rate of one month term SOFR plus 2.25%, with a SOFR floor of 1.00%. The Company further amended the Line of Credit on March 17, 2025, increasing the standby letter of credit sub-limit from $5,000,000 to $7,500,000.

The Company had no borrowings outstanding under the Line of Credit as of both March 31, 2025 and December 31, 2024. The amount issued under the standby letter of credit was $5,813,000 and $3,813,000 as of March 31, 2025 and December 31, 2024, respectively. As of March 31, 2025, the maximum remaining amount that could be borrowed under the Line of Credit was $14,187,000. As of both March 31, 2025 and December 31, 2024, the Company was in compliance with the financial covenants under the Line of Credit.

7. Accrued Expenses

The following table summarizes information related to accrued expense liabilities:

13

KARAT PACKAGING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

	March 31, 2025		December 31, 2024
	(in thousands)
Accrued miscellaneous expenses	$	2,178	$	1,796
Accrued payroll	1,109		1,953
Accrued ocean freight and other import costs	5,212		4,215
Accrued sale and use taxes	1,051		991
Accrued professional services fees	826		967
Accrued vacation and sick pay	1,114		899
Accrued property tax	332		1,150
Accrued shipping expenses	2,550		1,137
Accrued sales discount expense	413		374
Accrued interest expense	83		73
Total accrued expenses	$	14,868	$	13,555

8. Long-Term Debt

Long-term debt consists of the following:

	March 31, 2025		December 31, 2024
	(in thousands)
The 2026 Term Loan, with an initial balance of $16,115,000 and an option to request for additional advances up to a maximum of $6,885,000 through September 2022, which the Company exercised in February 2022. Interest accrues at a fixed rate of 3.5% per annum. Principal and interest payments of $116,000 are due monthly throughout the term of the loan, with the remaining principal balance due at maturity.	$	20,758	$	20,923
The 2027 Term Loan, with an initial balance of $20,700,000 and an option to request for additional advances up to a maximum of $8,000,000 through June 30, 2023, which the Company exercised in March 2023. Interest accrues at a fixed rate of 4.375% per annum. Prior to August 1, 2023, principal and interest payments of $104,000 are due monthly. Beginning August 1, 2023, monthly principal and interest payments increased to $144,000 for the remainder of the loan term, with the remaining principal balance due at maturity.	27,545		27,676
Long-term debt	48,303		48,599
Less: unamortized loan fees	(125)		(141)
Less: current portion	(1,190)		(1,179)
Long-term debt, net of current portion	$	46,988	$	47,279

At March 31, 2025, future maturities are:

	(in thousands)
2025 (remainder)	$	883
2026	20,798
2027	26,622
	$	48,303

The Company was in compliance with all of its financial covenants as of both March 31, 2025 and December 31, 2024.

9. Stock-Based Compensation

In January 2019, the Company’s board of directors adopted the 2019 Stock Incentive Plan (the “Plan”). As of March 31, 2025, a total of 1,287,017 shares of common stock were available for further award grants under the Plan. For

14

KARAT PACKAGING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

the three months ended March 31, 2025 and 2024, the Company recognized a total of $346,000 and $375,000 in stock-based compensation expense, respectively. The Company recognizes stock-based compensation over the vesting period, which is generally within three years for both the restricted stock units and stock options.

Stock Options

A summary of the Company’s stock option activity under the Plan for the three months ended March 31, 2025 is as follows:

	Number of Options	Weighted-Average Exercise Price		Weighted-Average Remaining Contract Life	Aggregate Intrinsic Value
				(in years)	(in thousands)
Outstanding at December 31, 2024	313,667	$	18.57	6.8	$	3,667
Outstanding at March 31, 2025	313,667	$	18.57	6.6	$	2,512
Vested and expected to vest at March 31, 2025	313,667	$	18.57	6.6	$	2,512
Exercisable at March 31, 2025	313,667	$	18.57	6.6	$	2,512

There were no stock options granted, exercised, or forfeited during the three months ended March 31, 2025. At March 31, 2025, all stock options granted under the Plan were fully vested and exercisable.

The aggregate intrinsic value is calculated by subtracting the exercise price of the option from the closing price of the Company’s common stock on March 31, 2025, multiplied by the number of shares per each option.

Restricted Stock Units

A summary of the Company’s unvested restricted stock units activity under the Plan for the three months ended March 31, 2025 is as follows:

	Number of Shares Outstanding	Weighted Average Grant Date Fair Value
Unvested at December 31, 2024	70,800	$	29.14
Unvested at March 31, 2025	70,800	$	29.14

There were no restricted stock units granted or vested during the three months ended March 31, 2025. At March 31, 2025, total remaining stock-based compensation cost for unvested restricted stock units was approximately $631,000. The cost is expected to be recognized over a weighted-average period of 1.0 year.

10. Earnings Per Share

(a)Basic

Basic earnings per share is calculated by dividing the net income attributable to equity holders of the Company for the period by the weighted average number of common shares outstanding during the period.

	Three Months Ended March 31,
	2025		2024
	(in thousands, except per share data)
Net income attributable to Karat Packaging Inc.	$	6,409	$	6,166
Weighted average number of common shares in issue	20,037		19,970
Basic earnings per share	$	0.32	$	0.31

(b)Diluted

15

KARAT PACKAGING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Diluted earnings per share is calculated based upon the weighted average number of common shares and common equivalent shares outstanding during the period, calculated using the treasury stock method. Under the treasury stock method, exercise proceeds include the amount the employee must pay for exercising stock options and the amount of compensation cost related to stock awards for future services that the Company has not yet recognized. Common equivalent shares are excluded from the computation in periods in which they have an anti-dilutive effect.

The following table summarizes the calculation of diluted earnings per share:

	Three Months Ended March 31,
	2025		2024
	(in thousands, except per share data)
Net income attributable to Karat Packaging Inc.	$	6,409	$	6,166
Weighted average number of common shares in issue	20,037		19,970
Dilutive shares
Stock options and restricted stock units	162		105
Adjusted weighted average number of common shares	20,199		20,075
Diluted earnings per share	$	0.32	$	0.31

For the three months ended March 31, 2025 and 2024, a total of 0 and 19,000 shares of potentially dilutive shares, respectively, have been excluded in the diluted earnings per share calculation due to their anti-dilutive impact on earnings per share.

11. Leases

The Company primarily leases manufacturing facilities, distribution centers, and office spaces with lease terms expiring through 2031. The Company recognized the following lease costs in the accompanying condensed consolidated statement of income:

	Three Months Ended March 31,
	2025		2024
	(in thousands)
Operating lease expense	$	3,046	$	1,820
Short-term lease expense	648		9
Variable lease expense	316		373
Total lease expense	$	4,010	$	2,202

For the three months ended March 31, 2025 and 2024, rent expense included in operating expenses was $3,190,000 and $1,931,000, respectively, and rent expense included in cost of goods sold was $820,000 and $271,000, respectively.

The following table presents supplemental information related to operating leases:

	March 31, 2025		December 31, 2024
Weighted average remaining lease term	4.15 years		4.33 years
Weighted average discount rate	6.9	%	7.0	%

	Three Months Ended March 31,
	2025		2024
	(in thousands)
Right-of-use assets obtained in exchange for operating lease liabilities	$	10,457	$	2,079
Cash paid for amounts included in measurement of lease obligations:
Operating cash flows from operating leases	$	3,145	$	1,829

As of March 31, 2025, future lease payments under operating leases were as follows:

16

KARAT PACKAGING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

	(in thousands)
2025 (remainder)	$	10,531
2026	14,885
2027	13,961
2028	12,915
2029	7,567
Thereafter	769
Total lease payments	60,628
Less: imputed interest	(8,097)
Total lease liability balance	$	52,531

During the three months ended March 31, 2024, the Company recorded a non-cash impairment of a ROU asset of $1,993,000 resulting from the sublease of its City of Industry warehouse in California.

Global Wells has been the landlord under an operating lease agreement with an unrelated party since September 2020. On February 28, 2025, the lease agreement between Global Wells and the tenant was terminated and effective March 1, 2025, Global Wells entered into a new six-year operating lease agreement ending on February 28, 2031 with a different unrelated party that generates monthly rental payments from $87,000 to $101,000. The expected rental income is $846,000 for the remaining nine months of the year ending December 31, 2025, and $1,128,000 per annum over the next five years.

12. Related Party Transactions

Keary Global Ltd. ("Keary Global") owns 250,004 shares of the Company's common stock as of March 31, 2025, which Keary Global acquired upon exercise of two convertible notes during the third quarter of 2018. In addition to being a stockholder, Keary Global and Keary International, Ltd. ("Keary International") are inventory suppliers and purchasing agents for the Company overseas. The Company has entered into ongoing purchase and supply agreements with Keary Global. At March 31, 2025 and December 31, 2024, the Company has accounts payable due to Keary Global and Keary International of $5,057,000 and $3,130,000, respectively. Purchases for the three months ended March 31, 2025 and 2024 from this related party were $10,340,000 and $12,693,000, respectively.

13. Income Taxes

For the three months ended March 31, 2025 and 2024, the Company's income tax expense was $2,121,000 and $1,975,000, respectively, with an effective tax rate of 23.7% and 23.4%, respectively. For both the three months ended March 31, 2025 and 2024, the Company's effective tax rate differed from the United States federal statutory rate of 21% primarily due to state taxes and noncontrolling interest income.

In evaluating the Company’s ability to recover its deferred tax assets, the Company considers all available positive and negative evidence, including its operating results, ongoing tax planning and forecasts of future taxable income on a jurisdiction-by-jurisdiction basis. Based upon the level of historical taxable income, at this time, the Company determined that sufficient positive evidence existed to conclude that it is more likely than not there will be full utilization of the deferred tax assets in each jurisdiction. As such, as of March 31, 2025, the Company did not record any valuation allowance.

The Company remains subject to IRS examination for the 2021 through 2023 tax years. Additionally, the Company files multiple state and local income tax returns and remains subject to examination in various of these jurisdictions for the 2020 through 2023 tax years. The Company continues to work with the IRS relating to the 2016 and 2017 tax years and does not expect a material impact to the financial statements. As of both March 31, 2025 and December 31, 2024, the Company did not have any unrecognized tax benefit.

14. Commitments and Contingencies

In May 2023, the Company received a Notice of Investigations and Interim Measures stating that U.S. Customs and Border Protection (“CBP”) had initiated a formal investigation to determine whether the Company had evaded the anti-dumping and countervailing duty orders on lightweight thermal paper from China by transshipping the merchandise

17

KARAT PACKAGING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

through Taiwan. The period of investigation was from January 2022 through the pendency of the investigation. On February 5, 2024, CBP issued its Notice of Determination concluding that the manufacturing procedures performed by the manufacturer in Taiwan, which the Company imported certain thermal paper products from, did not constitute substantial transformation. On March 19, 2024, the Company initiated an appeal process by submitting a request for an administrative review of the initial determination issued by CBP. On June 11, 2024, CBP completed the administrative review and upheld its initial conclusion. In February 2025, the Company started to receive bills related to certain of its thermal paper shipments. The Company is in the process of protesting the received bills with CBP, and is also evaluating other appeal options. Payments on bills received will be due upon the resolution of the protests, currently expected to occur within the next 12 months. The Company maintains a liability reserve representing the total estimated probable loss from the investigation plus accrued interest. As of March 31, 2025, and December 31, 2024, the Company had a total reserve of $3,101,000 and $3,051,000, respectively. The amount of the final payments could vary significantly from the estimated liability reserve.

The Company is a party to, and certain of its property is the subject of, various pending claims and legal proceedings that routinely arise in the ordinary course of its business. Management believes that the outcome of such litigation and claims, should they arise in the future, is not likely to have a material effect on the Company’s financial position or results of income.

15. Segment Report

The Company operates and evaluates its business as a single reportable segment. The following is the summary of the financial information for the Company’s reportable segment:

	Three Months Ended March 31,
	2025		2024
	(in thousands)
Net sales	$	103,624	$	95,613
Less:
Cost of goods sold	62,862		58,011
Shipping and transportation	10,616		7,213
Salaries and benefits	9,065		8,929
Professional services	1,438		1,161
Depreciation and amortization	1,139		1,020
Rent expense	2,750		1,830
Marketing expense	1,518		1,093
Online platform fees	2,221		2,186
Warehouse expense	939		1,001
Stock-based compensation	346		375
ROU asset impairment expense	—		1,993
Interest expense	509		524
Provision for income taxes	2,121		1,975
Other segment expenses*	2,910		2,725
Add:
Interest income	566		431
Other income, net	1,059		468
Segment net income	6,815		6,476
Reconciliation of segment net income to consolidated net income
Adjustments and reconciling items	—		—
Consolidated net income	$	6,815	$	6,476

* Other segment expenses includes property taxes, insurance expenses, office expenses, and utilities.

There are no changes in the basis of segmentation or measurement of segment profit or loss since December 31, 2024. The Company’s long-lived assets are all located in the United States, and its revenues are almost entirely generated in the

18

KARAT PACKAGING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

United States. Additionally, the segment assets are the same as the assets reported on the condensed consolidated balance sheets.

16. Subsequent Events

On May 6, 2025, the Company's Board of Directors declared a quarterly cash dividend of $0.45 per share on the Company's common stock, which will be paid on or about May 23, 2025 to shareholders of record at the close of business on May 16, 2025.

19

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and accompanying notes. This discussion and analysis contains “forward-looking statements,” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements relate to expectations concerning matters that are not historical facts. For example, statements discussing, among other things, business strategies, growth strategies and initiatives, future revenues and future performance and expected costs and liabilities are forward-looking statements. Such forward-looking statements may be identified by words such as “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “remain,” “should,” or “will” or the negative of these terms or other comparable terminology. All forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those that we expect and, therefore, you should not unduly rely on such statements. The risks and uncertainties that could cause those actual results to differ materially from those expressed or implied by these forward-looking statements include but are not limited to:

•fluctuations in the demand for our products in light of changes in laws and regulations applicable to food and beverages and changes in consumer preferences;

•supply chain disruptions that could interrupt product manufacturing and increase product costs;

•our ability to source raw materials and navigate a shortage of available materials;

•our ability to compete successfully in our industry;

•the impact of earthquakes, fire, power outages, floods, pandemics and other catastrophic events, as well as the impact of any interruption by problems such as terrorism, cyberattacks, or failure of key information technology systems;

•our ability to accurately forecast demand for our products or our results of operations;

•the impact of problems relating to delays or disruptions in the shipment of our goods through operational ports;

•our ability to expand into additional foodservice and geographic markets;

•our ability to successfully design and develop new products;

•fluctuations in freight carrier costs related to the shipment of our products could have a material adverse impact on our results of operations;

•the effects of public health crises including pandemics;

•our ability to attract and retain skilled personnel and senior management; and

•other risks and uncertainties described in “Risk Factors" as set forth in Item I, Part 1A, “Risk Factors” of the Annual Report on Form 10-K for the year ended December 31, 2024 as filed with the Securities and Exchange Commission (the "SEC") on March 14, 2025 (the "2024 Form 10-K").

As used in this Quarterly Report on Form 10-Q, “we,” “us,” “our,” “Karat,” “the Company” or “our Company” refer to Karat Packaging Inc., a Delaware corporation, and, unless the context requires otherwise, our operating subsidiaries. References to “Global Wells” or “our variable interest entity” refer to Global Wells Investment Group LLC, a Texas limited liability company and our consolidated variable interest entity, in which the Company has an equity interest and which is controlled by one of our stockholders. References to “Lollicup” refer to Lollicup USA Inc., a California corporation, our wholly-owned subsidiary.

Due to rounding, numbers presented throughout this report may not add up precisely to totals we provide, and percentages may not precisely reflect the absolute figures.

20

Overview

We are a rapidly-growing and nimble distributor and manufacturer of disposable foodservice products and related items, including food and take-out containers, bags, boxes, tableware, cups, lids, cutlery, straws, specialty beverage ingredients, gloves, janitorial supplies, and other products. Our products are available in plastic, paper, biopolymer-based and other compostable forms. We are a leader in product innovation, offering a growing line of environmentally-friendly products to our customers, who are increasingly focused on sustainability. We also offer customized solutions to our customers, including new product design and development, custom printing, distribution of specialty food and beverage products, and logistics services.

We operate our business strategically and with broad flexibility to provide both our large and small customers with the wide spectrum of products they need to successfully run and grow their businesses. We believe we have established ourselves as a differentiated provider of high-quality products relative to our competitors. Our operating model entails generating the majority of our revenue from the distribution of our vendors' products complemented by select manufacturing capabilities in the U.S., which allows us to provide customers with broad product choices and customized offerings with short lead times. This model provides us with the flexibility to adjust the mix of our product offering from import and manufacturing in evolving economic environment to drive operating efficiency and sustained margin expansion. We are focusing on strengthening our supply chain resilience and efficiency by prioritizing strong partnerships with reliable and cost-efficient sources and diversifying sourcing to countries with more favorable trade conditions and minimal tariffs. This has enabled us to expand our supplier base, minimize reliance on individual suppliers, enhance the resilience of our supply chain, expand our margin and improve our operating cash flows.

We operate an approximately 500,000 square foot distribution center located in Rockwall, Texas, an approximately 300,000 square foot distribution center in Chino, California, and an approximately 76,000 square foot distribution center located in Kapolei, Hawaii. We have selected manufacturing capabilities in all of these facilities. In addition, we operate seven other warehouse spaces and distribution centers located in Puyallup, Washington; Summerville, South Carolina; Branchburg, New Jersey; Kapolei, Hawaii; Aurora, Illinois; Mesa, Arizona; and Sugar Land, Texas. Our distribution centers are strategically located in proximity to major population centers, including the Los Angeles, New York, Chicago, Dallas, Houston, Seattle, Phoenix, Atlanta, and Honolulu metro areas. On March 3, 2025, we entered into a lease agreement for an additional distribution center of approximately 187,000 square foot in Chino, California and are currently in the process of setting up this location to be fully operational by end of May 2025.

We manage and evaluate our operations in one reportable segment.

Business Highlights and Trends

•We continued to strengthen our supply chain resilience ahead of the tariff uncertainty, by further reducing reliance on China, negotiating additional vendor support, expanding sourcing outside China, and ramping up domestic production for certain categories. Import from China as a percentage of total sourcing decreased to 18.4 percent for the three months ended March 31, 2025.

•We recorded net sales of $103.6 million for the three months ended March 31, 2025, an increase of 8.4% in amount and 10.9% in volume, compared to the three months ended March 31, 2024.

•We achieved gross margin of 39.3% for the three months ended March 31, 2025, consistent with the three months ended March 31, 2024.

•We recorded net income of $6.8 million for the three months ended March 31, 2025, an increase of 5.2% compared to the three months ended March 31, 2024.

•Our net income margin was 6.6% for the three months ended March 31, 2025, a decrease of 20 basis points from the three months ended March 31, 2024.

•We generated $7.7 million in net cash from operating activities for the three months ended March 31, 2025, an increase of 17.8% compared to the three months ended March 31, 2024.

•We generated consolidated Adjusted EBITDA, a non-GAAP measure defined below, of $11.9 million for the three months ended March 31, 2025, a decrease of 12.0% from the three months ended March 31, 2024.

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•Our Adjusted EBITDA margin, a non-GAAP measure defined below, was 11.5% for the three months ended March 31, 2025, a decrease of 270 basis points from the three months ended March 31, 2024.

•We had financial liquidity of $46.7 million and additional short-term investments of $23.8 million as of March 31, 2025.

•On May 6, 2025, our Board of Directors declared another quarterly cash dividend of $0.45 per share on our common stock, which will be paid on or about May 23, 2025 to shareholders of record at the close of business on May 16, 2025.

Trends in Our Business

The following trends have contributed to the results of our operations, and we anticipate that they will continue to affect our future results:

•A significant trend in the restaurant industry is the changing perception of food delivery and take-out compared to traditional on-premise dining. There is a clear growing preference for delivery and take-out, and we expect this trend to continue positively influencing our operating results, as more customers will need packaging and containers to support the rising demand from food delivery and take-out consumers.

•Environmental concerns regarding disposable products, broadly, have resulted in a number of significant changes to the food-service industry, including regulations applicable to our customers. We believe this trend will have a positive long-lasting impact on our results of operations, as we expect there will be an increased demand for eco-friendly and compostable single-use disposable products.

•Most of our products are sourced from vendors abroad and as a result we incur freight costs from these overseas import shipments, which could be a significant component of our cost of goods sold. Elevated ocean freight rates could pressure our gross margin, and if we raise our price, dampen the demand for our products. Steady or dropping ocean freight could yield significant opportunities for us to expand our margin. However, it could also reduce the barrier of entry, intensifying the competition.

•The recent introduction of baseline and reciprocal tariffs by the new federal administration in April 2025, particularly targeting nations with significant trade deficits like China, has injected considerable uncertainty into the global trade landscape. Broader macroeconomic repercussions of these tariffs—including higher inflation, reduced growth, or altered consumer behavior—could influence demand for our products. We believe our strategic and proactive measures taken over the past few years ahead of the tariff announcements to enhance our supply chain resilience and diversify our sourcing beyond China have solidified our standing as a dependable industry partner, positioning us to capitalize on growth opportunities despite challenging external conditions. Complementing these multi-year efforts, our robust domestic manufacturing scalability allows for swift responses to market changes. Furthermore, we have implemented targeted price adjustments to mitigate potential cost pressures. Whether the U.S. can successfully negotiate favorable trade terms and whether we can continue to effectively strengthen our supply chain would have a significant impact on our operations and financial results, and our ability to continue to gain market share.

•The cost of raw materials used to manufacture our products, including polyethylene terephthalate, or PET, plastic resin, aluminum, and paper boards, may continue to fluctuate. Since negotiated sales contracts and the market largely determine the pricing for our products, we are, at times, limited in our ability to raise prices and pass through any impacts of inflation to our costs. There can also be lags between cost inflation and the implementation of price increases, which could negatively impact our gross margin. Conversely, periods of deflation, where raw material costs decrease, may create pricing pressure and start price wars, potentially requiring us to lower prices, which could also affect our gross margin. We believe price fluctuations will have either a positive or a negative impact on our results of operations in the future, depending on whether raw material costs increase or decrease and whether we can successfully implement price adjustments to maintain gross margin.

•Supplier chain effectiveness could have a long-lasting impact on our operations and financial results. We believe this trend will have either a positive or a negative impact on our results of operations, depending on whether we are able to manage our global supply chain effectively, including the accurate forecast of demand, the successful procurement and transportation of raw materials and products, and the effective management of our inventory, production and distribution.

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•Fluctuations in foreign currency exchange rates could impact either positively or negatively various aspects of our business activities, including but not limited to our purchasing power and capacity to source inventory.

•Since early 2023 and throughout 2024, we have pivoted into a more asset-light growth model by increasing imports and scaling back manufacturing in the U.S. In light of the recently announced tariffs as discussed above, we have started to ramp up domestic production on certain selected categories to mitigate potential cost pressures from imports and ensure continued supply to our customers. We will continue to evaluate the mix between import and domestic manufacturing under our nimble operations and flexible supply chain model in the dynamic global trade environment.

Critical Accounting Estimates

The following discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with US GAAP. The preparation of these financial statements in accordance with US GAAP requires us to make estimates and judgments.

There have been no material changes in our critical accounting policies, or in the estimates and assumptions underlying those policies, from those described under the heading “Critical Accounting Estimates” in Item 7 of Part II of our 2024 Form 10-K.

Results of Operations

The amount and percentage changes calculated in the discussion below were based on numbers rounded to the nearest thousands.

	Three Months Ended March 31,
	2025		2024
	(in thousands)
Net sales	$	103,624	$	95,613
Cost of goods sold	62,862		58,011
Gross profit	40,762		37,602
Operating expenses	32,942		29,526
Operating income	7,820		8,076
Other income, net	1,116		375
Provision for income taxes	2,121		1,975
Net income	$	6,815	$	6,476

Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024

Net sales

Net sales were $103.6 million for the three months ended March 31, 2025 compared to $95.6 million for the three months ended March 31, 2024, an increase of $8.0 million, or 8.4%. Net sales for the three months ended March 31, 2024 were understated by $0.7 million, which represented products shipped and recognized as revenue in 2023 but not delivered until 2024. Including this impact, the year-over-year increase in net sales was primarily driven by an increase of $11.7 million in volume and change in product mix, partially offset by a $3.9 million unfavorable year-over-year pricing comparison, as the Company continued to be competitive on the pricing front.

Cost of goods sold

Cost of goods sold was $62.9 million for the three months ended March 31, 2025 compared to $58.0 million for the three months ended March 31, 2024, an increase of $4.9 million, or 8.4%. Cost of goods sold for the three months ended March 31, 2024 was understated by $0.4 million related to products shipped and recognized as cost of goods sold in 2023 but not delivered until 2024, as discussed above. Including this impact, the year-over-year increase in cost of goods sold was primarily driven by an increase in product costs of $3.0 million, as a result of increased sales volume partially

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offset by more favorable vendor pricing and product mix, and an increase in ocean freight and duty costs of $2.0 million as a result of a 15.5% increase in import volume coupled with 4.3% higher freight container rates.

Gross profit

Gross profit was $40.8 million for the three months ended March 31, 2025 compared to $37.6 million for the three months ended March 31, 2024, an increase of $3.2 million, or 8.4%. Gross profit for the three months ended March 31, 2024 was understated by $0.3 million related to products shipped and recognized as revenue and cost of goods sold in 2023 but not delivered until 2024, as discussed above. Gross margin remained consistent at 39.3% for both the three months ended March 31, 2025 and 2024. Product costs as a percentage of net sales decreased to 49.5% during the three months ended March 31, 2025 from 50.5% during the three months ended March 31, 2024, due to more favorable vendor pricing, increased imports as a percentage of total product mix, and a positive impact from foreign currency due to a stronger United States Dollar compared to New Taiwan Dollar. This improvement in margin was offset by an increase in ocean freight and duty costs, as discussed above, which as a percentage of net sales increased to 8.6% during the three months ended March 31, 2025 from 7.3% during the three months ended March 31, 2024.

Operating expenses

Operating expenses were $32.9 million for the three months ended March 31, 2025 compared to $29.5 million for the three months ended March 31, 2024, an increase of $3.4 million, or 11.6%. The increase in operating expenses for the three months ended March 31, 2025 was driven by higher shipping and transportation costs of $3.4 million as a result of an increase in shipping volume and in online packages as a percentage of total shipments, an increase in rent expense of $0.9 million primarily due to a higher rate on our Chino, California facility lease extension plus the opening of a new Chino distribution center, an increase in marketing expense of $0.4 million as we increased online marketing efforts to grow our e-commerce sales channel, and an increase in professional services expense of $0.3 million. These increases were partially offset by a non-cash impairment of a ROU asset of $2.0 million resulting from the sublease of our City of Industry warehouse in California during the three months ended March 31, 2024.

Operating income

Operating income was $7.8 million for the three months ended March 31, 2025 compared to $8.1 million for the three months ended March 31, 2024, a decrease of $0.3 million, or 3.2%. The decrease was primarily due to an increase in operating expenses of $3.4 million, partially offset by an increase in gross profit of $3.2 million, as discussed above.

Other income, net

Other income, net was $1.1 million for the three months ended March 31, 2025 compared to $0.4 million for the three months ended March 31, 2024, an increase of $0.7 million, or 197.6%. The increase in other income, net for the three months ended March 31, 2025 was primarily driven by an increase in rental income of $0.5 million primarily from our City of Industry warehouse which we began to sublease in April 2024.

Provision for income taxes

Provision for income taxes was $2.1 million for the three months ended March 31, 2025 compared to $2.0 million for the three months ended March 31, 2024, an increase of $0.1 million, or 7.4%. The Company’s effective tax rate was 23.7% for the three months ended March 31, 2025 compared to 23.4% for the three months ended March 31, 2024.

Net income

Net income was $6.8 million for the three months ended March 31, 2025 compared to $6.5 million for the three months ended March 31, 2024, an increase of $0.3 million, or 5.2%. The increase was primarily driven by an increase of $0.7 million in other income, net, partially offset by a decrease of $0.3 million in operating income and an increase of $0.1 million in provision for income taxes, as discussed above.

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Non-GAAP Financial Measures

We use certain non-GAAP financial measures to assess our financial and operating performance that are not defined by, or calculated in accordance with U.S. GAAP. 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 U.S. GAAP; or (ii) includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the comparable measure calculated and presented in accordance with U.S. GAAP.

Our primary non-GAAP financial measures are listed below and reflect how we evaluate our operating results.

Adjusted EBITDA and Adjusted EBITDA Margin

Adjusted EBITDA is a financial measure calculated as net income excluding (i) interest income, (ii) interest expense, (iii) provision for income taxes, (iv) depreciation and amortization, (v) stock-based compensation expense, and (vi) operating right-of-use asset impairment. Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by net sales.

We present Adjusted EBITDA and Adjusted EBITDA margin as supplemental measures of our financial performance. Adjusted EBITDA and Adjusted EBITDA margin assist management in assessing our core operating performance. We believe these measures provide investors with useful perspective on underlying business results and trends and facilitate a comparison of our performance from period to period.

Adjusted EBITDA and Adjusted EBITDA margin should not be considered in isolation or as alternatives to net income, net income margin, or other measures determined in accordance with US GAAP. Also, Adjusted EBITDA and Adjusted EBITDA margin are not necessarily comparable to similarly titled measures presented by other companies.

Set forth below is a reconciliation of net income to Adjusted EBITDA and net income margin to Adjusted EBITDA margin.

Reconciliation of Adjusted EBITDA (unaudited)	Three Months Ended March 31,
	2025				2024
	(in thousands, except percentages)
	Amount		% of Net Sales		Amount		% of Net Sales
Net income	$	6,815	6.6	%	$	6,476	6.8	%
Add (deduct):
Interest income	(566)		(0.5)		(431)		(0.5)
Interest expense	509		0.5		524		0.6
Provision for income taxes	2,121		2.0		1,975		2.1
Depreciation and amortization	2,688		2.6		2,629		2.7
Stock-based compensation expense	346		0.3		375		0.4
Operating right-of-use asset impairment	—		—		1,993		2.1
Adjusted EBITDA	$	11,913	11.5	%	$	13,541	14.2	%

Free Cash Flow

Free Cash Flow is a financial measure calculated as cash from operating activities less cash used in (i) purchases of property and equipment, and (ii) deposits paid for property and equipment.

We present Free Cash Flow as a supplemental measure of our financial liquidity. Free Cash Flow assists management in assessing our ability to fund growth through generation of additional cash from business operations. We believe this measure also provides investors with an important liquidity measure of the cash that is available, after capital expenditures, for operational expenses and investment in our business.

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Free Cash Flow should not be considered in isolation or as alternatives to net income or cash flows from operating activities. Also, Free Cash Flow is not necessarily comparable to similarly titled measures presented by other companies.

Set forth below is a reconciliation of net cash provided by operating activities to Free Cash Flow:

Reconciliation of Free Cash Flow (unaudited):	Three Months Ended March 31,
	2025		2024
	(in thousands)
Net cash provided by operating activities	$	7,726	$	6,559
Deduct:
Purchases of property and equipment	(107)		(163)
Deposits paid for property and equipment	(989)		(761)
Free Cash Flow	$	6,630	$	5,635

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Liquidity and Capital Resources

Sources and Uses of Funds

Our primary sources of liquidity are cash provided by operations, borrowings under our line of credit with the Hanmi Bank (the “Line of Credit”), and promissory notes. On an annual basis, we have typically generated positive cash flows from operations. Our ability to generate positive cash flow from operations in the future will be, at least in part, dependent on global economic conditions and our ability to navigate challenging macro environment at times.

As described in Note 6 — Line of Credit to the condensed consolidated financial statements, the Line of Credit is available for working capital and general corporate purposes, and is secured by our assets. It consists of a revolving loan facility and a standby letter of credit sublimit. We are not required to pay a commitment (unused) fee on the undrawn portion of the Line of Credit and interest is payable monthly. On March 3, 2025, the Company amended the Line of Credit. Prior to March 3, 2025, the revolving loan facility had a maximum borrowing capacity of $40.0 million and interest accrued at an annual rate of one month term Secured Overnight Financing Rate ("SOFR") plus 2.50%, with a SOFR floor of 1.00%. The amendment on March 3, 2025, among other things, (1) extended the maturity date to March 14, 2027, (2) reduced the maximum borrowing capacity of the revolving loan facility to $20.0 million, and (3) revised the interest on any Line of Credit borrowings to an annual rate of one month term SOFR plus 2.25%, with a SOFR floor of 1.00%. On March 17, 2025, the Company entered into another amendment of the Line of Credit, increasing the standby letter of credit sublimit from $5.0 million to $7.5 million. As of March 31, 2025, the amount issued under the standby letter of credit was $5.8 million, and the maximum remaining amount that could be borrowed under the Line of Credit was $14.2 million.

As described in Note 8 — Long-Term Debt to the condensed consolidated financial statements, on June 17, 2022, we entered into a $28.7 million term loan agreement which matures July 1, 2027 (the “2027 Term Loan”). The 2027 Term Loan had an initial balance of $20.7 million and an option to request for additional advances up to a maximum of $8.0 million through June 2023, which we exercised in March 2023. Interest accrues at a fixed rate of 4.375% per annum. Principal and interest payments of $0.1 million are due monthly throughout the term of the loan, with the remaining principal balance due at maturity. The 2027 Term Loan is collateralized by substantially all of Global Wells’ assets and is guaranteed by one of our stockholders. In accordance with the loan agreement, Global Wells is required to comply with certain financial covenants, including a minimum debt service coverage ratio. Proceeds from the 2027 Term Loan were used to pay down an existing term loan with the same lender, which was set to mature in May 2029 with interest accruing at prime rate less 0.25%, and had an outstanding balance of $20.6 million as of the repayment date.

Additionally, as of March 31, 2025, we have a $23.0 million term loan that matures September 30, 2026 (the “2026 Term Loan”). The 2026 Term Loan had an initial balance of $16.1 million and an option to request for additional advances up to a maximum of $6.9 million through September 2022, which we exercised in February 2022. Interest accrues at a fixed rate of 3.5% per annum. Principal and interest payments of $0.1 million are due monthly throughout the term of the loan, with the remaining principal balance due at maturity. The 2026 Term Loan is collateralized by substantially all of Global Wells’ assets and is guaranteed by Global Wells and one of our stockholders. In accordance with the loan agreement, Global Wells is required to comply with certain financial covenants, including a minimum debt service coverage ratio.

As of March 31, 2025, we were in compliance with the financial covenants under all of our loan agreements, and do not expect material uncertainties in our continued ability to be in compliance with all financial covenants through the remaining term of all of our loan agreements. As of March 31, 2025, we had no borrowing on the Line of Credit, $27.5 million in outstanding balance under the 2027 Term Loan, and $20.8 million in outstanding balance under the 2026 Term Loan.

As discussed in Note 14 — Commitments and Contingencies to the condensed consolidated financial statements, on February 5, 2024, we received a Notice of Determination from U.S. Customs and Border Protection ("CBP") related to its investigation to determine whether we have evaded the anti-dumping and countervailing duty on certain imported thermal paper products. On March 19, 2024, we initiated an appeal process by submitting a request for an administrative review of the initial determination issued by CBP. On June 11, 2024, CBP completed the administrative review and upheld its initial conclusion. In February 2025, we started to receive bills related to certain of our thermal paper shipments. We are in the process of protesting the received bills with CBP, and are also evaluating other appeal options. Payments on bills received will be due upon the resolution of the protests, currently expected to occur within the next 12 months. Although we have an import duty liability reserve of $3.1 million as of March 31, 2025, the amount of the final payments could vary significantly from the estimated liability reserve.

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Additionally, as described in Note 16 — Subsequent Events to the condensed consolidated financial statements, on May 6, 2025 our Board of Directors declared another regular quarterly cash dividend of $0.45 per share on our common stock, which will be paid on or about May 23, 2025 to shareholders of record at the close of business on May 16, 2025. Prior to this, we paid out regular quarterly cash dividends totaling $9.0 million in the current fiscal year. Our ongoing operations and growth strategy may require us to continue to make investments in new markets and products, logistics and manufacturing infrastructure, e-commerce platform, talent, and technology capabilities. In addition, we may consider making strategic acquisitions and investments which could require significant liquidity. The rapidly changing macroeconomic, geopolitical and global trade dynamics created significant uncertainty in the global economy and capital markets, which could have long-lasting adverse effects. We currently believe that our cash on hand, ongoing cash flows from our operations and funding available under our borrowings will be adequate to meet our working capital needs, service our debt, make lease payments, and fund capital expenditures for at least the next 12 months. We continue to explore other options to further expand our liquidity to support the business growth and enhance shareholder value.

Beyond the next 12 months, if we require additional capital resources to grow our business, either organically or through acquisition, we may seek to sell additional equity securities, increase use of the Line of Credit, and acquire additional debt. The sale of additional equity securities or certain forms of debt financing could result in additional dilution to our stockholders. We may not be able to obtain financing arrangements in amounts or on terms acceptable to us in the future. In the event we are unable to obtain additional financing when needed, we may be compelled to delay or curtail our plans to develop our business, which could have a material adverse effect on our operations, market position and competitiveness. Notwithstanding the potential liquidity challenges described above, we expect to meet our long-term liquidity needs with cash flows from operations and financing arrangements.

Liquidity Position

The following table summarizes total current assets, liabilities and working capital at March 31, 2025 compared to December 31, 2024:

	March 31, 2025		December 31, 2024		Change
	(in thousands)
Current assets	$	171,979	$	160,997	$	10,982
Current liabilities	60,083		46,447		13,636
Working capital	$	111,896	$	114,550	$	(2,654)

As of March 31, 2025, we had working capital of $111.9 million compared to $114.6 million as of December 31, 2024, representing a decrease of $2.7 million, or 2.3%. The decrease in working capital was driven by an increase of $13.6 million in current liabilities, partially offset by an increase of $11.0 million in current assets. The increase in current liabilities was primarily driven by an increase in accounts payable and related party payables of $8.6 million, an increase in income tax payable of $2.1 million, an increase in operating lease liabilities, current portion of $2.0 million from a higher rate on our Chino, California facility lease extension plus the opening of a new Chino distribution center, and an increase in accrued expenses of $1.3 million, partially offset by a reduction in other current liabilities of $0.8 million due to the payment of Global Wells noncontrolling membership interest redemption gain tax withholding. The increase in current assets was primarily driven by an increase in inventories of $9.2 million as we stocked up inventory ahead of the summer peak season and the increase in forecast demand, an increase in accounts receivable of $5.7 million as a result of stronger sales in the three months ended March 31, 2025 compared to the three months ended December 31, 2024, partially offset by a decrease in cash and cash equivalents and short-term investments of $3.7 million.

Cash Flows

The following table summarizes cash flow for the three months ended March 31, 2025 and 2024:

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	Three Months Ended March 31,
	2025		2024
	(in thousands)
Net cash provided by operating activities	$	7,726	$	6,559
Net cash provided by (used in) investing activities	3,533		(7,947)
Net cash used in financing activities	(10,370)		(8,544)
Net change in cash and cash equivalents	$	889	$	(9,932)

Cash flows provided by operating activities. Net cash provided by operating activities was $7.7 million for the three months ended March 31, 2025, primarily the result of net income of $6.8 million, adjusted for certain non-cash items totaling $5.5 million, consisting mainly of depreciation and amortization of fixed assets and operating right-of-use assets, stock-based compensation, and adjustments to the allowance for doubtful accounts and inventory reserve. In addition, cash decreased by $4.6 million from changes in working capital, which included a decrease of $9.2 million from inventory build-up, a decrease of $5.9 million from an increase in accounts receivable from higher sales, and a decrease of $2.3 million from a reduction in operating lease liabilities. These decreases were partially offset by an increase of $8.7 million from higher accounts and related party payables primarily associated with increased inventory purchases, an increase of $2.1 million from higher income tax payable, and an increase of $1.3 million from higher accrued expenses.

Net cash provided by operating activities was $6.6 million for the three months ended March 31, 2024, primarily the result of net income of $6.5 million, adjusted for certain non-cash items totaling $6.7 million, consisting mainly of depreciation and amortization of fixed assets and operating right-of-use assets, write-off of inventory, stock-based compensation, ROU asset impairment, and accrued interest on certificates of deposit. In addition, cash decreased $6.6 million from changes in working capital, which included a decrease of $8.1 million from inventory build-up, a decrease of $2.3 million from an increase in accounts receivable, a decrease of $1.5 million from reductions in operating lease liabilities, and a decrease of $0.5 million from less deferred revenue. These decreases were partially offset by an increase of $1.7 million from reductions in prepaid expenses, $3.4 million from higher accounts and related party payables, and $0.7 million from higher accrued expenses.

Cash flows provided by (used in) investing activities. Net cash provided by investing activities was $3.5 million for the three months ended March 31, 2025, which primarily included $12.7 million in redemptions of short-term investments, partially offset by $8.1 million in purchases of short-term investments, and $1.0 million of deposits paid for the purchase of property and equipment.

Net cash used in investing activities was $7.9 million for the three months ended March 31, 2024, which primarily included $12.2 million in purchases of short-term investments, $0.8 million of deposits paid for the purchase of property and equipment, and $0.2 million paid to directly purchase property and equipment, partially offset by $5.1 million in redemptions of short-term investments.

Cash flows used in financing activities. Net cash used in financing activities was $10.4 million for the three months ended March 31, 2025, which primarily included $9.0 million of cash dividends paid to shareholders, $0.9 million of Global Wells membership interest redemption gain tax withholding payment, and $0.3 million of payments towards long-term debt.

Net cash used in financing activities was $8.5 million for the three months ended March 31, 2024, which primarily included $6.0 million of cash dividends paid to shareholders, $2.3 million paid for the redemption of a non-controlling member's interest in Global Wells, and $0.3 million of payments towards long-term debt.

Related Party Transactions

For a description of significant related party transactions, see Note 12 — Related Party Transactions in the Notes to the Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Recent Accounting Pronouncements

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Information regarding recent accounting pronouncements is contained in Note 2 — Summary of Significant Accounting Policies in the Notes to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

This item is not required for smaller reporting companies.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

In connection with the preparation of this Quarterly Report on Form 10-Q, the Company's management, with the participation of its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of its disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of March 31, 2025. Based on this evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2025 at the reasonable assurance level.

Remediation of Previously Disclosed Material Weakness

As previously disclosed in Part II, “Item 9A – Controls and Procedures” of our Annual Report on Form 10-K for the year ended December 31, 2024, management had identified the following material weakness in our internal control over financial reporting as of December 31, 2024.

Management did not design and maintain effective controls to ensure appropriate segregation of duties related to the creation, approval and subsequent modification of journal entries. This deficiency could result in a misstatement of substantially all account balances or disclosures that would result in a material misstatement to the annual or interim consolidated financial statements that would not be prevented or detected.

During the year ended December 31, 2024, management has redesigned its control over the journal entry creation and approval process, remediated gaps in the design of such internal control and performed operating effectiveness testing. However, as of December 31, 2024, additional time was required to demonstrate the control has operated effectively for a sufficient period of time.

During the three months ended March 31, 2025, management has continued to perform the enhanced control over the journal entry creation and approval process. Management has completed the testing necessary to conclude that the enhanced control was appropriately designed, implemented and operating effectively for a sufficient period of time as of March 31, 2025, and that the previously-identified material weakness described above has been remediated.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the three months ended March 31, 2025, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, we are involved in various legal proceedings. Although no assurance can be given, we do not believe that any of our currently pending proceedings will have a material adverse effect on our financial condition, cash flows or results of operations.

Item 1A. Risk Factors.

In addition to other information set forth in this report, readers should carefully consider the factors discussed in Part I, Item 1A. "Risk Factors" of our 2024 Annual Report on Form 10-K, as updated and supplemented below. Any of the risk factors disclosed in our reports could materially affect our business, financial condition or future results. The risks described here and in our 2024 Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results. The discussion of the risk factor below updates the corresponding disclosure under the same heading in the 2024 Annual Report on Form 10-K and may contain material changes to the corresponding risk factor discussion in our 2024 Annual Report on Form 10-K.

Recent trade policy shifts, including increased import tariffs and the renegotiation of trade agreements, could have a material adverse impact on our business, financial condition or results of operations.

Both global and domestic economic and geopolitical conditions greatly impact our business. The new federal administration's recent trade policy shifts, including increased import tariffs and the renegotiation of trade agreements, has increased the level of uncertainty in the global trading environment. These tariffs, affecting imports from countries such as China, could substantially increase the cost of our products, including raw materials needed for domestic manufacturing, and/or impact our ability to supply certain products to our customers. We are currently evaluating the potential impact of these tariffs on our business and financial condition, which will ultimately depend on their actual implementation details and any exclusions offered by the administration. Escalating trade tensions pose several risks, including increased manufacturing costs, global supply chain disruptions, limitations on domestic and international sales, and reduced sales volumes and margins, all of which could negatively impact our business. Additionally, the loss of our ability to pass those cost increases through to our customers could also have a materially adverse impact on our business, financial condition or results of operations. Even if we are able to pass increased costs on to customers, higher prices could reduce demand for our products, further negatively affecting our sales and profitability.

In the past, we have identified a material weakness in our internal controls over financial reporting. If we experience additional material weaknesses or deficiencies in the future or otherwise fail to maintain an effective system of internal controls, we may not be able to accurately or timely report our financial results, in which case our business may be harmed, investors may lose confidence in the accuracy and completeness of our financial reports and the price of our common stock may decline.

As described in our 2024 Annual Report, we had identified a material weakness in our internal controls over financial reporting as of December 31, 2024. As further described in Part I, Item 4 "Controls and Procedures" of this Quarterly Report on Form 10-Q, the material weakness previously identified was fully remediated in the first quarter of 2025. If, in the future, we again have a material weakness in our internal controls over financial reporting, this could limit our ability to prevent or detect a misstatement of our accounts or disclosures and could result in a material misstatement of our annual or interim financial statements. In such case, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, investors may lose confidence in our financial reporting and the prices of our common stock may decline as a result.

Except for the above, there have been no other material changes to the Risk Factors previously disclosed in the 2024 Form 10-K, which is incorporated herein by reference.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

31

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Rule 10b5-1 Trading Arrangements

During the three months ended March 31, 2025, none of the Company’s directors or officers adopted, modified, or terminated a “Rule 10b5-1 trading arrangement” or a “non-Rule 10b5-1 trading arrangement”, as such terms are defined under Item 408 of Regulation S-K.

Item 6. Exhibits.

Exhibit No.	Description
10.1	Lease Agreement, by and between the Company and G&O Chino Property, a California general partnership, as amended, for the Chino, California distribution center (Incorporated by reference to Exhibit 10.7 of the Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 14, 2025)
10.2	Change In Terms Agreement, dated February 24, 2025, by and between Lollicup USA Inc. and Hanmi Bank (Incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on March 7, 2025)
10.3*	Change In Terms Agreement, dated March 17, 2025, by and between Lollicup USA Inc. and Hanmi Bank
31.1*	Certification of Principal Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certification of Principal Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**	Certifications of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**	Certifications of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	XBRL Taxonomy Extension Labels Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document
104*	Cover Page Interactive File (formatted as inline XBRL and contained in Exhibit 101)
* Filed herewith. ** Furnished herewith.

32

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

DATE: May 9, 2025	KARAT PACKAGING INC.
	By:	/s/ Alan Yu
		Alan Yu
		Chief Executive Officer
		(Principal Executive Officer)
	By:	/s/ Jian Guo
		Jian Guo
		Chief Financial Officer
		(Principal Financial Officer and
		Principal Accounting Officer)

33

EX-10.3

EX-31.1

                                         `    Exhibit 31.1

CERTIFICATION

I, Alan Yu, certify that:

(1)I have reviewed this Quarterly Report on Form 10-Q of Karat Packaging Inc.;

(2)Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3)Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4)The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(5)The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

May 9, 2025	By:	/s/ Alan Yu
		Alan Yu Chairman and Chief Executive Officer (Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Jian Guo, certify that:

(1)I have reviewed this Quarterly Report on Form 10-Q of Karat Packaging Inc.;

(2)Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3)Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4)The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(5)The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

May 9, 2025	By:	/s/ Jian Guo
		Jian Guo Chief Financial Officer (Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT

TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the accompanying Quarterly Report on Form 10-Q of Karat Packaging Inc. (the "Company") for the quarter ended March 31, 2025, as filed with the U.S. Securities and Exchange Commission (the "Report"), the undersigned hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge and belief, that:

(1)the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

May 9, 2025	By:	/s/ Alan Yu
		Alan Yu Chairman and Chief Executive Officer (Principal Executive Officer)

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT

TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the accompanying Quarterly Report on Form 10-Q of Karat Packaging Inc. (the "Company") for the quarter ended March 31, 2025, as filed with the U.S. Securities and Exchange Commission (the "Report"), the undersigned hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to my knowledge and belief, that:

(1)the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

May 9, 2025	By:	/s/ Jian Guo
		Jian Guo Chief Financial Officer (Principal Financial and Accounting Officer)

XML

Cover - shares	3 Months Ended
	Mar. 31, 2025	May 07, 2025
Cover [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Mar. 31, 2025
Document Transition Report	false
Entity File Number	001-40336
Entity Registrant Name	Karat Packaging Inc.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	83-2237832
Entity Address, Address Line One	6185 Kimball Avenue
Entity Address, City or Town	Chino
Entity Address, State or Province	CA
Entity Address, Postal Zip Code	91708
City Area Code	626
Local Phone Number	965-8882
Title of 12(b) Security	Common Stock, $0.001 par value
Trading Symbol	KRT
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	true
Entity Ex Transition Period	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		20,059,505
Entity Central Index Key	0001758021
Document Fiscal Year Focus	2025
Document Fiscal Period Focus	Q1
Amendment Flag	false
Current Fiscal Year End Date	--12-31

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) - USD ($) $ in Thousands	Mar. 31, 2025	Dec. 31, 2024
Current assets
Cash and cash equivalents (including $8,611 and $1,703 associated with variable interest entity at March 31, 2025 and December 31, 2024, respectively)	$ 32,473	$ 31,584
Short-term investments (including $3,537 and $11,128 associated with variable interest entity at March 31, 2025 and December 31, 2024, respectively)	23,800	28,343
Accounts receivable, net of allowance for bad debt of $672 and $758 at March 31, 2025 and December 31, 2024, respectively	32,401	26,736
Inventories	79,906	70,722
Prepaid expenses and other current assets (including $172 and $27 associated with variable interest entity at March 31, 2025 and December 31, 2024, respectively)	3,399	3,612
Total current assets	171,979	160,997
Property and equipment, net (including $42,668 and $42,972 associated with variable interest entity at March 31, 2025 and December 31, 2024, respectively)	86,155	87,982
Deposits	172	36
Goodwill	3,510	3,510
Intangible assets, net	293	300
Operating right-of-use assets	48,831	40,628
Deferred tax asset	196	0
Other non-current assets (including $9 and $34 associated with variable interest entity at March 31, 2025 and December 31, 2024, respectively)	1,080	1,069
Total assets	312,216	294,522
Current liabilities
Accrued expenses (including $186 and $489 associated with variable interest entity at March 31, 2025 and December 31, 2024, respectively)	14,868	13,555
Income taxes payable (including $6 and $3 associated with variable interest entity at March 31, 2025 and December 31, 2024, respectively)	2,189	65
Deferred revenue	1,137	742
Long-term debt, current portion (including $1,190 and $1,179 associated with variable interest entity at March 31, 2025 and December 31, 2024, respectively)	1,190	1,179
Operating lease liabilities, current portion	10,996	8,977
Other current liabilities (including $37 and $916 associated with variable interest entity at March 31, 2025 and December 31, 2024, respectively)	128	968
Total current liabilities	60,083	46,447
Deferred tax liability	622	426
Long-term debt, net of current portion and debt discount of $125 and $141 at March 31, 2025 and December 31, 2024, respectively (including $46,988 and $47,279 associated with variable interest entity at March 31, 2025 and December 31, 2024, respectively, and debt discount of $125 and $141 associated with variable interest entity at March 31, 2025 and December 31, 2024, respectively)	46,988	47,279
Operating lease liabilities, net of current portion	41,535	35,435
Other non-current liabilities (including $1,249 and $1,198 associated with variable interest entity at March 31, 2025 and December 31, 2024 respectively)	2,777	2,736
Total liabilities	152,005	132,323
Commitments and Contingencies (Note 14)
Karat Packaging Inc. stockholders’ equity
Preferred stock, 0.001 par value, 10,000,000 shares authorized, no shares issued and outstanding, as of both March 31, 2025 and December 31, 2024	0	0
Common stock, 0.001 par value, 100,000,000 shares authorized, 20,059,505 and 20,036,505 shares issued and outstanding, respectively, as of both March 31, 2025 and December 31, 2024	20	20
Additional paid in capital	89,803	89,457
Treasury stock, 0.001 par value, 23,000 shares as of both March 31, 2025 and December 31, 2024	(248)	(248)
Retained earnings	63,732	66,340
Total Karat Packaging Inc. stockholders’ equity	153,307	155,569
Noncontrolling interest	6,904	6,630
Total stockholders’ equity	160,211	162,199
Total liabilities and stockholders’ equity	312,216	294,522
Nonrelated Party
Current liabilities
Accounts payable (including $19 and $16 associated with variable interest entity at March 31, 2025 and December 31, 2024, respectively)	24,518	17,831
Related Party
Current liabilities
Accounts payable (including $19 and $16 associated with variable interest entity at March 31, 2025 and December 31, 2024, respectively)	$ 5,057	$ 3,130

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Parenthetical) - USD ($) $ in Thousands	Mar. 31, 2025	Dec. 31, 2024
Cash and cash equivalents	$ 32,473	$ 31,584
Short-term investments	23,800	28,343
Accounts receivable, net of allowance of bad debt	672	758
Prepaid expenses and other current assets	3,399	3,612
Property and equipment, net	86,155	87,982
Other non-current assets	1,080	1,069
Accrued expenses	14,868	13,555
Income taxes payable	2,189	65
Long-term debt, current portion	1,190	1,179
Other current liabilities	128	968
Debt discount	125	141
Other non-current liabilities	$ 2,777	$ 2,736
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized (in shares)	10,000,000	10,000,000
Preferred stock, shares issued (in shares)	0	0
Preferred stock, shares outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized (in shares)	100,000,000	100,000,000
Common stock, shares issued (in shares)	20,059,505	20,059,505
Common stock, shares outstanding (in shares)	20,036,505	20,036,505
Treasury stock, par value (in dollars per share)	$ 0.001	$ 0.001
Treasury stock, shares (in shares)	23,000	23,000
VIE, Primary Beneficiary
Cash and cash equivalents	$ 8,611	$ 1,703
Short-term investments	3,537	11,128
Prepaid expenses and other current assets	172	27
Property and equipment, net	42,668	42,972
Other non-current assets	9	34
Accounts payable	19	16
Accrued expenses	186	489
Income taxes payable	6	3
Long-term debt, current portion	1,190	1,179
Other current liabilities	37	916
Debt discount	125	141
Long-term debt, net of current portion	46,988	47,279
Other non-current liabilities	$ 1,249	$ 1,198

XML

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2025	Mar. 31, 2024
Income Statement [Abstract]
Net sales	$ 103,624	$ 95,613
Cost of goods sold	62,862	58,011
Gross profit	40,762	37,602
Operating expenses
Selling expenses	14,411	10,763
General and administrative expenses (including $677 and $556 associated with variable interest entity for the three months ended March 31, 2025 and 2024, respectively)	18,548	16,769
Impairment expense and (gain) loss, net, on disposal of property and equipment	(17)	1,994
Total operating expenses	32,942	29,526
Operating income	7,820	8,076
Other income (expenses)
Rental income (including $446 and $255 associated with variable interest entity for the three months ended March 31, 2025 and 2024, respectively)	776	291
Other income, net	44	55
Gain on foreign currency transactions	239	122
Interest income (including $226 and $213 associated with variable interest entity for the three months ended March 31, 2025 and 2024, respectively)	566	431
Interest expense (including $500 and $517 associated with variable interest entity for the three months ended March 31, 2025 and 2024, respectively)	(509)	(524)
Total other income, net	1,116	375
Income before provision for income taxes	8,936	8,451
Provision for income taxes	2,121	1,975
Net income	6,815	6,476
Net income attributable to noncontrolling interest	406	310
Net income attributable to Karat Packaging Inc.	$ 6,409	$ 6,166
Basic and diluted earnings per share:
Basic (in dollars per share)	$ 0.32	$ 0.31
Diluted (in dollars per share)	$ 0.32	$ 0.31
Weighted average common shares outstanding, basic (in shares)	20,036,505	19,969,606
Weighted average common shares outstanding, diluted (in shares)	20,198,654	20,075,485

XML

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (Parenthetical) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2025	Mar. 31, 2024
General and administrative expenses	$ 18,548	$ 16,769
Rental income	776	291
Interest income	566	431
Interest expense	509	524
VIE, Primary Beneficiary
General and administrative expenses	677	556
Rental income	446	255
Interest income	226	213
Interest expense	$ 500	$ 517

XML

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) - USD ($) $ in Thousands	Total	Total Stockholders’ Equity Attributable to Karat Packaging Inc.	Common Stock	Treasury Stock	Additional Paid-in Capital	Retained Earnings	Noncontrolling Interest
Balance at the beginning of period (in shares) at Dec. 31, 2023			19,988,482
Balance at the beginning of period at Dec. 31, 2023	$ 162,690	$ 154,118	$ 20	$ (248)	$ 86,667	$ 67,679	$ 8,572
Treasury stock, balance at the beginning of period (in shares) at Dec. 31, 2023				(23,000)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Cash dividends declared	(5,992)	(5,992)				(5,992)
Issuance of common stock upon vesting of restricted stock units (in shares)			3,750
Stock-based compensation	375	375			375
Exercise of stock options (in shares)			2,800
Exercise of stock options	52	52			52
Global Wells noncontrolling membership interest redemption	(3,209)	(316)				(316)	(2,893)
Net income	6,476	6,166				6,166	310
Balance at the end of period (in shares) at Mar. 31, 2024			19,995,032
Balance at the end of period at Mar. 31, 2024	$ 160,392	154,403	$ 20	$ (248)	87,094	67,537	5,989
Treasury stock, balance at the end of period (in shares) at Mar. 31, 2024				(23,000)
Balance at the beginning of period (in shares) at Dec. 31, 2024	20,036,505		20,059,505
Balance at the beginning of period at Dec. 31, 2024	$ 162,199	155,569	$ 20	$ (248)	89,457	66,340	6,630
Treasury stock, balance at the beginning of period (in shares) at Dec. 31, 2024	(23,000)			(23,000)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Cash dividends declared	$ (9,017)	(9,017)				(9,017)
Stock-based compensation	$ 346	346			346
Exercise of stock options (in shares)	0
Global Wells noncontrolling-interest tax withholding	$ (132)						(132)
Net income	$ 6,815	6,409				6,409	406
Balance at the end of period (in shares) at Mar. 31, 2025	20,036,505		20,059,505
Balance at the end of period at Mar. 31, 2025	$ 160,211	$ 153,307	$ 20	$ (248)	$ 89,803	$ 63,732	$ 6,904
Treasury stock, balance at the end of period (in shares) at Mar. 31, 2025	(23,000)			(23,000)

XML

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (UNAUDITED) (Parenthetical) - $ / shares	3 Months Ended
	Mar. 31, 2025	Mar. 31, 2024
Statement of Stockholders' Equity [Abstract]
Cash dividends declared (in dollars per share)	$ 0.45	$ 0.30

XML

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2025	Mar. 31, 2024
Cash flows from operating activities
Net income	$ 6,815	$ 6,476
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization (including $304 and $303 associated with variable interest entity for the three months ended March 31, 2025 and 2024, respectively)	2,688	2,629
Adjustments to allowance for bad debt	222	(12)
Adjustments to inventory reserve	90	40
(Recovery) write-off of inventory	(83)	293
Impairment of operating right-of-use asset	0	1,993
(Gain) loss, net, on disposal of property and equipment	(17)	1
Amortization of loan fees (including $15 associated with variable interest entity for both the three months ended March 31, 2025 and 2024)	23	23
Accrued interest on certificates of deposit (including $0 and $38 associated with variable interest entity for the three months ended March 31, 2025 and 2024, respectively)	(48)	(126)
Unrealized loss from investment in publicly-traded equity securities	46	0
Stock-based compensation	346	375
Amortization of operating right-of-use assets	2,253	1,466
Government grant income (including $8 and $0 associated with variable interest entity for the three months ended March 31, 2025 and 2024, respectively)	(18)	0
(Increase) decrease in operating assets
Accounts receivable	(5,887)	(2,336)
Inventories	(9,191)	(8,077)
Prepaid expenses and other current assets (including $112 and $4 associated with variable interest entity for the three months ended March 31, 2025 and 2024, respectively)	257	1,727
Other non-current assets (including $25 and $14 associated with variable interest entity for the three months ended March 31, 2025 and 2024, respectively)	(24)	(190)
Increase (decrease) in operating liabilities
Accounts payable (including $3 and $5 associated with variable interest entity for the three months ended March 31, 2025 and 2024, respectively)	6,734	3,367
Accrued expenses (including $303 and $420 associated with variable interest entity for the three months ended March 31, 2025 and 2024, respectively)	1,313	742
Related party payable	1,927	(6)
Income taxes payable (including $3 and $0 associated with variable interest entity for the three months ended March 31, 2025 and 2024, respectively)	2,124	0
Deferred revenue	395	(507)
Operating lease liabilities	(2,337)	(1,474)
Other liabilities (including $59 and $0 associated with variable interest entity for the three months ended March 31, 2025 and 2024, respectively)	98	155
Net cash provided by operating activities	7,726	6,559
Cash flows from investing activities
Purchases of property and equipment	(107)	(163)
Proceeds from disposal of property and equipment	59	23
Deposits paid for property and equipment	(989)	(761)
Purchases of publicly-traded equity securities	(212)	0
Proceeds from disposal of publicly-traded equity securities	191	0
Purchases of short-term investments (including $87 and $7,000 associated with variable interest entity for the three months ended March 31, 2025 and 2024, respectively)	(8,148)	(12,190)
Redemption of short-term investments (including $7,678 and $0 associated with variable interest entity for the three months ended March 31, 2025 and 2024, respectively)	12,739	5,144
Net cash provided by (used in) investing activities	3,533	(7,947)
Cash flows from financing activities
Payment of long-term debt (including $295 and $278 associated with variable interest entity for the three months ended March 31, 2025 and 2024, respectively)	(295)	(278)
Payments for lender fees	(47)	0
Proceeds from exercise of common stock options	0	52
Dividends paid to shareholders	(9,017)	(5,992)
Payment of Global Wells noncontrolling-interest tax withholding (including $132 and $0 associated with variable interest entity for the three months ended March 31, 2025 and 2024, respectively)	(132)	0
Payment of Global Wells noncontrolling membership interest redemption (including $0 and $2,010 associated with variable interest entity for the three months ended March 31, 2025 and 2024, respectively)	0	(2,326)
Payment of Global Wells noncontrolling membership interest redemption gain tax withholding (including $879 and $0 associated with variable interest entity for the three months ended March 31, 2025 and 2024, respectively)	(879)	0
Net cash used in financing activities	(10,370)	(8,544)
Net increase (decrease) in cash and cash equivalents	889	(9,932)
Cash and cash equivalents
Beginning of period	31,584	23,076
End of period	32,473	13,144
Supplemental disclosures of non-cash investing and financing activities:
Transfers from deposits to property and equipment	853	1,148
Non-cash purchases of property and equipment	37	159
Supplemental disclosures of cash flow information:
Income tax refund	0	13
Cash paid for interest	$ 477	$ 502

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Parenthetical) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2025	Mar. 31, 2024
Depreciation and amortization	$ 2,688	$ 2,629
Amortization of loan fees	(23)	(23)
Accrued interest on certificates of deposit	48	126
Government assistance, income	18	0
Prepaid expenses and other current assets	(257)	(1,727)
Other non-current assets	24	190
Accounts payable	6,734	3,367
Accrued expenses	1,313	742
Income taxes payable	2,124	0
Other liabilities	98	155
Purchase of short-term investments	8,148	12,190
Redemption of short-term investments	12,739	5,144
Payments of long-term debt	295	278
Payments of noncontrolling interest tax withholding	132	0
Payment for Global Wells noncontrolling membership interest redemption	0	2,326
Payment of Global Wells noncontrolling membership interest redemption gain tax withholding	879	0
VIE, Primary Beneficiary
Depreciation and amortization	303	304
Amortization of loan fees	15	15
Accrued interest on certificates of deposit	0	38
Government assistance, income	8	0
Prepaid expenses and other current assets	(112)	4
Other non-current assets	(25)	(14)
Accounts payable	3	5
Accrued expenses	(303)	(420)
Income taxes payable	3	0
Other liabilities	(59)	0
Purchase of short-term investments	87	7,000
Redemption of short-term investments	7,678	0
Payments of long-term debt	295	278
Payments of noncontrolling interest tax withholding	132	0
Payment for Global Wells noncontrolling membership interest redemption	0	2,010
Payment of Global Wells noncontrolling membership interest redemption gain tax withholding	$ 879	$ 0

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Nature of Operations

3 Months Ended

Mar. 31, 2025

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Nature of Operations

Nature of Operations

Lollicup USA Inc. (“Lollicup”) was incorporated in 2001 in California. Karat Packaging Inc. (“Karat Packaging”) was incorporated in 2018 in Delaware and became the holding company for Lollicup (collectively, the “Company”) through a share exchange with the shareholders of Lollicup. The Company's shares are listed on the NASDAQ Global Market under the symbol "KRT".

The Company is a manufacturer and distributor of single-use disposable products used in a variety of restaurant and foodservice settings. The Company supplies a wide range of products such as food and take-out containers, bags, boxes, tableware, cups, lids, cutlery, and straws. The products are available in plastic, paper, biopolymer-based, and other compostable forms. In addition to manufacturing and distribution, the Company offers customized solutions to customers, including new product design and development, custom printing, distribution of specialty food and beverages products, such as syrups, boba, and coffee drinks, as well as logistics services.

The Company supplies products to national and regional distributors, restaurant chains, supermarkets, as well as to small businesses including convenience stores, mom-and-pop restaurants, coffee houses, bubble tea cafes, pizza parlors, and frozen yogurt shops.

The Company currently operates manufacturing facilities and distribution centers in Chino, California, Rockwall, Texas, and Kapolei, Hawaii. In addition, the Company operates seven other distribution centers located in Puyallup, Washington; Summerville, South Carolina; Branchburg, New Jersey; Kapolei, Hawaii; Aurora, Illinois; Mesa, Arizona; and Sugar Land, Texas. The Company entered into a lease agreement on March 3, 2025 for an additional distribution center in Chino, California, which is expected to be fully operational by end of May 2025.

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Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2025

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

Basis of Presentation: The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles as promulgated in the United States of America (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, these condensed consolidated financial statements do not include all the information and footnotes required by US GAAP for complete financial statements. The financial information as of March 31, 2025 and for the three months ended March 31, 2025 and 2024 is unaudited; however, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement have been included. Operating results for the three months ended March 31, 2025 are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2025.

The condensed consolidated balance sheet at December 31, 2024 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by US GAAP for complete financial statements. These financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2024, as included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 14, 2025.

Principles of Consolidation: The condensed consolidated financial statements include the accounts of Karat Packaging and its wholly-owned and controlled operating subsidiaries: Lollicup, Lollicup Franchising, LLC, and Global Wells Investment Group ("Global Wells"), a variable interest entity wherein the Company is the primary beneficiary. All intercompany accounts and transactions have been eliminated.

Estimates and Assumptions: Management uses estimates and assumptions in preparing financial statements in accordance with US GAAP. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ materially from the estimates that were assumed in preparing the condensed consolidated financial statements.

Reporting Segments: The Company manages and evaluates its operations in one reportable segment. This segment consists of manufacturing and distribution of a broad portfolio of single-use products that are used to serve food and beverages and are available in plastic, paper, biopolymer-based, and other compostable forms. It also consists of the distribution of certain specialty food and beverage products, such as syrup, boba, and coffee drinks, as well as restaurant and warehouse supplies.

Variable Interest Entities: The Company has a variable interest in Global Wells located in Rockwall, Texas. In 2017, Lollicup along with three other unrelated parties formed Global Wells, of which Lollicup received a 13.5% ownership interest and a 25% voting interest. On February 29, 2024, Global Wells and one of its members (the "Selling Member") entered into a membership interest redemption agreement, under which the Selling Member sold and Global Wells purchased and redeemed all of the Selling Member's 10.8% ownership interest in Global Wells for a total cash consideration of $3,208,000, subject to tax withholding. Subsequent to the redemption, the ownership interests and voting power of the remaining members of Global Wells were adjusted proportionally, with Lollicup's ownership interest increasing to 15.1% and voting interest increasing to 33.3%. During the year ended December 31, 2024, a total cash payment of $2,325,000, net of tax withholding, was made to the Selling Member in full consideration of the redemption.

The purpose of Global Wells is to own, construct, and manage warehouses and manufacturing facilities. Global Wells’ operating agreement may require its members to make additional contributions upon the unanimous decision of the members or when the cash in Global Wells’ bank account falls below $50,000. In the event that a member is unable to make an additional capital contribution, the other members will be required to make contributions to offset the amount that member cannot contribute, up to $25,000.

Global Wells was determined to be a variable interest entity in accordance with ASC Topic 810, Consolidations, however, at the time the investment was made, it was determined that Lollicup was not the primary beneficiary. In 2018, Lollicup entered into an operating lease with Global Wells (the “Texas Lease”). In 2020, the Company entered into another operating lease with Global Wells (the “New Jersey Lease”).

Upon entering into the Texas Lease with Lollicup on March 23, 2018, it was determined that Lollicup holds current and potential rights that give it the power to direct activities of Global Wells that most significantly impact Global Wells’ economic performance, the ability to receive significant benefits, and the obligation to absorb potentially significant losses, resulting in Lollicup having a controlling financial interest in Global Wells. As a result, Lollicup was deemed to be the primary beneficiary of Global Wells and has consolidated Global Wells under the risk and reward model of ASC 810, for the period from March 23, 2018. The monthly lease payments for both the Texas Lease and New Jersey Lease are eliminated upon consolidation.

Assets recognized as a result of consolidating Global Wells do not represent additional assets that could be used to satisfy claims against the Company’s general assets. Conversely, liabilities recognized as a result of consolidating Global Wells do not represent additional claims of the Company’s general assets; rather they represent claims against the specific assets of Global Wells. See Note 8 — Long-Term Debt for a description of the two term loans that Global Wells had with financial institutions as of March 31, 2025.

Noncontrolling Interests: The Company consolidates its variable interest entity, Global Wells, in which the Company is the primary beneficiary. Noncontrolling interests represent third-party equity ownership interests in Global Wells. The Company recognizes noncontrolling interests as equity in the condensed consolidated financial statements separate from the Company’s stockholders’ equity. The amount of net income attributable to noncontrolling interests is disclosed in the condensed consolidated statements of income. Tax payments made by the Company on behalf of the noncontrolling interests are deducted from their equity balances, as shown in the condensed consolidated statements of stockholders’ equity.

Revenue Recognition: The Company generates revenues from product sales to customers that include national and regional chains, distributors, small local restaurants, and those that purchase for individual consumption primarily through our online stores. The Company considers revenue disaggregated by customer type to most accurately reflect the nature and uncertainty of its revenue and cash flows that are affected by economic factors. For the three months ended March 31, 2025 and 2024, net sales disaggregated by customer type consist of the amounts shown below.

	Three Months Ended March 31,
	2025		2024
	(in thousands)
Chains and distributors	79,599		74,297
Online	17,791		14,879
Retail	6,234		6,437
	$	103,624	$	95,613

•Chains and distributors revenue: National and regional chains revenue is derived from chain restaurants, supermarkets, and other businesses with multiple locations. Distributors revenue is derived from distributors across the U.S. that purchase the Company’s products for resale and distribution to restaurants, supermarkets, and other businesses. Chain accounts often order through their distribution partners. Revenue from transactions with chains and distributors is recognized at a point in time upon transfer of control of promised products to customers. Transfer of control typically occurs when the title and risk of loss passes to the customer.

•Online revenue: Online revenue is derived from the Company's online storefront on www.lollicupstore.com, and through the Company's mobile app, as well as other e-commerce platforms with customers largely consisting of small businesses such as small mom-and-pop restaurants, coffee houses, bubble tea cafes, pizza parlors, and frozen yogurt shops. Revenue from online transactions is recognized at a point in time upon transfer of control of promised products to customers. Transfer of control typically occurs when the title and risk of loss passes to the customer. For online sales on third-party e-commerce platforms, the Company is the principal in the three-party arrangement and control of the products remains with the Company until transferring to the end customer or upon return from the end customer. Online platform fees are recognized as selling expenses.

•Retail revenue: Retail revenue is derived primarily from regional and local restaurants, small mom-and-pop restaurants, coffee houses, bubble tea cafes, pizza parlors, and frozen yogurt shops. Revenue from retail transactions is recognized at a point in time upon transfer of control of promised products to customers. Transfer of control typically occurs when the title and risk of loss passes to the customer.

For all of the Company's revenue streams, shipping terms generally indicate when the title and risk of loss have passed, which is generally when products are delivered to customers.

In addition to product sales, the Company also generates revenue from logistics services which is the transportation and delivery of shipping containers from ports to local retail customers. Logistics services revenue is recognized over time due to the continuous transfer of control to the customer. As control transfers over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. During the three months ended March 31, 2025 and 2024, the Company recognized logistics services revenue of $1,273,000 and $1,239,000, respectively.

The Company’s contract liabilities consist primarily of rebates, sales incentives, cooperative advertising, and deferred revenue. As of March 31, 2025 and December 31, 2024, the Company had accrued $414,000 and $377,000, respectively, related to rebates, sales incentives and cooperative advertising, included in accrued expenses in the condensed consolidated balance sheets. During the three months ended March 31, 2025 and 2024, the Company recognized revenue of $517,000 and $739,000, respectively, related to previously deferred revenue at the beginning of each respective period.

Fair Value Measurements: The Company has financial instruments classified within the fair value hierarchy, which consist of the following:

•At both March 31, 2025 and December 31, 2024, the Company had money market accounts and investments in publicly-traded equity securities classified as Level 1 and certificates of deposit classified as Level 2 within the fair value hierarchy.

The short-term investments comprise of certificates of deposits with an original maturity of longer than 3 months and are reported at their carrying value as current assets on the condensed consolidated balance sheets. The carrying value of these short-term investments approximates fair value as they were purchased near or on the respective balance sheet dates.

The following table summarizes the Company’s fair value measurements by level at March 31, 2025 for the assets measured at fair value on a recurring basis:

	Level 1		Level 2		Level 3
	(in thousands)
Cash equivalents	$	2,448	$	25,543	$	—
Short-term investments	—		23,800		—
Publicly-traded equity securities	57		—		—
Fair value, March 31, 2025	$	2,505	$	49,343	$	—

The following table summarize the Company’s fair value measurements by level at December 31, 2024 for the assets measured at fair value on a recurring basis:

	Level 1		Level 2		Level 3
	(in thousands)
Cash equivalents	$	725	$	22,525	$	—
Short-term investments	—		28,343		—
Publicly-traded equity securities	31		—		—
Fair value, December 31, 2024	$	756	$	50,868	$	—

The Company has not elected the fair value option as presented by ASC 825, Fair Value Option for Financial Assets and Financial Liabilities, for the financial assets and liabilities that are not otherwise required to be carried at fair value. Under ASC 820, material financial assets and liabilities not carried at fair value, including accounts receivable, accounts payable, related-party payable, accrued expenses, other payables and borrowings under promissory notes and Line of Credit (as defined below), are reported at their carrying value.

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, related-party payable, accrued expenses, and other payables at March 31, 2025 and December 31, 2024, approximated fair value because of the short maturity of these instruments. The following is a summary of the carrying amount and estimated fair value of the $23,000,000 and $28,700,000 term loans that mature in September 2026 and July 2027, respectively (the "2026 Term Loan" and "2027 Term Loan," respectively):

	March 31, 2025
	Carrying Amount		Estimated Fair Value
	(in thousands)
2026 Term Loan	$	20,723	$	19,910
2027 Term Loan	27,455		27,305
	$	48,178	$	47,215

	December 31, 2024
	Carrying Amount		Estimated Fair Value
	(in thousands)
2026 Term Loan	$	20,881	$	19,846
2027 Term Loan	27,577		27,174
	$	48,458	$	47,020

The fair value of these financial instruments was determined using Level 2 inputs.

Certain long-lived non-financial assets and liabilities may be required to be measured at fair value on a nonrecurring basis in certain circumstances, including when there is evidence of impairment. These non-financial assets and liabilities may include assets acquired in a business combination or long-lived assets that are determined to be impaired. The Company recorded an impairment against its operating ROU assets of $1,993,000 during the three months ended March 31, 2024. See Note 11 — Leases for further information about this impairment charge. For the three months ended March 31, 2025, management concluded that an impairment of long-lived assets was not required. With the exception of the ROU impairment, the Company did not have any non-financial assets or liabilities that had been measured at fair value subsequent to initial recognition as of March 31, 2025 or December 31, 2024.

New and Recently Adopted Accounting Standards: The Company is an emerging growth company as that term is used in the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"), and as such, the Company has elected to take advantage of certain reduced public company reporting requirements. In addition, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards, as a result, the Company will adopt new or revised accounting standards on the relevant dates in which adoption of such standards is required for private companies.

In November 2023, the FASB issued ASU 2023-07 Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The new guidance requires enhanced disclosure of significant expenses that are regularly reported to the chief operating decision maker and the nature of segment expense information used to manage operations. The Company adopted this new standard for its annual period beginning January 1, 2024 and its interim period beginning January 1, 2025. The adoption of this new standard resulted in additional required disclosures, described further in Note 15 — Segment Report.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The new guidance requires disaggregated information about the effective tax rate reconciliation and additional information on taxes paid that meet a quantitative threshold. The new guidance is effective for public companies for annual reporting periods beginning after December 15, 2024, and for non-public companies for annual reporting periods beginning after December 15, 2025, with early adoption permitted for both. The Company will adopt the new standard in annual reporting period beginning after December 15, 2025, and is currently evaluating the impacts of the new guidance on its disclosures within the consolidated financial statements.

In November 2024, the FASB issued ASU 2024-03 Income Statement Expenses (Topic 220): Disaggregation of Income Statement Expenses. The new guidance requires enhanced disclosure of disaggregated information about specific expense categories in the notes to financial statements on an annual and interim basis. The new guidance is effective for all public companies for annual reporting periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The Company will adopt the new standard in annual reporting period beginning after December 15, 2026. The application of this new guidance is not expected to have a material impact on the Company’s consolidated balance sheets, statements of income or cash flows, as the guidance pertains to disclosures only.

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Inventories

3 Months Ended

Mar. 31, 2025

Inventory Disclosure [Abstract]

Inventories

Inventories

Inventories consist of the following:

	March 31, 2025		December 31, 2024
	(in thousands)
Raw materials	$	6,498	$	6,640
Semi-finished goods	1,403		1,885
Finished goods	72,735		62,837
Subtotal	80,636		71,362
Less: inventory reserve	(730)		(640)
Total inventories	$	79,906	$	70,722

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Property and Equipment

3 Months Ended

Mar. 31, 2025

Property, Plant and Equipment [Abstract]

Property and Equipment

Property and Equipment

	March 31, 2025		December 31, 2024
	(in thousands)
Machinery and equipment	$	67,024	$	66,928
Leasehold improvements	19,212		19,193
Vehicles	8,383		8,395
Furniture and fixtures	1,015		1,015
Building	38,779		38,779
Land	11,907		11,907
Computer hardware and software	113		94
Construction in progress	723		431
	147,156		146,742
Less: accumulated depreciation and amortization	(61,001)		(58,760)
Total property and equipment, net	$	86,155	$	87,982

Depreciation and amortization expense is reported within general and administrative expense except for depreciation and amortization expense related to manufacturing facilities and equipment, which is included in cost of goods sold on the accompanying condensed consolidated statements of income.

For the three months ended March 31, 2025 and 2024, depreciation and amortization expense reported within general and administrative expense was $1,132,000 and $1,013,000, respectively, and depreciation and amortization expense reported within cost of goods sold was $1,549,000 and $1,609,000, respectively.

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Goodwill

3 Months Ended

Mar. 31, 2025

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill

Goodwill

The following table summarizes the activity in the Company's goodwill from December 31, 2024 to March 31, 2025:

	(in thousands)
Balance at December 31, 2024	$	3,510
Goodwill acquired	—
Balance at March 31, 2025	$	3,510

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Line of Credit

3 Months Ended

Mar. 31, 2025

Debt Disclosure [Abstract]

Line of Credit

Line of Credit

Pursuant to the terms of the Business Loan Agreement, dated February 23, 2018, between Lollicup, as borrower, and Hanmi Bank, as lender (as amended, the “Loan Agreement”), the Company has a line of credit with a maximum borrowing capacity of $20,000,000 (the “Line of Credit”) secured by the Company’s assets. The Company is not required to pay a commitment (unused) fee on the undrawn portion of the Line of Credit and interest is payable monthly. The Company is required to comply with certain financial covenants, including a minimum current ratio, minimum debt to earnings before interest, taxes, depreciation and amortization ("EBITDA") ratio and a minimum fixed charge coverage ratio.

On March 3, 2025, the Company amended the Line of Credit. Prior to March 3, 2025, the revolving loan facility had a maximum borrowing capacity of $40,000,000 and interest accrued at an annual rate of one month term Secured Overnight Financing Rate ("SOFR") plus 2.50%, with a SOFR floor of 1.00%. The amendment on March 3, 2025, among other things, (1) extended the maturity date to March 14, 2027, (2) reduced the maximum borrowing capacity of the revolving loan facility to $20,000,000, and (3) revised the interest on any Line of Credit borrowings to an annual rate of one month term SOFR plus 2.25%, with a SOFR floor of 1.00%. The Company further amended the Line of Credit on March 17, 2025, increasing the standby letter of credit sub-limit from $5,000,000 to $7,500,000.

The Company had no borrowings outstanding under the Line of Credit as of both March 31, 2025 and December 31, 2024. The amount issued under the standby letter of credit was $5,813,000 and $3,813,000 as of March 31, 2025 and December 31, 2024, respectively. As of March 31, 2025, the maximum remaining amount that could be borrowed under the Line of Credit was $14,187,000. As of both March 31, 2025 and December 31, 2024, the Company was in compliance with the financial covenants under the Line of Credit.

Long-Term Debt

Long-term debt consists of the following:

	March 31, 2025		December 31, 2024
	(in thousands)
The 2026 Term Loan, with an initial balance of $16,115,000 and an option to request for additional advances up to a maximum of $6,885,000 through September 2022, which the Company exercised in February 2022. Interest accrues at a fixed rate of 3.5% per annum. Principal and interest payments of $116,000 are due monthly throughout the term of the loan, with the remaining principal balance due at maturity.	$	20,758	$	20,923
The 2027 Term Loan, with an initial balance of $20,700,000 and an option to request for additional advances up to a maximum of $8,000,000 through June 30, 2023, which the Company exercised in March 2023. Interest accrues at a fixed rate of 4.375% per annum. Prior to August 1, 2023, principal and interest payments of $104,000 are due monthly. Beginning August 1, 2023, monthly principal and interest payments increased to $144,000 for the remainder of the loan term, with the remaining principal balance due at maturity.	27,545		27,676
Long-term debt	48,303		48,599
Less: unamortized loan fees	(125)		(141)
Less: current portion	(1,190)		(1,179)
Long-term debt, net of current portion	$	46,988	$	47,279

At March 31, 2025, future maturities are:

	(in thousands)
2025 (remainder)	$	883
2026	20,798
2027	26,622
	$	48,303

The Company was in compliance with all of its financial covenants as of both March 31, 2025 and December 31, 2024.

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Accrued Expenses

3 Months Ended

Mar. 31, 2025

Payables and Accruals [Abstract]

Accrued Expenses

Accrued Expenses

The following table summarizes information related to accrued expense liabilities:

	March 31, 2025		December 31, 2024
	(in thousands)
Accrued miscellaneous expenses	$	2,178	$	1,796
Accrued payroll	1,109		1,953
Accrued ocean freight and other import costs	5,212		4,215
Accrued sale and use taxes	1,051		991
Accrued professional services fees	826		967
Accrued vacation and sick pay	1,114		899
Accrued property tax	332		1,150
Accrued shipping expenses	2,550		1,137
Accrued sales discount expense	413		374
Accrued interest expense	83		73
Total accrued expenses	$	14,868	$	13,555

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Long-Term Debt

3 Months Ended

Mar. 31, 2025

Debt Disclosure [Abstract]

Long-Term Debt

Line of Credit

Pursuant to the terms of the Business Loan Agreement, dated February 23, 2018, between Lollicup, as borrower, and Hanmi Bank, as lender (as amended, the “Loan Agreement”), the Company has a line of credit with a maximum borrowing capacity of $20,000,000 (the “Line of Credit”) secured by the Company’s assets. The Company is not required to pay a commitment (unused) fee on the undrawn portion of the Line of Credit and interest is payable monthly. The Company is required to comply with certain financial covenants, including a minimum current ratio, minimum debt to earnings before interest, taxes, depreciation and amortization ("EBITDA") ratio and a minimum fixed charge coverage ratio.

On March 3, 2025, the Company amended the Line of Credit. Prior to March 3, 2025, the revolving loan facility had a maximum borrowing capacity of $40,000,000 and interest accrued at an annual rate of one month term Secured Overnight Financing Rate ("SOFR") plus 2.50%, with a SOFR floor of 1.00%. The amendment on March 3, 2025, among other things, (1) extended the maturity date to March 14, 2027, (2) reduced the maximum borrowing capacity of the revolving loan facility to $20,000,000, and (3) revised the interest on any Line of Credit borrowings to an annual rate of one month term SOFR plus 2.25%, with a SOFR floor of 1.00%. The Company further amended the Line of Credit on March 17, 2025, increasing the standby letter of credit sub-limit from $5,000,000 to $7,500,000.

The Company had no borrowings outstanding under the Line of Credit as of both March 31, 2025 and December 31, 2024. The amount issued under the standby letter of credit was $5,813,000 and $3,813,000 as of March 31, 2025 and December 31, 2024, respectively. As of March 31, 2025, the maximum remaining amount that could be borrowed under the Line of Credit was $14,187,000. As of both March 31, 2025 and December 31, 2024, the Company was in compliance with the financial covenants under the Line of Credit.

Long-Term Debt

Long-term debt consists of the following:

	March 31, 2025		December 31, 2024
	(in thousands)
The 2026 Term Loan, with an initial balance of $16,115,000 and an option to request for additional advances up to a maximum of $6,885,000 through September 2022, which the Company exercised in February 2022. Interest accrues at a fixed rate of 3.5% per annum. Principal and interest payments of $116,000 are due monthly throughout the term of the loan, with the remaining principal balance due at maturity.	$	20,758	$	20,923
The 2027 Term Loan, with an initial balance of $20,700,000 and an option to request for additional advances up to a maximum of $8,000,000 through June 30, 2023, which the Company exercised in March 2023. Interest accrues at a fixed rate of 4.375% per annum. Prior to August 1, 2023, principal and interest payments of $104,000 are due monthly. Beginning August 1, 2023, monthly principal and interest payments increased to $144,000 for the remainder of the loan term, with the remaining principal balance due at maturity.	27,545		27,676
Long-term debt	48,303		48,599
Less: unamortized loan fees	(125)		(141)
Less: current portion	(1,190)		(1,179)
Long-term debt, net of current portion	$	46,988	$	47,279

At March 31, 2025, future maturities are:

	(in thousands)
2025 (remainder)	$	883
2026	20,798
2027	26,622
	$	48,303

The Company was in compliance with all of its financial covenants as of both March 31, 2025 and December 31, 2024.

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Stock-Based Compensation

3 Months Ended

Mar. 31, 2025

Share-Based Payment Arrangement [Abstract]

Stock-Based Compensation

Stock-Based Compensation

In January 2019, the Company’s board of directors adopted the 2019 Stock Incentive Plan (the “Plan”). As of March 31, 2025, a total of 1,287,017 shares of common stock were available for further award grants under the Plan. For

the three months ended March 31, 2025 and 2024, the Company recognized a total of $346,000 and $375,000 in stock-based compensation expense, respectively. The Company recognizes stock-based compensation over the vesting period, which is generally within three years for both the restricted stock units and stock options.

Stock Options

A summary of the Company’s stock option activity under the Plan for the three months ended March 31, 2025 is as follows:

	Number of Options	Weighted-Average Exercise Price		Weighted-Average Remaining Contract Life	Aggregate Intrinsic Value
				(in years)	(in thousands)
Outstanding at December 31, 2024	313,667	$	18.57	6.8	$	3,667
Outstanding at March 31, 2025	313,667	$	18.57	6.6	$	2,512
Vested and expected to vest at March 31, 2025	313,667	$	18.57	6.6	$	2,512
Exercisable at March 31, 2025	313,667	$	18.57	6.6	$	2,512

There were no stock options granted, exercised, or forfeited during the three months ended March 31, 2025. At March 31, 2025, all stock options granted under the Plan were fully vested and exercisable.

The aggregate intrinsic value is calculated by subtracting the exercise price of the option from the closing price of the Company’s common stock on March 31, 2025, multiplied by the number of shares per each option.

Restricted Stock Units

A summary of the Company’s unvested restricted stock units activity under the Plan for the three months ended March 31, 2025 is as follows:

	Number of Shares Outstanding	Weighted Average Grant Date Fair Value
Unvested at December 31, 2024	70,800	$	29.14
Unvested at March 31, 2025	70,800	$	29.14

There were no restricted stock units granted or vested during the three months ended March 31, 2025. At March 31, 2025, total remaining stock-based compensation cost for unvested restricted stock units was approximately $631,000. The cost is expected to be recognized over a weighted-average period of 1.0 year.

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Earnings Per Share

3 Months Ended

Mar. 31, 2025

Earnings Per Share [Abstract]

Earnings Per Share

Earnings Per Share

(a)Basic

Basic earnings per share is calculated by dividing the net income attributable to equity holders of the Company for the period by the weighted average number of common shares outstanding during the period.

	Three Months Ended March 31,
	2025		2024
	(in thousands, except per share data)
Net income attributable to Karat Packaging Inc.	$	6,409	$	6,166
Weighted average number of common shares in issue	20,037		19,970
Basic earnings per share	$	0.32	$	0.31

(b)Diluted

Diluted earnings per share is calculated based upon the weighted average number of common shares and common equivalent shares outstanding during the period, calculated using the treasury stock method. Under the treasury stock method, exercise proceeds include the amount the employee must pay for exercising stock options and the amount of compensation cost related to stock awards for future services that the Company has not yet recognized. Common equivalent shares are excluded from the computation in periods in which they have an anti-dilutive effect.

The following table summarizes the calculation of diluted earnings per share:

	Three Months Ended March 31,
	2025		2024
	(in thousands, except per share data)
Net income attributable to Karat Packaging Inc.	$	6,409	$	6,166
Weighted average number of common shares in issue	20,037		19,970
Dilutive shares
Stock options and restricted stock units	162		105
Adjusted weighted average number of common shares	20,199		20,075
Diluted earnings per share	$	0.32	$	0.31

For the three months ended March 31, 2025 and 2024, a total of 0 and 19,000 shares of potentially dilutive shares, respectively, have been excluded in the diluted earnings per share calculation due to their anti-dilutive impact on earnings per share.

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Leases

3 Months Ended

Mar. 31, 2025

Leases [Abstract]

Leases

Leases

The Company primarily leases manufacturing facilities, distribution centers, and office spaces with lease terms expiring through 2031. The Company recognized the following lease costs in the accompanying condensed consolidated statement of income:

	Three Months Ended March 31,
	2025		2024
	(in thousands)
Operating lease expense	$	3,046	$	1,820
Short-term lease expense	648		9
Variable lease expense	316		373
Total lease expense	$	4,010	$	2,202

For the three months ended March 31, 2025 and 2024, rent expense included in operating expenses was $3,190,000 and $1,931,000, respectively, and rent expense included in cost of goods sold was $820,000 and $271,000, respectively.

The following table presents supplemental information related to operating leases:

	March 31, 2025		December 31, 2024
Weighted average remaining lease term	4.15 years		4.33 years
Weighted average discount rate	6.9	%	7.0	%

	Three Months Ended March 31,
	2025		2024
	(in thousands)
Right-of-use assets obtained in exchange for operating lease liabilities	$	10,457	$	2,079
Cash paid for amounts included in measurement of lease obligations:
Operating cash flows from operating leases	$	3,145	$	1,829

As of March 31, 2025, future lease payments under operating leases were as follows:

	(in thousands)
2025 (remainder)	$	10,531
2026	14,885
2027	13,961
2028	12,915
2029	7,567
Thereafter	769
Total lease payments	60,628
Less: imputed interest	(8,097)
Total lease liability balance	$	52,531

During the three months ended March 31, 2024, the Company recorded a non-cash impairment of a ROU asset of $1,993,000 resulting from the sublease of its City of Industry warehouse in California.

Global Wells has been the landlord under an operating lease agreement with an unrelated party since September 2020. On February 28, 2025, the lease agreement between Global Wells and the tenant was terminated and effective March 1, 2025, Global Wells entered into a new six-year operating lease agreement ending on February 28, 2031 with a different unrelated party that generates monthly rental payments from $87,000 to $101,000. The expected rental income is $846,000 for the remaining nine months of the year ending December 31, 2025, and $1,128,000 per annum over the next five years.

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Related Party Transactions

3 Months Ended

Mar. 31, 2025

Related Party Transactions [Abstract]

Related Party Transactions

Related Party Transactions

Keary Global Ltd. ("Keary Global") owns 250,004 shares of the Company's common stock as of March 31, 2025, which Keary Global acquired upon exercise of two convertible notes during the third quarter of 2018. In addition to being a stockholder, Keary Global and Keary International, Ltd. ("Keary International") are inventory suppliers and purchasing agents for the Company overseas. The Company has entered into ongoing purchase and supply agreements with Keary Global. At March 31, 2025 and December 31, 2024, the Company has accounts payable due to Keary Global and Keary International of $5,057,000 and $3,130,000, respectively. Purchases for the three months ended March 31, 2025 and 2024 from this related party were $10,340,000 and $12,693,000, respectively.

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Income Taxes

3 Months Ended

Mar. 31, 2025

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

For the three months ended March 31, 2025 and 2024, the Company's income tax expense was $2,121,000 and $1,975,000, respectively, with an effective tax rate of 23.7% and 23.4%, respectively. For both the three months ended March 31, 2025 and 2024, the Company's effective tax rate differed from the United States federal statutory rate of 21% primarily due to state taxes and noncontrolling interest income.

In evaluating the Company’s ability to recover its deferred tax assets, the Company considers all available positive and negative evidence, including its operating results, ongoing tax planning and forecasts of future taxable income on a jurisdiction-by-jurisdiction basis. Based upon the level of historical taxable income, at this time, the Company determined that sufficient positive evidence existed to conclude that it is more likely than not there will be full utilization of the deferred tax assets in each jurisdiction. As such, as of March 31, 2025, the Company did not record any valuation allowance.

The Company remains subject to IRS examination for the 2021 through 2023 tax years. Additionally, the Company files multiple state and local income tax returns and remains subject to examination in various of these jurisdictions for the 2020 through 2023 tax years. The Company continues to work with the IRS relating to the 2016 and 2017 tax years and does not expect a material impact to the financial statements. As of both March 31, 2025 and December 31, 2024, the Company did not have any unrecognized tax benefit.

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Commitments and Contingencies

3 Months Ended

Mar. 31, 2025

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

In May 2023, the Company received a Notice of Investigations and Interim Measures stating that U.S. Customs and Border Protection (“CBP”) had initiated a formal investigation to determine whether the Company had evaded the anti-dumping and countervailing duty orders on lightweight thermal paper from China by transshipping the merchandise

through Taiwan. The period of investigation was from January 2022 through the pendency of the investigation. On February 5, 2024, CBP issued its Notice of Determination concluding that the manufacturing procedures performed by the manufacturer in Taiwan, which the Company imported certain thermal paper products from, did not constitute substantial transformation. On March 19, 2024, the Company initiated an appeal process by submitting a request for an administrative review of the initial determination issued by CBP. On June 11, 2024, CBP completed the administrative review and upheld its initial conclusion. In February 2025, the Company started to receive bills related to certain of its thermal paper shipments. The Company is in the process of protesting the received bills with CBP, and is also evaluating other appeal options. Payments on bills received will be due upon the resolution of the protests, currently expected to occur within the next 12 months. The Company maintains a liability reserve representing the total estimated probable loss from the investigation plus accrued interest. As of March 31, 2025, and December 31, 2024, the Company had a total reserve of $3,101,000 and $3,051,000, respectively. The amount of the final payments could vary significantly from the estimated liability reserve.

The Company is a party to, and certain of its property is the subject of, various pending claims and legal proceedings that routinely arise in the ordinary course of its business. Management believes that the outcome of such litigation and claims, should they arise in the future, is not likely to have a material effect on the Company’s financial position or results of income.

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Segment Report

3 Months Ended

Mar. 31, 2025

Segment Reporting [Abstract]

Segment Report

Segment Report

The Company operates and evaluates its business as a single reportable segment. The following is the summary of the financial information for the Company’s reportable segment:

	Three Months Ended March 31,
	2025		2024
	(in thousands)
Net sales	$	103,624	$	95,613
Less:
Cost of goods sold	62,862		58,011
Shipping and transportation	10,616		7,213
Salaries and benefits	9,065		8,929
Professional services	1,438		1,161
Depreciation and amortization	1,139		1,020
Rent expense	2,750		1,830
Marketing expense	1,518		1,093
Online platform fees	2,221		2,186
Warehouse expense	939		1,001
Stock-based compensation	346		375
ROU asset impairment expense	—		1,993
Interest expense	509		524
Provision for income taxes	2,121		1,975
Other segment expenses*	2,910		2,725
Add:
Interest income	566		431
Other income, net	1,059		468
Segment net income	6,815		6,476
Reconciliation of segment net income to consolidated net income
Adjustments and reconciling items	—		—
Consolidated net income	$	6,815	$	6,476

* Other segment expenses includes property taxes, insurance expenses, office expenses, and utilities.

There are no changes in the basis of segmentation or measurement of segment profit or loss since December 31, 2024. The Company’s long-lived assets are all located in the United States, and its revenues are almost entirely generated in the

United States. Additionally, the segment assets are the same as the assets reported on the condensed consolidated balance sheets.

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Subsequent Events

3 Months Ended

Mar. 31, 2025

Subsequent Events [Abstract]

Subsequent Events

Subsequent Events

On May 6, 2025, the Company's Board of Directors declared a quarterly cash dividend of $0.45 per share on the Company's common stock, which will be paid on or about May 23, 2025 to shareholders of record at the close of business on May 16, 2025.

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Pay vs Performance Disclosure - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2025	Mar. 31, 2024
Pay vs Performance Disclosure
Net income	$ 6,409	$ 6,166

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Insider Trading Arrangements	3 Months Ended
	Mar. 31, 2025
Trading Arrangements, by Individual
Rule 10b5-1 Arrangement Adopted	false
Non-Rule 10b5-1 Arrangement Adopted	false
Rule 10b5-1 Arrangement Terminated	false
Non-Rule 10b5-1 Arrangement Terminated	false

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Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2025

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation: The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles as promulgated in the United States of America (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, these condensed consolidated financial statements do not include all the information and footnotes required by US GAAP for complete financial statements. The financial information as of March 31, 2025 and for the three months ended March 31, 2025 and 2024 is unaudited; however, in the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair statement have been included. Operating results for the three months ended March 31, 2025 are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2025.

The condensed consolidated balance sheet at December 31, 2024 has been derived from the audited consolidated financial statements at that date but does not include all of the information and footnotes required by US GAAP for complete financial statements. These financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2024, as included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 14, 2025.

Principles of Consolidation

Principles of Consolidation: The condensed consolidated financial statements include the accounts of Karat Packaging and its wholly-owned and controlled operating subsidiaries: Lollicup, Lollicup Franchising, LLC, and Global Wells Investment Group ("Global Wells"), a variable interest entity wherein the Company is the primary beneficiary. All intercompany accounts and transactions have been eliminated.

Estimates and Assumptions

Estimates and Assumptions: Management uses estimates and assumptions in preparing financial statements in accordance with US GAAP. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ materially from the estimates that were assumed in preparing the condensed consolidated financial statements.

Reporting Segments

Reporting Segments: The Company manages and evaluates its operations in one reportable segment. This segment consists of manufacturing and distribution of a broad portfolio of single-use products that are used to serve food and beverages and are available in plastic, paper, biopolymer-based, and other compostable forms. It also consists of the distribution of certain specialty food and beverage products, such as syrup, boba, and coffee drinks, as well as restaurant and warehouse supplies.

Variable Interest Entities

Variable Interest Entities: The Company has a variable interest in Global Wells located in Rockwall, Texas. In 2017, Lollicup along with three other unrelated parties formed Global Wells, of which Lollicup received a 13.5% ownership interest and a 25% voting interest. On February 29, 2024, Global Wells and one of its members (the "Selling Member") entered into a membership interest redemption agreement, under which the Selling Member sold and Global Wells purchased and redeemed all of the Selling Member's 10.8% ownership interest in Global Wells for a total cash consideration of $3,208,000, subject to tax withholding. Subsequent to the redemption, the ownership interests and voting power of the remaining members of Global Wells were adjusted proportionally, with Lollicup's ownership interest increasing to 15.1% and voting interest increasing to 33.3%. During the year ended December 31, 2024, a total cash payment of $2,325,000, net of tax withholding, was made to the Selling Member in full consideration of the redemption.

The purpose of Global Wells is to own, construct, and manage warehouses and manufacturing facilities. Global Wells’ operating agreement may require its members to make additional contributions upon the unanimous decision of the members or when the cash in Global Wells’ bank account falls below $50,000. In the event that a member is unable to make an additional capital contribution, the other members will be required to make contributions to offset the amount that member cannot contribute, up to $25,000.

Global Wells was determined to be a variable interest entity in accordance with ASC Topic 810, Consolidations, however, at the time the investment was made, it was determined that Lollicup was not the primary beneficiary. In 2018, Lollicup entered into an operating lease with Global Wells (the “Texas Lease”). In 2020, the Company entered into another operating lease with Global Wells (the “New Jersey Lease”).

Upon entering into the Texas Lease with Lollicup on March 23, 2018, it was determined that Lollicup holds current and potential rights that give it the power to direct activities of Global Wells that most significantly impact Global Wells’ economic performance, the ability to receive significant benefits, and the obligation to absorb potentially significant losses, resulting in Lollicup having a controlling financial interest in Global Wells. As a result, Lollicup was deemed to be the primary beneficiary of Global Wells and has consolidated Global Wells under the risk and reward model of ASC 810, for the period from March 23, 2018. The monthly lease payments for both the Texas Lease and New Jersey Lease are eliminated upon consolidation.

Assets recognized as a result of consolidating Global Wells do not represent additional assets that could be used to satisfy claims against the Company’s general assets. Conversely, liabilities recognized as a result of consolidating Global Wells do not represent additional claims of the Company’s general assets; rather they represent claims against the specific assets of Global Wells. See Note 8 — Long-Term Debt for a description of the two term loans that Global Wells had with financial institutions as of March 31, 2025.

Noncontrolling Interests

Noncontrolling Interests: The Company consolidates its variable interest entity, Global Wells, in which the Company is the primary beneficiary. Noncontrolling interests represent third-party equity ownership interests in Global Wells. The Company recognizes noncontrolling interests as equity in the condensed consolidated financial statements separate from the Company’s stockholders’ equity. The amount of net income attributable to noncontrolling interests is disclosed in the condensed consolidated statements of income. Tax payments made by the Company on behalf of the noncontrolling interests are deducted from their equity balances, as shown in the condensed consolidated statements of stockholders’ equity.

Revenue Recognition

Revenue Recognition: The Company generates revenues from product sales to customers that include national and regional chains, distributors, small local restaurants, and those that purchase for individual consumption primarily through our online stores. The Company considers revenue disaggregated by customer type to most accurately reflect the nature and uncertainty of its revenue and cash flows that are affected by economic factors.Chains and distributors revenue: National and regional chains revenue is derived from chain restaurants, supermarkets, and other businesses with multiple locations. Distributors revenue is derived from distributors across the U.S. that purchase the Company’s products for resale and distribution to restaurants, supermarkets, and other businesses. Chain accounts often order through their distribution partners. Revenue from transactions with chains and distributors is recognized at a point in time upon transfer of control of promised products to customers. Transfer of control typically occurs when the title and risk of loss passes to the customer.

•Online revenue: Online revenue is derived from the Company's online storefront on www.lollicupstore.com, and through the Company's mobile app, as well as other e-commerce platforms with customers largely consisting of small businesses such as small mom-and-pop restaurants, coffee houses, bubble tea cafes, pizza parlors, and frozen yogurt shops. Revenue from online transactions is recognized at a point in time upon transfer of control of promised products to customers. Transfer of control typically occurs when the title and risk of loss passes to the customer. For online sales on third-party e-commerce platforms, the Company is the principal in the three-party arrangement and control of the products remains with the Company until transferring to the end customer or upon return from the end customer. Online platform fees are recognized as selling expenses.

•Retail revenue: Retail revenue is derived primarily from regional and local restaurants, small mom-and-pop restaurants, coffee houses, bubble tea cafes, pizza parlors, and frozen yogurt shops. Revenue from retail transactions is recognized at a point in time upon transfer of control of promised products to customers. Transfer of control typically occurs when the title and risk of loss passes to the customer.

For all of the Company's revenue streams, shipping terms generally indicate when the title and risk of loss have passed, which is generally when products are delivered to customers.

In addition to product sales, the Company also generates revenue from logistics services which is the transportation and delivery of shipping containers from ports to local retail customers. Logistics services revenue is recognized over time due to the continuous transfer of control to the customer. As control transfers over time, revenue is recognized based on the extent of progress towards completion of the performance obligation. During the three months ended March 31, 2025 and 2024, the Company recognized logistics services revenue of $1,273,000 and $1,239,000, respectively.

The Company’s contract liabilities consist primarily of rebates, sales incentives, cooperative advertising, and deferred revenue. As of March 31, 2025 and December 31, 2024, the Company had accrued $414,000 and $377,000, respectively, related to rebates, sales incentives and cooperative advertising, included in accrued expenses in the condensed consolidated balance sheets. During the three months ended March 31, 2025 and 2024, the Company recognized revenue of $517,000 and $739,000, respectively, related to previously deferred revenue at the beginning of each respective period.

Fair Value Measurements

Fair Value Measurements: The Company has financial instruments classified within the fair value hierarchy, which consist of the following:

•At both March 31, 2025 and December 31, 2024, the Company had money market accounts and investments in publicly-traded equity securities classified as Level 1 and certificates of deposit classified as Level 2 within the fair value hierarchy.

The short-term investments comprise of certificates of deposits with an original maturity of longer than 3 months and are reported at their carrying value as current assets on the condensed consolidated balance sheets. The carrying value of these short-term investments approximates fair value as they were purchased near or on the respective balance sheet dates.

The Company has not elected the fair value option as presented by ASC 825, Fair Value Option for Financial Assets and Financial Liabilities, for the financial assets and liabilities that are not otherwise required to be carried at fair value. Under ASC 820, material financial assets and liabilities not carried at fair value, including accounts receivable, accounts payable, related-party payable, accrued expenses, other payables and borrowings under promissory notes and Line of Credit (as defined below), are reported at their carrying value.

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, related-party payable, accrued expenses, and other payables at March 31, 2025 and December 31, 2024, approximated fair value because of the short maturity of these instruments.

Certain long-lived non-financial assets and liabilities may be required to be measured at fair value on a nonrecurring basis in certain circumstances, including when there is evidence of impairment. These non-financial assets and liabilities may include assets acquired in a business combination or long-lived assets that are determined to be impaired. The Company recorded an impairment against its operating ROU assets of $1,993,000 during the three months ended March 31, 2024. See Note 11 — Leases for further information about this impairment charge. For the three months ended March 31, 2025, management concluded that an impairment of long-lived assets was not required. With the exception of the ROU impairment, the Company did not have any non-financial assets or liabilities that had been measured at fair value subsequent to initial recognition as of March 31, 2025 or December 31, 2024.

New and Recently Adopted Accounting Standards

New and Recently Adopted Accounting Standards: The Company is an emerging growth company as that term is used in the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act"), and as such, the Company has elected to take advantage of certain reduced public company reporting requirements. In addition, Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards, as a result, the Company will adopt new or revised accounting standards on the relevant dates in which adoption of such standards is required for private companies.

In November 2023, the FASB issued ASU 2023-07 Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The new guidance requires enhanced disclosure of significant expenses that are regularly reported to the chief operating decision maker and the nature of segment expense information used to manage operations. The Company adopted this new standard for its annual period beginning January 1, 2024 and its interim period beginning January 1, 2025. The adoption of this new standard resulted in additional required disclosures, described further in Note 15 — Segment Report.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The new guidance requires disaggregated information about the effective tax rate reconciliation and additional information on taxes paid that meet a quantitative threshold. The new guidance is effective for public companies for annual reporting periods beginning after December 15, 2024, and for non-public companies for annual reporting periods beginning after December 15, 2025, with early adoption permitted for both. The Company will adopt the new standard in annual reporting period beginning after December 15, 2025, and is currently evaluating the impacts of the new guidance on its disclosures within the consolidated financial statements.

In November 2024, the FASB issued ASU 2024-03 Income Statement Expenses (Topic 220): Disaggregation of Income Statement Expenses. The new guidance requires enhanced disclosure of disaggregated information about specific expense categories in the notes to financial statements on an annual and interim basis. The new guidance is effective for all public companies for annual reporting periods beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The Company will adopt the new standard in annual reporting period beginning after December 15, 2026. The application of this new guidance is not expected to have a material impact on the Company’s consolidated balance sheets, statements of income or cash flows, as the guidance pertains to disclosures only.

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Summary of Significant Accounting Policies (Tables)

3 Months Ended

Mar. 31, 2025

Accounting Policies [Abstract]

Schedule of Net Sales Disaggregated by Customer Type

For the three months ended March 31, 2025 and 2024, net sales disaggregated by customer type consist of the amounts shown below.

	Three Months Ended March 31,
	2025		2024
	(in thousands)
Chains and distributors	79,599		74,297
Online	17,791		14,879
Retail	6,234		6,437
	$	103,624	$	95,613

Schedule of Fair Value Measurements by Level for the Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table summarizes the Company’s fair value measurements by level at March 31, 2025 for the assets measured at fair value on a recurring basis:

	Level 1		Level 2		Level 3
	(in thousands)
Cash equivalents	$	2,448	$	25,543	$	—
Short-term investments	—		23,800		—
Publicly-traded equity securities	57		—		—
Fair value, March 31, 2025	$	2,505	$	49,343	$	—

The following table summarize the Company’s fair value measurements by level at December 31, 2024 for the assets measured at fair value on a recurring basis:

	Level 1		Level 2		Level 3
	(in thousands)
Cash equivalents	$	725	$	22,525	$	—
Short-term investments	—		28,343		—
Publicly-traded equity securities	31		—		—
Fair value, December 31, 2024	$	756	$	50,868	$	—

Schedule of Carrying Values and Estimated Fair Values of Debt

The following is a summary of the carrying amount and estimated fair value of the $23,000,000 and $28,700,000 term loans that mature in September 2026 and July 2027, respectively (the "2026 Term Loan" and "2027 Term Loan," respectively):

	March 31, 2025
	Carrying Amount		Estimated Fair Value
	(in thousands)
2026 Term Loan	$	20,723	$	19,910
2027 Term Loan	27,455		27,305
	$	48,178	$	47,215

	December 31, 2024
	Carrying Amount		Estimated Fair Value
	(in thousands)
2026 Term Loan	$	20,881	$	19,846
2027 Term Loan	27,577		27,174
	$	48,458	$	47,020

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Inventories (Tables)

3 Months Ended

Mar. 31, 2025

Inventory Disclosure [Abstract]

Schedule of Inventories

Inventories consist of the following:

	March 31, 2025		December 31, 2024
	(in thousands)
Raw materials	$	6,498	$	6,640
Semi-finished goods	1,403		1,885
Finished goods	72,735		62,837
Subtotal	80,636		71,362
Less: inventory reserve	(730)		(640)
Total inventories	$	79,906	$	70,722

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Property and Equipment (Tables)

3 Months Ended

Mar. 31, 2025

Property, Plant and Equipment [Abstract]

Schedule of Property and Equipment, Net

	March 31, 2025		December 31, 2024
	(in thousands)
Machinery and equipment	$	67,024	$	66,928
Leasehold improvements	19,212		19,193
Vehicles	8,383		8,395
Furniture and fixtures	1,015		1,015
Building	38,779		38,779
Land	11,907		11,907
Computer hardware and software	113		94
Construction in progress	723		431
	147,156		146,742
Less: accumulated depreciation and amortization	(61,001)		(58,760)
Total property and equipment, net	$	86,155	$	87,982

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Goodwill (Tables)

3 Months Ended

Mar. 31, 2025

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Goodwill

The following table summarizes the activity in the Company's goodwill from December 31, 2024 to March 31, 2025:

	(in thousands)
Balance at December 31, 2024	$	3,510
Goodwill acquired	—
Balance at March 31, 2025	$	3,510

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Accrued Expenses (Tables)

3 Months Ended

Mar. 31, 2025

Payables and Accruals [Abstract]

Schedule of Accrued Expense Liabilities

The following table summarizes information related to accrued expense liabilities:

	March 31, 2025		December 31, 2024
	(in thousands)
Accrued miscellaneous expenses	$	2,178	$	1,796
Accrued payroll	1,109		1,953
Accrued ocean freight and other import costs	5,212		4,215
Accrued sale and use taxes	1,051		991
Accrued professional services fees	826		967
Accrued vacation and sick pay	1,114		899
Accrued property tax	332		1,150
Accrued shipping expenses	2,550		1,137
Accrued sales discount expense	413		374
Accrued interest expense	83		73
Total accrued expenses	$	14,868	$	13,555

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Long-Term Debt (Tables)

3 Months Ended

Mar. 31, 2025

Debt Disclosure [Abstract]

Schedule of Long-Term Debt

Long-term debt consists of the following:

	March 31, 2025		December 31, 2024
	(in thousands)
The 2026 Term Loan, with an initial balance of $16,115,000 and an option to request for additional advances up to a maximum of $6,885,000 through September 2022, which the Company exercised in February 2022. Interest accrues at a fixed rate of 3.5% per annum. Principal and interest payments of $116,000 are due monthly throughout the term of the loan, with the remaining principal balance due at maturity.	$	20,758	$	20,923
The 2027 Term Loan, with an initial balance of $20,700,000 and an option to request for additional advances up to a maximum of $8,000,000 through June 30, 2023, which the Company exercised in March 2023. Interest accrues at a fixed rate of 4.375% per annum. Prior to August 1, 2023, principal and interest payments of $104,000 are due monthly. Beginning August 1, 2023, monthly principal and interest payments increased to $144,000 for the remainder of the loan term, with the remaining principal balance due at maturity.	27,545		27,676
Long-term debt	48,303		48,599
Less: unamortized loan fees	(125)		(141)
Less: current portion	(1,190)		(1,179)
Long-term debt, net of current portion	$	46,988	$	47,279

Schedule of Future Maturities

At March 31, 2025, future maturities are:

	(in thousands)
2025 (remainder)	$	883
2026	20,798
2027	26,622
	$	48,303

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Stock-Based Compensation (Tables)

3 Months Ended

Mar. 31, 2025

Share-Based Payment Arrangement [Abstract]

Schedule of Stock Option Activity

A summary of the Company’s stock option activity under the Plan for the three months ended March 31, 2025 is as follows:

	Number of Options	Weighted-Average Exercise Price		Weighted-Average Remaining Contract Life	Aggregate Intrinsic Value
				(in years)	(in thousands)
Outstanding at December 31, 2024	313,667	$	18.57	6.8	$	3,667
Outstanding at March 31, 2025	313,667	$	18.57	6.6	$	2,512
Vested and expected to vest at March 31, 2025	313,667	$	18.57	6.6	$	2,512
Exercisable at March 31, 2025	313,667	$	18.57	6.6	$	2,512

Schedule of Unvested Restricted Stock Unit Activity

A summary of the Company’s unvested restricted stock units activity under the Plan for the three months ended March 31, 2025 is as follows:

	Number of Shares Outstanding	Weighted Average Grant Date Fair Value
Unvested at December 31, 2024	70,800	$	29.14
Unvested at March 31, 2025	70,800	$	29.14

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Earnings Per Share (Tables)

3 Months Ended

Mar. 31, 2025

Earnings Per Share [Abstract]

Schedule of Earnings Per Share

Basic earnings per share is calculated by dividing the net income attributable to equity holders of the Company for the period by the weighted average number of common shares outstanding during the period.

	Three Months Ended March 31,
	2025		2024
	(in thousands, except per share data)
Net income attributable to Karat Packaging Inc.	$	6,409	$	6,166
Weighted average number of common shares in issue	20,037		19,970
Basic earnings per share	$	0.32	$	0.31

The following table summarizes the calculation of diluted earnings per share:

	Three Months Ended March 31,
	2025		2024
	(in thousands, except per share data)
Net income attributable to Karat Packaging Inc.	$	6,409	$	6,166
Weighted average number of common shares in issue	20,037		19,970
Dilutive shares
Stock options and restricted stock units	162		105
Adjusted weighted average number of common shares	20,199		20,075
Diluted earnings per share	$	0.32	$	0.31

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Leases (Tables)

3 Months Ended

Mar. 31, 2025

Leases [Abstract]

Schedule of Lease Cost

The Company recognized the following lease costs in the accompanying condensed consolidated statement of income:

	Three Months Ended March 31,
	2025		2024
	(in thousands)
Operating lease expense	$	3,046	$	1,820
Short-term lease expense	648		9
Variable lease expense	316		373
Total lease expense	$	4,010	$	2,202

Schedule of Supplemental Information Related to Operating Leases

The following table presents supplemental information related to operating leases:

	March 31, 2025		December 31, 2024
Weighted average remaining lease term	4.15 years		4.33 years
Weighted average discount rate	6.9	%	7.0	%

	Three Months Ended March 31,
	2025		2024
	(in thousands)
Right-of-use assets obtained in exchange for operating lease liabilities	$	10,457	$	2,079
Cash paid for amounts included in measurement of lease obligations:
Operating cash flows from operating leases	$	3,145	$	1,829

Schedule of Future Lease Payments Under Operating Leases

As of March 31, 2025, future lease payments under operating leases were as follows:

	(in thousands)
2025 (remainder)	$	10,531
2026	14,885
2027	13,961
2028	12,915
2029	7,567
Thereafter	769
Total lease payments	60,628
Less: imputed interest	(8,097)
Total lease liability balance	$	52,531

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Segment Report (Tables)

3 Months Ended

Mar. 31, 2025

Segment Reporting [Abstract]

Schedule of Segment Reporting Information, by Segment

The following is the summary of the financial information for the Company’s reportable segment:

	Three Months Ended March 31,
	2025		2024
	(in thousands)
Net sales	$	103,624	$	95,613
Less:
Cost of goods sold	62,862		58,011
Shipping and transportation	10,616		7,213
Salaries and benefits	9,065		8,929
Professional services	1,438		1,161
Depreciation and amortization	1,139		1,020
Rent expense	2,750		1,830
Marketing expense	1,518		1,093
Online platform fees	2,221		2,186
Warehouse expense	939		1,001
Stock-based compensation	346		375
ROU asset impairment expense	—		1,993
Interest expense	509		524
Provision for income taxes	2,121		1,975
Other segment expenses*	2,910		2,725
Add:
Interest income	566		431
Other income, net	1,059		468
Segment net income	6,815		6,476
Reconciliation of segment net income to consolidated net income
Adjustments and reconciling items	—		—
Consolidated net income	$	6,815	$	6,476

* Other segment expenses includes property taxes, insurance expenses, office expenses, and utilities.

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Nature of Operations (Details)	3 Months Ended
	Mar. 31, 2025 distributionCenter
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Distribution centers operated by entity	7

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Summary of Significant Accounting Policies - Narrative (Details)		3 Months Ended		12 Months Ended
	Feb. 29, 2024 USD ($)	Mar. 31, 2025 USD ($) segment	Mar. 31, 2024 USD ($)	Dec. 31, 2024 USD ($)	Dec. 31, 2017 USD ($)
Debt Instrument [Line Items]
Number of reportable segments | segment		1
Net sales		$ 103,624,000	$ 95,613,000
Accrued expense related to rebates, sales incentives and cooperative advertising		414,000		$ 377,000
Revenue recognized		517,000	739,000
Impairment of operating right-of-use asset		0	1,993,000
Logistics Services
Debt Instrument [Line Items]
Net sales		1,273,000	$ 1,239,000
2026 Term Loan
Debt Instrument [Line Items]
Face amount of loan		23,000,000
2027 Term Loan
Debt Instrument [Line Items]
Face amount of loan		$ 28,700,000
Global Wells
Debt Instrument [Line Items]
Ownership interest (as a percent)	15.10%
Voting interest (as a percent)	33.30%
Cash consideration	$ 3,208,000
Payment of redeemable variable interest				$ 2,325,000
Global Wells | Selling Member
Debt Instrument [Line Items]
Ownership interest (as a percent)	10.80%
Global Wells
Debt Instrument [Line Items]
Ownership interest (as a percent)					13.50%
Voting interest (as a percent)					25.00%
Minimum bank account to make additional contributions from members					$ 50,000
Contributions to offset the amount that member cannot contribute (up to)					$ 25,000

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Summary of Significant Accounting Policies - Schedule of Net Sales Disaggregated by Customer Type (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2025	Mar. 31, 2024
Disaggregation of Revenue [Line Items]
Net sales	$ 103,624	$ 95,613
Chains and distributors
Disaggregation of Revenue [Line Items]
Net sales	79,599	74,297
Online
Disaggregation of Revenue [Line Items]
Net sales	17,791	14,879
Retail
Disaggregation of Revenue [Line Items]
Net sales	$ 6,234	$ 6,437

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Summary of Significant Accounting Policies - Schedule of Fair Value Measurements by Level for the Assets and Liabilities Measured at Fair Value on a Recurring Basis (Details) - USD ($) $ in Thousands	Mar. 31, 2025	Dec. 31, 2024
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Short-term investments	$ 23,800	$ 28,343
Recurring basis | Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	2,448	725
Short-term investments	0	0
Publicly-traded equity securities	57	31
Fair value	2,505	756
Recurring basis | Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	25,543	22,525
Short-term investments	23,800	28,343
Publicly-traded equity securities	0	0
Fair value	49,343	50,868
Recurring basis | Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Cash equivalents	0	0
Short-term investments	0	0
Publicly-traded equity securities	0	0
Fair value	$ 0	$ 0

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Summary of Significant Accounting Policies - Schedule of Carrying Values and Estimated Fair Values of Debt (Details) - USD ($) $ in Thousands	Mar. 31, 2025	Dec. 31, 2024
Debt Instrument [Line Items]
Carrying Amount	$ 48,303	$ 48,599
Carrying Amount
Debt Instrument [Line Items]
Carrying Amount	48,178	48,458
Estimated Fair Value
Debt Instrument [Line Items]
Estimated Fair Value	47,215	47,020
2026 Term Loan
Debt Instrument [Line Items]
Carrying Amount	20,758	20,923
2026 Term Loan | Carrying Amount
Debt Instrument [Line Items]
Carrying Amount	20,723	20,881
2026 Term Loan | Estimated Fair Value
Debt Instrument [Line Items]
Estimated Fair Value	19,910	19,846
2027 Term Loan
Debt Instrument [Line Items]
Carrying Amount	27,545	27,676
2027 Term Loan | Carrying Amount
Debt Instrument [Line Items]
Carrying Amount	27,455	27,577
2027 Term Loan | Estimated Fair Value
Debt Instrument [Line Items]
Estimated Fair Value	$ 27,305	$ 27,174

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Inventories (Details) - USD ($) $ in Thousands	Mar. 31, 2025	Dec. 31, 2024
Inventory Disclosure [Abstract]
Raw materials	$ 6,498	$ 6,640
Semi-finished goods	1,403	1,885
Finished goods	72,735	62,837
Subtotal	80,636	71,362
Less: inventory reserve	(730)	(640)
Total inventories	$ 79,906	$ 70,722

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Property and Equipment - Schedule of Property and Equipment, Net (Details) - USD ($) $ in Thousands	Mar. 31, 2025	Dec. 31, 2024
Property, Plant and Equipment, Net, by Type [Abstract]
Property and equipment, gross	$ 147,156	$ 146,742
Less: accumulated depreciation and amortization	(61,001)	(58,760)
Total property and equipment, net	86,155	87,982
Machinery and equipment
Property, Plant and Equipment, Net, by Type [Abstract]
Property and equipment, gross	67,024	66,928
Leasehold improvements
Property, Plant and Equipment, Net, by Type [Abstract]
Property and equipment, gross	19,212	19,193
Vehicles
Property, Plant and Equipment, Net, by Type [Abstract]
Property and equipment, gross	8,383	8,395
Furniture and fixtures
Property, Plant and Equipment, Net, by Type [Abstract]
Property and equipment, gross	1,015	1,015
Building
Property, Plant and Equipment, Net, by Type [Abstract]
Property and equipment, gross	38,779	38,779
Land
Property, Plant and Equipment, Net, by Type [Abstract]
Property and equipment, gross	11,907	11,907
Computer hardware and software
Property, Plant and Equipment, Net, by Type [Abstract]
Property and equipment, gross	113	94
Construction in progress
Property, Plant and Equipment, Net, by Type [Abstract]
Construction in progress	$ 723	$ 431

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Property and Equipment - Narrative (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2025	Mar. 31, 2024
Property, Plant and Equipment [Line Items]
Depreciation and amortization	$ 2,688	$ 2,629
General and Administrative Expense
Property, Plant and Equipment [Line Items]
Depreciation and amortization	1,132	1,013
Cost of Sales
Property, Plant and Equipment [Line Items]
Depreciation and amortization	$ 1,549	$ 1,609

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Goodwill (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2025 USD ($)
Goodwill [Roll Forward]
Goodwill, beginning balance	$ 3,510
Goodwill acquired	0
Goodwill, ending balance	$ 3,510

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Line of Credit (Details) - USD ($)	Mar. 03, 2025	Mar. 31, 2025	Mar. 17, 2025	Mar. 16, 2025	Dec. 31, 2024	Feb. 23, 2018
Line of Credit Facility [Line Items]
Maximum borrowing capacity	$ 40,000,000
Spread on variable rate (as a percent)	2.25%
Floor interest rate (as a percent)	1.00%
Line of credit
Line of Credit Facility [Line Items]
Maximum borrowing capacity	$ 20,000,000	$ 14,187,000				$ 20,000,000
Spread on variable rate (as a percent)	2.50%
Floor interest rate (as a percent)	1.00%
Long-term line of credit, noncurrent		0			$ 0
Standby letter of credit
Line of Credit Facility [Line Items]
Maximum borrowing capacity			$ 7,500,000	$ 5,000,000
Long-term line of credit, noncurrent		$ 5,813,000			$ 3,813,000

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Accrued Expenses (Details) - USD ($) $ in Thousands	Mar. 31, 2025	Dec. 31, 2024
Payables and Accruals [Abstract]
Accrued miscellaneous expenses	$ 2,178	$ 1,796
Accrued payroll	1,109	1,953
Accrued ocean freight and other import costs	5,212	4,215
Accrued sale and use taxes	1,051	991
Accrued professional services fees	826	967
Accrued vacation and sick pay	1,114	899
Accrued property tax	332	1,150
Accrued shipping expenses	2,550	1,137
Accrued sales discount expense	413	374
Accrued interest expense	83	73
Total accrued expenses	$ 14,868	$ 13,555

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Long-Term Debt - Schedule of Long-term Debt (Details) - USD ($) $ in Thousands		3 Months Ended	7 Months Ended
	Aug. 01, 2023	Mar. 31, 2025	Jul. 31, 2023	Dec. 31, 2024
Debt Instrument [Line Items]
Long-term debt		$ 48,303		$ 48,599
Less: unamortized loan fees		(125)		(141)
Less: current portion		(1,190)		(1,179)
Long-term debt, net of current portion		46,988		47,279
2026 Term Loan
Debt Instrument [Line Items]
Long-term debt		20,758		20,923
Amount converted to term loan		16,115
Term loan, accordion feature		$ 6,885
Fixed interest rate (as a percent)		3.50%
Monthly principal and interest payments		$ 116
2027 Term Loan
Debt Instrument [Line Items]
Long-term debt		27,545		$ 27,676
Amount converted to term loan		20,700
Term loan, accordion feature		$ 8,000
Fixed interest rate (as a percent)		4.375%
Monthly principal and interest payments	$ 144		$ 104

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Long-Term Debt - Schedule of Future Maturities (Details) - USD ($) $ in Thousands	Mar. 31, 2025	Dec. 31, 2024
Future maturities:
2025	$ 883
2026	20,798
2027	26,622
Long-term debt	$ 48,303	$ 48,599

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Stock-Based Compensation - Narrative (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2025	Mar. 31, 2024
Stock-based Compensation
Shares reserved for issuance (in shares)	1,287,017
Stock-based compensation	$ 346	$ 375
Granted (in shares)	0
Exercised (in shares)	0
Forfeited (in shares)	0
Remaining stock-based compensation expense for unvested restricted stock units	$ 631
Restricted Stock Units (RSUs)
Stock-based Compensation
Vesting period (in years)	3 years
Cost not yet recognized, period for recognition (in years)	1 year
Stock Options
Stock-based Compensation
Vesting period (in years)	3 years

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Stock-Based Compensation - Schedule of Stock Options Activity (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2025	Dec. 31, 2024
Number of Options
Outstanding at beginning of period (in shares)	313,667
Outstanding at end of period (in shares)	313,667	313,667
Number of options, vested and expected to vest (in shares)	313,667
Number of options, exercisable (in shares)	313,667
Weighted-Average Exercise Price
Outstanding at beginning of period (in dollars per share)	$ 18.57
Outstanding at end of period (in dollars per share)	18.57	$ 18.57
Weighted average exercise price, vested and expected to vest (in dollars per share)	18.57
Weighted average exercise price, exercisable (in dollars per share)	$ 18.57
Stock Option Activity, Additional Disclosures
Weighted average remaining contract life, options outstanding	6 years 7 months 6 days	6 years 9 months 18 days
Weighted average remaining contract life, vested and expected to vest	6 years 7 months 6 days
Weighted average remaining contract life, exercisable	6 years 7 months 6 days
Aggregate intrinsic value, options outstanding	$ 2,512	$ 3,667
Aggregate intrinsic value, vested and expected to vest	2,512
Aggregate intrinsic value, exercisable	$ 2,512

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Stock-Based Compensation - Schedule of Unvested Restricted Stock Units (Details) - Restricted Stock Units (RSUs)	Mar. 31, 2025 $ / shares shares
Number of Shares Outstanding
Outstanding at beginning of period (in shares) | shares	70,800
Outstanding at end of period (in shares) | shares	70,800
Weighted Average Grant Date Fair Value
Outstanding at beginning of period (in dollars per share) | $ / shares	$ 29.14
Outstanding at end of period (in dollars per share) | $ / shares	$ 29.14

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Earnings Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2025	Mar. 31, 2024
Earnings Per Share Reconciliation [Abstract]
Net income attributable to Karat Packaging Inc.	$ 6,409	$ 6,166
Weighted average number of common shares in issue (in shares)	20,036,505	19,969,606
Basic earnings per share (in dollars per share)	$ 0.32	$ 0.31
Weighted Average Number of Shares Outstanding, Diluted [Abstract]
Net income attributable to Karat Packaging Inc.	$ 6,409	$ 6,166
Weighted average number of common shares in issue (in shares)	20,036,505	19,969,606
Dilutive shares
Stock options and restricted stock units (in shares)	162,000	105,000
Adjusted weighted average number of common shares (in shares)	20,198,654	20,075,485
Diluted earnings per share (in dollars per share)	$ 0.32	$ 0.31
Potentially dilutive shares excluded from diluted earnings per share calculation (in shares)	0	19,000

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Leases - Schedule of Lease Cost (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2025	Mar. 31, 2024
Leases [Abstract]
Operating lease expense	$ 3,046	$ 1,820
Short-term lease expense	648	9
Variable lease expense	316	373
Total lease expense	$ 4,010	$ 2,202

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Leases - Narrative (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2025	Mar. 31, 2024	Mar. 01, 2025
Lessee, Lease, Description [Line Items]
Impairment of operating right-of-use asset	$ 0	$ 1,993
Lease term			6 years
Expected rental income, remainder of the year	846
Expected rental income, over the next five years	1,128
Global Wells | Minimum
Lessee, Lease, Description [Line Items]
Monthly lease payment	87
Global Wells | Maximum
Lessee, Lease, Description [Line Items]
Monthly lease payment	101
Operating Expense
Lessee, Lease, Description [Line Items]
Lease expense	3,190	1,931
Cost of Sales
Lessee, Lease, Description [Line Items]
Lease expense	$ 820	$ 271

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Leases - Schedule of Supplemental Information Related to Operating Leases (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2025	Mar. 31, 2024	Dec. 31, 2024
Leases [Abstract]
Weighted average remaining lease term (in years)	4 years 1 month 24 days		4 years 3 months 29 days
Weighted average discount rate	6.90%		7.00%
Right-of-use assets obtained in exchange for operating lease liabilities	$ 10,457	$ 2,079
Cash paid for amounts included in measurement of lease obligations:
Operating cash flows from operating leases	$ 3,145	$ 1,829

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Leases - Schedule of Maturities of Operating Lease Liabilities (Details) $ in Thousands	Mar. 31, 2025 USD ($)
Leases [Abstract]
2025 (remainder)	$ 10,531
2026	14,885
2027	13,961
2028	12,915
2029	7,567
Thereafter	769
Total lease payments	60,628
Less: imputed interest	(8,097)
Total lease liability balance	$ 52,531

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Related Party Transactions (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2025 USD ($) shares	Mar. 31, 2024 USD ($)	Sep. 30, 2018 convertible_note	Dec. 31, 2024 USD ($) shares
Related Party Transaction [Line Items]
Common stock, shares outstanding (in shares) | shares	20,036,505			20,036,505
Number of exercised convertible notes | convertible_note			2
Keary Global | Affiliated Entity
Related Party Transaction [Line Items]
Common stock, shares outstanding (in shares) | shares	250,004
Keary Global and Keary International
Related Party Transaction [Line Items]
Purchases from related party | $	$ 10,340	$ 12,693
Keary Global and Keary International | Affiliated Entity
Related Party Transaction [Line Items]
Accounts payable | $	$ 5,057			$ 3,130

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Income Taxes (Details) - USD ($)	3 Months Ended
	Mar. 31, 2025	Mar. 31, 2024	Dec. 31, 2024
Income Tax Disclosure [Abstract]
Provision for income taxes	$ 2,121,000	$ 1,975,000
Effective tax rate (as a percent)	23.70%	23.40%
Deferred tax assets, valuation allowance	$ 0
Uncertain tax positions	$ 0		$ 0

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Commitments and Contingencies (Details) - USD ($) $ in Thousands	Mar. 31, 2025	Dec. 31, 2024
Commitments and Contingencies Disclosure [Abstract]
Loss contingency	$ 3,101	$ 3,051

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Segment Report (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2025	Mar. 31, 2024
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items]
Net sales	$ 103,624	$ 95,613
Less:
Cost of goods sold	62,862	58,011
Depreciation and amortization	2,688	2,629
Online platform fees	14,411	10,763
Stock-based compensation	346	375
ROU asset impairment expense	0	1,993
Interest expense	509	524
Provision for income taxes	2,121	1,975
Add:
Interest income	566	431
Net income	6,815	6,476
Reportable Segment
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items]
Net sales	103,624	95,613
Less:
Cost of goods sold	62,862	58,011
Shipping and transportation	10,616	7,213
Salaries and benefits	9,065	8,929
Professional services	1,438	1,161
Depreciation and amortization	1,139	1,020
Rent expense	2,750	1,830
Marketing expense	1,518	1,093
Online platform fees	2,221	2,186
Warehouse expense	939	1,001
Stock-based compensation	346	375
ROU asset impairment expense	0	1,993
Interest expense	509	524
Provision for income taxes	2,121	1,975
Other segment expenses*	2,910	2,725
Add:
Interest income	566	431
Other income, net	1,059	468
Net income	6,815	6,476
Segment net income | Reportable Segment
Add:
Net income	6,815	6,476
Adjustments and reconciling items | Reportable Segment
Add:
Net income	$ 0	$ 0

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Subsequent Events (Details) - $ / shares		3 Months Ended
	May 06, 2025	Mar. 31, 2025	Mar. 31, 2024
Subsequent Event [Line Items]
Common stock, dividends declared (in dollars per share)		$ 0.45	$ 0.30
Subsequent Event
Subsequent Event [Line Items]
Common stock, dividends declared (in dollars per share)	$ 0.45