Karat Packaging Inc

Previous wording

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; and Sugar Land, Texas. In February 2024, the Company entered into a lease agreement for an additional distribution center in Mesa, Arizona and is currently in the process of setting up this location to be fully operational by the second quarter of 2024. 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.

Current wording

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.

Previous wording

•We recorded net sales of $95.6 million for the three months ended March 31, 2024, a decrease of 0.2% in net sales amount and an increase of 3.5% in volume, compared to the three months ended March 31, 2023.

Current wording

•We recorded net sales of $112.6 million for the three months ended June 30, 2024, an increase of 3.5% in amount and 3.2% in volume, compared to the three months ended June 30, 2023. For the six months ended June 30, 2024, we recorded net sales of $208.2 million, an increase of 1.8% in amount and 3.3% in volume, compared to the six months ended June 30, 2023.

Previous wording

•We recorded net income of $6.5 million for the three months ended March 31, 2024, a decrease of 29.5% compared to the three months ended March 31, 2023. Net income for the three months ended March 31, 2024 included a negative tax-effected impact of $1.5 million from a non-cash impairment of an operating right-of-use asset ("ROU asset").

Current wording

•We recorded net income of $9.2 million and $15.7 million for the three and six months ended June 30, 2024, respectively, a decrease of 13.6% and 20.9% compared to the three and six months ended June 30, 2023, respectively. Net income for the six months ended June 30, 2024 included a negative tax-effected impact of $1.5 million from a non-cash impairment of an operating right-of-use asset ("ROU asset"). Net income for both the three and six months ended June 30, 2023 included a negative tax-effected impact of $1.9 million incurred from impairment expense and loss on disposal of machinery, as we executed our strategy to scale back manufacturing in certain locations, and a negative tax-effected impact of $1.3 million incurred from the raw materials write-off, as discussed above.

Previous wording

•We achieved net income margin of 6.8% for the three months ended March 31, 2024, a 280-basis-point decrease from the three months ended March 31, 2023. Net income margin for the three months ended March 31, 2024 included a negative tax-effected impact of 160 basis points from the non-cash ROU asset impairment, as discussed above.

Current wording

•We achieved net income margin of 8.2% and 7.5% for the three and six months ended June 30, 2024, respectively, a decrease of 160 and 220 basis points from the three and six months ended June 30, 2023, respectively. Net income margin for the six months ended June 30, 2024 included a negative tax-effected impact of 70 basis points from the non-cash ROU asset impairment, as discussed above. Net income margin for the three and six months ended June 30, 2023 included a negative tax-effected impact of 290 and 150 basis points, respectively, from the raw materials write-off and impairment expense and loss on disposal of machinery, as discussed above.

Previous wording

•We generated consolidated Adjusted EBITDA, a non-GAAP measure defined below, of $13.5 million for the three months ended March 31, 2024, a 11.2% decrease from the three months ended March 31, 2023.

Current wording

•We generated consolidated Adjusted EBITDA, a non-GAAP measure defined below, of $15.7 million and $29.2 million for the three and six months ended June 30, 2024, respectively, a decrease of 25.8% and 19.7% from the three and six months ended June 30, 2023, respectively.

Previous wording

•Our Adjusted EBITDA margin, a non-GAAP measure defined below, was 14.2% for the three months ended March 31, 2024, a decrease of 170 basis points from the three months ended March 31, 2023.

Current wording

•We achieved Adjusted EBITDA margin, a non-GAAP measure defined below, of 13.9% and 14.0% for the three and six months ended June 30, 2024, respectively, a decrease of 550 and 380 basis points from the three and six months ended June 30, 2023, respectively.

Previous wording

•We had financial liquidity of $49.3 million and additional short-term investments of $33.5 million as of March 31, 2024.

Current wording

•We had financial liquidity of $55.5 million and additional short-term investments of $32.7 million as of June 30, 2024.

Previous wording

•On May 7, 2024, the Company's Board of Directors declared a quarterly cash dividend of $0.35 per share on the Company's common stock, which will be paid on or around May 24, 2024 to shareholders of record at the close of business on May 17, 2024.

Current wording

•On August 6, 2024, our Board of Directors declared a special cash dividend of $0.15 per share on our common stock and another quarterly cash dividend of $0.35 per share on our common stock, both of which will be paid on or around August 30, 2024 to shareholders of record at the close of business on August 21, 2024.

Previous wording

•Environmental concerns regarding disposable products, broadly, have resulted in a number of significant changes that are specific 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. Our eco-friendly products made up 34.5% of total sales during the three months ended March 31, 2024 compared to 32.6% during the same period last year.

Current wording

•Environmental concerns regarding disposable products, broadly, have resulted in a number of significant changes that are specific 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. Our eco-friendly products made up 32.3% of total sales in the second quarter of 2024.

Previous wording

Operating income was $8.1 million for the three months ended March 31, 2024 compared to $12.7 million for the three months ended March 31, 2023, a decrease of $4.7 million, or 36.6%. The decrease was primarily due to a decrease in gross profit of $0.5 million and an increase in operating expenses of $4.1 million, as discussed above.

Current wording

Operating income was $11.1 million for the three months ended June 30, 2024 compared to $13.3 million for the three months ended June 30, 2023, a decrease of $2.2 million, or 16.7%. The decrease was primarily due to an increase in operating expenses of $3.8 million, partially offset by an increase in gross profit of $1.5 million, as discussed above.

Previous wording

Provision for income taxes was $2.0 million for the three months ended March 31, 2024 compared to $2.8 million for the three months ended March 31, 2023, a decrease of $0.8 million, or 29.9%. The Company’s effective tax rate was 23.4% for the three months ended March 31, 2024 compared to 23.5% for the three months ended March 31, 2023.

Current wording

Provision for income taxes was $2.8 million for the three months ended June 30, 2024 compared to $3.3 million for the three months ended June 30, 2023, a decrease of $0.5 million, or 14.5%. The Company’s effective tax rate was 23.5% and 23.7% for the three months ended June 30, 2024 and 2023, respectively.

Previous wording

Net income was $6.5 million for the three months ended March 31, 2024 compared to $9.2 million for the three months ended March 31, 2023, a decrease of $2.7 million, or 29.5%. The decrease was primarily driven by a decrease in operating income of $4.7 million, partially offset by an increase in other income, net of $1.1 million, and a decrease in the provision for income taxes of approximately $0.8 million, as discussed above.

Current wording

Net income was $9.2 million for the three months ended June 30, 2024 compared to $10.7 million for the three months ended June 30, 2023, a decrease of $1.5 million, or 13.6%. The decrease was primarily driven by a reduction in operating income of $2.2 million, partially offset by an increase in other income, net of $0.3 million, and a decrease in the provision for income taxes of approximately $0.5 million, as discussed above.

Previous wording

Net sales were $95.6 million for the three months ended March 31, 2024 compared to $95.8 million for the three months ended March 31, 2023, a decrease of $0.2 million, or 0.2%. Net sales for the three months ended March 31, 2024 was understated by $0.7 million, which represented products shipped and recognized as revenue in 2023 and not delivered until 2024. See further discussion about the Company's revenue recognition in Note 2 —Summary of Significant Accounting Policies. Including this impact, the year-over-year decrease in net sales is primarily driven by a $7.0 million unfavorable year-over-year pricing comparison, as the overall pricing environment remains competitive especially in the distributor channel, partially offset by an increase of $4.5 million in volume and change in product mix, and an increase of $2.2 million due to the inclusion of online sales platform fees in operating expenses for the three months ended March 31, 2024.

Current wording

See further discussion about the Company's revenue recognition in Note 2 —Summary of Significant Accounting Policies. Including this impact, the year-over-year increase in net sales is primarily driven by an increase of $12.9 million in volume and change in product mix, and an increase of $4.9 million due to the inclusion of online sales platform fees in operating expenses for the six months ended June 30, 2024, partially offset by $14.1 million unfavorable year-over-year pricing comparison, as the overall pricing environment remains competitive especially in the distributor channel.

Previous wording

Cost of goods sold was $58.0 million for the three months ended March 31, 2024 compared to $57.7 million for the three months ended March 31, 2023, an increase of $0.4 million, or 0.6%. 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 and not delivered until 2024, as discussed above. Including this impact, the year-over-year increase in cost of goods sold is primarily driven by the increase in freight and duty costs of $1.3 million as a result of increased import volume following the strategy to scale back domestic manufacturing coupled with higher freight and container rates for the three months ended March 31, 2024. Additionally, cost of goods sold in the three months ended March 31, 2024 includes $0.6 million of production expenses primarily related to machinery repair and maintenance. These increases were partially offset by a decrease of $1.7 million in product costs as a result of reduction in vendor pricing for certain raw materials and finished goods, and a favorable foreign currency exchange rate impact from the strengthening of the United States Dollar against Taiwan New Dollar.

Current wording

Cost of goods sold was $127.2 million for the six months ended June 30, 2024 compared to $124.5 million for the six months ended June 30, 2023, an increase of $2.7 million, or 2.1%. Cost of goods sold for the six months ended June 30, 2024 was understated by $0.4 million related to products shipped and recognized as cost of goods sold in 2023 and 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 freight and duty costs of $4.2 million as a result of increased import volume coupled with higher freight and container rates, as well as an increase in inventory reserve adjustment of $0.7 million. Additionally, cost of goods sold during the six months ended June 30, 2024 included $1.3 million of production expenses primarily related to machinery repair and maintenance. These increases were partially offset by a decrease in inventory adjustments and write-offs of $2.5 million as the six months ended June 30, 2023 included more inventory write-offs from expired products and a write-off of $1.7 million of raw materials as we disposed of certain machinery and equipment in executing the plan to scale back production in certain locations. Cost of goods sold also benefited from reduced product costs and the strengthening of the United States Dollar against Taiwan New Dollar.

Previous wording

Gross profit was $37.6 million for the three months ended March 31, 2024 compared to $38.1 million for the three months ended March 31, 2023, a decrease of $0.5 million, or 1.4%. 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 and not delivered until 2024, as discussed above. With this impact, gross margin decreased to 39.3% for the three months ended March 31, 2024 compared to 39.8% for the three months ended March 31, 2023. Gross margin for the three months ended March 31, 2024 included a net favorable impact of 80 basis points from the adjustments to net sales related to online platform fees and cost of goods sold related to production expenses, respectively, as discussed above. Gross margin also benefited from the strengthening of the United States Dollar against Taiwan New Dollar. At the same time, gross margin was negatively impacted by the increase in freight and duty costs, which as a percentage of net sales increased to 7.3% during the three months ended March 31, 2024 from 5.9% during the three months ended March 31, 2023, primarily as a result of increased import volume following the strategy to scale back domestic manufacturing coupled with higher freight and container rates.

Current wording

Gross profit was $81.0 million for the six months ended June 30, 2024 compared to $80.0 million for the six months ended June 30, 2023, an increase of $1.0 million, or 1.3%. Gross profit for the six months ended June 30, 2024 was understated by $0.3 million related to products shipped and recognized as revenue and cost of goods sold in 2023 and not delivered until 2024, as discussed above. With this impact, gross margin decreased to 38.9% for the six months ended June 30, 2024 compared to 39.1% for the six months ended June 30, 2023. Gross margin for the six months ended June 30, 2024 included a net favorable impact of 80 basis points from the adjustments to net sales related to online platform fees and cost of goods sold related to production expenses, respectively, as discussed above. Gross margin also benefited from the strengthening of the United States Dollar against Taiwan New Dollar, reduced vendor pricing and increased import as a percentage of total product mix, in keeping with our asset-light strategy. At the same time, gross margin during the six months ended June 30, 2024 was negatively impacted by the increase in freight and duty costs and inventory reserve adjustment, as discussed above. Freight and duty costs as a percentage of net sales increased to 8.0% from 6.1% during the six months ended June 30, 2023, and inventory reserve adjustment as a percentage of net sales increased by 0.4% compared to the six months ended June 30, 2023. During the six months ended June 30, 2023, gross margin was negatively impacted by 80 basis points from the write-off of certain raw materials, as we disposed of certain machinery and equipment in executing the plan to scale back production in certain locations.

Previous wording

Operating expenses were $29.5 million for the three months ended March 31, 2024 compared to $25.4 million for the three months ended March 31, 2023, an increase of $4.1 million, or 16.2%. Operating expenses for the three months ended March 31, 2024 included a non-cash impairment of a ROU asset of $2.0 million resulting from the sublease of our City of Industry warehouse in California, as we optimize our distribution footprint in the southwest region with the opening of a new warehouse in Mesa, Arizona, and the inclusion of $2.2 million of online sales platform fees in operating expenses. Additionally, rent and warehouse expense increased $1.2 million from the opening of new distribution centers. These increases in operating expenses were partially offset by a decrease of $0.6 million related to the inclusion of production expenses in cost of goods sold for the three months ended March 31, 2024, and a decrease of $0.5 million in shipping and transportation costs largely due to a decrease in local shipping rates.

Current wording

Operating expenses were $61.8 million for the six months ended June 30, 2024 compared to $53.9 million for the six months ended June 30, 2023, an increase of $7.9 million, or 14.6%. Operating expenses for the six months ended June 30, 2024 included a $2.0 million non-cash impairment of a ROU asset resulting from the sublease of our City of Industry warehouse in California, as we optimized our distribution footprint in the southwest region with the opening of a new warehouse in Mesa, Arizona, and $0.5 million from loss on disposal of machinery in the normal course of business. In comparison, operating expenses for the six months ended June 30, 2023 included impairment expense and loss on disposal of machinery of $2.5 million due to executing the plan to scale back production in certain locations. Operating expenses for the six months ended June 30, 2024 increased year-over-year primarily due to the inclusion of $4.9 million of online sales platform fees in operating expenses, an increase of $2.6 million in rent and warehouse expense from the opening of new distribution centers and a higher rate on our Chino, California facility lease extension, an increase of $0.7 million in marketing expense as we increase online marketing efforts to grow our e-commerce sales channel, an increase of $0.8 million in stock compensation expense, and an increase of $0.8 million in bad debt expense. Operating expenses also decreased $1.3 million from the inclusion of production expenses in cost of goods sold for the six months ended June 30, 2024, as well as by $0.8 million from a reduction in shipping and transportation costs.

Previous wording

Other income, net was $0.4 million for the three months ended March 31, 2024 compared to $0.7 million of other expense, net for the three months ended March 31, 2023. Other income, net for the three months ended March 31, 2024 included a gain on foreign currency transactions of $0.1 million, compared to a loss on foreign currency transactions of $0.4 million included in other expense, net for the three months ended March 31, 2023. Additionally, interest income increased $0.4 million primarily from our investments in short-term investments.

Current wording

Other income, net was $1.3 million for the six months ended June 30, 2024 compared to $0.1 million of other expense, net for the six months ended June 30, 2023. Other income, net for the six months ended June 30, 2024 included a gain on foreign currency transactions of $0.4 million, compared to a loss on foreign currency transactions of $0.1 million for the six months ended June 30, 2023. Additionally, interest income increased $0.4 million primarily from our investments in short-term investments and rental income increased $0.4 million primarily from the sublease of our City of Industry warehouse.

Previous wording

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.

Current wording

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, (vi) write-off of certain inventory items outside the normal course of business, (vii) impairment expense and loss on disposal of machinery outside the normal course of business, and (viii) operating right-of-use asset impairment. Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by net sales.

Previous wording

As of March 31, 2024, 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, 2024, we had no borrowing on the Line of Credit, $28.0 million in outstanding balance under the 2027 Term Loan, and $21.4 million in outstanding balance under the 2026 Term Loan.

Current wording

As of June 30, 2024, 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 June 30, 2024, we had no borrowing on the Line of Credit, $27.9 million in outstanding balance under the 2027 Term Loan, and $21.2 million in outstanding balance under the 2026 Term Loan.

Previous wording

As discussed in Note 14 —Commitments and Contingenciesto 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. Although we currently have an import duty liability reserve of $2.8 million as of March 31, 2024, the amount of the final payments could vary significantly from this estimate.

Current wording

As discussed in Note 15 —Commitments and Contingenciesto 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. We are in the process of assessing further appeal options. Although we currently have an import duty liability reserve of $2.9 million as of June 30, 2024, the amount of the final payments could vary significantly from this estimate.

Previous wording

Additionally, as described in Note 15 —Subsequent Events to the condensed consolidated financial statements, on May 7, 2024, our Board of Directors declared a regular quarterly dividend of $0.35 per share on our common stock, which will be paid on or around May 24, 2024 to shareholders of record at the close of business on May 17, 2024. During the twelve months ended December 31, 2023, we paid out special and regular quarterly dividends totaling $20.9 million.

Current wording

Additionally, as described in Note 16 —Subsequent Events to the condensed consolidated financial statements, on August 6, 2024, our Board of Directors declared a special cash dividend of $0.15 per share on our common stock and a regular quarterly cash dividend of $0.35 per share on our common stock, both of which will be paid on or around

Previous wording

Our ongoing operations and growth strategy may require us to continue to make investments in our 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 and geopolitical 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.

Current wording

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 and geopolitical 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.

Previous wording

As of March 31, 2024, we had working capital of $112.3 million compared to working capital of $110.5 million as of December 31, 2023, representing an increase of $1.8 million, or 1.6%. The improvement in working capital was driven by an increase of $5.6 million in current assets partially offset by an increase of $3.8 million in current liabilities. The increase in current assets was primarily driven by an increase in inventory of $7.7 million as we stock up inventory to prepare for the summer peak season, and an increase in account receivable of $2.3 million, partially offset by a decrease in cash and cash equivalents and short-term investments totaling $2.8 million, and a decrease in prepaid expenses of $1.7 million. The increase in current liabilities was primarily driven by an increase in accounts payable and related party payables of $2.9 million, an increase in accrued expense of $0.7 million, and an increase in other current liabilities of $0.7 million, partially offset by a decrease in current portion of operating lease liabilities of $0.4 million and customer deposits of $0.2 million.

Current wording

As of June 30, 2024, we had working capital of $114.2 million compared to working capital of $110.5 million as of December 31, 2023, representing an increase of $3.7 million, or 3.4%. The improvement in working capital was driven by an increase of $14.9 million in current assets partially offset by an increase of $11.2 million in current liabilities. The increase in current assets was primarily driven by an increase in inventory of $8.3 million as we stock up inventory for the summer peak season, an increase in account receivable of $5.9 million, and an increase in cash and cash equivalents and short-term investments totaling $2.6 million, partially offset by a decrease in prepaid expenses of $2.0 million. The increase in current liabilities was primarily driven by an increase in accounts payable and related party payables of $4.4 million and an increase in accrued expense of $3.4 million.

Previous wording

The following table summarizes cash flow for the three months ended March 31, 2024 and 2023:

Current wording

The following table summarizes cash flow for the six months ended June 30, 2024 and 2023:

Previous wording

Cash flows provided by operating activities. 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 customer deposits. 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.

Current wording

Cash flows provided by operating activities. Net cash provided by operating activities was $20.3 million for the six months ended June 30, 2024, primarily the result of net income of $15.7 million, adjusted for certain non-cash items totaling $13.3 million, consisting mainly of depreciation and amortization of fixed assets and operating right-of-use assets, ROU asset impairment, stock-based compensation, loss on disposal of fixed assets, write-off of inventory, and adjustments to inventory reserve. In addition, cash decreased $8.8 million from changes in working capital, which included a decrease of $9.1 million from inventory build-up, a decrease of $6.1 million from an increase in accounts receivable from higher sales, a decrease of $3.1 million from reduction in operating lease liabilities. These decreases were partially offset by an increase of $4.9 million from higher accounts and related party payables, $3.4 million from higher accrued expenses, and $2.0 million from reductions in prepaid expenses.

Previous wording

Net cash provided by operating activities was $14.2 million for the three months ended March 31, 2023, primarily the result of net income of $9.2 million, adjusted for certain non-cash items totaling $3.9 million, consisting mainly of depreciation and amortization of property, equipment, and operating right-of-use assets. In addition, cash increased $1.1 million primarily as a result of changes in working capital, which primarily included a decrease of $1.0 million in prepaid expenses and other current assets, an increase of $1.8 million in income taxes payable, and an increase of $3.0 million in accounts payable and related party payable, partially offset by an increase of $2.4 million in accounts receivable as a result of higher sales, a decrease of $1.1 million in accrued expenses and a decrease of $1.1 million in operating lease liability.

Current wording

Net cash provided by operating activities was $31.1 million for the six months ended June 30, 2023, primarily the result of net income of $19.9 million, adjusted for certain non-cash items totaling $12.4 million, consisting mainly of depreciation and amortization, stock-based compensation, adjustments to accounts receivable and inventory reserves, write-off of inventory, impairment expense and loss on disposal of fixed assets, and amortization of operating right-of-use assets. In addition, cash decreased $1.2 million, primarily as a result of changes in working capital, which included an increase of $7.7 million in inventory build up to accommodate higher demand, an increase of $2.1 million in accounts receivable primarily due to higher sales, a decrease of $2.2 million in operating lease liability, and a decrease of $1.1 million in accrued expenses, partially offset by a decrease of $0.4 million in prepaid expenses, an increase of $6.2 million in accounts payable and related party payable, and an increase of $5.1 million in income taxes payable primarily due to the deferral of federal and California state income taxes under the Winter Storm Relief declared by the IRS.

Previous wording

Cash flows used in investing activities. 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. Net cash used in investing activities was $14.7 million for the three months ended March 31, 2023, which primarily included $10.0 million in purchase of short-term investments, $2.0 million of net investment pursuant to the JV Agreement, $1.7 million of deposits paid for the purchase of property and equipment, and $1.0 million paid to directly purchase property and equipment.

Current wording

Cash flows used in investing activities. Net cash used in investing activities was $8.5 million for the six months ended June 30, 2024, which primarily included $22.5 million in purchases of short-term investments, $2.0 million of deposits paid for the purchase of property and equipment, and $0.4 million paid to directly purchase property and equipment, partially offset by $16.4 million in redemptions of short-term investments.

Previous wording

Cash flows (used in) provided by financing activities. 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' interest in Global Wells, and $0.3 million of payments towards long-term debt. Net cash provided by financing activities was $7.7 million for the three months ended March 31, 2023, which primarily included an additional borrowing under the 2027 Term Loan of $8.0 million, partially offset by payments towards long-term debt of $0.2 million.

Current wording

Cash flows (used in) provided by financing activities. Net cash used in financing activities was $15.6 million for the six months ended June 30, 2024, which primarily included $13.0 million of cash dividends paid to shareholders, $2.3 million paid for the redemption of a non-controlling member' interest in Global Wells, and $0.6 million of payments towards long-term debt, partially offset by cash proceeds of $0.3 million received from the exercise of stock options.