Karat Packaging Inc.

Previous wording

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:

Current wording

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 contain “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:

Previous wording

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 an evolving economic environment to drive operating efficiency and sustained margin expansion. We have strengthened 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 in a dynamic global trade landscape. 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.

Current wording

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 an evolving economic environment to drive operating efficiency and sustain margin expansion. We have strengthened 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 in a dynamic global trade landscape. 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.

Previous wording

As described in Note 16 —Subsequent Events to the condensed consolidated financial statements, on February 20, 2026, the U.S. Supreme Court held that certain tariffs previously imposed under the International Emergency Economic Powers Act ("IEEPA") were unconstitutional. The case was remanded to the U.S. Court of International Trade (the "CIT") for further instructions regarding the refund of all IEEPA tariffs paid by importers of record. On April 20, 2026, CBP launched a new electronic system entitled Consolidated Administration and Processing of Entries ("CAPE") system to automate refunds for IEEPA tariffs paid by importers, following the order issued by the CIT. We have completed the process of reviewing our import data, and determined that we have paid a total of $26.0 million of IEEPA tariffs during the year ended December 31, 2025 and the first two months of 2026. As of April 20, 2026, we have successfully submitted refund claims totaling $25.8 million within CAPE, representing refund claims for all IEEPA tariffs paid on all entries that were not yet liquidated or were liquidated within 80 days of submission with CAPE, currently eligible to be automatically refunded through CAPE, upon CBP's approval of the claims. We continue to closely monitor the status of our submitted claims, and evaluate the probability and estimated amount of potential refunds. The financial impact of these events is uncertain, as it is unclear to whether the current U.S. presidential administration will appeal the ruling of the CIT, whether our submitted claims will be approved by CBP, and to what extent IEEPA tariffs will be refunded by CBP. No tariff refund receivables have been recorded in the accompanying condensed consolidated financial statements as of March 31, 2026.

Current wording

As a result of the Supreme Court’s ruling, and in response to the order from the U.S. Court of International Trade, the U.S. Customs and Border Protection ("CBP") formalized a process for refunds of previously paid IEEPA tariffs to importers of record. We have completed the process of reviewing our import data, and determined that we have paid a total of $26.0 million of IEEPA tariffs during the year ended December 31, 2025 and the first two months of 2026. In April 2026, we submitted refund claims totaling $25.8 million and expect to submit the remaining eligible claims once CBP opens the filing window.

Previous wording

•We continue to realign our global supply chain within a dynamic global trade environment. We increased domestic purchases to 18.3% from 13.8% for the three months ended March 31, 2026 compared to the three months ended March 31, 2025 and diversified sourcing to countries with more favorable trade conditions. Specifically, we reduced sourcing from Taiwan from 53.7% to 46.3% and from China from 18.4% to 11.3% for the three months ended March 31, 2026 compared to the three months ended March 31, 2025, respectively. Further, we increased our purchases from Malaysia and Vietnam from an aggregate of 12.2% to 17.2% for the three months ended March 31, 2026 compared to the three months ended March 31, 2025.

Current wording

14.6% and 14.2%, respectively, for the three and six months ended June 30, 2025, and diversified sourcing to countries with more favorable trade conditions. Specifically, we reduced sourcing from Taiwan to 45.9% and 46.0%, respectively, for the three and six months ended June 30, 2026, from 58.0% and 56.0%, respectively, for the three and six months ended June 30, 2025. Further, we increased our purchases from Indonesia, South America, and Singapore for the three and six months ended June 30, 2026 to an aggregate of 12.0% and 9.1%, respectively, from 0.9% and 1.1%, respectively, for the three and six months ended June 30, 2025.

Previous wording

•We recorded quarterly net sales of $116.9 million for the three months ended March 31, 2026, an increase of 12.9% in amount and 10.4% in volume, compared to the three months ended March 31, 2025.

Current wording

•We achieved record quarterly net sales of $136.3 million for the three months ended June 30, 2026, an increase of 9.9% in amount and 8.9% in volume, compared to the three months ended June 30, 2025. For the six months ended June 30, 2026, we recorded net sales of $253.2 million, an increase of 11.3% in amount and 9.6% in volume, compared to the six months ended June 30, 2025.

Previous wording

•Our net income margin was 6.1% for the three months ended March 31, 2026, a decrease of 50 basis points compared to the three months ended March 31, 2025.

Current wording

•Our net income margin was 21.8% and 14.5% for the three and six months ended June 30, 2026, an increase of 1,290 and 670 basis points compared to the three and six months ended June 30, 2025.

Previous wording

•We generated $7.2 million in net cash from operating activities for the three months ended March 31, 2026, a decrease of 6.9% compared to the three months ended March 31, 2025.

Current wording

•We generated $33.2 million and $40.3 million in net cash from operating activities for the three and six months ended June 30, 2026, an increase of 240.0% and 130.9% compared to the three and six months ended June 30, 2025.

Previous wording

•We generated consolidated Adjusted EBITDA, a non-GAAP measure defined below, of $12.5 million for the three months ended March 31, 2026, an increase of 4.8% compared to the three months ended March 31, 2025.

Current wording

•We generated consolidated Adjusted EBITDA, a non-GAAP measure defined below, of $41.6 million and $54.1 million for the three and six months ended June 30, 2026, an increase of 135.2% and 82.7% compared to the three and six months ended June 30, 2025.

Previous wording

•Our Adjusted EBITDA margin, a non-GAAP measure defined below, was 10.7% for the three months ended March 31, 2026, a decrease of 80 basis points compared to the three months ended March 31, 2025.

Current wording

•Our Adjusted EBITDA margin, a non-GAAP measure defined below, was 30.5% and 21.4% for the three and six months ended June 30, 2026, an increase of 1,620 and 840 basis points compared to the three and six months ended June 30, 2025.

Previous wording

•As of March 31, 2026, we had financial liquidity of $36.4 million, consisting of $28.7 million in cash and cash equivalents and $7.7 million in availability under Line of Credit. In addition, we had $5.7 million in short-term investments as of March 31, 2026.

Current wording

•As of June 30, 2026, we had financial liquidity of $42.0 million, consisting of $38.4 million in cash and cash equivalents and $3.6 million in availability under Line of Credit. In addition, we had $15.7 million in short-term investments as of June 30, 2026.

Previous wording

•On May 5, 2026, 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 28, 2026 to shareholders of record at the close of business on May 21, 2026.

Current wording

•On August 4, 2026, our Board of Directors declared an increase to our quarterly cash dividend to $0.47 per share on our common stock, which will be paid on August 28, 2026 to shareholders of record at the close of business on August 21, 2026.

Previous wording

Net sales were $116.9 million for the three months ended March 31, 2026 compared to $103.6 million for the three months ended March 31, 2025, an increase of $13.3 million, or 12.9%. The sales growth was primarily driven by an increase of $12.1 million in volume and product mix, as well as a $2.0 million favorable year-over-year pricing comparison, partially offset by a decrease of $0.8 million in shipping and logistics revenue.

Current wording

Net sales were $136.3 million for the three months ended June 30, 2026 compared to $124.0 million for the three months ended June 30, 2025, an increase of $12.3 million, or 9.9%. The sales growth was primarily driven by an increase of $13.1 million in volume and product mix, as well as a $0.4 million favorable year-over-year pricing comparison, partially offset by a decrease of $1.1 million in shipping and logistics revenue.

Previous wording

Operating income was $8.5 million for the three months ended March 31, 2026 compared to $7.8 million for the three months ended March 31, 2025, an increase of $0.6 million, or 8.2%. The increase was due to an increase in gross profit of $0.8 million, partially offset by an increase in operating expenses of $0.1 million, as discussed above.

Current wording

Operating income was $37.6 million for the three months ended June 30, 2026 compared to $16.6 million for the three months ended June 30, 2025, an increase of $21.1 million, or 127.2%. The increase was due to an increase in gross profit of $28.1 million partially offset by an increase in operating expenses of $7.0 million, as discussed above.

Previous wording

Net income was $7.1 million for the three months ended March 31, 2026 compared to $6.8 million for the three months ended March 31, 2025, an increase of $0.3 million, or 4.8%. The increase was primarily driven by an increase of $0.6 million in operating income, partially offset by a decrease of $0.2 million in other income, net, and an increase of $0.1 million in provision for income taxes, as discussed above.

Current wording

Net income was $29.6 million for the three months ended June 30, 2026 compared to $11.1 million for the three months ended June 30, 2025, an increase of $18.6 million, or 168.3%. The increase was primarily driven by an increase of $21.1 million in operating income and an increase of $3.5 million in other income, net, partially offset by an increase of $5.9 million in provision for income taxes, as discussed above.

Previous wording

Cost of goods sold was $75.4 million for the three months ended March 31, 2026 compared to $62.9 million for the three months ended March 31, 2025, an increase of $12.6 million, or 20.0%. Product costs increased $5.2 million primarily due to sales volume growth. Import costs, including duty and tariffs and ocean freight, increased $7.3 million primarily as a result of higher import duty and tariffs, which increased from $3.4 million for the three months ended March 31, 2025 to $10.5 million for the three months ended March 31, 2026.

Current wording

Cost of goods sold was $134.6 million for the six months ended June 30, 2026 compared to $137.7 million for the six months ended June 30, 2025, a decrease of $3.2 million, or 2.3%, primarily due to IEEPA tariff refunds of $25.8 million during the six months ended June 30, 2026. This decrease is partially offset by an increase of $12.1 million in product costs primarily driven by increased sales volume and resin price, and an increase of $10.7 million in import costs, including duty and tariffs and ocean freight, primarily as a result of higher import duty and tariffs, which increased from $8.1 million for the six months ended June 30, 2025 to $18.9 million for the six months ended June 30, 2026.

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, and (v) stock-based compensation expense. 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, and (vi) secondary offering transaction costs. Adjusted EBITDA margin is calculated by dividing Adjusted EBITDA by net sales.

Previous wording

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 sub-limit. 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, we 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, August 21, 2025, and October 3, 2025, the Company entered into three separate amendments of the Line of Credit, increasing the standby letter of credit sub-limit, respectively, from $5,000,000 to $7,500,000, from $7,500,000 to $10,000,000, and from $10,000,000 to $15,000,000. As of March 31, 2026, the amount issued under the standby letter of credit was $12.3 million, and the maximum remaining amount that could be borrowed under the Line of Credit was $7.7 million.

Current wording

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 sub-limit. 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, we 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, August 21, 2025, October 3, 2025, and May 11, 2026, we entered into four separate amendments of the Line of Credit, increasing the standby letter of credit sub-limit, respectively, from $5,000,000 to $7,500,000, from $7,500,000 to $10,000,000, from $10,000,000 to $15,000,000, and from $15,000,000 to $18,000,000. As of June 30, 2026, the amount issued under the standby letter of credit was $16.4 million, and the maximum remaining amount that could be borrowed under the Line of Credit was $3.6 million.

Previous wording

Additionally, as of March 31, 2026, 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 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. On December 18, 2025, we made an early payment of $8.0 million to reduce the remaining principal balance due at maturity, with total monthly payments remaining the same for the remainder of the loan term. 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, 2026, the entire remaining balance of $12.0 million is included in the long-term debt, current portion on the condensed consolidated balance sheet. We intend to repay the 2026 Term Loan at maturity using our available liquidity, which includes $28.7 million in cash and cash equivalents and $5.7 million in short-term investments as of March 31, 2026.

Current wording

Additionally, as of June 30, 2026, 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 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. On December 18, 2025 and April 24, 2026, we made early payments of $8.0 million and $0.4 million, respectively, to reduce the remaining principal balance due at maturity, with total monthly payments remaining the same for the remainder of the loan term. 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 June 30, 2026, the entire remaining balance of $11.4 million is included in the long-term debt, current portion on the condensed consolidated balance sheet. We intend to repay the 2026 Term Loan at maturity using our available liquidity, which includes $38.4 million in cash and cash equivalents and $15.7 million in short-term investments as of June 30, 2026.

Previous wording

As of March 31, 2026, 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, 2026, we had no borrowings outstanding under the Line of Credit, $23.4 million in outstanding balance under the 2027 Term Loan, and $12.0 million in outstanding balance under the 2026 Term Loan.

Current wording

As of June 30, 2026, 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, 2026, we had no borrowings outstanding under the Line of Credit, $23.3 million in outstanding balance under the 2027 Term Loan, and $11.4 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 submitted 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. During the year ended December 31, 2025, we submitted protests of certain bills received with CBP, and received its determination on all submitted protests as of April 3, 2026. We made total payments of $1,909,000 related to certain shipments under the investigation for the year ended December 31, 2025 and no payment for the three months ended March 31, 2026. Payments on bills received are currently due as all submitted protests are resolved. Although we have an import duty liability reserve of $1.5 million as of March 31, 2026, the amount of the final payments could vary significantly from the estimated liability reserve.

Current 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 the 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 submitted 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. During the year ended December 31, 2025, we submitted protests of certain bills received with CBP, and received its determination on all submitted protests as of April 3, 2026. We made total payments of $1.9 million related to certain shipments under the investigation for the year ended December 31, 2025 and $0.2 million for the six months ended June 30, 2026. Payments on bills received are currently due as all submitted protests are resolved. Although we have an import duty liability reserve of $1.3 million as of June 30, 2026, the amount of the final payments could vary significantly from the estimated liability reserve.

Previous wording

Additionally, on May 5, 2026 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 28, 2026 to shareholders of record at the close of business on May 21, 2026. Prior to this, we paid out regular quarterly cash dividends totaling $9.0 million in the current fiscal year.

Current wording

Additionally, on August 4, 2026 our Board of Directors declared an increase to our regular quarterly cash dividend to $0.47 per share on our common stock, which will be paid on August 28, 2026 to shareholders of record at the close of business on August 21, 2026. Prior to this, we paid out regular quarterly cash dividends totaling $18.0 million in the current fiscal year.

Previous wording

As of March 31, 2026, we had working capital of $90.7 million compared to $91.0 million as of December 31, 2025, representing a decrease of $0.3 million, or 0.3%, driven by a decrease of $0.2 million in current assets partially offset by an increase of $0.1 million in current liabilities. The decrease in current assets was primarily driven by a decrease in cash and cash equivalents and short-term investments of $3.5 million, a decrease in inventories of $1.7 million, and a decrease in prepaid expenses and other current assets of $0.9 million, partially offset by an increase in accounts receivable of $5.9 million as a result of stronger sales in March 2026 compared to December 2025. The increase in current liabilities was primarily driven by an increase in income tax payable of $1.3 million and an increase in deferred revenue of $0.5 million, partially offset by a decrease in accounts payable and related party payables of $1.3 million and a decrease in accrued expenses of $0.4 million.

Current wording

As of June 30, 2026, we had working capital of $110.8 million compared to $91.0 million as of December 31, 2025, representing an increase of $19.8 million, or 21.8%, driven by an increase of $38.2 million in current assets, partially offset by an increase of $18.3 million in current liabilities. The increase in current assets was primarily driven by an increase in cash and cash equivalents and short-term investments of $16.3 million, an increase in accounts receivable of $12.8 million as a result of stronger sales, an increase in inventories of $7.4 million as we stock up for the summer peak season, and an increase in prepaid expenses and other current assets of $1.7 million due to $1.5 million outstanding IEEPA tariff receivable. The increase in current liabilities was primarily driven by an increase in accounts payable and related party payables of $10.4 million, an increase in income tax payable of $5.7 million, and an increase in accrued expenses of $2.5 million, partially offset by a decrease in long-term debt, current portion of $0.9 million.

Previous wording

The following table summarizes cash flow for the three months ended March 31, 2026 and 2025:

Current wording

The following table summarizes cash flow for the six months ended June 30, 2026 and 2025:

Previous wording

Cash flows provided by operating activities. Net cash provided by operating activities was $7.2 million for the three months ended March 31, 2026, primarily the result of net income of $7.1 million, adjusted for certain non-cash items totaling $6.5 million, consisting mainly of depreciation and amortization of fixed assets and operating right-of-use assets, stock-based compensation, and allowance for bad debt and inventory adjustments. In addition, cash decreased by $6.5 million from changes in working capital, primarily resulted from a decrease of $6.2 million from an increase in accounts receivable due to higher sales and a decrease of $2.9 million from a reduction in operating lease liabilities, partially offset by an increase of $1.3 million from a reduction in inventory purchases and an increase of $1.3 million from the increase in income tax payable.

Current wording

Cash flows provided by operating activities. Net cash provided by operating activities was $40.3 million for the six months ended June 30, 2026, primarily the result of net income of $36.8 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, stock-based compensation, and allowance for bad debt and inventory adjustments. In addition, cash decreased by $9.7 million from changes in working capital, primarily resulted from a decrease of $13.4 million from an increase in accounts receivable due to higher sales, a decrease of $8.2 million from an increase in inventory due to increased inventory purchases, a decrease of $5.9 million from a reduction in operating lease liabilities, and a decrease of $1.6 million from an increase in prepaid expenses, partially offset by an increase of $10.9 million from higher accounts and related party payables primarily due to increased inventory purchases, an increase of $2.5 million from higher accrued expenses, and an increase of $5.7 million from the increase in income tax payable.

Previous wording

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.

Current wording

Net cash provided by operating activities was $17.5 million for the six months ended June 30, 2025, primarily the result of net income of $17.9 million, adjusted for certain non-cash items totaling $11.1 million, consisting mainly of depreciation and amortization of fixed assets and operating right-of-use assets, stock-based compensation, gain on disposal of machinery in the normal course of business, and write-off of inventory. In addition, cash decreased by $11.5 million from changes in working capital, which included a decrease of $18.4 million from inventory build-up, a decrease of $9.6 million from an increase in accounts receivable from higher sales, and a decrease of $4.6 million from an increase in operating lease liabilities. These decreases were partially offset by an increase of $20.4 million from higher accounts and related party payables primarily associated with increased inventory purchases and an increase of $0.7 million from higher accrued expenses.

Previous wording

Cash flows (used in) provided by investing activities. Net cash used in investing activities was $6.9 million for the three months ended March 31, 2026, which primarily included $5.7 million in purchases of short-term investments and $0.6 million in purchases of property and equipment.

Current wording

Cash flows (used in) provided by investing activities. Net cash used in investing activities was $18.3 million for the six months ended June 30, 2026, which primarily included $15.7 million in purchases of short-term investments, $1.7 million in deposits paid for the purchase of property and equipment, and $0.6 million paid to directly purchase property and equipment.

Previous wording

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.

Current wording

Net cash provided by investing activities was $1.2 million for the six months ended June 30, 2025, which primarily included $18.2 million in redemptions of short-term investments, $0.5 million of proceeds from the disposal of publicly-traded equity securities, and $0.5 million of proceeds from the sale of machinery and equipment, partially offset by $16.3 million in purchases of short-term investments, $1.0 million of deposits paid for the purchase of property and equipment, $0.5 million paid to invest in publicly-traded equity securities, and $0.3 million paid to directly purchase property and equipment.

Previous wording

Cash flows used in financing activities. Net cash used in financing activities was $9.5 million for the three months ended March 31, 2026, which primarily included $9.0 million of cash dividends paid to shareholders and $0.4 million of payments towards long-term debt.

Current wording

Cash flows used in financing activities. Net cash used in financing activities was $21.6 million for the six months ended June 30, 2026, which primarily included $18.0 million of cash dividends paid to shareholders, $2.0 million of repurchases of common stock ,and $1.2 million of payments towards long-term debt.

Previous wording

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.

Current wording

Net cash used in financing activities was $19.7 million for the six months ended June 30, 2025, which primarily included $18.0 million of cash dividends paid to shareholders, $0.9 million of Global Wells noncontrolling membership interest redemption gain tax withholding payment, and $0.6 million of payments towards long-term debt.