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 eight other distribution centers located in Chino, California; 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 October 17, 2025, we announced that Lollicup, our wholly-owned business operating subsidiary, relocated its headquarters to Rockwall, Texas, from Chino, California.

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 eight other distribution centers located in Chino, California; Puyallup, Washington; Summerville, South Carolina; Branchburg, New Jersey; Kapolei, Hawaii; Aurora, Illinois; Mesa, Arizona; and Sugar Land, Texas. We recently entered into a 50-month lease agreement for a new distribution center in Orlando, Florida, which is expected to be fully operational in November 2026. Our distribution centers are strategically located in proximity to major population centers, including the Los Angeles, New York, Chicago, Dallas, Houston, Seattle, Phoenix, Atlanta, Honolulu and Orlando metro areas. On October 17, 2025, we announced that Lollicup, our wholly-owned business operating subsidiary, relocated its headquarters to Rockwall, Texas, from Chino, California.

Previous wording

Beginning in 2025, the U.S. implemented a baseline tariff framework on most imports with higher country and product-specific rates for certain trading partners, including Taiwan and China, among others. In February 2026, the U.S. Supreme Court ruled that these tariffs levied under the International Emergency Economic Powers Act ("IEEPA") were unconstitutional. With the removal of IEEPA tariff following Supreme Court's ruling, a new temporary 10% tariff for all imports under Section 122 of the Trade Act of 1974 was imposed effective February 24, 2026, and remained in effect for 150 days, the maximum period that Section 122 permits without congressional action. Subsequent to the expiration of the Section 122 tariff on July 24, 2026, new Section 301 tariffs ranging from 10% to 12.5% were imposed on approximately 60 trading partners effective July 24, 2026.

Current wording

Beginning in 2025, the U.S. implemented a baseline tariff framework on most imports with higher country and product-specific rates for certain trading partners, including Taiwan and China, among others. In February 2026, the U.S. Supreme Court ruled that these tariffs levied under the International Emergency Economic Powers Act ("IEEPA") were unconstitutional. With the removal of IEEPA tariffs following the Supreme Court's ruling, a new temporary 10% tariff for all imports under Section 122 of the Trade Act of 1974 was imposed effective February 24, 2026, and remained in effect for 150 days, the maximum period that Section 122 permits without congressional action. Subsequent to the expiration of the Section 122 tariff on July 24, 2026, new Section 301 tariffs ranging from 10% to 12.5% were imposed on approximately 60 trading partners effective July 24, 2026.

Previous 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.

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 eligible for processing at time of filing, and expect to submit the remaining eligible claims once CBP opens the filing window.

Previous wording

We recorded $26.7 million of IEEPA tariff refunds during the three and six months ended June 30, 2026, consisting of $25.8 million of principal recognized as a reduction of cost of goods sold, as all related inventory has been soldas of June 30, 2026, and $0.9 million of excess amount recognized as interest income in the accompanying condensed consolidated statements of income.

Current wording

We did not recognize any IEEPA tariff refunds during the three months ended September 30, 2026. During the nine months ended September 30, 2026, we recognized IEEPA tariff refunds of $26.7 million, including principal of $25.8 million recognized as a reduction of cost of goods sold because all related inventory was sold at the time of recognition, and interest of $0.9 million recognized as interest income in the accompanying condensed consolidated statements of income.

Previous 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.

Current wording

•We continue to realign our global supply chain within a dynamic global trade environment and diversified sourcing to countries with more favorable trade conditions, such as increasing sourcing from Indonesia, South America, and Malaysia for the three and nine months ended September 30, 2026 to an aggregate of 19.4% and 15.6%, respectively, from 13.0% and 9.6%, respectively, for the three and nine months ended September 30, 2025. Further, we have decreased our sourcing from Taiwan for the three and nine months ended September 30, 2026 to 39.1% and 43.1%, respectively, from 41.6% and 51.5%, respectively, for the three and nine months ended September 30, 2025. Similarly, we have decreased our sourcing from China for the three and nine months ended September 30, 2026 to 14.4% and 12.5%, respectively, from 17.1% and 14.9%, respectively, for the three and nine months ended September 30, 2025.

Previous wording

•We recognized $25.8 million as a reduction of cost of goods sold and $0.9 million as interest income related to IEEPA tariff refunds during the three and six months ended June 30, 2026. The recorded IEEPA tariff refunds increased our gross profit and our adjusted EBITDA by $25.8 million, our other income, net, by $0.9 million, and our net income by $20.2 million, respectively, for the three and six months ended June 30, 2026. The refunds delivered benefits to our gross margin and our adjusted EBITDA margin of 18.9% and 10.2%, respectively, and our net income margin of 14.8% and 8.0%, respectively, for the three and six months ended June 30, 2026. The refunds represent the recovery of tariffs paid in prior periods and provided a one-time benefit to our results during the quarter. Cash received from IEEPA tariff refunds, included in cash from operating activities, totaled $25.2 million during the three and six months ended June 30, 2026.

Current wording

•We did not recognize any IEEPA tariff refunds during the three months ended September 30, 2026. For the nine months ended September 30, 2026, we recognized $25.8 million as a reduction of cost of goods sold and $0.9 million as interest income related to IEEPA tariff refunds. The recorded IEEPA tariff refunds increased our gross profit and our adjusted EBITDA by $25.8 million, our other income, net, by $0.9 million, and our net income by $20.2 million for the nine months ended September 30, 2026. The refunds delivered benefits to our gross margin and our adjusted EBITDA margin of 660 basis points and our net income margin of 520 basis points for the nine months ended September 30, 2026. The refunds represent the recovery of tariffs paid in prior periods and provided a one-time benefit to our results during the nine months ended September 30, 2026. Cash received from IEEPA tariff refunds, included in cash from operating activities, totaled $25.2 million during the nine months ended September 30, 2026.

Previous 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.

Current wording

•We recorded quarterly net sales of $134.7 million for the three months ended September 30, 2026, an increase of 8.2% in amount and 7.4% in volume, compared to the three months ended September 30, 2025. For the nine months ended September 30, 2026, we recorded net sales of $388.0 million, an increase of 10.2% in amount and 8.8% in volume, compared to the nine months ended September 30, 2025.

Previous wording

•We achieved record quarterly net income of $29.6 million for the three months ended June 30, 2026, an increase of 168.3% compared to the three months ended June 30, 2025. For the six months ended June 30, 2026, we recorded net income of $36.8 million, an increase of 105.9%, compared to the six months ended June 30, 2025.

Current wording

•We recorded quarterly net income of $4.7 million for the three months ended September 30, 2026, a decrease of 37.8% compared to the three months ended September 30, 2025. For the nine months ended September 30, 2026, we recorded net income of $41.5 million, an increase of 63.0%, compared to the nine months ended September 30, 2025.

Previous 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.

Current wording

•Our net income margin was 3.5% and 10.7% for the three and nine months ended September 30, 2026, a decrease of 260 and an increase of 350 basis points compared to the three and nine months ended September 30, 2025, respectively.

Previous 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.

Current wording

•We generated $9.7 million and $50.0 million in net cash from operating activities for the three and nine months ended September 30, 2026, an increase of 885.7% and 171.0% compared to the three and nine months ended September 30, 2025, respectively.

Previous 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.

Current wording

•We generated consolidated Adjusted EBITDA, a non-GAAP measure defined below, of $8.9 million and $63.0 million for the three and nine months ended September 30, 2026, a decrease of 31.5% and an increase of 47.8% compared to the three and nine months ended September 30, 2025, respectively.

Previous 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.

Current wording

•Our Adjusted EBITDA margin, a non-GAAP measure defined below, was 6.6% and 16.2% for the three and nine months ended September 30, 2026, a decrease of 390 and an increase of 410 basis points compared to the three and nine months ended September 30, 2025, respectively.

Previous 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.

Current wording

•As of September 30, 2026, we had financial liquidity of $37.0 million, consisting of $33.4 million in cash and cash equivalents and $3.6 million in availability under Line of Credit. In addition, we had $10.0 million in short-term investments as of September 30, 2026.

Previous 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.

Current wording

•On November 3, 2026, our Board of Directors declared a regular quarterly cash dividend of $0.47 per share on our common stock, which will be paid on or about November 27, 2026 to shareholders of record at the close of business on November 19, 2026.

Previous wording

•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.

Current wording

•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 prices, 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.

Previous 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.

Current wording

Net sales were $134.7 million for the three months ended September 30, 2026 compared to $124.5 million for the three months ended September 30, 2025, an increase of $10.2 million, or 8.2%. The sales growth was primarily driven by an increase of $10.7 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 $0.8 million in shipping and logistics revenue.

Previous wording

Cost of goods sold was $59.1 million for the three months ended June 30, 2026, compared to $74.9 million for the three months ended June 30, 2025, a decrease of $15.7 million, or 21.0%. This is primarily driven by IEEPA tariff refunds of $25.8 million, partially offset by higher product costs of $6.9 million due to increased sales volume and resin price, coupled with higher import costs of $3.5 million, including duty and tariffs and ocean freight, mainly due to a 4.3% increase in the number of containers imported and an 8.9% increase in average container rate compared to the three months ended June 30, 2025.

Current wording

Cost of goods sold was $89.6 million for the three months ended September 30, 2026, compared to $81.6 million for the three months ended September 30, 2025, an increase of $8.0 million, or 9.8%. Product costs increased by $7.2 million compared to the three months ended September 30, 2025 due to increased sales volume and resin prices. Import costs increased by $1.3 million, compared to the three months ended September 30, 2025, as ocean freight costs grew $2.4 million due to an 11.7% increase in the number of containers imported and a 17.0% increase in average container rate, while duty and tariff costs decreased by $1.1 million.

Previous wording

Operating expenses were $72.6 million for the six months ended June 30, 2026 compared to $65.5 million for the six months ended June 30, 2025, an increase of $7.1 million, or 10.9%. Shipping and transportation costs increased $2.7 million during the six months ended June 30, 2026 driven by higher shipping volume and increased shipping rate. In addition, salaries and benefits increased $1.7 million, bad debt expense increased $0.7 million, warehouse expense increased $0.7 million, and marketing expense increased $0.4 million. Further, the six months ended June 30, 2026 included a $0.1 million loss compared to a $0.3 million gain on disposal of machinery in the normal course of business during the six months ended June 30, 2025.

Current wording

Operating expenses were $40.3 million for the three months ended September 30, 2026 compared to $34.3 million for the three months ended September 30, 2025, an increase of $5.9 million, or 17.2%. Shipping and transportation costs increased $2.8 million during the three months ended September 30, 2026, mainly due to the increase in online shipping costs of $2.2 million as online sales grew 37.7% compared to the three months ended September 30, 2025. Driven by this online sales growth, online platform fees also increased $0.9 million and online marketing expense increased $0.7 million. Additionally, salaries and benefits increased $0.9 million, warehouse expense increased $0.4 million, and stock-based compensation expense increased $0.4 million.

Previous wording

Operating income was $46.1 million for the six months ended June 30, 2026 compared to $24.4 million for the six months ended June 30, 2025, an increase of $21.7 million, or 89.0%. The increase was due to an increase in gross profit of $28.8 million, partially offset by an increase in operating expenses of $7.1 million, as discussed above.

Current wording

Operating income was $4.9 million for the three months ended September 30, 2026 compared to $8.6 million for the three months ended September 30, 2025, a decrease of $3.7 million, or 43.2%. The decrease was due to an increase in operating expenses of $5.9 million, partially offset by an increase in gross profit of $2.2 million, as discussed above.

Previous wording

Other income, net was $1.4 million for the three months ended June 30, 2026 compared to other expenses, net of $2.0 million for the three months ended June 30, 2025, a favorable variance of $3.5 million, primarily due to a decrease in loss on foreign currency transactions of $2.8 million a result of the fluctuation of currency exchange rate between the United States Dollar and the New Taiwan Dollar. Additionally, interest income increased $0.5 million compared to the three months ended June 30, 2025. Interest income in the three months ended June 30, 2026 consisted mostly of the $0.9 million related to IEEPA tariff refunds. Interest income in the three months ended June 30, 2025 consisted entirely of interest generated from investment in certificates of deposit of $0.7 million.

Current wording

Other income, net was $1.0 million for the three months ended September 30, 2026 compared to $1.3 million for the three months ended September 30, 2025, a decrease of $0.4 million, or 26.6%, primarily due to a decrease in gain on foreign currency transactions of $0.5 million as a result of the fluctuation of currency exchange rate between the United States Dollar and the New Taiwan Dollar.

Previous wording

Net income was $36.8 million for the six months ended June 30, 2026 compared to $17.9 million for the six months ended June 30, 2025, an increase of $18.9 million, or 105.9%. The increase was primarily driven by an increase of $21.7 million in operating income and an increase of $3.3 million in other income, net, partially offset by an increase of $6.0 million in provision for income taxes, as discussed above.

Current wording

Net income was $4.7 million for the three months ended September 30, 2026 compared to $7.6 million for the three months ended September 30, 2025, a decrease of $2.9 million, or 37.8%. The decrease was primarily driven by a decrease of $3.7 million in operating income and a decrease of $0.4 million in other income, net, partially offset by a decrease of $1.2 million in provision for income taxes, as discussed above.

Previous wording

Net sales were $253.2 million for the six months ended June 30, 2026 compared to $227.6 million for the six months ended June 30, 2025, an increase of $25.6 million, or 11.3%. The year-over-year increase in net sales was primarily driven by an increase of $25.4 million in volume and change in product mix, as well as a $2.3 million favorable year-over-year pricing comparison, partially offset by a decrease of $2.0 million in shipping and logistics revenue.

Current wording

Net sales were $388.0 million for the nine months ended September 30, 2026 compared to $352.1 million for the nine months ended September 30, 2025, an increase of $35.9 million, or 10.2%. The year-over-year increase in net sales was primarily driven by an increase of $36.5 million in volume and change in product mix, as well as a $2.2 million favorable year-over-year pricing comparison, partially offset by a decrease of $2.8 million in shipping and logistics revenue.

Previous wording

Gross profit was $77.2 million for the three months ended June 30, 2026 compared to $49.1 million for the three months ended June 30, 2025, an increase of $28.1 million, or 57.1%. Gross margin was 56.6% for the three months ended June 30, 2026 compared to 39.6% for the three months ended June 30, 2025, an increase of 1,700 basis points. IEEPA tariff refunds delivered a favorable impact on gross margin of 1,890 basis points for the three months ended June 30, 2026. Partially offset this benefit, product costs as a percentage of net sales increased to 49.2% from 48.5%, and import costs increased to 11.1% from 9.5%, compared to the three months ended June 30, 2025.

Current wording

Gross profit was $163.8 million for the nine months ended September 30, 2026 compared to $132.8 million for the nine months ended September 30, 2025, an increase of $31.0 million, or 23.4%. Gross margin was 42.2% for the nine months ended September 30, 2026 compared to 37.7% for the nine months ended September 30, 2025, an increase of 450 basis points. IEEPA tariff refunds delivered a favorable impact on gross margin of 660 basis points for the nine months ended September 30, 2026. Partially offsetting this benefit, product costs as a percentage of net sales increased to 49.4% from 49.0% and import costs as a percentage of net sales increased to 13.0% from 11.0%, compared to the nine months ended September 30, 2025.

Previous wording

Operating expenses were $39.6 million for the three months ended June 30, 2026 compared to $32.6 million for the three months ended June 30, 2025, an increase of $7.0 million, or 21.5%. Shipping and transportation costs increased $3.1 million during the three months ended June 30, 2026 driven by higher shipping volume and increased shipping rate. Online platform fees increased $0.6 million and marketing expense increased $0.5 million, as online sales grew 23.6% compared to the three months ended June 30, 2025. Additionally, salaries and benefits increased $1.1 million, bad debt expense increased $0.6 million, and warehouse expense increased $0.4 million. Further, the three months ended June 30, 2026 included a $0.1 million loss compared to a $0.3 million gain on disposal of machinery in the normal course of business during the three months ended June 30, 2025.

Current wording

Operating expenses were $112.9 million for the nine months ended September 30, 2026 compared to $99.8 million for the nine months ended September 30, 2025, an increase of $13.0 million, or 13.1%. Shipping and transportation costs increased $5.5 million during the nine months ended September 30, 2026 driven by higher shipping volume mainly due to online sales growth of 24.1% compared to the nine months ended September 30, 2025 and increased shipping rates. Driven by this online sales growth, online marketing expense also increased $1.1 million and online platform fees increased $0.8 million. In addition, salaries and benefits increased $2.6 million, warehouse expense increased $1.2 million, and stock-based compensation expense increased $0.4 million. Further, a net loss of less than $0.1 million was recognized on disposal of property and equipment during the nine months ended September 30, 2026 compared to a $0.7 million gain during the nine months ended September 30, 2025.

Previous 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.

Current wording

Operating income was $50.9 million for the nine months ended September 30, 2026 compared to $32.9 million for the nine months ended September 30, 2025, an increase of $18.0 million, or 54.6%. The increase was due to an increase in gross profit of $31.0 million, partially offset by an increase in operating expenses of $13.0 million, as discussed above.

Previous wording

Other income, net was $2.3 million for the six months ended June 30, 2026 compared to other expenses, net of $0.9 million for the six months ended June 30, 2025, a favorable variance of $3.3 million. The variance was driven primarily by a gain on foreign currency transactions of $0.2 million during the six months ended June 30, 2026, compared to a loss on foreign currency transactions of $2.6 million during the six months ended June 30, 2025, due to the foreign currency fluctuation between the United States Dollar and the New Taiwan Dollar. In addition, interest income increased $0.2 million due to $0.9 million interest income related to IEEPA tariff refunds recognized in the six months ended June 30, 2026, partially offset by a decrease of $0.7 million in interest income from investment in certificates of deposit compared to the six months ended June 30, 2025.

Current wording

Other income, net was $3.3 million for the nine months ended September 30, 2026 compared to $0.4 million for the nine months ended September 30, 2025, an increase of $2.9 million, or 708.0%. The increase was driven primarily by a gain on foreign currency transactions of $0.3 million during the nine months ended September 30, 2026, compared with a loss on foreign currency transactions of $1.9 million during the nine months ended September 30, 2025, due to the foreign currency fluctuation between the United States Dollar and the New Taiwan Dollar. In addition, interest income increased $0.3 million due to $0.9 million interest income related to IEEPA tariff refunds recognized in the nine months ended September 30, 2026, partially offset by a decrease of $0.6 million in interest income from investment in certificates of deposit compared to the nine months ended September 30, 2025.

Previous wording

Provision for income taxes was $11.6 million, including $6.6 million impact from IEEPA tariff refunds, for the six months ended June 30, 2026 compared to 5.6 million for the six months ended June 30, 2025, an increase of $6.0 million, or 108.2%. The Company’s effective tax rate was 24.0% for the six months ended June 30, 2026 compared to 23.8% for the six months ended June 30, 2025.

Current wording

Provision for income taxes was $12.7 million, including a $6.6 million impact from IEEPA tariff refunds, for the nine months ended September 30, 2026 compared to $7.9 million for the nine months ended September 30, 2025, an increase of $4.9 million, or 61.6%. The Company’s effective tax rate was 23.5% for the nine months ended September 30, 2026 compared to 23.6% for the nine months ended September 30, 2025.

Previous 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.

Current wording

Net income was $41.5 million for the nine months ended September 30, 2026 compared to $25.5 million for the nine months ended September 30, 2025, an increase of $16.0 million, or 63.0%. The increase was primarily driven by an increase of $18.0 million in operating income and an increase of $2.9 million in other income, net, partially offset by an increase of $4.9 million in provision for income taxes, as discussed above.

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, 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.

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 $5.0 million to $7.5 million, from $7.5 million to $10.0 million, from $10.0 million to $15.0 million, and from $15.0 million to $18.0 million. As of September 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

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 additional advances up to a maximum of $8.0 million through June 30, 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. On September 5, 2025, we made an early payment of $3.5 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 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.

Current wording

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 additional advances up to a maximum of $8.0 million through June 30, 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. On September 5, 2025, we made an early payment of $3.5 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 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. As of September 30, 2026, the entire remaining balance of $23.1 million is included in the long-term debt, current portion on the condensed consolidated balance sheet.

Previous 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.

Current wording

Additionally, we had a $23.0 million term loan that matured on 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. On September 30, 2026, we made a lump-sum payment of $11.2 million to fully repay the loan upon maturity. The 2026 Term Loan was collateralized by substantially all of Global Wells’ assets and was guaranteed by Global Wells and one of our stockholders. In accordance with the loan agreement, Global Wells was required to comply with certain financial covenants, including a minimum debt service coverage ratio.

Previous 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.

Current wording

As of September 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 September 30, 2026, we had no borrowings outstanding under the Line of Credit and $23.1 million in outstanding balance under the 2027 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 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.

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 $0.3 million for the nine months ended September 30, 2026. Additionally, we made total payments of $0.8 million in October 2026. Payments on bills received are currently due as all submitted protests are resolved. Although we have an import duty liability reserve of $0.9 million as of September 30, 2026, the amount of the final payments could vary significantly from the estimated liability reserve.

Previous wording

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 for further instructions regarding the refund of all IEEPA tariffs paid by 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.

Current wording

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 for further instructions regarding the refund of all IEEPA tariffs paid by 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 eligible for processing at time of filing and expect to submit the remaining eligible claims once CBP opens the filing window.

Previous wording

We recognized $26.7 million of IEEPA tariff refunds during the three and six months ended June 30, 2026. Of the total amount recognized, $25.2 million had been received and $1.5 million was deemed probable and recognized as prepaid expenses and other current assets in the accompanying condensed consolidated balance sheet as of June 30, 2026. We currently expect to receive the refund of the remaining $1.5 million within the next 12 months, and continue to closely monitor the status of its submitted claims and developments.

Current wording

We did not recognize any IEEPA tariff refunds during the three months ended September 30, 2026, but recognized $26.7 million during the nine months ended September 30, 2026. Of the total amount recognized, $25.2 million had been received and $1.5 million was deemed probable and recognized as prepaid expenses and other current assets in the accompanying condensed consolidated balance sheet as of September 30, 2026. We currently expect to receive the refund of the remaining $1.5 million within the next 12 months, and continue to closely monitor the status of our submitted claims and developments.

Previous 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.

Current wording

Additionally, on November 3, 2026, our Board of Directors declared a regular quarterly cash dividend of $0.47 per share on our common stock, which will be paid on or about November 27, 2026 to shareholders of record at the close of business on November 19, 2026. Prior to this, we paid out regular quarterly cash dividends totaling $27.3 million in the current fiscal year.

Previous 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.

Current wording

As of September 30, 2026, we had working capital of $87.0 million compared to $91.0 million as of December 31, 2025, representing a decrease of $3.9 million, or 4.3%, driven by an increase of $34.7 million in current liabilities, partially offset by an increase of $30.7 million in current assets. The increase in current liabilities was primarily driven by an increase in accounts payable and related party payables of $21.6 million, an increase in long-term debt, current portion of $10.1 million, and an increase in accrued expenses of $2.3 million. The increase in current assets was primarily driven by an increase in inventories of $15.1 million primarily due to seasonality, an increase in accounts receivable of $8.5 million as a result of stronger sales, an increase in cash and cash equivalents and short-term investments of $5.6 million, and an increase in prepaid expenses and other current assets of $1.6 million due to the addition of the $1.5 million IEEPA tariff receivable.

Previous wording

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

Current wording

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

Previous 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.

Current wording

Cash flows provided by operating activities. Net cash provided by operating activities was $50.0 million for the nine months ended September 30, 2026, primarily the result of net income of $41.5 million, adjusted for certain non-cash items totaling $19.2 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 $10.7 million from changes in working capital, primarily as a result of a decrease of $16.1 million from an increase in inventory due to increased inventory purchases, a decrease of $9.0 million from an increase in accounts receivable due to higher sales, a decrease of $9.0 million from a reduction in operating lease liabilities, and a decrease of $1.3 million from an increase in prepaid expenses, partially offset by an increase of $22.1 million from higher accounts and related party payables primarily due to increased inventory purchases and an increase of $2.3 million from higher accrued expenses.

Previous 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.

Current wording

Net cash provided by operating activities was $18.5 million for the nine months ended September 30, 2025, primarily the result of net income of $25.5 million, adjusted for certain non-cash items totaling $16.6 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 $23.6 million from changes in working capital, which included a decrease of $13.9 million from the increase in inventory primarily due to higher import costs, a decrease of $11.2 million from an increase in accounts receivable due to higher sales, and a decrease of $7.4 million from a reduction in operating lease liabilities. These decreases were partially offset by an increase of $6.7 million from higher accounts and related party payables primarily associated with increased inventory purchases and an increase of $2.7 million from higher accrued expenses.