Turning Point Brands Announces Second Quarter 2023 Results; Increases 2023 Guidance

August 2, 2023

-Net Sales for Q2 2023 Zig-Zag and Stoker’s Products Increased 3.7 Percent Year-Over-Year

-Adjusted EBITDA for Q2 2023 Increased 2.2 Percent Year-Over-Year

Turning Point Brands, Inc. (“TPB” or “the Company”) (NYSE: TPB), a manufacturer, marketer and distributor of branded consumer products, including alternative smoking accessories and consumables with active ingredients, announced today financial results for the second quarter ended June 30, 2023.

Q2 2023 vs. Q2 2022

  • Total consolidated net sales increased 2.6% to $105.6 million
    • Zig-Zag Products net sales increased by 1.1%
    • Stoker’s Products net sales increased by 7.3%
    • Creative Distribution Solutions net sales decreased by 1.3%
  • Gross profit increased 2.0% to $52.5 million
  • Net income increased 83.0% to $9.9 million
  • Adjusted net income increased 8.4% to $15.3 million (see Schedule B for a reconciliation to net income)
  • Adjusted EBITDA increased 2.2% to $25.3 million (see Schedule A for a reconciliation to net income)
  • Diluted EPS of $0.53 and Adjusted Diluted EPS of $0.79 compared to $0.30 and $0.70 in the same period one year ago, respectively (see Schedule B for a reconciliation to Diluted EPS)

Graham Purdy, President and CEO, commented: “Our second quarter results demonstrated continued progress against our plan. The Zig-Zag segment grew double-digits sequentially from the first quarter as trade inventory normalized. Stoker’s had another solid quarter of performance led by double-digit growth in Stoker’s MST. We opportunistically purchased another $15.1 million in aggregate principal amount of our convertible notes during the second quarter while maintaining a strong cash balance. Given our solid first half performance, we are raising our guidance for the full year.”

Zig-Zag Products Segment (44% of total net sales in the quarter)

For the second quarter, Zig-Zag Products net sales increased 1.1% to $46.7 million. TPB’s Canadian and other smoking accessories businesses saw strong growth during the quarter which was partially offset by declines in the U.S. rolling papers and wraps businesses.

For the quarter, the Zig-Zag Products segment gross profit was steady at $26.4 million. Gross margin declined 60 basis points to 56.6% driven primarily by product mix.

“Our e-commerce business had another quarter of double-digit growth as we continue to build our omni-channel presence,” said Purdy. “We remain encouraged by our prospects with secular cannabis consumption growth trends driving demand for our products.”

Stoker’s Products Segment (34% of total net sales in the quarter)

For the second quarter, Stoker’s Products net sales increased 7.3% to $36.1 million. Double-digit growth of MST offset a decline in loose-leaf chewing tobacco. For the second quarter, total Stoker’s Products segment volume increased 0.7%, while price / mix increased 6.6%.

For the quarter, the Stoker’s Products segment gross profit increased 10.4% to $20.0 million. Gross margin expanded 160 basis points to 55.4% due to MST pricing gains.

“Stoker’s continues to benefit from strong market share gains in both the MST and loose-leaf chewing tobacco categories as its value proposition continues to resonate with consumers,” continued Purdy.

Performance Measures in the Second Quarter

Second quarter consolidated selling, general and administrative (“SG&A”) expenses were $31.9 million compared to $33.3 million in the second quarter of 2022.

The second quarter SG&A included the following notable items:

  • $0.1 million of ERP / CRM duplicative system costs compared to $0.9 million of ERP / CRP scoping expenses in the previous year
  • $2.1 million of stock options, restricted stock and incentive expense compared to $1.5 million in the year-ago period
  • $0.7 million of FDA PMTA-related expenses for modern oral products compared to $2.0 million in the year-ago period
  • $0.1 million of transaction expenses compared to $0.4 million in the year-ago period
  • $0.0 million of restructuring costs as compared to $0.3 million in the year-ago period

Total gross debt as of June 30, 2023 was $383.5 million. Net debt (total gross debt less unrestricted cash) at June 30, 2023 was $283.0 million. The Company ended the quarter with total liquidity of $124.1 million, comprised of $100.5 million in cash and $23.6 million of revolving credit facility capacity.

During the quarter, the Company repurchased $15.1 million in aggregate principal amount of its 2.50% Convertible Senior Notes due July 2024.

The Company recorded an impairment charge of $4.1 million during the quarter related to historical minority investments in development stage ventures.

2023 Outlook

At this time, the Company expects full-year 2023 adjusted EBITDA to be $90 to $95 million (compared to previous outlook of $88 to $94 million).

Creative Distribution Solutions (“CDS”) (22% of total net sales in the quarter)

For the second quarter, CDS (formerly the Company’s “NewGen” segment) net sales were $22.8 million, gross profit was $6.1 million, and gross margin was 26.7%.

Earnings Conference Call

As previously disclosed, a conference call with the investment community to review TPB’s financial results has been scheduled for 10:00 a.m. Eastern on Wednesday, August 2, 2023. Investment community participants should dial in 10 minutes ahead of time using the toll-free number 888-330-2502 (international participants should call 240-789-2713), and follow the audio prompts after typing in the event ID: 6640134. A live listen-only webcast of the call will be available on the Events and Presentations section of the investor relations portion of the Company website (www.turningpointbrands.com). A replay of the webcast will be available on the site two hours following the call.

Non-GAAP Financial Measures

In addition to financial measures prepared in accordance with generally accepted accounting principles in the United States (GAAP), this press release includes certain non-GAAP financial measures including EBITDA, Adjusted EBITDA, Adjusted Net Income, Adjusted Diluted EPS and Adjusted Operating Income (Loss). A reconciliation of these non-GAAP financial measures accompanies this release.

About Turning Point Brands, Inc.

Turning Point Brands (NYSE: TPB) is a manufacturer, marketer and distributor of branded consumer products including alternative smoking accessories and consumables with active ingredients through its iconic Zig-Zag® and Stoker’s® brands. TPB’s products are available in more than 215,000 retail outlets in North America, and on sites such as www.zigzag.com. For the latest news and information about TPB and its brands, please visit www.turningpointbrands.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements may generally be identified by the use of words such as "anticipate," "believe," "expect," "intend," "plan" and "will" or, in each case, their negative, or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. As a result, these statements are not guarantees of future performance and actual events may differ materially from those expressed in or suggested by the forward-looking statements. Any forward-looking statement made by TPB in this press release, its reports filed with the Securities and Exchange Commission (the “SEC”) and other public statements made from time-to-time speak only as of the date made. New risks and uncertainties come up from time to time, and it is impossible for TPB to predict or identify all such events or how they may affect it. TPB has no obligation, and does not intend, to update any forward-looking statements after the date hereof, except as required by federal securities laws. Factors that could cause these differences include, but are not limited to those included it the Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and other reports filed by the Company with the SEC. These statements constitute the Company’s cautionary statements under the Private Securities Litigation Reform Act of 1995.

Financial Statements Follow:

Turning Point Brands, Inc.
Consolidated Statements of Income
(dollars in thousands except share data)
(unaudited)
 
Three Months Ended June 30,

 

2023

 

 

2022

 

 
Net sales

$

105,595

 

$

102,925

 

Cost of sales

 

53,117

 

 

51,456

 

Gross profit

 

52,478

 

 

51,469

 

Selling, general, and administrative expenses

 

31,933

 

 

33,323

 

Operating income

 

20,545

 

 

18,146

 

Interest expense, net

 

4,019

 

 

5,144

 

Investment loss

 

4,080

 

 

6,227

 

Gain on extinguishment of debt

 

(600

)

 

-

 

Income before income taxes

 

13,046

 

 

6,775

 

Income tax expense

 

3,338

 

 

1,569

 

Consolidated net income

 

9,708

 

 

5,206

 

Net loss attributable to non-controlling interest

 

(217

)

 

(218

)

Net income attributable to Turning Point Brands, Inc.

$

9,925

 

$

5,424

 

 
Basic income per common share:
Net income attributable to Turning Point Brands, Inc.

$

0.56

 

$

0.30

 

Diluted income per common share:
Net income attributable to Turning Point Brands, Inc.

$

0.53

 

$

0.30

 

Weighted average common shares outstanding:
Basic

 

17,584,241

 

 

18,063,259

 

Diluted

 

20,409,943

 

 

21,443,279

 

 
Supplemental disclosures of statements of income information:
Excise tax expense

$

5,407

 

$

6,141

 

FDA fees

$

116

 

$

171

 

 
Turning Point Brands, Inc.
Consolidated Balance Sheets
(dollars in thousands except share data)
 
(unaudited)
June 30, December 31,
ASSETS

 

2023

 

 

2022

 

Current assets:
Cash

$

100,507

 

$

106,403

 

Accounts receivable, net of allowances of $103 in 2023 and $114 in 2022

 

7,920

 

 

8,377

 

Inventories

 

125,056

 

 

119,915

 

Other current assets

 

18,216

 

 

22,959

 

Total current assets

 

251,699

 

 

257,654

 

Property, plant, and equipment, net

 

24,128

 

 

22,788

 

Deferred income taxes

 

7,966

 

 

8,443

 

Right of use assets

 

10,923

 

 

12,465

 

Deferred financing costs, net

 

229

 

 

282

 

Goodwill

 

136,244

 

 

136,253

 

Other intangible assets, net

 

82,048

 

 

83,592

 

Master Settlement Agreement (MSA) escrow deposits

 

28,229

 

 

27,980

 

Other assets

 

18,208

 

 

22,649

 

Total assets

$

559,674

 

$

572,106

 

 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable

$

10,802

 

$

8,355

 

Accrued liabilities

 

30,898

 

 

33,001

 

Other current liabilities

 

5

 

 

20

 

Total current liabilities

 

41,705

 

 

41,376

 

Notes payable and long-term debt

 

379,195

 

 

406,757

 

Lease liabilities

 

9,528

 

 

10,593

 

Total liabilities

 

430,428

 

 

458,726

 

 
Commitments and contingencies
 
Stockholders' equity:
Preferred stock; $0.01 par value; authorized shares 40,000,000; issued and outstanding shares -0-

 

-

 

 

-

 

Common stock, voting, $0.01 par value; authorized shares, 190,000,000; 19,912,039 issued shares
and 17,595,579 outstanding shares at June 30, 2023, and 19,801,623 issued shares and
17,485,163 outstanding shares at December 31, 2022

 

199

 

 

198

 

Common stock, nonvoting, $0.01 par value; authorized shares, 10,000,000;
issued and outstanding shares -0-

 

-

 

 

-

 

Additional paid-in capital

 

115,272

 

 

113,242

 

Cost of repurchased common stock
(2,316,460 shares at June 30, 2023 and December 31, 2022)

 

(78,093

)

 

(78,093

)

Accumulated other comprehensive loss

 

(3,181

)

 

(2,393

)

Accumulated earnings

 

93,873

 

 

78,691

 

Non-controlling interest

 

1,176

 

 

1,735

 

Total stockholders' equity

 

129,246

 

 

113,380

 

Total liabilities and stockholders' equity

$

559,674

 

$

572,106

 

 
Turning Point Brands, Inc.
Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
 

Six Months Ended June 30,

 

2023

 

 

2022

 

Cash flows from operating activities:
Consolidated net income

$

17,050

 

$

15,977

 

Adjustments to reconcile net income to net cash provided by operating activities:
Gain on extinguishment of debt

 

(1,377

)

 

-

 

Loss (gain) on sale of property, plant, and equipment

 

44

 

 

(8

)

Depreciation expense

 

1,535

 

 

1,750

 

Amortization of other intangible assets

 

1,542

 

 

919

 

Amortization of deferred financing costs

 

1,225

 

 

1,291

 

Deferred income tax expense (benefit)

 

659

 

 

(146

)

Stock compensation expense

 

2,836

 

 

2,661

 

Noncash lease income

 

(29

)

 

(6

)

Loss on investments

 

8,989

 

 

6,258

 

Changes in operating assets and liabilities:
Accounts receivable

 

456

 

 

(2,673

)

Inventories

 

(5,146

)

 

(27,499

)

Other current assets

 

3,769

 

 

(598

)

Other assets

 

(4,548

)

 

624

 

Accounts payable

 

2,500

 

 

7,240

 

Accrued liabilities and other

 

(1,972

)

 

1,359

 

Net cash provided by operating activities

$

27,533

 

$

7,149

 

 
Cash flows from investing activities:
Capital expenditures

$

(2,993

)

$

(5,694

)

Restricted cash, MSA escrow deposits

 

-

 

 

(10,078

)

Proceeds on the sale of property, plant and equipment

 

3

 

 

63

 

Net cash used in investing activities

$

(2,990

)

$

(15,709

)

 
Cash flows from financing activities:
Repurchased Convertible Senior Notes

$

(27,357

)

$

-

 

Proceeds from call options

 

70

 

 

-

 

Payment of dividends

 

(2,209

)

 

(2,181

)

Exercise of options

 

406

 

 

475

 

Redemption of options

 

(346

)

 

(155

)

Redemption of performance restricted stock units

 

(995

)

 

(1,228

)

Common stock repurchased

 

-

 

 

(19,418

)

Net cash used in financing activities

$

(30,431

)

$

(22,507

)

 
Net decrease in cash

$

(5,888

)

$

(31,067

)

Effect of foreign currency translation on cash

$

(8

)

$

56

 

 
Cash, beginning of period:
Unrestricted

 

106,403

 

 

128,320

 

Restricted

 

4,929

 

 

15,155

 

Total cash at beginning of period

 

111,332

 

 

143,475

 

 
Cash, end of period:
Unrestricted

 

100,507

 

 

107,429

 

Restricted

 

4,929

 

 

5,035

 

Total cash at end of period

$

105,436

 

$

112,464

 

 

Non-GAAP Financial Measures

To supplement our financial information presented in accordance with generally accepted accounting principles in the United States, or U.S. GAAP, we use non-U.S. GAAP financial measures, including EBITDA, Adjusted EBITDA, Adjusted Net Income, Adjusted Diluted EPS, Adjusted Gross Profit and Adjusted Operating Income. We believe Adjusted EBITDA provides useful information to management and investors regarding certain financial and business trends relating to our financial condition and results of operations. Adjusted EBITDA, Adjusted Net Income, Adjusted Diluted EPS, Adjusted Gross Profit and Adjusted Operating Income are used by management to compare our performance to that of prior periods for trend analyses and planning purposes and are presented to our board of directors. We believe that EBITDA, Adjusted EBITDA, Adjusted Net Income, Adjusted Diluted EPS, Adjusted Gross Profit and Adjusted Operating Income are appropriate measures of operating performance because they eliminate the impact of expenses that do not relate to business performance.

We define “EBITDA” as net income before interest expense, loss on extinguishment of debt, provision for income taxes, depreciation and amortization. We define “Adjusted EBITDA” as net income before interest expense, loss on extinguishment of debt, provision for income taxes, depreciation, amortization, other non-cash items and other items that we do not consider ordinary course in our evaluation of ongoing operating performance. We define “Adjusted Net Income” as net income excluding items that we do not consider ordinary course in our evaluation of ongoing operating performance. We define “Adjusted Diluted EPS” as diluted earnings per share excluding items that we do not consider ordinary course in our evaluation of ongoing operating performance. We define “Adjusted Gross Profit: as gross profit excluding other non-cash items and other items that we do not consider ordinary course in our evaluation of ongoing operating performance. We define “Adjusted Operating Income” as operating income excluding other non-cash items and other items that we do not consider ordinary course in our evaluation of ongoing operating performance.

Non-U.S. GAAP measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with U.S. GAAP. EBITDA, Adjusted Net Income, Adjusted EBITDA Adjusted Diluted EPS, Adjusted Gross Profit and Adjusted Operating Income exclude significant expenses that are required by U.S. GAAP to be recorded in our financial statements and is subject to inherent limitations. In addition, other companies in our industry may calculate this non-U.S. GAAP measure differently than we do or may not calculate it at all, limiting its usefulness as a comparative measure.

In accordance with SEC rules, we have provided, in the supplemental information attached, a reconciliation of the non-GAAP measures to the next directly comparable GAAP measures.

Schedule A
 
 
 
Turning Point Brands, Inc.
Reconciliation of GAAP Net Income to Adjusted EBITDA
(dollars in thousands)
(unaudited)

Three Months Ended

June 30,

 

2023

 

 

2022

Net income attributable to Turning Point Brands, Inc.

$

9,925

 

$

5,424

Add:
Interest expense, net

 

4,019

 

 

5,144

Gain on extinguishment of debt

 

(600

)

 

-

Income tax expense

 

3,338

 

 

1,569

Depreciation expense

 

759

 

 

879

Amortization expense

 

771

 

 

456

EBITDA

$

18,212

 

$

13,472

Components of Adjusted EBITDA
Corporate restructuring (a)

 

-

 

 

270

ERP/CRM (b)

 

138

 

 

861

Stock options, restricted stock, and incentives expense (c)

 

2,093

 

 

1,502

Transactional expenses (d)

 

82

 

 

364

FDA PMTA (e)

 

662

 

 

1,957

Non-cash asset impairment (f)

 

4,092

 

 

6,300

Adjusted EBITDA

$

25,279

 

$

24,726

 
 
(a) Represents costs associated with corporate restructuring, including severance.
(b) Represents cost associated with scoping and mobilization of new ERP and CRM systems and cost of duplicative ERP licenses.
(c) Represents non-cash stock options, restricted stock, incentives expense and Solace performance stock units ("PRSUs").
(d) Represents the fees incurred for transaction expenses.
(e) Represents costs associated with applications related to FDA premarket tobacco product application ("PMTA").
(f) Represents impairment of investment assets.
Schedule B
Turning Point Brands
Reconciliation of GAAP Net Income to Adjusted Net Income and Diluted EPS to Adjusted Diluted EPS
(dollars in thousands except share data)
(unaudited) Three Months Ended Three Months Ended
June 30, 2023 June 30, 2022
Net Income Diluted EPS Net Income Diluted EPS
GAAP EPS

$

9,925

 

$

0.53

 

$

5,424

$

0.30

Gain on extinguishment of debt (a)

 

(446

)

 

(0.02

)

 

-

 

-

Corporate restructuring (b)

 

-

 

 

-

 

 

207

 

0.01

ERP/CRM (c)

 

103

 

 

0.01

 

 

662

 

0.03

Stock options, restricted stock, and incentives expense (d)

 

1,557

 

 

0.08

 

 

1,154

 

0.05

Transactional expenses (e)

 

61

 

 

0.00

 

 

280

 

0.01

FDA PMTA (f)

 

493

 

 

0.02

 

 

1,504

 

0.07

Non-cash asset impairment (g)

 

3,045

 

 

0.15

 

 

4,841

 

0.23

Tax (expense) benefit (h)

 

560

 

 

0.03

 

 

35

 

0.00

Adjusted

$

15,297

 

$

0.79

 

$

14,106

$

0.70

 
Totals may not foot due to rounding
(a) Represents gain on extinguishment of debt tax effected at the quarterly tax rate.
(b) Represents costs associated with corporate restructuring, including severance, tax effected at the quarterly tax rate.
(c) Represents cost associated with scoping and mobilization of new ERP and CRM systems and cost of duplicative ERP licenses tax effected at the quarterly tax rate.
(d) Represents non-cash stock options, restricted stock, incentives expense and Solace PRSUs tax effected at the quarterly tax rate.
(e) Represents the fees incurred for transaction expenses tax effected at the quarterly tax rate.
(f) Represents costs associated with applications related to the FDA PMTA tax effected at the quarterly tax rate.
(g) Represents impairment of investment assets tax effected at the quarterly tax rate.
(h) Represents adjustment from quarterly tax rate to annual projected tax rate of 23% in 2023 and 2022.
Schedule C
Turning Point Brands, Inc.
Reconciliation of GAAP Operating Income to Adjusted Operating Income
(dollars in thousands)
(unaudited)
Consolidated Zig-Zag Products Stoker's Products Creative Distribution Solutions
2nd Quarter 2nd Quarter 2nd Quarter 2nd Quarter 2nd Quarter 2nd Quarter 2nd Quarter 2nd Quarter

2023

2022

2023

2022

2023

2022

2023

2022

 
Net sales

$

105,595

$

102,925

$

46,722

$

46,226

$

36,056

$

33,588

$

22,817

$

23,111

 
Gross profit

$

52,478

$

51,469

$

26,422

$

26,430

$

19,968

$

18,079

$

6,088

$

6,960

 
Operating income

$

20,545

$

18,146

$

17,000

$

18,503

$

15,110

$

13,378

$

460

$

552

Adjustments:
Corporate restructuring

 

-

 

270

 

-

 

-

 

-

 

-

 

-

 

-

ERP/CRM

 

138

 

861

 

-

 

-

 

-

 

-

 

-

 

-

Transactional expenses

 

82

 

364

 

-

 

-

 

-

 

-

 

-

 

-

FDA PMTA

 

662

 

1,957

 

-

 

-

 

-

 

-

 

-

 

-

Adjusted operating income

$

21,427

$

21,598

$

17,000

$

18,503

$

15,110

$

13,378

$

460

$

552

 

 

Investor Contacts
Turning Point Brands, Inc.:
Louie Reformina, Senior Vice President, CFO
Turning Point Brands, Inc.
502.774.9238
ir@tpbi.com

Source: Turning Point Brands, Inc.