TPB Turning Point Brands Inc

• Q2 2024 Adjusted EBITDA of $27.0 million, up 7% over prior year
• Zig-Zag and Stoker’s Products Net Sales for Q2 2024 Increased 13% Year-Over-Year
• Company increases full-year 2024 adjusted EBITDA guidance to $98 to $102 million

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, today announced financial results for the second quarter ended June 30, 2024.

Q2 2024 vs. Q2 2023

• Total consolidated net sales increased 2.8% to $108.5 million
  • Zig-Zag Products net sales increased 8.0%
  • Stoker’s Products net sales increased 18.5%
  • Creative Distribution Solutions net sales decreased 33.0%
• Gross profit increased 2.6% to $53.8 million
• Net income increased 31.0% to $13.0 million
• Adjusted net income increased 12.2% to $17.2 million (see Schedule B for a reconciliation to net income)
• Adjusted EBITDA increased 6.9% to $27.0 million (see Schedule A for a reconciliation to net income)
• Diluted EPS of $0.68 and Adjusted Diluted EPS of $0.89 compared to $0.53 and $0.79, respectively, in the same period one year ago (see Schedule B for a reconciliation to Diluted EPS)

Graham Purdy, President and CEO, commented: “We were pleased by our second quarter results. We achieved our highest quarterly EBITDA since the second quarter of 2021. We believe Zig-Zag is on a sustainable growth trajectory, and Stoker’s MST continues to grow market share. In addition, sales of FRE, our modern oral nicotine pouch, grew 76% sequentially as we continue to expand our national footprint.”

Zig-Zag Products Segment (47% of total net sales in the quarter)

For the second quarter, Zig-Zag Products net sales increased 8.0% to $50.5 million driven by solid performance in our North American Papers & Wraps businesses as well as solid growth in cigars.

For the quarter, the Zig-Zag Products segment gross profit increased 1.7% to $26.9 million. Gross margin declined 330 basis points to 53.2% driven primarily by product mix.

“We are encouraged by our Zig-Zag results for the quarter,” said Purdy. “Our ongoing initiatives continue to demonstrate progress toward sustainably growing the Zig-Zag brand.”

Stoker’s Products Segment (39% of total net sales in the quarter)

For the second quarter, Stoker’s Products net sales increased 18.5% to $42.7 million. The segment was driven by high teens growth from MST and triple-digit growth off of a low base for FRE, partially offset by low-single-digit decline in loose-leaf tobacco. For the second quarter, total Stoker’s Products segment volume increased 5.3%, while price / mix increased 13.2%.

For the quarter, the Stoker’s Products segment gross profit increased 17.8% to $23.5 million. Gross margin contracted 30 basis points to 55.0%.

Performance Measures in the Second Quarter

Second quarter consolidated selling, general and administrative (“SG&A”) expenses were $32.8 million compared to $31.9 million in the second quarter of 2023.

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

• $1.9 million of stock compensation expense compared to $2.1 million in the year-ago period; and
• $1.0 million of FDA PMTA-related expenses for modern oral products compared to $0.7 million in the year-ago period.

Total gross debt as of June 30, 2024 was $368.5 million. Net debt (total gross debt less unrestricted cash) as of June 30, 2024 was $226.4 million. The Company ended the quarter with total liquidity of $201.0 million, comprised of $142.2 million in cash and $58.8 million of asset backed revolving credit facility capacity.

On July 15, 2024, the Company retired the remaining $118.5 million of its convertible notes outstanding with cash on hand. Pro forma for retirement of the convertible notes as of June 30, 2024, the Company had gross debt outstanding of $250.0 million and net debt of $226.4 million.

During the quarter, the Company re-purchased 34,350 shares of common stock at a cost of $1.0 million.

2024 Outlook

The Company is increasing its previous full-year 2024 adjusted EBITDA guidance from $95 to $100 million to $98 to $102 million, which excludes CDS.

Creative Distribution Solutions (“CDS”) (14% of total net sales in the quarter)

For the second quarter, CDS net sales were $15.3 million, gross profit was $3.4 million, and gross margin was 22.5%.

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 Thursday, August 1, 2024. 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 217,000 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 in 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 on Subsequent Pages

Turning Point Brands, Inc. Consolidated Statements of Income (dollars in thousands except share data) (unaudited)  

Three Months Ended June 30,

2024

 

2023

 

 

 

Net sales (1)

$

108,512

 

$

105,595

 

Cost of sales

 

54,671

 

 

53,117

 

Gross profit

 

53,841

 

 

52,478

 

Selling, general, and administrative expenses

 

32,753

 

 

31,933

 

Other operating income

 

(1,674

)

 

-

 

Operating income

 

22,762

 

 

20,545

 

Interest expense, net

 

2,991

 

 

4,019

 

Investment loss

 

2,439

 

 

4,080

 

Gain on extinguishment of debt

 

-

 

 

(600

)

Income before income taxes

 

17,332

 

 

13,046

 

Income tax expense

 

4,415

 

 

3,338

 

Consolidated net income

 

12,917

 

 

9,708

 

Net loss attributable to non-controlling interest

 

(87

)

 

(217

)

Net income attributable to Turning Point Brands, Inc.

$

13,004

 

$

9,925

 

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

$

0.74

 

$

0.56

 

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

$

0.68

 

$

0.53

 

Weighted average common shares outstanding: Basic

 

17,656,732

 

 

17,584,241

 

Diluted

 

20,156,854

 

 

20,409,943

 

  (1) Net sales include excise taxes billed to customers of $0.8 million and $1.2 million for the three months ended June 30, 2024 and 2023, respectively. Turning Point Brands, Inc. Consolidated Balance Sheets (dollars in thousands except share data)  

(unaudited)

 

 

June 30,

 

December 31,

ASSETS

2024

 

2023

Current assets: Cash

$

142,159

 

$

117,886

 

Accounts receivable, net of allowances of $54 in 2024 and $78 in 2023

 

12,557

 

 

9,989

 

Inventories, net

 

102,333

 

 

98,960

 

Other current assets

 

32,688

 

 

40,781

 

Total current assets

 

289,737

 

 

267,616

 

Property, plant, and equipment, net

 

26,441

 

 

25,300

 

Deferred income taxes

 

1,177

 

 

1,468

 

Right of use assets

 

10,305

 

 

11,480

 

Deferred financing costs, net

 

2,145

 

 

2,450

 

Goodwill

 

136,307

 

 

136,250

 

Other intangible assets, net

 

79,393

 

 

80,942

 

Master Settlement Agreement (MSA) escrow deposits

 

28,407

 

 

28,684

 

Other assets

 

17,644

 

 

15,166

 

Total assets

$

591,556

 

$

569,356

 

  LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable

$

11,919

 

$

8,407

 

Accrued liabilities

 

30,428

 

 

33,635

 

Current portion of long-term debt

 

118,470

 

 

58,294

 

Total current liabilities

 

160,817

 

 

100,336

 

Notes payable and long-term debt

 

247,960

 

 

307,064

 

Lease liabilities

 

8,834

 

 

9,950

 

Total liabilities

 

417,611

 

 

417,350

 

  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; 20,126,521 issued shares and 17,703,166 outstanding shares at June 30, 2024, and 19,922,137 issued shares and 17,605,677 outstanding shares at December 31, 2023

 

201

 

 

199

 

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

 

-

 

 

-

 

Additional paid-in capital

 

121,948

 

 

119,075

 

Cost of repurchased common stock (2,423,355 shares at June 30, 2024, and 2,316,460 shares at December 31, 2023)

 

(81,144

)

 

(78,093

)

Accumulated other comprehensive loss

 

(3,072

)

 

(2,648

)

Accumulated earnings

 

134,917

 

 

112,443

 

Non-controlling interest

 

1,095

 

 

1,030

 

Total stockholders' equity

 

173,945

 

 

152,006

 

Total liabilities and stockholders' equity

$

591,556

 

$

569,356

 

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

Six Months Ended June 30,

2024

2023

Cash flows from operating activities: Consolidated net income

$

25,096

 

$

17,050

 

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

 

-

 

 

(1,377

)

Loss on sale of property, plant, and equipment

 

7

 

 

44

 

Loss on MSA investments

 

6

 

 

-

 

Depreciation and other amortization expense

 

1,916

 

 

1,535

 

Amortization of other intangible assets

 

1,559

 

 

1,542

 

Amortization of deferred financing costs

 

1,393

 

 

1,225

 

Deferred income tax expense

 

363

 

 

659

 

Stock compensation expense

 

3,951

 

 

2,836

 

Noncash lease income

 

(85

)

 

(29

)

Loss on investments

 

2,722

 

 

8,989

 

Changes in operating assets and liabilities: Accounts receivable

 

(2,489

)

 

456

 

Inventories

 

(3,218

)

 

(5,146

)

Other current assets

 

4,863

 

 

3,769

 

Other assets

 

(279

)

 

(4,548

)

Accounts payable

 

3,565

 

 

2,500

 

Accrued liabilities and other

 

(3,293

)

 

(1,972

)

Net cash provided by operating activities

$

36,077

 

$

27,533

 

  Cash flows from investing activities: Capital expenditures

$

(2,858

)

$

(2,993

)

Purchases of investments

 

(7,934

)

 

-

 

Proceeds from sale of investments

 

3,314

 

 

-

 

Purchases of non-marketable equity investments

 

(500

)

 

-

 

Restricted cash, MSA escrow deposits

 

4

 

 

-

 

Proceeds on the sale of property, plant and equipment

 

2

 

 

3

 

Net cash used in investing activities

$

(7,972

)

$

(2,990

)

  Cash flows from financing activities: Convertible Senior Notes repurchased

$

-

 

$

(27,357

)

Proceeds from call options

 

-

 

 

70

 

Payment of financing costs

 

(133

)

 

-

 

Payment of dividends

 

(2,407

)

 

(2,209

)

Exercise of options

 

900

 

 

406

 

Redemption of options

 

(4

)

 

(346

)

Redemption of restricted stock units

 

(840

)

 

-

 

Redemption of performance based restricted stock units

 

(1,212

)

 

(995

)

Common stock repurchased

 

(3,051

)

 

-

 

Net cash used in financing activities

$

(6,747

)

$

(30,431

)

  Net increase (decrease) in cash

$

21,358

 

$

(5,888

)

Effect of foreign currency translation on cash

$

(76

)

$

(8

)

  Cash, beginning of period: Unrestricted

$

117,886

 

$

106,403

 

Restricted

 

4,929

 

 

4,929

 

Total cash at beginning of period

$

122,815

 

$

111,332

 

  Cash, end of period: Unrestricted

$

142,159

 

$

100,507

 

Restricted

 

1,938

 

 

4,929

 

Total cash at end of period

$

144,097

 

$

105,436

 

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, and Adjusted Operating Income (Loss). 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, and Adjusted Operating Income (Loss) 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, and Adjusted Operating Income (Loss) 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, gain (loss) on extinguishment of debt, income tax expense, depreciation and amortization. We define “Adjusted EBITDA” as net income before interest expense, gain (loss) on extinguishment of debt, income tax expense, 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 Operating Income (Loss)” 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, and Adjusted Operating Income (Loss) 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,

2024

 

2023

Net income attributable to Turning Point Brands, Inc.

$

13,004

 

$

9,925

 

Add: Interest expense, net

 

2,991

 

 

4,019

 

Gain on extinguishment of debt

 

-

 

 

(600

)

Income tax expense

 

4,415

 

 

3,338

 

Depreciation expense

 

891

 

 

759

 

Amortization expense

 

931

 

 

771

 

EBITDA

$

22,232

 

$

18,212

 

Components of Adjusted EBITDA Corporate and CDS restructuring (a)

 

283

 

 

-

 

ERP/CRM (b)

 

489

 

 

138

 

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

 

1,889

 

 

2,093

 

Transactional expenses and strategic initiatives (d)

 

97

 

 

82

 

FDA PMTA (e)

 

997

 

 

662

 

Non-cash asset impairment (f)

 

2,722

 

 

4,092

 

FET Refund (g)

 

(1,674

)

 

-

 

Adjusted EBITDA

$

27,035

 

$

25,279

 

 

(a)

Represents costs associated with corporate and CDS 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.

(d)

Represents the fees incurred for transaction expenses.

(e)

Represents costs associated with applications related to FDA premarket tobacco product application ("PMTA"). The PMTA regime requires the Company to submit an application to the FDA to receive marketing authorization to continue to sell certain of its product lines with continued sales permitted during the pendency of the applications. The application is a onetime resource-intensive process for each covered product line; however, due to the nature of the implementation process for those product lines already in the market, applications can take multiple years to complete rather than the typical one-time submission. The Company currently has only two product lines currently subject to the PMTA process, having utilized other regulatory pathway options available for our other product lines. The Company does not expect to submit additional PMTA applications for any new product lines after the submission for the remaining two are complete.

(f)

Represents impairment of investment assets.

(g)

Represents a federal excise tax refund included in other operating income. 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, 2024

 

June 30, 2023

Income before income taxes

 

Income tax expense (h)

 

Net loss attributable to non- controlling interest

 

Adjusted Net Income

 

Adjusted Diluted EPS

 

Income before income taxes

 

Income tax expense (h)

 

Net loss attributable to non- controlling interest

 

Net Income

 

Diluted EPS

GAAP Net Income and Diluted EPS

$

17,332

 

$

4,415

 

$

(87

)

$

13,004

 

$

0.68

 

$

13,046

 

$

3,338

 

$

(217

)

$

9,925

 

$

0.53

 

Gain on extinguishment of debt (a)

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

(600

)

 

(154

)

 

-

 

 

(446

)

 

(0.02

)

Corporate restructuring (b)

 

283

 

 

72

 

 

-

 

 

211

 

 

0.01

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

ERP/CRM (c)

 

489

 

 

125

 

 

-

 

 

364

 

 

0.02

 

 

138

 

 

35

 

 

-

 

 

103

 

 

0.01

 

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

 

1,889

 

 

481

 

 

-

 

 

1,408

 

 

0.07

 

 

2,093

 

 

536

 

 

-

 

 

1,557

 

 

0.08

 

Transactional expenses and strategic initiatives (e)

 

97

 

 

25

 

 

-

 

 

72

 

 

0.00

 

 

82

 

 

21

 

 

-

 

 

61

 

 

0.00

 

FDA PMTA (f)

 

997

 

 

254

 

 

-

 

 

743

 

 

0.04

 

 

662

 

 

169

 

 

-

 

 

493

 

 

0.02

 

Non-cash asset impairment (g)

 

2,722

 

 

693

 

 

-

 

 

2,029

 

 

0.10

 

 

4,092

 

 

1,047

 

 

-

 

 

3,045

 

 

0.15

 

FET refund (i)

 

(1,674

)

 

(426

)

 

-

 

 

(1,248

)

 

(0.06

)

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Tax benefit (j)

 

-

 

 

(577

)

 

-

 

 

577

 

 

0.03

 

 

-

 

 

(560

)

 

-

 

 

560

 

 

0.03

 

Adjusted Net Income and Adjusted Diluted EPS

$

22,135

 

$

5,062

 

$

(87

)

$

17,160

 

$

0.89

 

$

19,513

 

$

4,433

 

$

(217

)

$

15,297

 

$

0.79

 

Totals may not foot due to rounding  

(a)

Represents gain on extinguishment of debt.

(b)

Represents costs associated with corporate and CDS restructuring, including severance.

(c)

Represents cost associated with scoping and mobilization of new ERP and CRM systems and cost of duplicative ERP licenses.

(d)

Represents non-cash stock options, restricted stock, incentives expense and Solace PRSUs.

(e)

Represents the fees incurred for transaction expenses.

(f)

Represents costs associated with applications related to FDA premarket tobacco product application ("PMTA"). The PMTA regime requires the Company to submit an application to the FDA to receive marketing authorization to continue to sell certain of its product lines with continued sales permitted during the pendency of the applications. The application is a onetime resource-intensive process for each covered product line; however, due to the nature of the implementation process for those product lines already in the market, applications can take multiple years to complete rather than the typical one-time submission. The Company currently has only two product lines currently subject to the PMTA process, having utilized other regulatory pathway options available for our other product lines. The Company does not expect to submit additional PMTA applications for any new product lines after the submission for the remaining two are complete.

(g)

Represents impairment of investment assets.

(h)

Income tax expense calculated using the effective tax rate for the quarter of 25.5% in 2024 and 25.6% in 2023.

(i)

Represents a federal excise tax refund included in other operating income.

(j)

Represents adjustment from quarterly tax rate to annual projected tax rate of 23% in 2024 and 2023. Schedule C   Turning Point Brands, Inc. Reconciliation of GAAP Operating Income (Loss) to Adjusted Operating Income (Loss) (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

2024

 

2023

 

2024

 

2023

 

2024

 

2023

 

2024

 

2023

  Net sales

$

108,512

 

$

105,595

$

50,482

 

$

46,722

$

42,743

$

36,056

$

15,287

 

$

22,817

  Gross profit

$

53,841

 

$

52,478

 

$

26,872

 

$

26,422

 

$

23,524

 

$

19,968

 

$

3,445

 

$

6,088

 

  Operating income (loss)

$

22,762

 

$

20,545

 

$

18,260

 

$

17,000

 

$

17,862

 

$

15,110

 

$

(108

)

$

460

 

Adjustments: Corporate restructuring

 

283

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

ERP/CRM

 

489

 

 

138

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Transactional expenses and strategic initiatives

 

97

 

 

82

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

FDA PMTA

 

997

 

 

662

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

FET refund

 

(1,674

)

 

-

 

 

(1,674

)

 

-

 

 

-

 

 

-

 

 

-

 

 

-

 

Adjusted operating income (loss)

$

22,954

 

$

21,427

 

$

16,586

 

$

17,000

 

$

17,862

 

$

15,110

 

$

(108

)

$

460

 

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20240801150282/en/

Investor Contacts

Turning Point Brands, Inc. ir@tpbi.com