TPB Turning Point Brands Inc

• Q3 2024 Adjusted EBITDA of $27.2 million, up 11% over prior year
• Zig-Zag and Stoker’s Products Net Sales for Q3 2024 Increased 8% Year-Over-Year
• Company increases full-year 2024 adjusted EBITDA guidance to $101 to $103 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 third quarter ended September 30, 2024.

Q3 2024 vs. Q3 2023

• Total consolidated net sales increased 3.8% to $105.6 million
  • Zig-Zag Products net sales increased 5.5%
  • Stoker’s Products net sales increased 12.1%
  • Creative Distribution Solutions net sales decreased 17.4%
• Gross profit increased 4.0% to $53.7 million
• Net income increased 14.3% to $12.4 million
• Adjusted net income increased 9.8% to $15.9 million (see Schedule B for a reconciliation to net income)
• Adjusted EBITDA increased 11.3% to $27.2 million (see Schedule A for a reconciliation to net income)
• Diluted EPS of $0.68 and Adjusted Diluted EPS of $0.87 compared to $0.58 and $0.76, 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 third quarter results. We believe Zig-Zag is on a sustainable growth trajectory. Stoker’s MST continued to grow market share, while FRE sales more than quadrupled versus year-ago and grew 26% sequentially as we continue to expand our national footprint.”

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

For the third quarter, Zig-Zag Products net sales increased 5.5% to $49.3 million driven by strong performance in our North American Papers & Wraps business as well as solid growth in cigars.

For the quarter, the Zig-Zag Products segment gross profit increased 2.2% to $27.3 million. Gross margin declined 180 basis points to 55.4% driven primarily by product mix.

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

For the third quarter, Stoker’s Products net sales increased 12.1% to $41.4 million. The segment was driven by low single-digit growth from MST and triple-digit growth off of a low base for FRE partially offset by low-single-digit decline in loose-leaf chew. For the third quarter, total Stoker’s Products segment volume increased 2.9%, while price / product mix increased 9.2%.

For the quarter, the Stoker’s Products segment gross profit increased 12.1% to $23.1 million. Gross margin increased 10 basis points to 55.8%

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

For the third quarter, CDS net sales were $14.9 million, gross profit was $3.3 million, and gross margin was 22.1%.

Performance Measures in the Third Quarter

Third quarter consolidated selling, general and administrative (“SG&A”) expenses were $33.2 million compared to $31.4 million in the third quarter of 2023.

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

• $1.2 million of FDA PMTA-related expenses for modern oral products compared to $0.3 million in the year-ago period; and
• $0.9 million of transaction related costs compared to $0.1 million in the year-ago period

Total gross debt as of September 30, 2024 was $250.0 million. Net debt (total gross debt less unrestricted cash) as of September 30, 2024 was $216.4 million. The Company ended the quarter with total liquidity of $92.4 million, comprised of $33.6 million in cash and $58.8 million of asset backed revolving credit facility capacity.

2024 Outlook

The Company is increasing its previous full-year 2024 adjusted EBITDA guidance from $98 to $102 million to $101 to $103 million, excluding CDS.

During the quarter, the Company re-purchased 26,978 shares of common stock at a cost of $1.1 million.

On November 6, 2024, the Board of Directors of the Company increased the Company’s share repurchase authorization by $77.9 million to an aggregate amount of $100.0 million.

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, November 7, 2024. Investment community participants should dial in 10 minutes ahead of time using the toll-free number (800) 751-9871 (international participants should call (646) 307-1963) 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 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 on Subsequent Pages

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

 

2024

 

 

2023

 

  Net sales (1)

$

105,617

 

$

101,722

 

Cost of sales

 

51,918

 

 

50,100

 

Gross profit

 

53,699

 

 

51,622

 

Selling, general, and administrative expenses

 

33,169

 

 

31,385

 

Operating income

 

20,530

 

 

20,237

 

Interest expense, net

 

3,773

 

 

3,984

 

Investment (gain) loss

 

(203

)

 

2,101

 

Gain on extinguishment of debt

 

-

 

 

(481

)

Income before income taxes

 

16,960

 

 

14,633

 

Income tax expense

 

4,601

 

 

3,767

 

Consolidated net income

 

12,359

 

 

10,866

 

Net (loss) income attributable to non-controlling interest

 

(16

)

 

35

 

Net income attributable to Turning Point Brands, Inc.

$

12,375

 

$

10,831

 

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

$

0.70

 

$

0.62

 

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

$

0.68

 

$

0.58

 

Weighted average common shares outstanding: Basic

 

17,722,855

 

 

17,595,980

 

Diluted

 

18,448,720

 

 

20,098,450

 

    (1) Net sales include excise taxes billed to customers of $0.8 million and $1.0 million for the three months ended September 30, 2024 and 2023, respectively.   Turning Point Brands, Inc. Consolidated Balance Sheets (dollars in thousands except share data)   (unaudited) September 30, December 31, ASSETS

 

2024

 

 

2023

 

Current assets: Cash

$

33,557

 

$

117,886

 

Accounts receivable, net of allowances of $59 in 2024 and $78 in 2023

 

10,582

 

 

9,989

 

Inventories, net

 

106,416

 

 

98,960

 

Other current assets

 

34,197

 

 

40,781

 

Total current assets

 

184,752

 

 

267,616

 

Property, plant, and equipment, net

 

26,082

 

 

25,300

 

Deferred income taxes

 

919

 

 

1,468

 

Right of use assets

 

10,788

 

 

11,480

 

Deferred financing costs, net

 

1,984

 

 

2,450

 

Goodwill

 

136,413

 

 

136,250

 

Other intangible assets, net

 

78,621

 

 

80,942

 

Master Settlement Agreement (MSA) escrow deposits

 

29,482

 

 

28,684

 

Other assets

 

18,968

 

 

15,166

 

Total assets

$

488,009

 

$

569,356

 

  LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable

$

13,436

 

$

8,407

 

Accrued liabilities

 

30,475

 

 

33,635

 

Current portion of long-term debt

 

-

 

 

58,294

 

Total current liabilities

 

43,911

 

 

100,336

 

Notes payable and long-term debt

 

248,282

 

 

307,064

 

Lease liabilities

 

9,057

 

 

9,950

 

Total liabilities

 

301,250

 

 

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; 20,167,180 issued shares and 17,716,847 outstanding shares at September 30, 2024, and 19,922,137 issued shares and 17,605,677 outstanding shares at December 31, 2023

 

202

 

 

199

 

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

 

-

 

 

-

 

Additional paid-in capital

 

123,833

 

 

119,075

 

Cost of repurchased common stock (2,450,333 shares at September 30, 2024, and 2,316,460 shares at December 31, 2023)

 

(82,263

)

 

(78,093

)

Accumulated other comprehensive loss

 

(2,112

)

 

(2,648

)

Accumulated earnings

 

146,014

 

 

112,443

 

Non-controlling interest

 

1,085

 

 

1,030

 

Total stockholders' equity

 

186,759

 

 

152,006

 

Total liabilities and stockholders' equity

$

488,009

 

$

569,356

 

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

Nine Months Ended September 30,

 

2024

 

 

2023

 

Cash flows from operating activities: Consolidated net income

$

37,455

 

$

27,916

 

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

 

-

 

 

(1,858

)

Loss on sale of property, plant, and equipment

 

38

 

 

34

 

Gain on MSA investments

 

(14

)

 

-

 

Depreciation and other amortization expense

 

3,393

 

 

2,388

 

Amortization of other intangible assets

 

2,337

 

 

2,315

 

Amortization of deferred financing costs

 

1,947

 

 

1,795

 

Deferred income tax expense

 

349

 

 

694

 

Stock compensation expense

 

5,720

 

 

4,660

 

Noncash lease income

 

(317

)

 

(48

)

Loss on investments

 

2,722

 

 

11,162

 

Changes in operating assets and liabilities: Accounts receivable

 

(412

)

 

(2,112

)

Inventories

 

(7,281

)

 

3,036

 

Other current assets

 

3,075

 

 

(1,384

)

Other assets

 

(1,031

)

 

(5,110

)

Accounts payable

 

5,019

 

 

2,865

 

Accrued liabilities and other

 

(3,679

)

 

(6,348

)

Net cash provided by operating activities

$

49,321

 

$

40,005

 

  Cash flows from investing activities: Capital expenditures

$

(3,516

)

$

(4,206

)

Purchases of investments

 

(8,865

)

 

(200

)

Proceeds from sale of investments

 

4,520

 

 

-

 

Purchases of non-marketable equity investments

 

(1,250

)

 

-

 

Proceeds on the sale of property, plant and equipment

 

3

 

 

3

 

MSA escrow deposits, net

 

44

 

 

-

 

Net cash used in investing activities

$

(9,064

)

$

(4,403

)

  Cash flows from financing activities: Convertible Senior Notes repurchased

$

-

 

$

(41,794

)

Payment of Convertible Senior Notes

 

(118,541

)

 

-

 

Proceeds from call options

 

-

 

 

114

 

Payment of financing costs

 

(133

)

 

-

 

Payment of dividends

 

(3,644

)

 

(3,354

)

Exercise of options

 

1,341

 

 

419

 

Redemption of options

 

(328

)

 

(346

)

Redemption of restricted stock units

 

(840

)

 

-

 

Redemption of performance based restricted stock units

 

(1,212

)

 

(995

)

Common stock repurchased

 

(4,170

)

 

-

 

Net cash used in financing activities

$

(127,527

)

$

(45,956

)

  Net decrease in cash

$

(87,270

)

$

(10,354

)

Effect of foreign currency translation on cash

$

(29

)

$

22

 

  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

$

33,557

 

$

96,071

 

Restricted

 

1,959

 

 

4,929

 

Total cash at end of period

$

35,516

 

$

101,000

 

 

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, 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 (loss) 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

September 30,

 

2024

 

2023

 

Net income attributable to Turning Point Brands, Inc.

$

12,375

$

10,831

 

Add: Interest expense, net

 

3,773

 

3,984

 

Gain on extinguishment of debt

 

-

 

(481

)

Income tax expense

 

4,601

 

3,767

 

Depreciation expense

 

981

 

782

 

Amortization expense

 

1,204

 

844

 

EBITDA

$

22,934

$

19,727

 

Components of Adjusted EBITDA Corporate and CDS restructuring (a)

 

186

 

190

 

ERP/CRM (b)

 

154

 

138

 

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

 

1,769

 

1,824

 

Transactional expenses and strategic initiatives (d)

 

873

 

76

 

FDA PMTA (e)

 

1,242

 

275

 

Non-cash asset impairment (f)

 

-

 

2,173

 

Adjusted EBITDA

$

27,158

$

24,403

 

   

(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.

  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 September 30, 2024 September 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

$

16,960

$

4,601

 

$

(16

)

$

12,375

$

0.68

$

14,633

 

$

3,767

 

$

35

$

10,831

 

$

0.58

 

Gain on extinguishment of debt (a)

 

-

 

-

 

 

-

 

 

-

 

-

 

(481

)

 

(124

)

 

-

 

(357

)

 

(0.02

)

Corporate restructuring (b)

 

186

 

50

 

 

-

 

 

136

 

0.01

 

190

 

 

49

 

 

-

 

141

 

 

0.01

 

ERP/CRM (c)

 

154

 

42

 

 

-

 

 

112

 

0.01

 

138

 

 

36

 

 

-

 

102

 

 

0.01

 

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

 

1,769

 

480

 

 

-

 

 

1,289

 

0.07

 

1,824

 

 

470

 

 

-

 

1,354

 

 

0.07

 

Transactional expenses and strategic initiatives (e)

 

873

 

237

 

 

-

 

 

636

 

0.03

 

76

 

 

20

 

 

-

 

56

 

 

0.00

 

FDA PMTA (f)

 

1,242

 

337

 

 

-

 

 

905

 

0.05

 

275

 

 

71

 

 

-

 

204

 

 

0.01

 

Non-cash asset impairment (g)

 

-

 

-

 

 

-

 

 

-

 

-

 

2,173

 

 

559

 

 

-

 

1,614

 

 

0.08

 

Tax benefit (i)

 

-

 

(494

)

 

-

 

 

494

 

0.03

 

-

 

 

(575

)

 

-

 

575

 

 

0.03

 

Adjusted Net Income and Adjusted Diluted EPS

$

21,184

$

5,253

 

$

(16

)

$

15,947

$

0.87

$

18,828

 

$

4,272

 

$

35

$

14,521

 

$

0.76

 

    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 27.1% in 2024 and 25.7% in 2023.

(i)

Represents adjustment from quarterly tax rate to annual projected tax rate of 25% in 2024 and 23% in 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

3rd Quarter

 

3rd Quarter

 

3rd Quarter

 

3rd Quarter

 

3rd Quarter

 

3rd Quarter

 

3rd Quarter

 

3rd Quarter

2024

 

2023

 

2024

 

2023

 

2024

 

2023

 

2024

 

2023

  Net sales

$

105,617

$

101,722

$

49,324

$

46,754

$

41,380

$

36,916

$

14,913

 

$

18,052

 

  Gross profit

$

53,699

$

51,622

$

27,327

$

26,745

$

23,071

$

20,572

$

3,301

 

$

4,305

 

  Operating income (loss)

$

20,530

$

20,237

$

17,378

$

16,672

$

17,162

$

15,703

$

(278

)

$

(460

)

Adjustments: Corporate restructuring

 

186

 

190

 

-

 

-

 

-

 

-

 

-

 

 

190

 

ERP/CRM

 

154

 

138

 

-

 

-

 

-

 

-

 

-

 

 

-

 

Transactional expenses and strategic initiatives

 

873

 

76

 

-

 

-

 

-

 

-

 

-

 

 

-

 

FDA PMTA

 

1,242

 

275

 

-

 

-

 

-

 

-

 

-

 

 

-

 

Adjusted operating income (loss)

$

22,985

$

20,916

$

17,378

$

16,672

$

17,162

$

15,703

$

(278

)

$

(270

)

 

 

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Investor Contacts

Turning Point Brands, Inc. ir@tpbi.com