Turning Point Brands Announces Third Quarter 2023 Results and Closing of New ABL Facility

Published

-Revised Annual Adjusted EBITDA Guidance to $92 to $95 million from $90 to $95 million

-Repurchased Another $15 million of Outstanding Convertible Bonds

LOUISVILLE, Ky.--(BUSINESS WIRE)-- 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 third quarter ended September 30, 2023.

Q3 2023 vs. Q3 2022

  • Total consolidated net sales decreased 5.6% to $101.7 million
    • Zig-Zag Products net sales decreased by 10.2% but stable sequentially
    • Stoker’s Products net sales increased by 10.1%
    • Creative Distribution Solutions net sales decreased by 18.7%
  • Gross profit decreased 2.1% to $51.6 million
  • Net income decreased 6.1% to $10.8 million
  • Adjusted net income increased 1.6% to $14.5 million (see Schedule B for a reconciliation to net income)
  • Adjusted EBITDA decreased 0.4% to $24.4 million (see Schedule A for a reconciliation to net income)
  • Diluted EPS of $0.58 and Adjusted Diluted EPS of $0.76 compared to $0.60 and $0.72 in the same period one year ago, respectively (see Schedule B for a reconciliation to Diluted EPS)

Graham Purdy, President and CEO, commented: “Our third quarter results were consistent with our expectations. The Zig-Zag segment was stable sequentially from the second quarter and notwithstanding some transitory headwinds posted its third-highest revenue quarter. Stoker’s had another solid quarter of performance led by double-digit growth year-over-year in Stoker’s MST. We further de-levered the balance sheet with an opportunistic purchase of $15 million in aggregate principal amount of our convertible notes during the third quarter. With a new $75 million ABL revolving credit facility, our strong cash balance, and our free cash flow generation, we now have more than ample liquidity to address the remaining balance of convertible notes maturing next year.”

Zig-Zag Products Segment (46% of total net sales in the quarter)

For the third quarter, Zig-Zag Products net sales were consistent with the previous quarter but decreased 10.2% to $46.8 million as the previous year’s third quarter benefitted from the initial load-in of CLIPPER lighters and approximately $5 million of sales from promotional activities and timing of Canadian deliveries. Additionally, a discontinuation of an unprofitable product line impacted Canadian sales by $1.8 million.

For the quarter, the Zig-Zag Products segment gross profit decreased 4.6% to $26.7 million. Gross margin increased 330 basis points to 57.2% driven primarily by product mix.

“Our alternative channel business had another quarter of strong double-digit growth as we continue to expand penetration in the growing market,” said Purdy. “We remain encouraged by our prospects with secular cannabis consumption growth trends driving demand for our products.”

Stoker’s Products Segment (36% of total net sales in the quarter)

For the third quarter, Stoker’s Products net sales increased 10.1% to $36.9 million on double-digit growth of MST and low-single-digit growth of loose-leaf chewing tobacco. For the third quarter, total Stoker’s Products segment volume increased 2.2%, while price / mix increased 7.9%.

For the quarter, the Stoker’s Products segment gross profit increased 12.5% to $20.6 million. Gross margin expanded 120 basis points to 55.7% due to MST pricing gains.

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

Recent Events

ABL Facility

On November 7, 2023, a subsidiary of the Company closed on a new asset-based revolving credit facility with committed borrowing capacity of $75 million. The new facility replaces a $25 million senior secured revolving credit facility which was scheduled to mature in August 2025. The new facility is scheduled to mature in November 2027. The Company currently has no borrowings outstanding under the new facility.

Performance Measures in the Third Quarter

Third quarter consolidated selling, general and administrative (“SG&A”) expenses were $31.4 million compared to $32.9 million in the third quarter of 2022.

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

  • $1.8 million of stock options, restricted stock and incentive expense compared to $1.4 million in the year-ago period
  • $0.3 million of FDA PMTA-related expenses for modern oral products compared to $1.2 million in the year-ago period
  • $0.2 million of restructuring costs related to CDS as compared to $0.0 million in the year-ago period
  • $0.1 million of transaction expenses compared to $0.0 million in the year-ago period
  • $0.1 million of ERP / CRM duplicative system costs compared to $0.4 million of ERP / CRM scoping expenses in the previous year

Total gross debt as of September 30, 2023 was $368.5 million. Net debt (total gross debt less unrestricted cash) at September 30, 2023 was $272.5 million. The Company ended the quarter with total liquidity of $119.7 million, comprised of $96.1 million in cash and $23.6 million of revolving credit facility capacity.

During the quarter, the Company repurchased $15.0 million in aggregate principal amount of its 2.50% Convertible Senior Notes due July 2024.

The Company recorded an impairment charge of $2.2 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 $92 to $95 million (compared to previous outlook of $90 to $95 million).

Creative Distribution Solutions (“CDS”) (18% of total net sales in the quarter)

The CDS business was restructured during the quarter to eliminate certain unprofitable businesses and focus on a narrower set of products to better position it as a standalone business.

For the third quarter, CDS net sales were $18.1 million, gross profit was $4.3 million, and gross margin was 23.8%.

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, November 8, 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 and per share data)
(unaudited)
 
Three Months Ended September 30,

2023

2022

 
Net sales

$

101,722

 

$

107,802

 

Cost of sales

 

50,100

 

 

55,090

 

Gross profit

 

51,622

 

 

52,712

 

Selling, general, and administrative expenses

 

31,385

 

 

32,891

 

Operating income

 

20,237

 

 

19,821

 

Interest expense, net

 

3,984

 

 

4,802

 

Investment loss (gain)

 

2,101

 

 

(75

)

Gain on extinguishment of debt

 

(481

)

 

-

 

Income before income taxes

 

14,633

 

 

15,094

 

Income tax expense

 

3,767

 

 

3,797

 

Consolidated net income

 

10,866

 

 

11,297

 

Net gain (loss) attributable to non-controlling interest

 

35

 

 

(239

)

Net income attributable to Turning Point Brands, Inc.

$

10,831

 

$

11,536

 

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

$

0.62

 

$

0.65

 

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

$

0.58

 

$

0.60

 

Weighted average common shares outstanding:
Basic

 

17,595,980

 

 

17,749,294

 

Diluted

 

20,098,450

 

 

21,102,006

 

 
Supplemental disclosures of statements of income information:
Excise tax expense

$

5,288

 

$

5,747

 

FDA fees

$

142

 

$

170

 

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

2023

2022

Current assets:
Cash

$

96,071

 

$

106,403

 

Accounts receivable, net of allowances of $59 in 2023 and $114 in 2022

 

10,493

 

 

8,377

 

Inventories

 

116,926

 

 

119,915

 

Other current assets

 

23,322

 

 

22,959

 

Total current assets

 

246,812

 

 

257,654

 

Property, plant, and equipment, net

 

24,613

 

 

22,788

 

Deferred income taxes

 

8,190

 

 

8,443

 

Right of use assets

 

12,060

 

 

12,465

 

Deferred financing costs, net

 

203

 

 

282

 

Goodwill

 

136,280

 

 

136,253

 

Other intangible assets, net

 

81,725

 

 

83,592

 

Master Settlement Agreement (MSA) escrow deposits

 

27,534

 

 

27,980

 

Other assets

 

16,526

 

 

22,649

 

Total assets

$

553,943

 

$

572,106

 

 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable

$

11,237

 

$

8,355

 

Accrued liabilities

 

27,227

 

 

33,001

 

Current portion of long-term debt

 

48,248

 

 

-

 

Other current liabilities

 

6

 

 

20

 

Total current liabilities

 

86,718

 

 

41,376

 

Notes payable and long-term debt

 

316,573

 

 

406,757

 

Lease liabilities

 

10,433

 

 

10,593

 

Total liabilities

 

413,724

 

 

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; 19,912,882 issued shares
and 17,596,422 outstanding shares at September 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

 

117,143

 

 

113,242

 

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

 

(78,093

)

 

(78,093

)

Accumulated other comprehensive loss

 

(3,855

)

 

(2,393

)

Accumulated earnings

 

103,517

 

 

78,691

 

Non-controlling interest

 

1,308

 

 

1,735

 

Total stockholders' equity

 

140,219

 

 

113,380

 

Total liabilities and stockholders' equity

$

553,943

 

$

572,106

 

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

Nine Months Ended September 30,

2023

2022

Cash flows from operating activities:
Consolidated net income

$

27,916

 

$

27,274

 

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

 

(1,858

)

 

-

 

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

 

34

 

 

(8

)

Depreciation and other amortization expense

 

2,388

 

 

2,611

 

Amortization of other intangible assets

 

2,315

 

 

1,373

 

Amortization of deferred financing costs

 

1,795

 

 

1,936

 

Deferred income tax expense (benefit)

 

694

 

 

(431

)

Stock compensation expense

 

4,660

 

 

4,103

 

Noncash lease income

 

(48

)

 

-

 

Loss on investments

 

11,162

 

 

6,244

 

Changes in operating assets and liabilities:
Accounts receivable

 

(2,112

)

 

(5,030

)

Inventories

 

3,036

 

 

(26,467

)

Other current assets

 

(1,384

)

 

1,891

 

Other assets

 

(5,110

)

 

1,211

 

Accounts payable

 

2,865

 

 

2,074

 

Accrued liabilities and other

 

(6,348

)

 

(392

)

Net cash provided by operating activities

$

40,005

 

$

16,389

 

 
Cash flows from investing activities:
Capital expenditures

$

(4,206

)

$

(6,662

)

Payments for investments

 

(200

)

 

(1,000

)

Restricted cash, MSA escrow deposits

 

-

 

 

(10,169

)

Proceeds on the sale of property, plant and equipment

 

3

 

 

63

 

Net cash used in investing activities

$

(4,403

)

$

(17,768

)

 
Cash flows from financing activities:
Repurchased Convertible Senior Notes

$

(41,794

)

$

-

 

Proceeds from call options

 

114

 

 

-

 

Payment of dividends

 

(3,354

)

 

(3,259

)

Exercise of options

 

419

 

 

504

 

Redemption of options

 

(346

)

 

(155

)

Redemption of performance restricted stock units

 

(995

)

 

(1,228

)

Common stock repurchased

 

-

 

 

(27,032

)

Net cash used in financing activities

$

(45,956

)

$

(31,170

)

 
Net decrease in cash

$

(10,354

)

$

(32,549

)

Effect of foreign currency translation on cash

$

22

 

$

(324

)

 
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

$

96,071

 

$

105,672

 

Restricted

 

4,929

 

 

4,930

 

Total cash at end of period

$

101,000

 

$

110,602

 

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 (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, Adjusted Gross Profit 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, Adjusted Gross Profit 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, 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 (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, Adjusted Gross Profit 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,

2023

2022

Net income attributable to Turning Point Brands, Inc.

$

10,831

 

$

11,536

Add:
Interest expense, net

 

3,984

 

 

4,802

Gain on extinguishment of debt

 

(481

)

 

-

Income tax expense

 

3,767

 

 

3,797

Depreciation expense

 

782

 

 

861

Amortization expense

 

844

 

 

454

EBITDA

$

19,727

 

$

21,450

Components of Adjusted EBITDA
Corporate restructuring (a)

 

190

 

 

17

ERP/CRM (b)

 

138

 

 

435

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

 

1,824

 

 

1,442

Transactional expenses (d)

 

76

 

 

-

FDA PMTA (e)

 

275

 

 

1,169

Non-cash asset impairment (f)

 

2,173

 

 

-

Adjusted EBITDA

$

24,403

 

$

24,513

 
 
(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, Inc.
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, 2023 September 30, 2022
Net Income Diluted EPS Net Income Diluted EPS
GAAP EPS

$

10,831

 

$

0.58

 

$

11,536

$

0.60

Gain on extinguishment of debt (a)

 

(357

)

 

(0.02

)

 

-

 

-

Corporate restructuring (b)

 

141

 

 

0.01

 

 

13

 

0.00

ERP/CRM (c)

 

102

 

 

0.01

 

 

326

 

0.02

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

 

1,354

 

 

0.07

 

 

1,079

 

0.05

Transactional expenses (e)

 

56

 

 

0.00

 

 

-

 

-

FDA PMTA (f)

 

204

 

 

0.01

 

 

875

 

0.04

Non-cash asset impairment (g)

 

1,614

 

 

0.08

 

 

-

 

-

Tax benefit (h)

 

575

 

 

0.03

 

 

469

 

0.01

Adjusted

$

14,521

 

$

0.76

 

$

14,297

$

0.72

 
 
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 (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

2023

 

2022

 

2023

 

2022

 

2023

 

2022

 

2023

 

2022

 
Net sales

$

101,722

$

107,802

$

46,754

$

52,061

$

36,916

$

33,525

$

18,052

 

$

22,216

 
Gross profit

$

51,622

$

52,712

$

26,745

$

28,035

$

20,572

$

18,279

$

4,305

 

$

6,398

 
Operating income (loss)

$

20,237

$

19,821

$

16,672

$

18,740

$

15,703

$

13,653

$

(460

)

$

142

Adjustments:
Corporate restructuring

 

190

 

17

 

-

 

-

 

-

 

-

 

190

 

 

-

ERP/CRM

 

138

 

435

 

-

 

-

 

-

 

-

 

-

 

 

-

Transactional expenses

 

76

 

-

 

-

 

-

 

-

 

-

 

-

 

 

-

FDA PMTA

 

275

 

1,169

 

-

 

-

 

-

 

-

 

-

 

 

-

Adjusted operating income (loss)

$

20,916

$

21,442

$

16,672

$

18,740

$

15,703

$

13,653

$

(270

)

$

142

 

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.

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