-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
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230802670760/en/
Investor Contacts Turning Point Brands, Inc.: Louie
Reformina, Senior Vice President, CFO Turning Point Brands, Inc.
502.774.9238 ir@tpbi.com
Grafico Azioni Turning Point Brands (NYSE:TPB)
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Grafico Azioni Turning Point Brands (NYSE:TPB)
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