8-K
Turning Point Brands, Inc. (TPB)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of report (Date of earliest event reported): April 27, 2022
TURNING POINT BRANDS, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 001-37763 | 20-0709285 |
|---|---|---|
| (State or other Jurisdiction of Incorporation) | (Commission File Number) | (IRS Employer Identification No.) |
| 5201 Interchange Way, Louisville, KY | 40229 | |
| --- | --- | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (502) 778-4421
N/A
(Former name, former address and former fiscal year, if changed since last report.)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
|---|---|---|
| Common Stock, $0.01 par value | TPB | New York Stock Exchange |
Check the appropriate box below if the Form 8–K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| --- | --- |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| --- | --- |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| --- | --- |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
| Item 2.02. | Results of Operations and Financial Condition. |
|---|
On April 27, 2022, Turning Point Brands, Inc. (the “Company”) issued a press release announcing its financial results for the first quarter ended March 31, 2022. A copy of the press release is attached as Exhibit 99.1 to this Current Report on Form 8-K.
The information in this Current Report on Form 8-K and the Exhibit attached hereto shall not be deemed to be "filed" for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section. Such information will not be incorporated by reference into any registration statement filed by the Company under the Securities Act of 1933, as amended, unless specifically identified therein as being incorporated by reference.
| Item 7.01. | Regulation FD Disclosure. |
|---|
On April 27, 2022, the Company posted an investor presentation with supplemental information for the quarter ended March 31, 2022 to the investor relations section of its website at the following link https://www.turningpointbrands.com/investor-relations/events-and-presentations.
The information furnished under Item 7.01 of this Current Report on Form 8-K, including the referenced investor presentation, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
| Item 9.01. | Financial Statements and Exhibits. | |
|---|---|---|
| (d) | Exhibits | |
| --- | --- | --- |
| 99.1 | Press Release dated April 27, 2022 | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| TURNING POINT BRANDS, INC. | ||
|---|---|---|
| Dated: April 27, 2022 | By: | /s/ Brittani N. Cushman |
| Brittani N. Cushman | ||
| Senior Vice President, General Counsel and Secretary |
Exhibit 99.1
Turning Point Brands Announces First Quarter 2022 Results
-Net Sales for Q1 2022 Zig-Zag and Stoker’s Products Increased 10.1 Percent Year-Over-Year
LOUISVILLE, Ky. – April 27, 2022 – 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 first quarter ended March 31, 2022.
Q1 2022 vs. Q1 2021
| • | Net sales decreased 6.3 percent to $100.9 million |
|---|---|
| o | Net sales for Zig-Zag and Stoker’s Products increased 10.1 percent |
| --- | --- |
| • | Gross profit decreased 2.8 percent to $51.8 million |
| --- | --- |
| • | Net income decreased 6.7 percent to $11.0 million |
| --- | --- |
| • | Adjusted EBITDA decreased 9.8 percent to $25.3 million (see Schedule A for a reconciliation to net income) |
| --- | --- |
| • | Diluted EPS of $0.55 and Adjusted Diluted EPS of $0.71 as compared to $0.57 and $0.80 in the same period one year ago, respectively (see Schedule B for a reconciliation to Diluted EPS) |
| --- | --- |
“Our first quarter results were in-line with our expectations as we continued to grow our market share for both Zig-Zag and Stoker’s while navigating a difficult consumer and regulatory environment to drive profitability in each of our segments, including NewGen. Sales decreased 6 percent from the previous year driven by a 37 percent decline in NewGen sales but showed double-digit growth excluding NewGen,” said Yavor Efremov, President and CEO, Turning Point Brands. “Zig-Zag delivered another strong growth quarter led by our U.S. Papers business which built on its market leading share during the quarter. At the same time, Stoker’s maintained its growth trajectory driven by double-digit growth in the Moist Snuff Tobacco (MST) business which benefited from consumer trade-down as a leading value brand. Despite the expected sales decline, NewGen maintained positive profitability during the quarter while improving the distribution reach for its regulated products.”
Continued Mr. Efremov, “We continue to monitor FDA developments. While added regulation may cause short-term disruption, this is a necessary step to fully regulate the industry, create a level playing field, and provide consumers with additional reduced-risk alternatives to cigarettes.”
Mr. Efremov concluded, “We maintain a strong balance sheet that is allowing us to deploy a substantial amount of our free cash flow towards share repurchases which continued during the quarter. While inflationary pressures, including a spike in gas prices, are impacting the consumer wallet, we remain favorably positioned as we continue to execute and outpace the overall industry. In addition to solid execution on the business side, we have completed both the ERP and CRM scopes we discussed on our last earnings call. I am particularly proud of the fact that the organization undertook a detailed review of the business with heavy involvement from every level of the Company while delivering a solid quarter.”
Zig-Zag Products Segment (45 percent of total net sales in the quarter)
For the first quarter, Zig-Zag Products net sales increased 11.4 percent to $45.7 million. TPB’s U.S. rolling papers and e-commerce business grew double-digits, aided by approximately $2 million in sales from an inventory load with certain customers. A low-single-digit decline in the cigar wraps business and double-digit decline in the Canadian business partially offset this growth. The decline in the cigar wraps business was partially due to a trade inventory adjustment compared to the prior year period. Order timing that benefitted the prior year period contributed to the decline in the Canadian business. Wild Hemp sales moved into the Zig-Zag Products segment during the current quarter which contributed $0.2 million, or 0.6 percent to the segment growth. For the first quarter, total Zig-Zag Products segment volume increased 7.1 percent, while price / mix increased 4.3 percent.
For the quarter, the Zig-Zag Products segment gross profit increased 5.8 percent to $26.3 million. The segment’s gross margin contracted 300 basis points to 57.7 percent driven primarily by growth in lower gross margin products and lower margin contribution from the inclusion of the DVW acquisition in the current period.
“Paper cones and Zig-Zag’s e-commerce business continued to drive the growth within our U.S. papers business,” said Graham Purdy, Chief Operating Officer, Turning Point Brands. “We introduced a new line of Zig-Zag rough cut natural leaf cigars and ramped up Zig-Zag hemp wraps and natural leaf tobacco wraps distribution during the quarter. Meanwhile, our marketing team continues to launch exciting programs to strengthen the Zig-Zag brand including its recent partnership with luxury fashion line AMIRI for its Spring 2022 collection. We are also eager to launch CLIPPER lighters distribution in the second half of the year which has the potential to be a meaningful contributor to the segment’s long-term growth.”
Stoker’s Products Segment (32 percent of total net sales in the quarter)
For the first quarter, Stoker’s Products net sales increased 8.4 percent to $31.7 million on double-digit growth of MST. This was partially offset by a mid-single-digit decline of loose-leaf chewing tobacco. MST represented 65 percent of Stoker’s Products revenues in the quarter, up from 63 percent a year earlier. FRE nicotine pouch products’ sales moved into the Stoker’s Products segment during the current quarter and contributed $0.7 million or 2.5 percent to segment growth. For the first quarter, total Stoker’s Products segment volume increased 0.3 percent, while price / mix increased 8.1 percent.
For the quarter, the Stoker’s Products segment gross profit increased 11.3 percent to $17.7 million. The segment’s gross margin expanded 150 basis points to 55.8 percent.
“Stoker’s delivered solid growth during the quarter led by continued market share gains in MST,” continued Purdy. “As mentioned above, with the backdrop of inflationary pressures impacting the consumer, Stoker’s is well positioned within its categories as a leading value brand.”
NewGen Products Segment (23 percent of total net sales in the quarter)
For the first quarter, NewGen Products net sales decreased 37.1 percent to $23.5 million. The regulatory environment for the vape businesses continues to impact sales.
For the quarter, the NewGen Products segment gross profit decreased 37.7 percent to $7.8 million. The segment gross margin contracted 40 basis points from the previous year to 33.0 percent.
“Our vape business remained profitable even with the expected weakness during the quarter as it continues to navigate challenges presented by the regulatory environment,” concluded Purdy. “Encouragingly, we continued to ramp our last mile logistics and distribution capabilities through the quarter. We will continue to adapt to the market environment as it goes through another transition period with the FDA expanding regulation of nicotine products. TPB’s applications for our vapor products remain under review.”
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Turning Point Brands, Inc. | www.turningpointbrands.com | ir@tpbi.com | 502.774.9238
Recent Events
To give better visibility on our vape business, certain non-vape products’ sales along with the associated and other costs have been moved from the NewGen Products segment into our other TPB reporting segments. Specifically, Wild Hemp sales have been moved to the Zig-Zag Products segment where TPB’s other smoking products sales are recognized. Additionally, the Company’s FRE nicotine pouch products’ sales moved to the Stoker’s Products segment where TPB’s other smokeless products sales are recognized. Both were marginal contributors to the Company’s overall performance. In addition, certain personnel and other non-vape related costs previously allocated to the Nu-X subsegment related to marketing, new product development, product sourcing and other corporate functions moved from the NewGen Products segment primarily into the Corporate segment for reporting purposes. In effect, Nu-X operations are being absorbed by other TPB reporting segments and the NewGen Products segment now primarily represents operations related to our proprietary vape products and vape distribution business.
Performance Measures in the First Quarter
First quarter consolidated selling, general and administrative (“SG&A”) expenses were $32.6 million compared to $28.9 million in the first quarter of 2021.
The first quarter SG&A included the following notable items:
| • | $1.3 million of restructuring expenses compared to none in the previous year |
|---|---|
| • | $0.3 million of ERP / CRM scoping expenses compared to none in the previous year |
| --- | --- |
| • | $1.1 million of stock options, restricted stock and incentive expense compared to $1.5 million in the year-ago period |
| --- | --- |
| • | $0.4 million of transaction expenses compared to $0.6 million in the year-ago period |
| --- | --- |
| • | $1.1 million of FDA PMTA-related expenses compared to $0.3 million in the year-ago period |
| --- | --- |
| • | $4.2 million in outbound freight expense compared to $3.7 million in the year-ago period with the increase due to higher shipping costs on vapor products related to<br> PACT Act implementation and higher freight costs across all segments |
| --- | --- |
| • | $1.5 million from the accounting consolidation of Turning Point Brands Canada compared to $0.8 in the year-ago period with the increase driven by the inclusion of the DVW acquisition in the<br> current period |
| --- | --- |
Total gross debt as of March 31, 2022 was $422.5 million. The corresponding net debt (total gross debt less cash) at March 31, 2022 was $296.5 million. The Company ended the quarter with total liquidity of $147.4 million, comprised of $126.0 million in cash and $21.4 million of revolving credit facility capacity.
During the quarter, the Company spent $10.6 million to repurchase 310,224 shares at an average price of $34.24 per share.
2022 Outlook
TPB is maintaining the guidance provided on February 22, 2022.
Earnings Conference Call
As previously disclosed, a conference call with the investment community to review TPB’s financial results has been scheduled for 8:30 a.m. Eastern on Wednesday, April 27, 2022. 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.
3
Turning Point Brands, Inc. | www.turningpointbrands.com | ir@tpbi.com | 502.774.9238
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 diluted EPS and Adjusted Operating Income. 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, and its emerging brands within the NewGen segment. TPB’s products are available in more than 215,000 retail outlets in North America, and on sites such as www.zigzag.com and www.solacevapor.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.
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Turning Point Brands, Inc. | www.turningpointbrands.com | ir@tpbi.com | 502.774.9238
Media Contacts
Turning Point Brands, Inc.:
Raquel Cona
KCSA Strategic Communications
212.896.1204
rcona@kcsa.com
Investor Contacts
Turning Point Brands, Inc.:
Louie Reformina, Senior Vice President, CFO
Turning Point Brands, Inc.
502.774.9238
ir@tpbi.com
Financial Statements Follow:
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Turning Point Brands, Inc. | www.turningpointbrands.com | ir@tpbi.com | 502.774.9238
Turning Point Brands, Inc.
Consolidated Statements of Income
(dollars in thousands except share data)
(unaudited)
| Three Months Ended March 31, | ||||||
|---|---|---|---|---|---|---|
| 2022 | 2021 | |||||
| Net sales | $ | 100,894 | $ | 107,641 | ||
| Cost of sales | 49,100 | 54,380 | ||||
| Gross profit | 51,794 | 53,261 | ||||
| Selling, general, and administrative expenses | 32,565 | 28,912 | ||||
| Operating income | 19,229 | 24,349 | ||||
| Interest expense, net | 5,196 | 4,486 | ||||
| Investment income | (78 | ) | (25 | ) | ||
| Loss on extinguishment of debt | - | 5,706 | ||||
| Income before income taxes | 14,111 | 14,182 | ||||
| Income tax expense | 3,340 | 2,654 | ||||
| Consolidated net income | 10,771 | 11,528 | ||||
| Net loss attributable to non-controlling interest | (227 | ) | (255 | ) | ||
| Net income attributable to Turning Point Brands, Inc. | $ | 10,998 | $ | 11,783 | ||
| Basic income per common share: | ||||||
| Net income attributable to Turning Point Brands, Inc. | $ | 0.60 | $ | 0.62 | ||
| Diluted income per common share: | ||||||
| Net income attributable to Turning Point Brands, Inc. | $ | 0.55 | $ | 0.57 | ||
| Weighted average common shares outstanding: | ||||||
| Basic | 18,257,695 | 19,093,961 | ||||
| Diluted | 21,749,510 | 22,665,067 | ||||
| Supplemental disclosures of statements of income information: | ||||||
| Excise tax expense | $ | 5,709 | $ | 8,789 | ||
| FDA fees | $ | 124 | $ | 170 |
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Turning Point Brands, Inc. | www.turningpointbrands.com | ir@tpbi.com | 502.774.9238
Turning Point Brands, Inc.
Consolidated Balance Sheets
(dollars in thousands except share data)
(unaudited)
| ASSETS | December 31,<br><br> <br>2021 | ||||
|---|---|---|---|---|---|
| Current assets: | |||||
| Cash | 126,045 | $ | 128,320 | ||
| Accounts receivable, net of allowances of 177 in 2022 and 262 in 2021 | 9,450 | 6,496 | |||
| Inventories | 105,858 | 87,607 | |||
| Other current assets | 25,663 | 26,746 | |||
| Total current assets | 267,016 | 249,169 | |||
| Property, plant, and equipment, net | 20,567 | 18,650 | |||
| Deferred income taxes | 1,754 | 1,363 | |||
| Right of use assets | 14,405 | 15,053 | |||
| Deferred financing costs, net | 362 | 388 | |||
| Goodwill | 162,323 | 162,333 | |||
| Other intangible assets, net | 87,022 | 87,485 | |||
| Master Settlement Agreement (MSA) escrow deposits | 30,237 | 31,720 | |||
| Other assets | 35,017 | 35,399 | |||
| Total assets | 618,703 | $ | 601,560 | ||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||
| Current liabilities: | |||||
| Accounts payable | 29,464 | $ | 7,361 | ||
| Accrued liabilities | 29,921 | 32,937 | |||
| Other current liabilities | 38 | 38 | |||
| Total current liabilities | 59,423 | 40,336 | |||
| Notes payable and long-term debt | 414,791 | 414,172 | |||
| Lease liabilities | 12,625 | 13,336 | |||
| Total liabilities | 486,839 | 467,844 | |||
| Commitments and contingencies | |||||
| Stockholders' equity: | |||||
| Preferred stock; 0.01 par value; authorized shares 40,000,000; issued and outstanding<br> shares -0- | - | - | |||
| Common stock,<br> voting, 0.01 par value; authorized shares, 190,000,000; 19,785,806 issued shares and 18,180,174 outstanding shares at March 31, 2022, and 19,690,884 issued shares and 18,395,476 outstanding shares at December 31, 2021 | 198 | 197 | |||
| Common stock, nonvoting, 0.01 par value; authorized shares, 10,000,000;issued and<br> outstanding shares -0- | - | - | |||
| Additional paid-in capital | 109,073 | 108,811 | |||
| Cost of repurchased common stock (1,605,632 shares at March 31, 2022 and 1,295,408 shares at December 31, 2021) | (59,491 | ) | (48,869 | ) | |
| Accumulated other comprehensive loss | (1,326 | ) | (195 | ) | |
| Accumulated earnings | 81,327 | 71,460 | |||
| Non-controlling interest | 2,083 | 2,312 | |||
| Total stockholders' equity | 131,864 | 133,716 | |||
| Total liabilities and stockholders' equity | 618,703 | $ | 601,560 |
All values are in US Dollars.
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Turning Point Brands, Inc. | www.turningpointbrands.com | ir@tpbi.com | 502.774.9238
Turning Point Brands, Inc.
Consolidated Statements of Cash Flows
(dollars in thousands)
(unaudited)
| Three Months Ended March 31, | ||||||
|---|---|---|---|---|---|---|
| 2022 | 2021 | |||||
| Cash flows from operating activities: | ||||||
| Consolidated net income | $ | 10,771 | $ | 11,528 | ||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
| Loss on extinguishment of debt | - | 5,706 | ||||
| Loss (gain) on sale of property, plant, and equipment | 1 | (2 | ) | |||
| Depreciation expense | 871 | 788 | ||||
| Amortization of other intangible assets | 463 | 477 | ||||
| Amortization of deferred financing costs | 645 | 604 | ||||
| Deferred income tax (benefit) expense | (34 | ) | 552 | |||
| Stock compensation expense | 1,159 | 1,498 | ||||
| Noncash lease (income) expense | (5 | ) | 6 | |||
| Gain on investments | (14 | ) | (13 | ) | ||
| Changes in operating assets and liabilities: | ||||||
| Accounts receivable | (2,958 | ) | 2,735 | |||
| Inventories | (18,258 | ) | (12,461 | ) | ||
| Other current assets | 1,081 | 1,283 | ||||
| Other assets | 382 | 464 | ||||
| Accounts payable | 22,101 | 14,882 | ||||
| Accrued liabilities and other | (3,165 | ) | (3,806 | ) | ||
| Net cash provided by operating activities | $ | 13,040 | $ | 24,241 | ||
| Cash flows from investing activities: | ||||||
| Capital expenditures | $ | (2,787 | ) | $ | (842 | ) |
| Restricted cash, MSA escrow deposits | (8,468 | ) | (14,920 | ) | ||
| Proceeds on the sale of property, plant and equipment | 1 | 2 | ||||
| Net cash used in investing activities | $ | (11,254 | ) | $ | (15,760 | ) |
| Cash flows from financing activities: | ||||||
| Proceeds from Senior Secured Notes | $ | - | $ | 250,000 | ||
| Payments of 2018 first lien term loan | - | (130,000 | ) | |||
| Settlement of interest rate swaps | - | (3,573 | ) | |||
| Payment of dividends | (1,022 | ) | (958 | ) | ||
| Payments of financing costs | - | (6,614 | ) | |||
| Exercise of options | 245 | 425 | ||||
| Redemption of options | - | (1,466 | ) | |||
| Redemption of performance restricted stock units | (1,141 | ) | - | |||
| Common stock repurchased | (10,622 | ) | (5,733 | ) | ||
| Net cash provided by (used in) financing activities | $ | (12,540 | ) | $ | 102,081 | |
| Net (decrease) increase in cash | $ | (10,754 | ) | $ | 110,562 | |
| Effect of foreign currency translation on cash | $ | (3 | ) | $ | 101 | |
| Cash, beginning of period: | ||||||
| Unrestricted | 128,320 | 41,765 | ||||
| Restricted | 15,155 | 35,074 | ||||
| Total cash at beginning of period | 143,475 | 76,839 | ||||
| Cash, end of period: | ||||||
| Unrestricted | 126,045 | 167,361 | ||||
| Restricted | 6,673 | 20,141 | ||||
| Total cash at end of period | $ | 132,718 | $ | 187,502 |
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Turning Point Brands, Inc. | www.turningpointbrands.com | ir@tpbi.com | 502.774.9238
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 diluted EPS, 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 diluted EPS, 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 diluted EPS 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 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” 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 EBITDA Adjusted diluted EPS 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.
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Turning Point Brands, Inc. | www.turningpointbrands.com | ir@tpbi.com | 502.774.9238
Schedule A
Turning Point Brands, Inc.
Reconciliation of GAAP Net Income to Adjusted EBITDA
(dollars in thousands)
(unaudited)
| Three Months Ended<br><br> <br>March 31, | ||||
|---|---|---|---|---|
| 2022 | 2021 | |||
| Net income attributable to Turning Point Brands, Inc. | $ | 10,998 | $ | 11,783 |
| Add: | ||||
| Interest expense, net | 5,196 | 4,486 | ||
| Loss on extinguishment of debt | - | 5,706 | ||
| Income tax expense | 3,340 | 2,654 | ||
| Depreciation expense | 871 | 788 | ||
| Amortization expense | 463 | 477 | ||
| EBITDA | $ | 20,868 | $ | 25,894 |
| Components of Adjusted EBITDA | ||||
| Corporate restructuring (a) | 1,332 | - | ||
| ERP/CRM (b) | 330 | - | ||
| Stock options, restricted stock, and incentives expense (c) | 1,159 | 1,498 | ||
| Transactional expenses (d) | 425 | 607 | ||
| FDA PMTA (e) | 1,139 | - | ||
| Adjusted EBITDA | $ | 25,253 | $ | 27,999 |
| (a) | Represents costs associated with corporate restructuring, including severance. |
|---|---|
| (b) | Represents cost assosicated with scoping new ERP and CRM systems. |
| --- | --- |
| (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"). |
| --- | --- |
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Turning Point Brands, Inc. | www.turningpointbrands.com | ir@tpbi.com | 502.774.9238
Schedule B
Turning Point Brands
Reconciliation of GAAP diluted EPS to Adjusted diluted EPS
(dollars in thousands except share data)
(unaudited)
| Three Months Ended<br><br> <br>March 31, | |||||
|---|---|---|---|---|---|
| 2022 | 2021 | ||||
| GAAP EPS | $ | 0.55 | $ | 0.57 | |
| Corporate restructuring (a) | 0.05 | - | |||
| ERP/CRM (b) | 0.01 | 0.05 | |||
| Loss on extinguishment of debt (c) | - | 0.20 | |||
| Stock options, restricted stock, and incentives expense (d) | 0.04 | 0.05 | |||
| Transactional expenses (e) | 0.01 | 0.02 | |||
| FDA PMTA (f) | 0.04 | - | |||
| Tax (expense) benefit (g) | 0.01 | (0.10 | ) | ||
| Adjusted diluted EPS | $ | 0.71 | $ | 0.80 | |
| Totals may not foot due to rounding | |||||
| --- | |||||
| (a) | Represents costs associated with corporate restructuring, including severance, tax effected at the quarterly tax rate. | ||||
| --- | --- | ||||
| (b) | Represents cost assosicated with scoping new ERP and CRM systems tax effected at the quarterly tax rate. | ||||
| --- | --- | ||||
| (c) | Represents Loss on Extinguishment of Debt 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 adjustment from quarterly tax rate to annual projected tax rate of 23% in 2022 and 2021. | ||||
| --- | --- |
11
Turning Point Brands, Inc. | www.turningpointbrands.com | ir@tpbi.com | 502.774.9238
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 | NewGen Products | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 1st Quarter<br><br> <br>2022 | 1st Quarter<br><br> <br>2021 | 1st Quarter<br><br> <br>2022 | 1st Quarter<br><br> <br>2021 | 1st Quarter<br><br> <br>2022 | 1st Quarter<br><br> <br>2021 | 1st Quarter<br><br> <br>2022 | 1st Quarter<br><br> 2021 | |||||||||
| Net sales | $ | 100,894 | $ | 107,641 | $ | 45,672 | $ | 41,004 | $ | 31,703 | $ | 29,255 | $ | 23,519 | $ | 37,382 |
| Gross profit | $ | 51,794 | $ | 53,261 | $ | 26,343 | $ | 24,896 | $ | 17,686 | $ | 15,892 | $ | 7,765 | $ | 12,473 |
| Operating income | $ | 19,229 | $ | 24,349 | $ | 18,737 | $ | 19,437 | $ | 13,506 | $ | 12,255 | $ | 678 | $ | 2,006 |
| Adjustments: | ||||||||||||||||
| Corporate restructuring | 1,332 | - | - | - | - | - | - | - | ||||||||
| ERP/CRM | 330 | - | - | - | - | - | - | |||||||||
| Transactional expenses | 425 | 607 | - | - | - | - | - | - | ||||||||
| FDA PMTA | 1,139 | - | - | - | - | - | - | - | ||||||||
| Adjusted operating income | $ | 22,455 | $ | 24,956 | $ | 18,737 | $ | 19,437 | $ | 13,506 | $ | 12,255 | $ | 678 | $ | 2,006 |
12
Turning Point Brands, Inc. | www.turningpointbrands.com | ir@tpbi.com | 502.774.9238