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 28, 2020
TURNING POINT BRANDS, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 001-37763 | 20-0709285 |
|---|---|---|
| (State or other jurisdiction of incorporation or organization) | (Commission File Number) | (I.R.S. Employer Identification No.) |
5201 Interchange Way, Louisville, KY 40229
(Address of principal executive offices)
(502) 778-4421
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report.)
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) |
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| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
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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 |
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. |
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On April 28, 2020, Turning Point Brands, Inc. issued a press release announcing its financial results for the first quarter ended March 31, 2020. 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. |
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On April 28, 2020, Lawrence S. Wexler, the Company’s President & Chief Executive Officer, will present at its 2020 Annual Meeting of Stockholders. A copy of the slide presentation to be used is attached to this Current Report on Form 8-K as Exhibit 99.2.
| Item 9.01. | Financial Statements and Exhibits. |
|---|---|
| (d) | Exhibits |
| --- | --- |
| 99.1 | Press Release dated April 28, 2020 |
| --- | --- |
| 99.2 | Investor Presentation dated April 28, 2020 |
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 28, 2020 | By: | /s/ James Dobbins |
| James Dobbins | ||
| Senior Vice President, General Counsel and Secretary |
Exhibit 99.1
Turning Point Brands Announces First Quarter 2020 Results
LOUISVILLE, KY. (April 28, 2020) - Turning Point Brands (“TPB”) (NYSE: TPB), a leading provider of Other Tobacco Products (“OTP”) and adult consumer alternatives, today announced financial results for the first quarter ended March 31, 2020.
Results at a Glance
First Quarter 2020
(Comparisons vs. same period year-ago)
| ✓ | Net sales decreased 1.0% to $90.7 million; |
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| ✓ | Gross profit increased 2.4% to $41.4 million; |
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| ✓ | Net income decreased $3.3 million to $3.3 million, reflecting the inclusion of expensing PMTA costs incurred during the quarter; |
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| ✓ | Adjusted EBITDA increased 10.6% to $17.8 million (see Schedule A for a reconciliation to net income); |
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| ✓ | Diluted EPS of $0.16 and Adjusted Diluted EPS of $0.51 as compared to $0.33 and $0.43 in the year-ago period, respectively (see Schedule C for a reconciliation to Diluted EPS); |
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“Our results this quarter reflect the robust demand for our products even during challenging times. Sales performance was driven by mid-teens growth in our core Smokeless and Smoking segments partially aided by trade load-in as a response to strong customer demand and the uncertain environment. We estimate trade load-in impacted sales in our core tobacco segments by $2 million. Our NewGen segment also delivered better than expected results after we reorganized the business last quarter,” said Larry Wexler, President and CEO. “During this challenging environment, we are especially proud of the job our employees are doing to ensure the health and safety of each other and our local communities while maintaining our commitment to meet our customers’ needs. The dedication of TPB’s workforce to serve those needs has been remarkable.”
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|---|---|---|---|
| Turning Point Brands, Inc. | www.turningpointbrands.com | ir@tpbi.com | 502.774.9238 |
COVID-19 Impact
“As a result of the extraordinary situation we are facing, our focus during the quarter was on the safety and well-being of our colleagues and the communities and customers we serve. This focus serves as the basis for decisions we make as a company and how we react going forward,” said Wexler.
TPB implemented several changes to enhance safety and mitigate health risk in its work environment. For warehouse and manufacturing operations, these include split shifts, temperature scans, additional contactless hand sanitizing stations, protective equipment, social distancing guidelines, and increased cleaning and sanitization.
Unnecessary travel was suspended, and telecommuting is being facilitated where possible. Like many organizations, the company has changed the way it communicates through increased use of videoconferencing and has implemented tele-selling initiatives through its sales force. Some of these changes are likely to remain in-place even after this crisis and will lead to on-going cost savings. Annual compensation increases for corporate employees have been deferred other than those contractually required. In addition, new spending commitments are on hold as management cautiously manages through this environment.
To meet increased demand, the company hired additional employees for its Louisville facility and implemented wage increases for hourly employees. Production capacity was utilized to manufacture hand sanitizers with bottles being donated to hospitals, nursing homes and first responders in our local communities.
The company expects COVID-19 to impact results in the second quarter. A third-party cigar wrap manufacturer in the Dominican Republic temporarily closed for three weeks and is slowly ramping back up. In-person selling has been dramatically dampened, which will slow new product launches. Select budgeted annual price increases will be delayed. These issues will be partially offset by TPB’s growing B2C platforms. Management will continue to monitor this challenging environment closely and will make necessary adjustments as needed to make sure TPB continues to serve its customers, while also protecting the safety of its employees and communities.
Recent Events
On April 8, 2020, TPB and Standard Diversified Inc. (“SDI”) (NYSE: SDI) announced a definitive agreement under which SDI will be merged into a wholly-owned subsidiary of TPB in a tax-free downstream merger, in a transaction first announced by the companies in November 2019. Under the terms of the agreement, the holders of SDI’s Class A Common Stock and SDI’s Class B Common Stock (collectively, the “SDI Common Stock”) will receive in the aggregate, in return for their SDI Common Stock, TPB Voting Common Stock (“TPB Common Stock”) at a ratio of 0.97 of a share of TPB Common Stock for each share of TPB Common Stock held by SDI at the time of the merger. SDI will divest its assets prior to close such that the net liabilities at closing will not exceed $25,000 and the only assets that it shall retain is the remaining TPB stock holdings.
As a result of impacts due to COVID-19, FDA requested and received a modification to the United States District Court for the District of Maryland remedy order, resulting in a 120-day extension of the premarket tobacco application deadline for many e-cigarettes, cigars and other tobacco products. The new deadline of September 9, 2020 will allow TPB to utilize this additional time to bolster its premarket filings. The company continues to expect to spend a total of $15 to $18 million (inclusive of $2.2 million spent in 2019 and $5.9 million in the first quarter of 2020) on the PMTA process.
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| Turning Point Brands, Inc. | www.turningpointbrands.com | ir@tpbi.com | 502.774.9238 |
The company continues to actively engage in potential acquisition discussions with multiple candidates, but with no firm commitments currently. While the coronavirus has likely delayed the timing of completing such transactions, we have seen an increased pipeline of attractive opportunities as capital has become scarce.
Smokeless Products Segment (29% of total net sales in the quarter)
For the first quarter, Smokeless products net sales increased 17.5% to $26.5 million on continued double-digit volume growth of Stoker’s MST. Sales in chewing tobacco were flat as compared to the year-ago quarter. MST represented 59% of Smokeless revenues in the quarter, up from 52% a year earlier. In the quarter, total Smokeless segment volume increased 16.7% and price/mix advanced 0.8%.
“Our Stoker’s MST tubs line saw elevated demand at the end of the quarter as consumer trade down trends accelerated with a shift to larger volume purchases during the pandemic. We estimate trade load-in likely impacted sales by approximately $0.9 million during the quarter,” said Graham Purdy, Chief Operating Officer. “Stoker’s MST market share gains are poised to continue through same store sales gains along with further distribution expansion.”
For the quarter, Smokeless segment gross profit increased 14.9% to $13.9 million. Segment gross margin contracted 120 basis points to 52.4% primarily as a result of mix.
Smoking Products Segment (32% of total net sales in the quarter)
For the first quarter, net sales of Smoking products increased 13.3% to $28.9 million. Growth was driven by double-digit advances in US rolling papers, partially offset by a $0.5 million decline in non-focus cigars and MYO/Pipe. In the quarter, total Smoking segment volume increased 10.9% while price/mix increased 2.4%.
Zig-Zag continues to leverage its iconic positioning in rolling papers to successfully extend into new product lines. The expansion of organic hemp, paper cones, and unbleached papers continued during the quarter. Zig-Zag organic hemp papers are now in approximately 39,000 retail outlets while paper cones and unbleached papers are now in approximately 31,000 and 21,000 retail outlets, respectively.
“Our recent Zig-Zag introductions continue to perform well. According to MSAi, Zig-Zag’s share of the paper cone category climbed from 5% to 27% over the last year to position Zig-Zag as the #2 brand while Zig-Zag hemp paper is the #1 hemp paper brand with 28% share. We have also launched new initiatives to enhance Zig-Zag’s presence in other channels such as e-commerce and dispensaries both in the U.S. and in Canada that can be meaningful drivers of growth. Trade load-in likely impacted sales by approximately $1.1 million during the quarter,” said Purdy.
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| Turning Point Brands, Inc. | www.turningpointbrands.com | ir@tpbi.com | 502.774.9238 |
For the quarter, Smoking products gross profit increased 19.6% to $16.1 million. Segment gross margin expanded 300 basis points to 55.8% as a result of increased US rolling paper sales and a continued decline in the low margin cigar business.
NewGen (New Generation) Products Segment (39% of total net sales in the quarter)
For the first quarter, NewGen segment net sales contracted 19.0% to $35.3 million as a result of the continued impact of the vapor market disruption and the
discontinuance of the V2 business. This was partially offset by positive contributions from CBD, Solace and other Nu-X products.
“We are encouraged by the results from the recent consolidation and streamlining of our business, despite lingering headwinds related to disruption in the vapor market that began in third quarter 2019. The NewGen segment is again profitable. In our B2C business, we experienced a strong rebound at the end of the quarter that has continued as customers shift to buying online,” said Purdy. “We successfully navigated our vape business through the disruption in the market last year and believe the trough is now behind us. We are now looking forward to completing the PMTA process after which there is significant potential for our proprietary brands. Furthermore, we are excited about the new products we have in the pipeline for Nu-X and continue to believe the Nu-X platform will serve as a strong engine for future growth.”
For the quarter, NewGen gross profit decreased $3.5 million to $11.4 million primarily as a result of the decline in net sales. Segment gross margin declined 180 basis points to 32.4% primarily due to recent product introductions. First quarter 2020 included $2.8 million of tariff expense compared to $2.0 million a year-ago.
Other Events and Performance Measures in the First Quarter
First quarter consolidated selling, general and administrative (“SG&A”) expenses were $32.4 million compared to $28.4 million in 2019.
The first quarter had notable non-recurring impacts:
| • | $5.9 million of FDA related expenses as compared to $0.0 million a year-ago; and |
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| • | $1.0 million of transaction expenses principally related to M&A activity, including the announced SDI transaction. |
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The effective tax rate for the quarter was 22%.
Total debt at March 31, 2020 was $280.0 million. Net debt at March 31, 2020 was $180.6 million. Net debt at March 31, 2020 to rolling twelve months Adjusted EBITDA was 2.6x (see Schedule B for a reconciliation).
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| Turning Point Brands, Inc. | www.turningpointbrands.com | ir@tpbi.com | 502.774.9238 |
2020 Outlook
We are pleased that our first quarter results were above our expectations. We are also encouraged by government measures to support consumers and the economy. In-light of the changing landscape, we feel it is prudent to maintain our full year net sales and Adjusted EBITDA guidance provided February 26, 2020 until there is some clarity on the duration and the impact of the government reaction to the pandemic.
Absent any acquisitions, the company projects 2020 net sales to be $338 to $353 million. We project 2020 Adjusted EBITDA of $69 to $75 million. Our projections assume no upside from the PMTA process in 2020.
Stock compensation and non-cash incentive expense in 2020 is now projected to be $2.8 million (down from previous guidance of $3.3 million).
The company continues to expect to spend a total of $15 to $18 million (inclusive of $2.2 million spent in 2019 and $5.9 million in the first quarter of 2020) on the PMTA process, with expenses heavily weighted towards the first half of 2020.
Cash interest expense is projected to be $11 to $12 million and GAAP interest expense includes $7 million of debt discount amortization equal to the fair value of the equity components over the expected life of the 2024 convertible notes.
The company now expects the 2020 effective income tax rate to be 22% to 24% (compared to previous guidance of 21 to 23%).
Capital expenditures for 2020 are anticipated to be approximately $4 to $6 million (up from $4 million previously) as we are currently evaluating accelerating certain capital expenditure projects due to temporary tax code incentives.
Net Sales for the second quarter 2020 are expected to be $81 to $87 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 a.m. Tuesday, April 28, 2020. Investment community participants should dial in ten minutes ahead of time using the toll-free number 844-889-4324 (International participants should call 412-317-9262). A live listen-only webcast of the call is available from 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 three 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 Adjusted EBITDA, Adjusted diluted EPS, Net Debt and Adjusted Operating Income. A reconciliation of these non-GAAP financial measures accompanies this release.
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| Turning Point Brands, Inc. | www.turningpointbrands.com | ir@tpbi.com | 502.774.9238 |
About Turning Point Brands, Inc.
Louisville, Kentucky-based Turning Point Brands, Inc. (NYSE: TPB) is a leading U.S. provider of Other Tobacco Products and adult consumer alternatives. TPB, through its focus brands generates solid cash flow which it uses to finance acquisitions, increase brand support and strengthen its capital structure. TPB does not sell cigarettes. More information about the company is available at its corporate website, 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, 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 speaks only as of the date hereof. New risks and uncertainties come up from time to time, and it is impossible for TPB to predict these 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:
| • | declining sales of tobacco products, and expected continuing decline of sales, in the tobacco industry overall; | ||
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| • | our dependence on a small number of third-party suppliers and producers; | ||
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| • | the possibility that we will be unable to identify or contract with new suppliers or producers in the event of a supply or product disruption; | ||
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| • | our business may be damaged by events outside of our suppliers’ control, such as the impact of epidemics (e.g., coronavirus), pollical upheavals, or natural disasters; | ||
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| • | the possibility that our licenses to use certain brands or trademarks will be terminated, challenged or restricted; | ||
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| • | failure to maintain consumer brand recognition and loyalty of our customers; | ||
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| • | substantial and increasing U.S. regulation; | ||
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| • | regulation of our products by the FDA, which has broad regulatory powers; | ||
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| • | our products are subject to developing and unpredictable regulation, for example, current court action moving forward certain substantial Pre Market Tobacco Application obligations; | ||
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| Turning Point Brands, Inc. | www.turningpointbrands.com | ir@tpbi.com | 502.774.9238 |
| • | some of our products contain nicotine which is considered to be a highly addictive substance; | ||
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| • | uncertainty related to the regulation and taxation of our NewGen products; | ||
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| • | possible significant increases in federal, state and local municipal tobacco- and vapor-related taxes; | ||
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| • | possible increasing international control and regulation; | ||
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| • | our reliance on relationships with several large retailers and national chains for distribution of our products; | ||
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| • | our amount of indebtedness; | ||
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| • | the terms of our credit facilities, which may restrict our current and future operations; | ||
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| • | intense competition and our ability to compete effectively; | ||
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| • | uncertainty and continued evolution of markets containing our NewGen products; | ||
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| • | significant product liability litigation; | ||
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| • | the scientific community’s lack of information regarding the long-term health effects of electronic cigarettes, vaporizer and e-liquid use; | ||
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| • | requirement to maintain compliance with master settlement agreement escrow account; | ||
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| • | competition from illicit sources; | ||
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| • | our reliance on information technology; | ||
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| • | security and privacy breaches; | ||
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| • | contamination of our tobacco supply or products; | ||
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| • | infringement on our intellectual property; | ||
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| • | third-party claims that we infringe on their intellectual property; | ||
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| • | failure to manage our growth; | ||
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| • | failure to successfully integrate our acquisitions or otherwise be unable to benefit from pursuing acquisitions; | ||
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| • | fluctuations in our results; | ||
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| • | exchange rate fluctuations; | ||
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| • | adverse U.S. and global economic conditions; | ||
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| • | sensitivity of end-customers to increased sales taxes and economic conditions; | ||
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| • | failure to comply with certain regulations; | ||
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| • | departure of key management personnel or our inability to attract and retain talent; | ||
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| • | imposition of significant tariffs on imports into the U.S.; | ||
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| • | reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors, potentially decreasing our stock price; | ||
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| • | failure to maintain our status as an emerging growth company before the five-year maximum time period a company may retain such status; | ||
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| • | our principal stockholders will be able to exert significant influence over matters submitted to our stockholders and may take certain actions to prevent takeovers; | ||
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| • | our certificate of incorporation and bylaws, as well as Delaware law and certain regulations, could discourage or prohibit acquisition bids or merger proposals, which may adversely affect the market price of our<br> common stock; | ||
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| • | our certificate of incorporation limits the ownership of our common stock by individuals and entities that are Restricted Investors. These restrictions may affect the liquidity of our common stock and may result<br> in Restricted Investors being required to sell or redeem their shares at a loss or relinquish their voting, dividend and distribution rights; | ||
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| Turning Point Brands, Inc. | www.turningpointbrands.com | ir@tpbi.com | 502.774.9238 |
| • | future sales of our common stock in the public market could reduce our stock price, and any additional capital raised by us through the sale of equity or convertible securities may dilute your ownership in us; |
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| • | we may issue preferred stock whose terms could adversely affect the voting power or value of our common stock; and |
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| • | our status as a “controlled company” could make our common stock less attractive to some investors or otherwise harm our stock price. |
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Contact:
Robert Lavan, Senior Vice President, CFO
ir@tpbi.com (502) 774-9238
Financial Statements Follow:
Turning Point Brands, Inc.
Consolidated Statement of Income
(dollars in thousands except share data)
| Three Months Ended<br><br> <br>March 31, | ||||||
|---|---|---|---|---|---|---|
| 2020 | 2019 | |||||
| Net sales | $ | 90,689 | $ | 91,628 | ||
| Cost of sales | 49,258 | 51,164 | ||||
| Gross profit | 41,431 | 40,464 | ||||
| Selling, general, and administrative expenses | 32,394 | 28,429 | ||||
| Operating income | 9,037 | 12,035 | ||||
| Interest expense, net | 4,994 | 3,856 | ||||
| Investment income | (91 | ) | (144 | ) | ||
| Net periodic income, excluding service cost | (87 | ) | (11 | ) | ||
| Income before income taxes | 4,221 | 8,334 | ||||
| Income tax expense | 946 | 1,774 | ||||
| Consolidated net income | $ | 3,275 | $ | 6,560 | ||
| Basic income per common share: | ||||||
| Consolidated net income | $ | 0.17 | $ | 0.34 | ||
| Diluted income per common share: | ||||||
| Consolidated net income | $ | 0.16 | $ | 0.33 | ||
| Weighted average common shares outstanding: | ||||||
| Basic | 19,689,446 | 19,559,596 | ||||
| Diluted | 20,106,800 | 20,045,964 | ||||
| Supplemental disclosures of statement of income information: | ||||||
| Excise tax expense | $ | 5,041 | $ | 4,976 | ||
| FDA fees | $ | 129 | $ | 134 | ||
| 8 | ||||||
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| Turning Point Brands, Inc. | www.turningpointbrands.com | ir@tpbi.com | 502.774.9238 |
Turning Point Brands, Inc.
Consolidated Balance Sheet
(dollars in thousands except share data)
| ASSETS | December 31,<br><br> <br>2019 | ||||
|---|---|---|---|---|---|
| Current assets: | |||||
| Cash | 99,406 | $ | 95,250 | ||
| Accounts receivable, net of allowances of 256 in 2020 and 280 in 2019 | 4,310 | 6,906 | |||
| Inventories | 69,195 | 70,979 | |||
| Other current assets | 18,868 | 16,115 | |||
| Total current assets | 191,779 | 189,250 | |||
| Property, plant, and equipment, net | 13,404 | 13,816 | |||
| Right of use assets | 13,036 | 12,130 | |||
| Deferred financing costs, net | 860 | 890 | |||
| Goodwill | 154,282 | 154,282 | |||
| Other intangible assets, net | 33,044 | 33,469 | |||
| Master Settlement Agreement (MSA) escrow deposits | 32,074 | 32,074 | |||
| Other assets | 10,841 | 10,673 | |||
| Total assets | 449,320 | $ | 446,584 | ||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||
| Current liabilities: | |||||
| Accounts payable | 17,348 | $ | 14,126 | ||
| Accrued liabilities | 28,754 | 26,520 | |||
| Current portion of long-term debt | 12,000 | 15,240 | |||
| Revolving credit facility | - | - | |||
| Total current liabilities | 58,102 | 55,886 | |||
| Notes payable and long-term debt | 267,977 | 268,951 | |||
| Deferred income taxes | 1,495 | 1,572 | |||
| Lease liabilities | 11,673 | 11,067 | |||
| Other long-term liabilities | 4,762 | 2,523 | |||
| Total liabilities | 344,009 | 339,999 | |||
| 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; 19,723,080 issued shares, 19,588,950 outstanding shares at March 31, 2020, and 19,680,673<br> issued and outstanding shares at December 31, 2019 | 197 | 197 | |||
| Common stock, nonvoting, 0.01 par value; authorized shares, 10,000,000; issued and outstanding shares -0- | - | - | |||
| Additional paid-in capital | 126,151 | 125,469 | |||
| Cost of repurchased common stock (134,130 shares at March 31, 2020 and 0 shares at December 31, 2019) | (2,627 | ) | - | ||
| Accumulated other comprehensive loss | (5,379 | ) | (3,773 | ) | |
| Accumulated deficit | (13,031 | ) | (15,308 | ) | |
| Total stockholders' equity | 105,311 | 106,585 | |||
| Total liabilities and stockholders' equity | 449,320 | $ | 446,584 |
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 Statement of Cash Flows
(dollars in thousands)
| For the three months ended March 31, | ||||||
|---|---|---|---|---|---|---|
| 2020 | 2019 | |||||
| Cash flows from operating activities: | ||||||
| Consolidated net income | $ | 3,275 | $ | 6,560 | ||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
| Loss on disposal of property, plant, and equipment | - | 23 | ||||
| Depreciation expense | 851 | 531 | ||||
| Amortization of other intangible assets | 425 | 359 | ||||
| Amortization of debt discount and deferred financing costs | 2,237 | 237 | ||||
| Deferred income taxes | 545 | (29 | ) | |||
| Stock compensation expense | 455 | 466 | ||||
| Noncash lease expense | 13 | - | ||||
| Changes in operating assets and liabilities: | ||||||
| Accounts receivable | 2,596 | (1,726 | ) | |||
| Inventories | 1,784 | 366 | ||||
| Other current assets | (2,420 | ) | 2,984 | |||
| Other assets | (130 | ) | (427 | ) | ||
| Accounts payable | 3,210 | 8,229 | ||||
| Accrued postretirement liabilities | (27 | ) | (9 | ) | ||
| Accrued liabilities and other | 1,913 | (3,539 | ) | |||
| Net cash provided by operating activities | 14,727 | 14,025 | ||||
| Cash flows from investing activities: | ||||||
| Capital expenditures | $ | (877 | ) | $ | (886 | ) |
| Restricted cash, MSA escrow deposits | - | 1,702 | ||||
| Net cash (used in) provided for by investing activities | (877 | ) | 816 | |||
| Cash flows from financing activities: | ||||||
| Payments of 2018 first lien term loan | (2,000 | ) | (2,000 | ) | ||
| Payments of 2018 revolving credit facility | - | (12,000 | ) | |||
| Payment of dividends | (886 | ) | (880 | ) | ||
| Payment of IVG note | (4,240 | ) | - | |||
| Payments of financing costs | (168 | ) | - | |||
| Common stock repurchased | (2,627 | ) | - | |||
| Exercise of options | 227 | 187 | ||||
| Redemption of options | - | (12 | ) | |||
| Net cash used in financing activities | $ | (9,694 | ) | $ | (14,705 | ) |
| Net increase in cash | $ | 4,156 | $ | 136 | ||
| Cash, beginning of period: | ||||||
| Unrestricted | $ | 95,250 | $ | 3,306 | ||
| Restricted | 32,074 | 2,361 | ||||
| Total cash at beginning of period | $ | 127,324 | $ | 5,667 | ||
| Unrestricted | $ | 99,406 | $ | 1,741 | ||
| Restricted | 32,074 | 4,062 | ||||
| Total cash at end of period | $ | 131,480 | $ | 5,803 | ||
| 10 | ||||||
| --- | ||||||
| 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, Net Debt 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, Net Debt 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 “Net Debt” as total debt less cash. We define “Adjusted Operating Income” as operating income excluding depreciation, amortization, LIFO, 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.
| 11 | |||
|---|---|---|---|
| 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)
| Three Months Ended<br><br> March 31, | ||||||
|---|---|---|---|---|---|---|
| 2020 | 2019 | |||||
| Consolidated net income | $ | 3,275 | $ | 6,560 | ||
| Add: | ||||||
| Interest expense, net | 4,994 | 3,856 | ||||
| Income tax expense | 946 | 1,774 | ||||
| Depreciation expense | 851 | 531 | ||||
| Amortization expense | 425 | 359 | ||||
| EBITDA | $ | 10,491 | $ | 13,080 | ||
| Components of Adjusted EBITDA | ||||||
| Other (a) | (87 | ) | (79 | ) | ||
| Stock options, restricted stock, and incentives expense (b) | 455 | 715 | ||||
| Transactional expenses and strategic initiatives (c) | 1,049 | 910 | ||||
| New product launch costs (d) | - | 442 | ||||
| Corporate and vapor restructuring (e) | - | 1,004 | ||||
| FDA PMTA (f) | 5,874 | - | ||||
| Adjusted EBITDA | $ | 17,782 | $ | 16,072 |
| (a) | Represents LIFO adjustment, non-cash pension/postretirement expense (income) and foreign exchange hedging. | ||
|---|---|---|---|
| (b) | Represents non-cash stock options, restricted stock, incentives expense and Solace PRSUs. | ||
| --- | --- | ||
| (c) | Represents the fees incurred for transaction expenses and strategic initiatives. | ||
| --- | --- | ||
| (d) | Represents product launch costs of our new product lines. | ||
| --- | --- | ||
| (e) | Represents costs associated with corporate and vapor restructuring including severance and inventory reserves. | ||
| --- | --- | ||
| (f) | Represents costs associated with applications related to FDA PMTA. | ||
| --- | --- | ||
| 12 | |||
| --- | |||
| Turning Point Brands, Inc. | www.turningpointbrands.com | ir@tpbi.com | 502.774.9238 |
Schedule B
Turning Point Brands, Inc.
Reconciliation of GAAP Total Debt to Net Debt
(dollars in thousands)
| March 31,<br><br> 2020 | December 31,<br><br> 2019 | |||||
|---|---|---|---|---|---|---|
| Cash | $ | 99,406 | $ | 95,250 | ||
| Total Debt | $ | 279,977 | $ | 284,191 | ||
| Net Debt | $ | 180,571 | $ | 188,941 | ||
| Leverage Ratio (a) | 2.6 | x | 3.1 | x | ||
| (a) | Leverage ratio is calculated by net debt / adjusted EBITDA. | |||||
| --- | --- |
Turning Point Brands, Inc.
Reconciliation of GAAP Net Income to Adjusted EBITDA
April 1, 2019, to March 31, 2020
(dollars in thousands)
| Rolling<br><br> <br>12 Months | 1st Quarter<br><br> <br>2020 | 4th Quarter<br><br> <br>2019 | 3rd Quarter<br><br> <br>2019 | 2nd Quarter<br><br> <br>2019 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Consolidated net income (loss) | $ | 10,489 | $ | 3,275 | $ | (12,265 | ) | $ | 6,274 | $ | 13,205 | |||
| Add: | ||||||||||||||
| Interest expense, net | 18,480 | 4,994 | 6,109 | 3,641 | 3,736 | |||||||||
| Loss on extinguishment of debt | 1,308 | - | - | 1,158 | 150 | |||||||||
| Income tax expense (benefit) | 1,216 | 946 | (4,945 | ) | 2,236 | 2,979 | ||||||||
| Depreciation expense | 2,958 | 851 | 783 | 692 | 632 | |||||||||
| Amortization expense | 1,517 | 425 | 372 | 356 | 364 | |||||||||
| EBITDA | $ | 35,968 | $ | 10,491 | $ | (9,946 | ) | $ | 14,357 | $ | 21,066 | |||
| Components of Adjusted EBITDA | ||||||||||||||
| Other | 352 | (87 | ) | 385 | 151 | (97 | ) | |||||||
| Stock options, restricted stock, and incentives expense | 4,366 | 455 | 1,399 | 1,314 | 1,198 | |||||||||
| Transactional expenses and strategic initiatives | 1,903 | 1,049 | 197 | 470 | 187 | |||||||||
| New product launch costs | 5,743 | - | 2,494 | 1,979 | 1,270 | |||||||||
| Corporate and vapor restructuring | 18,210 | - | 17,795 | 265 | 150 | |||||||||
| FDA PMTA | 8,027 | 5,874 | 1,912 | 241 | - | |||||||||
| Vendor settlement | (5,522 | ) | - | - | - | (5,522 | ) | |||||||
| Adjusted EBITDA | $ | 69,047 | $ | 17,782 | $ | 14,236 | $ | 18,777 | $ | 18,252 | ||||
| Net Debt / 12 months ended March 31, 2020, rolling Adjusted EBITDA | 2.6 | x | ||||||||||||
| 13 | ||||||||||||||
| --- | ||||||||||||||
| Turning Point Brands, Inc. | www.turningpointbrands.com | ir@tpbi.com | 502.774.9238 |
Schedule C
Turning Point Brands
Reconciliation of GAAP diluted EPS to Adjusted diluted EPS
| (dollars in thousands except share data) | Three Months Ended<br><br> March 31, | |||||
|---|---|---|---|---|---|---|
| 2020 | 2019 | |||||
| GAAP EPS | $ | 0.16 | $ | 0.33 | ||
| Other (a) | (0.00 | ) | (0.00 | ) | ||
| Stock options, restricted stock, and incentives expense (b) | 0.02 | 0.03 | ||||
| Transactional expenses and strategic initiatives (c) | 0.04 | 0.03 | ||||
| New product launch costs (d) | - | 0.02 | ||||
| Corporate and vapor restructuring (e) | - | 0.04 | ||||
| FDA PMTA (f) | 0.22 | - | ||||
| Amortization of debt discount (g) | 0.07 | - | ||||
| Tax benefit (h) | (0.00 | ) | (0.02 | ) | ||
| Adjusted diluted EPS | $ | 0.51 | $ | 0.43 |
| (a) | Represents LIFO adjustment, non-cash pension/ postretirement expense (income) and foreign exchange hedging reporting tax effected at the quarterly effective tax rate. |
|---|---|
| (b) | Represents non-cash stock options, restricted stock, incentives expense and Solace PRSUs tax effected at the quarterly effective tax rate. |
| --- | --- |
| (c) | Represents the fees incurred for transaction expenses and strategic initiatives tax effected at the quarterly effective tax rate. |
| --- | --- |
| (d) | Represents product launch costs of our new product lines tax effected at the quarterly effective tax rate. |
| --- | --- |
| (e) | Represents costs associated with corporate and vapor restructuring including severance and inventory reserves tax effected at the quarterly effective tax rate . |
| --- | --- |
| (f) | Represents costs associated with applications related to the FDA PMTA tax effected at the quarterly effective tax rate. |
| --- | --- |
| (g) | Represents non-cash amortization of debt discount tax effected at the quarterly effective tax rate. |
| --- | --- |
| (h) | Represents adjustment from quarterly effective tax rate to annual projected effective tax rate of 23%. |
| --- | --- |
Schedule D
Turning Point Brands, Inc.
Reconciliation of GAAP Gross Profit to Adjusted Gross Profit and GAAP Operating Income to Adjusted Operating Income
(dollars in thousands)
| Consolidated | Smokeless | Smoking | NewGen | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 1st Quarter<br><br> <br>2020 | 1st Quarter<br><br> <br>2019 | 1st Quarter<br><br> <br>2020 | 1st Quarter<br><br> <br>2019 | 1st Quarter<br><br> <br>2020 | 1st Quarter<br><br> <br>2019 | 1st Quarter<br><br> <br>2020 | 1st Quarter<br><br> <br>2019 | ||||||||||||
| Net sales | $ | 90,689 | $ | 91,628 | $ | 26,495 | $ | 22,544 | $ | 28,914 | $ | 25,519 | $ | 35,280 | $ | 43,565 | |||
| Gross profit | $ | 41,431 | $ | 40,464 | $ | 13,874 | $ | 12,073 | $ | 16,132 | $ | 13,484 | $ | 11,425 | $ | 14,907 | |||
| Adjustments: | |||||||||||||||||||
| LIFO adjustment | - | (24 | ) | - | (24 | ) | - | - | - | - | |||||||||
| Adjusted gross profit | $ | 41,431 | $ | 40,440 | $ | 13,874 | $ | 12,049 | $ | 16,132 | $ | 13,484 | $ | 11,425 | $ | 14,907 | |||
| Operating income | $ | 9,037 | $ | 12,035 | $ | 9,746 | $ | 7,487 | $ | 12,417 | $ | 9,946 | $ | 477 | $ | 2,838 | |||
| Adjustments: | |||||||||||||||||||
| LIFO adjustment | - | (24 | ) | - | (24 | ) | - | - | - | - | |||||||||
| Foreign exchange hedging | - | (71 | ) | - | - | - | (71 | ) | - | - | |||||||||
| Transactional expenses and strategic initiatives | 1,049 | 910 | - | - | - | - | - | - | |||||||||||
| New product launch costs | - | 442 | - | - | - | - | - | 442 | |||||||||||
| Corporate and vapor restructuring | - | 1,004 | - | - | - | - | - | 508 | |||||||||||
| FDA PMTA | 5,874 | - | - | - | - | - | - | - | |||||||||||
| Adjusted operating income | $ | 15,960 | $ | 14,296 | $ | 9,746 | $ | 7,463 | $ | 12,417 | $ | 9,875 | $ | 477 | $ | 3,788 | |||
| 14 | |||||||||||||||||||
| --- | |||||||||||||||||||
| Turning Point Brands, Inc. | www.turningpointbrands.com | ir@tpbi.com | 502.774.9238 |
Exhibit 99.2
| N Y S E : T P B | 5 2 0 1 I N T E R C H A N G E W A Y , L O U I S V I L L E K Y | T U R N I N G P O I N T B R A N D S . C O M | Turning Point Brands (NYSE: TPB) ANNUAL MEETINGA p r i l 2 8 , 2 0 2 0
DisclaimerFORWARD LOOKING STATEMENTS This presentation 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, actual events may differ materially from those expressed in or suggested by the forward-looking statements. Factors that could cause these differences include, but are not limited to, the factors set forth in “Risk Factors” included in TPB’s annual report on Form 10-K and other reports filed with the Securities and Exchange Commission from time to time. Any forward-looking statement made by TPB in this presentation speaks only as of the date hereof. New risks and uncertainties come up from time to time, and it is impossible for TPB to predict these 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.This presentation includes industry and market data derived from internal analyses based upon publicly available data or proprietary research and analysis, surveys or studies conducted by third parties and industry and general publications, including those by the Management Science Associates, Inc. (“MSAi”) and Nielsen Holdings, N.V. (“Nielsen”). Third-party industry and general publications, research, surveys and studies generally state that the information contained therein has been obtained from sources believed to be reliable. Although there can be no assurance as to the accuracy or completeness of the included information, we believe that this information is reliable. While we believe our internal analyses are reliable, they have not been verified by any independent sources. Any such data and analysis involve risks and uncertainties and are subject to change based on various factors, including those set forth in “Risk Factors” included in TPB’s annual report on Form 10-K and other reports filed with the Securities and Exchange Commission from time to time.NON-GAAP RECONCILIATIONThis presentation includes certain non-U.S. generally accepted accounting principles (“GAAP") financial measures, including EBITDA, Adjusted EBITDA and Net Debt. Such non-GAAP financial measures are not in accordance with, or an alternative to, financial measures prepared in accordance with GAAP. Please refer to the Appendix of this presentation for a reconciliation of EBITDA and Adjusted EBITDA to net income and Net Debt to Debt. 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 and Net Debt. We believe EBITDA and Adjusted EBITDA provide useful information to management and investors regarding certain financial and business trends relating to financial condition and results of operations. Adjusted EBITDA and Net Debt are used by management to compare performance to that of prior periods for trend analyses and planning purposes and is presented to our board of directors. We believe that EBITDA and Adjusted EBITDA are appropriate measures of operating performance because they eliminate the impact of expenses that do not relate to business 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 and Adjusted EBITDA 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 these non-U.S. GAAP measure differently than we do or may not calculate it at all, limiting its usefulness as a comparative measure.2
TPB: Investment Highlights Turning Point Brands (NYSE: TPB) Resilient Core Business with Leading BrandsSmokeless Segment: Stoker’s is the leading value brand in tobacco chew with a long runway for growth in MSTSmoking Segment: Zig-Zag is the #1 premium rolling paper brand with unparalleled brand recognitionNewGen Value Creation PotentialOnline distribution businesses give access to new customer channelsNu-X Ventures creates a product development engine for high-margin proprietary productsPMTA process presents a unique opportunity to consolidate the vape marketPowerful Distribution InfrastructureLong-standing relationships in core convenience store channelIncreasing brand presence through non-traditional channels (headshops, dispensaries, B2B e-commerce)Re-vamped brand e-commerce platforms (ZigZag.com, Nu-X.com, SolaceVapor.com)Stable Free Cash Flow GenerationAsset-light business model leads to high free cash flow conversion for capital deploymentRobust pipeline of acquisition opportunities TPB Investment Highlights 3 | N Y S E : T P B | 5 2 0 1 I N T E R C H A N G E W A Y , L O U I S V I L L E K Y | T U R N I N G P O I N T B R A N D S . C O M |
We are an active ingredients company that develops and distributes iconic brands and products. BROAD PORTFOLIO OF ACTIVE INGREDIENT ALTERNATIVES AND BRANDS 3 | N Y S E : T P B | 5 2 0 1 I N T E R C H A N G E W A Y , L O U I S V I L L E K Y | T U R N I N G P O I N T B R A N D S . C O M |
Powerful Distribution InfrastructureNorth American retail presence that reaches over ~210,000 outlets Regional sales team selling to over 95,000 independent convenient stores Regional Sales Teams Distribution Infrastructure Turning Point Brands (NYSE: TPB) Online B2B platform reaching ~4,000 alternative stores B2BDistribution National sales team selling to over 85,000 national chain stores. National Distribution Dedicated product sales teams and brand specific B2C/B2B platforms ProductSales Teams Online B2C distribution platforms selling to ~1.5 million unique customers B2CDistribution 3 | N Y S E : T P B | 5 2 0 1 I N T E R C H A N G E W A Y , L O U I S V I L L E K Y | T U R N I N G P O I N T B R A N D S . C O M |
MST TUBS Introduced a larger tub format Moist Snuff Tobacco (MST) product driving category over the last 10+ years About Stoker's Building brand equity for over 80 years. Stoker’s is the #2 chew brand and a leading MST value brand MST Cans Chew #1 discount brand and #2 chew brand overall in the US. TPB’s brands collectively hold ~30%* of the loose-leaf chew market 55%Stoker's created the MSTTubs category and is the category leader with over 55%* share Smokeless: Iconic Brand with Sustained Growth Smokeless: Stoker’s Brand Equity Turning Point Brands (NYSE: TPB) Accelerating strength from distribution gains and same-store-sales growth. Significant chain launches in 2019 | N Y S E : T P B | 5 2 0 1 I N T E R C H A N G E W A Y , L O U I S V I L L E K Y | T U R N I N G P O I N T B R A N D S . C O M | *Share figures per MSAi 6
Smokeless: Continued MST Distribution Gains Smokeless: Stoker’s MST Distribution Growth Turning Point Brands (NYSE: TPB) | N Y S E : T P B | 5 2 0 1 I N T E R C H A N G E W A Y , L O U I S V I L L E K Y | T U R N I N G P O I N T B R A N D S . C O M | 41.4 43.0 48.1 52.2 57.0 57.7 58.0 61.4 61.6 61.3 62.3 63.2 63.1 66.1 67.6 68.3 70.4 72.8 4Q15 2Q16 4Q16 2Q17 4Q17 2Q18 4Q18 2Q19 4Q19Store count excludes ~14k lower sales velocity Dollar General stores added in 2Q18. Long Runway for Growth Currently in stores representing~55%* of volume weighteddistribution Additional ~30-50k stores targeted for national distribution *Per MSAi at the end of 1Q20 7
Papers #1 premium rolling paper brand sold in the U.S. and Canada About Zig-Zag Embedded into pop culture with a storied history that dates over 140 years Market leader in MYO cigarwraps with >70%* share Wraps New Product Launches Continued roll-out of paper cones, unbleached and hemp rolling papers along with new product introductions 30%Zig Zag owns >30%* ofthe rolling paper market in the United States Smoking: Iconic Brand with Leading Market Share Zig-Zag: Brand Equity Turning Point Brands (NYSE: TPB) | N Y S E : T P B | 5 2 0 1 I N T E R C H A N G E W A Y , L O U I S V I L L E K Y | T U R N I N G P O I N T B R A N D S . C O M | *Share figures per MSAi 8
Smoking: Expanding Portfolio and Sales Channels Zig-Zag: Growth Initiatives Turning Point Brands (NYSE: TPB) Classic Zig-Zag Products Growth Initiatives New products and accessories Re-vamped e-commerce platform Enhanced brand presence in headshops and dispensaries; ReCreation Marketing partnership in Canada Iconic Products with Unparalleled Recognition“Zig Zag Orange” and “Zig Zag White” are long-standing industry staples 9 | N Y S E : T P B | 5 2 0 1 I N T E R C H A N G E W A Y , L O U I S V I L L E K Y | T U R N I N G P O I N T B R A N D S . C O M |
NewGen Segment Turning Point Brands (NYSE: TPB) Product DevelopmentIdeation, product development and marketing arm Higher-Margin Proprietary Brands DistributionB2B (Vapor Beast) and B2C (Direct Vapor, VaporFi) vape platforms selling third-party and proprietary products Lower-Margin Third Party Products 2016-2018: New Generation (NewGen) segment formed through acquisitions of leading B2B and B2C e-commerce distribution platforms; primarily selling third-party products to customers in the vape and actives market Today: Nu-X products sold through the NewGen and traditional TPB distribution platformsFuture: Expected proprietary product growth as a result of market consolidation following the PMTA process Market Access Product 2018: Nu-X Ventures created to develop higher-margin proprietary products and brands Development 2019: Solace acquisition bolsters Nu-X Ventures team and brand portfolio; Vape distribution acquisitions streamlined SynergyRealization NewGen: Distribution and Nu-X Synergies 10 | N Y S E : T P B | 5 2 0 1 I N T E R C H A N G E W A Y , L O U I S V I L L E K Y | T U R N I N G P O I N T B R A N D S . C O M |
Nu-X CBDBroad portfolio of CBD products and form factorscurrently in over 6,600 locations* nationwide SolaceProduct portfolio includes e-liquids designed for open system vape devices and fast acting nicotine chew RipTideTobacco-free device. Gen. 2 device launch in Q2 of 2020 NewGen: Nu-X Brands Rev. Streams Wide range of products with a robust development pipeline Nu-X Ventures Brand Portfolio Nu-X DigitalBuilding and marketing digital sales channels forTPB brands along with enhancing social media and brand marketing outreach*As of 1Q20
TPB has unique capabilities to get proprietary brands through regulatory regime changesNewGen well-positioned for growth in a transformational post-PMTA environment REGULATORY STRATEGYTPB does not sell cigarettes, the primary target of the FDAWorking with FDA to drive expected pathway for future innovationExperienced team of QA, R&D, legal and scientific professionalsBuilding consensus among like-minded small and mid-sized businesses to drive policyRegulatory changes cause significant disruption among smaller companiesInvesting $15-18 million to support proprietary brands through the PMTA process TPB: Navigating Regulated Environments Turning Point Brands (NYSE: TPB) Management of Regulatory EnvironmentsExtensive experience managing regulatory regime changes 12 | N Y S E : T P B | 5 2 0 1 I N T E R C H A N G E W A Y , L O U I S V I L L E K Y | T U R N I N G P O I N T B R A N D S . C O M |
Total Sales and Segment Breakdown Segment Breakdown Turning Point Brands (NYSE: TPB) ($ in millions) 13 | N Y S E : T P B | 5 2 0 1 I N T E R C H A N G E W A Y , L O U I S V I L L E K Y | T U R N I N G P O I N T B R A N D S . C O M | Smokeless Looseleaf $47 $49 $48 $46 MST 31 35 42 54 Total Smokeless $78 $85 $90 $100 Smoking US Papers $36 $38 $38 $38 Canadian Papers 11 12 14 11 Wraps 46 47 49 52 Other (Non-Core)* 18 14 10 7 Total Smoking $111 $110 $112 $109 Core Smoking $93 $96 $102 $102 Total NewGen $17 $91 $131 $153 Total Net Sales $206 $286 $333 $362 2016 2017 2018 2019 MST same store sales and distribution gains accelerating Stable results in Core Smoking products with new initiatives in place to boost growth Driving proprietary products through distribution assets *Other (Non-Core) includes de-emphasized low-margin products including MYO/pipe products (discontinued in 1Q20) and Cigars
TPB: Financial Summary Turning Point Brands (NYSE: TPB) TPB Earnings Performance $52.4MM $60.0MM $64.6MM $67.3MM 2016 2017 2018 2019 2020E Adjusted EBITDA $69-75MM* 14 | N Y S E : T P B | 5 2 0 1 I N T E R C H A N G E W A Y , L O U I S V I L L E K Y | T U R N I N G P O I N T B R A N D S . C O M | *2020E estimate based on guidance provided on February 26, 2020 and re-affirmed on April 28, 2020
Initiatives: Building a Capital Efficient Business ModelAsset-light business model that generates significant free cash flow $49.2 $58.0 $62.3 $62.5 $26.6 $16.9 $14.8 $17.3 2016 2017 2018 2019 93.9% 96.6% 96.5% 92.8% ADJUSTED FREE CASH FLOW AND INTEREST EXPENSE Adjusted Free Cash FlowConversion: (2) ($ in millions) (1)Adjusted Free Cash Flow Interest Expense, Net Adjusted Free Cash Flow is calculated as Adjusted EBITDA less Capital Expenditures.Adjusted Free Cash Flow Conversion is calculated as (Adjusted EBITDA less Capital Expenditures) / Adjusted EBITDA. Outsourced manufacturing of all products except Stoker’s MST supports our asset-light modelFree cash flow conversion above 90%Re-investment of cash flow from the stable, traditional tobacco business into NewGen product segment creates self-funded growth engineCapital efficiency enables investment in sales force expansion (a proven revenue driver), working capital and infrastructure to support new product launches, accretive acquisitions and strategic investments Asset-Light Business Model Turning Point Brands (NYSE: TPB) 15 | N Y S E : T P B | 5 2 0 1 I N T E R C H A N G E W A Y , L O U I S V I L L E K Y | T U R N I N G P O I N T B R A N D S . C O M |
100,000+Bottles have been donated to: households, recognized medical institutions, hospitals, retail partners and elderly homes 900+Shipments made to different pharmacies, medical associations andnon-profit organizations. TPB added manufacturing capacity to produce and donate 100,000+ bottles of sanitizer to its local communities 2020 Community Initiative: Helping fight COVID-19 Our Community Initiative Turning Point Brands (NYSE: TPB) 16 | N Y S E : T P B | 5 2 0 1 I N T E R C H A N G E W A Y , L O U I S V I L L E K Y | T U R N I N G P O I N T B R A N D S . C O M |
FINANCIAL STRENGTHStrong balance sheet with capital flexibility for acquisitions and working capital investments REGULATORY STRENGTHSignificant experience navigating federal, state and local regulations for tobacco translates into alternatives products such as CBD SOURCING TEAMSourcing teams in China and across North American farm networks give us best-in- class products SALES FORCE & ROBUST E-COMMERCE ENGINETrusted relationships with retail world and eCommerce engine gets products into consumers’ hands INTEGRATEDDISTRIBUTIONConsolidated distribution into Kentucky with integrated systems(1-2 days across theU.S. at low rates) HANDS-ON MANAGEMENTManagement team is hands on with product development and go-to- market strategies WORLD CLASS GO-TO-MARKET STRATEGY How it all comes together Turning Point Brands (NYSE: TPB) 17 | N Y S E : T P B | 5 2 0 1 I N T E R C H A N G E W A Y , L O U I S V I L L E K Y | T U R N I N G P O I N T B R A N D S . C O M |
2020 In Focus: Strategies and Objectives 2020 Objectives Turning Point Brands (NYSE: TPB) Maximize the Core BusinessDrive Stoker’s MST growth through increased distribution and same store sales growthExpand Zig-Zag’s reach with new product introductions, channel specific strategies and e-commerce initiativesPosition NewGen for Profitable GrowthStreamline vaping, maintain profitability while investing in new products via the PMTA processIntroduce products from Nu-X Ventures into companywide distribution infrastructureDrive Cost EfficiencyIncreased operating leverage through solid cost controls and spending efficiencies to deliver higher ROICIntroduce Proprietary ProductsIdentify and develop emerging product forms that consumers are increasingly gravitating towardsEngage in Strategic AcquisitionsEfficiently deploy capital on accretive acquisitions to accelerate company growth 18 | N Y S E : T P B | 5 2 0 1 I N T E R C H A N G E W A Y , L O U I S V I L L E K Y | T U R N I N G P O I N T B R A N D S . C O M |
Appendix Turning Point Brands (NYSE: TPB) | N Y S E : T P B | 5 2 0 1 I N T E R C H A N G E W A Y , L O U I S V I L L E K Y | T U R N I N G P O I N T B R A N D S . C O M |
GAAP Reconciliation GAAP Reconciliation Turning Point Brands (NYSE: TPB) Reconciliation of GAAP Net Income to Adjusted EBITDA and Free Cash Flow($ in millions) 2016 2017 2018 2019 Net income attributable to Turning Point Brands, Inc. $26.9 $20.2 $25.3 $13.8 Add:Interest expense, net $26.6 $16.9 $14.8 $17.3 Loss on extinguishment of debt 2.8 6.1 2.4 1.3 Income tax expense (12.0) 7.3 6.3 2.0 Depreciation expense 1.2 1.6 2.1 2.6 Amortization expense 0.1 0.7 1.0 1.5 EBITDA $45.6 $52.8 $51.9 $38.6 Components of Adjusted EBITDA Other (a) $1.5 $1.3 $0.4 $0.4 Stock options, restricted stock, and incentives expense (b) 0.2 0.7 1.4 4.6 Transactional expenses and strategic initiatives (c) 1.6 2.1 4.5 1.8 New product launch costs (d) 2.7 2.4 1.8 6.2 FDA PMTA (e) 0.0 0.0 0.0 2.2 Corporate and vapor restructuring (f) 0.0 0.6 4.6 19.2 Vendor settlement (g) 0.0 0.0 0.0 (5.5) Bonus (h) 0.9 0.1 0.0 0.0 Adjusted EBITDALess: Capital ExpendituresAdjusted Free Cash Flow $52.4 $60.0 $64.6 $67.3 (3.2) (2.0) (2.3) (4.8)$49.2 $58.0 $62.3 $62.5 (a) Represents LIFO adjustment, non-cash pension expense (income) and foreign exchange hedging. (b) Represents non-cash stock options, restricted stock, incentives expense and Solace PRSUs.(c) Represents the fees incurred for transaction expenses and strategic initiatives. (d) Represents product launch costs for our new product lines.Represents costs associated with applications related to FDA PMTA.Represents costs associated with corporate and vapor restructuring including severance and inventory reserves. (g) Represents net gain associated with the settlement of a vendor contract.(h) Represents bonuses associated with the December 2017 Tax Cuts and Jobs Act and non-recurring compensation expenses incurred coinciding with the May 2016 IPO.| N Y S E : T P B | 5 2 0 1 I N T E R C H A N G E W A Y , L O U I S V I L L E K Y | T U R N I N G P O I N T B R A N D S . C O M | 20
THANK YOU | N Y S E : T P B | 5 2 0 1 I N T E R C H A N G E W A Y , L O U I S V I L L E K Y | T U R N I N G P O I N T B R A N D S . C O M | Turning Point Brands (NYSE: TPB)