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): October 15, 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<br><br> <br>Louisville,<br> KY | 40229 | |
| --- | --- | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (502) 778-4421
(Former name or former address 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) |
| ☐ | 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)) |
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 as defined in Rule 405 of the Securities Act of 1933 (Sec.230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (Sec.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 October 17, 2022, Turning Point Brands, Inc. (the “Company”) issued a press release in which the Company reported certain preliminary operating results for the third quarter ended September 30, 2022. A copy of the press release is attached as Exhibit 99.1 to this Current Report on Form 8-K and incorporated into this Item 2.02 by reference.
The information in this Item 2.02 and Exhibit 99.1 attached hereto shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), 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 (the “Securities Act”), unless specifically identified therein as being incorporated by reference.
Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers
Chief Executive Officer Transition
On October 17, 2022, the Company announced a transition in the position of Chief Executive Officer and President. As part of this transition, Mr. Yavor Efremov has resigned as Chief Executive Officer and President and from the Board of Directors (the “Board”), effective as of October 15, 2022. There were no disagreements between Mr. Efremov and the Company.
In connection with Mr. Efremov’s departure, the Board appointed Graham A. Purdy as President and Chief Executive Officer of the Company and as a member of the Board, effective as of October 16, 2022. David Glazek, Chairman of the Board, will transition to the role of Executive Chair effective January 2023. Mr. Purdy will be the Company’s principal executive officer.
Mr. Purdy, age 50, has served as Chief Operating Officer of the Company since November 2019 after serving as President of the Company’s New Ventures Division since December 2017. Mr. Purdy joined the Company in 2004 and has held various leadership positions since that time. Prior to joining the Company, Mr. Purdy spent seven years at Philip Morris USA where he served in senior sales and sales management positions. Mr. Purdy holds a Bachelor of Arts from California State University, Chico. Mr. Purdy does not have any family relationships with any of the Company's directors or executive officers and is not a party to any transactions listed in Item 404(a) of Regulation S-K.
Mr. Glazek, age 45, has served as a director of the Company since November 2012 and as Chairman of the Board since 2019. Mr. Glazek is a Partner and Portfolio Manager of Standard General L.P. (“Standard General”) and has been with Standard General since 2008. He was formerly an investment banker at Lazard Freres & Co. from 2000 to 2003 and from 2006 to 2008. Mr. Glazek holds a Bachelor of Arts from the University of Michigan and a J.D. from Columbia Law School. Mr. Glazek currently serves as a director of Workers Benefit Consortium, LLC and National Cinemedia, Inc. (NYSE: NCMI) and is an Adjunct Professor at Columbia Business School. Mr. Glazek does not have any family relationships with any of the Company's directors or executive officers and is not a party to any transactions listed in Item 404(a) of Regulation S-K.
In connection with the transition, Mr. Glazek has stepped down from the Compensation Committee and the Nominating and ESG Committee.
New Employment Agreement with Mr. Purdy
In connection with his appointment as Chief Executive Officer and President, the Company and Mr. Purdy expect to enter into a new employment agreement generally consistent with the terms of his existing employment agreement, providing for an initial term of one-year commencing on October 17, 2022, subject to automatic one-year renewals unless either party gives at least 60 days’ notice of non-renewal. Mr. Purdy’s annual base salary will be $750,000 and his target annual bonus opportunity will be equal to 100% of base salary. Mr. Purdy will have a target annual long-term incentive opportunity of not less than $500,000, commencing with the annual equity grant to be made in calendar year 2023.
In the event that Mr. Purdy’s employment is terminated by the Company without “cause” or Mr. Purdy resigns for “good reason” (each as defined in the employment agreement), other than during the one-year period immediately following a “change of control” (as defined in the employment agreement), Mr. Purdy would be entitled to severance payments comprised of the following: (1) accrued compensation and benefits; (2) continuation of his then-current base salary for 12 months, to be paid in accordance with the Company’s normal payroll practices; (3) a cash severance bonus equal to the average annual cash bonus received by Mr. Purdy for the 24-month period prior to the termination date; and (4) a lump sum payment equal to the cost of COBRA continuation coverage for Mr. Purdy and his eligible dependents for 12 months. In the event that Mr. Purdy’s employment is terminated by the Company without “cause” or Mr. Purdy resigns for “good reason” during the one-year period immediately following a “change of control”, Mr. Purdy would be entitled to severance payments comprised of the following (in lieu of any other severance payments under the employment agreement): (1) the accrued compensation and benefits; (2) continuation of his then-current base salary for 24 months, to be paid in accordance with the Company’s normal payroll practices; (3) a cash severance bonus equal to two-times the average annual cash bonus received by Mr. Purdy for the 24-month period prior to the termination date; and (4) a lump sum payment equal to the cost of COBRA continuation coverage for Mr. Purdy and his eligible dependents for 12 months.
The foregoing severance payments and benefits are subject to Mr. Purdy executing an effective release of claims against the Company. Pursuant to the Employment Agreement, Mr. Purdy will be subject to certain restrictive covenants, including non-competition, non-solicitation, and non-hire restrictions during the employment term and for 2 years post-termination.
Separation Package with Mr. Efremov
Upon his termination of employment, Mr. Efremov will be eligible to receive the severance benefits payable on a termination of his employment by the Company without Cause as set forth in his Employment Agreement with the Company dated as of December 15, 2021 (the “Employment Agreement”), which were described in the Compensation Discussion & Analysis (“CD&A”) in the Company’s Proxy Statement filed with the Securities and Exchange Commission on March 15, 2022, subject to Mr. Efremov’s execution and non-revocation of the Release and Severance Agreement substantially in the form attached as Exhibit A to the Employment Agreement. Mr. Efremov will continue to be subject to the restrictive covenants set forth in his Employment Agreement, including confidentiality, non-disparagement, non-competition and non-solicitation. Pursuant to the terms of the applicable award agreements, Mr. Efremov’s outstanding stock options will become fully vested, a pro-rated portion of his performance-based restricted stock units will remain outstanding and will remain eligible to be earned at the end of the applicable performance period, and his unvested time-based restricted stock units will be forfeited.
Compensation Arrangement with Mr. Glazek
In connection with his appointment as Executive Chair, the Company expects to enter into a letter agreement with Mr. Glazek for a term of two years. For each year during the term, Mr. Glazek will receive an annual equity grant under the Company’s 2021 Equity Incentive Plan having a grant date value of $1,000,000, which is expected to be granted in the form of stock options and restricted stock units. Mr. Glazek will not receive a salary. In the event that the Board removes Mr. Glazek from the role of Executive Chair without cause, or there is otherwise a material change to his duties and responsibilities as Executive Chair or a material breach by the Company of his agreement, then he will receive accelerated vesting of any previously-granted equity awards (or, if such grant has not yet occurred, a cash payment in respect thereof).
Item 7.01. Regulation FD Disclosure
On October 17, 2022, the Company issued a press release in connection with the announcement of the foregoing matters. A copy of the press release is attached hereto as Exhibit 99.1 and incorporated herein by reference.
The information in this Item 7.01 and Exhibit 99.1 attached hereto shall not be deemed to be “filed” for the purposes of Section 18 of the Exchange Act, 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, unless specifically identified therein as being incorporated by reference.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
| 99.1 | Press Release issued by Turning Point Brands, Inc. dated October 17, 2022. |
|---|
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. | ||
|---|---|---|
| Date: October 17, 2022 | By: | /s/ Brittani Cushman |
| Name: | Brittani Cushman | |
| Title: | Senior Vice President, General Counsel and Secretary |
Exhibit 99.1
TURNING POINT BRANDS APPOINTS LONG-TIME EXECUTIVE GRAHAM PURDY AS CEO
Purdy Brings Nearly Two Decades of Leadership and Operating Experience at TPB; Will Drive Company’s Growth Strategy and a Renewed Focus on Maximizing Value of Its Core Brands
Yavor Efremov Resigning as CEO
Company Announces Preliminary Q3 Results and Updates Full-Year 2022 Outlook
LOUISVILLE, Ky., October 17, 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, announced today the appointment of long-tenured company executive Graham Purdy as CEO and Board Director, effective as of October 16, 2022, following Yavor Efremov’s resignation as CEO and Director. Additionally, David Glazek will transition from Non-Executive to Executive Board Chairman, effective January 2023.
Mr. Purdy will lead TPB’s strategy, execution, and operations, with a particular focus on growing and maximizing the value of the Company’s portfolio of iconic and emerging brands. Prior to his appointment as CEO, Mr. Purdy served as Chief Operating Officer since 2019. Since joining TPB in 2004, Mr. Purdy has held various leadership positions, including as President of the New Ventures Division and Senior Vice-President Sales. During his tenure, Mr. Purdy oversaw two of the Company’s highly successful brand extensions, rolling out Zig-Zag Cigar Wraps and Stoker’s MST. In addition, he built a highly effective sales organization driven by an industry-leading performance management system, strategically positioned a number of highly successful new products, and led the integration of many of the Company’s most important strategic initiatives. Mr. Purdy led day-to-day operations during the COVID-19 pandemic, managing through complex challenges to the business while completing three of the most successful years in the Company’s history.
“Graham is a highly experienced operator who has been integral to Turning Point’s success. His deep knowledge of the Company’s operations and industry make him ideally suited to lead TPB today. We are confident in his ability to oversee Turning Point’s brand strategy and sharpen the Company’s operational focus,” said Mr. Glazek, Chairman of TPB’s Board of Directors. Mr. Glazek continued: “The Board would also like to thank Mr. Efremov for his many contributions during his tenure. In the last year, he has launched key initiatives, including the expansion of our distribution platform, enhancing our IT infrastructure, and adding new leadership talent. We wish him well going forward.”
“I am excited to serve as Turning Point’s next CEO and drive the company’s strategic priorities to enhance shareholder value,” said Mr. Purdy. “Over the past three decades, Turning Point has built a leading industry position through our portfolio of large and leading brands, innovative marketing, and omni-channel distribution capabilities, along with our strong track record of new product innovation. I look forward to working with our highly talented team to continue to build a world-class consumer products company for the benefit of our employees, customers, and shareholders.”
“I am proud of what we have accomplished in a short period of time and the progress that has been made on key initiatives over the past year,” said Mr. Efremov. “I am grateful to have had the opportunity to serve as CEO and meet and work alongside the many hard-working and dedicated employees of Turning Point.”
Preliminary Q3 2022 Earnings and Updated Full-Year Outlook
The Company estimates that for the third quarter of 2022, net sales will be between $106 and $108 million, net income will be between $10.5 and $12 million, and Adjusted EBITDA will be between $23.5 and $25 million.
The Company today also updated its full-year 2022 outlook ahead of its regularly scheduled conference call, which is scheduled for Wednesday, October 26 at 8:30 a.m. Eastern. For the full-year 2022, the Company now expects:
| • | Zig-Zag Products sales of $186 to $191 million (compared to previous outlook of $193 to $200 million) |
|---|---|
| • | Stoker’s Products sales of $128 to $132 million (compared to previous outlook of $127 to $133 million) |
| --- | --- |
| • | Consolidated adjusted EBITDA of $96 to $99 million (compared to previous outlook of $97 to $103 million) |
| --- | --- |
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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.
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 the non-GAAP financial measure Adjusted EBITDA. A reconciliation of Adjusted EBITDA to its most comparable measure calculated under GAAP, Net Income, accompanies this release.
Cautionary Note Regarding Preliminary Financial Information
All financial results for the third quarter ended September 30, 2022 included in this release are preliminary.
These preliminary results are unaudited and preliminary, are subject to completion of TPB’s financial closing procedures that could result in changes to the amounts, and do not present all information necessary for an understanding of the TPB’s financial condition. These estimates should not be viewed as a substitute for TPB’s full financial statements prepared in accordance with U.S. generally accepted accounting principles. Accordingly, you should not place undue reliance on this preliminary data. TPB’s independent registered public accounting firm, RSM US LLP, has not audited, reviewed, compiled or performed any procedures with respect to these estimates. The summary is not a comprehensive statement of TPB’s financial results or operating metrics for this period and actual results and metrics may differ materially from these estimates following the completion of its financial and operating closing procedures, or as a result of other adjustments or developments that may arise before the results for this period are finalized.
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 in 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.
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 Adjusted EBITDA. 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 is 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 Adjusted EBITDA is an appropriate measures of operating performance because it eliminates the impact of expenses that do not relate to business performance.
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.
Non-U.S. GAAP measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with U.S. GAAP. Adjusted EBITDA excludes 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.
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The following table reconciles EBITDA and Adjusted EBITDA to Net income for the three months ended September 30, 2022 utilizing the mid-point of TPB’s estimated range for Adjusted EBITDA.
| (in thousands) | Three Months Ended<br><br> <br>September 30, | |
|---|---|---|
| 2022 | ||
| Net income attributable to Turning Point Brands, Inc. | $ | 11,273 |
| Add: | ||
| Interest expense, net | 4,802 | |
| Income tax expense | 3,797 | |
| Depreciation expense | 861 | |
| Amortization expense | 454 | |
| EBITDA | $ | 21,187 |
| Components of Adjusted EBITDA | ||
| Corporate restructuring (a) | 17 | |
| ERP/CRM (b) | 435 | |
| Stock options, restricted stock, and incentives expense (c) | 1,442 | |
| FDA PMTA (d) | 1,169 | |
| Adjusted EBITDA | $ | 24,250 |
(a) Represents costs associated with corporate restructuring, including severance.
(b) Represents cost associated with scoping new ERP and CRM systems.
(c) Represents non-cash stock options, restricted stock, incentives expense and Solace performance stock units.
(d) Represents costs associated with applications related to FDA premarket tobacco product application ("PMTA").
Contacts
Media Inquiries
Kekst CNC
Liz Cohen / Daniel Hoadley
liz.cohen@kekstcnc.com / daniel.hoadley@kekstcnc.com
Investor Inquiries
Louie Reformina, Senior Vice President, CFO
ir@tpbi.com (502) 774-9238
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