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): February 28, 2024
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 February 28, 2024, Turning Point Brands, Inc. (the “Company”) issued a press release announcing its financial results for the fourth quarter and full year ended December 31, 2023. 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 February 28, 2024, the Company posted an investor presentation with supplemental information for the quarter and full year ended December 31, 2023 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 February 28, 2024 |
|---|---|
| 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: February 28, 2024 | By: | /s/ Brittani N. Cushman |
| Brittani N. Cushman | ||
| Senior Vice President, General Counsel and Secretary |
Exhibit 99.1
Turning Point Brands Announces Fourth Quarter and Full Year 2023 Results
-Net Sales for Q4 2023 Zig-Zag and Stoker’s Products Increased 5.9 Percent Year-Over-Year
-Adjusted EBITDA for Q4 2023 of $24.8 Million Increased 7.5 Percent Year-Over-Year
-FY 2023 Free Cash Flow of $61.2 Million
LOUISVILLE, KY – February 28, 2024 – 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 fourth quarter and full year ended December 31, 2023.
Q4 2023 vs. Q4 2022
| • | Total consolidated net sales decreased 6.1% to $97.1 million |
|---|---|
| o | Zig-Zag Products net sales decreased by 2.9% |
| --- | --- |
| o | Stoker’s Products net sales increased by 18.6% |
| --- | --- |
| o | Creative Distribution Solutions net sales decreased by 43.7% |
| --- | --- |
| • | Gross profit increased 1.9% to $50.5 million |
| --- | --- |
| • | Net income increased $26.4 million to $10.1 million |
| --- | --- |
| • | Adjusted net income increased 15.9% to $15.3 million (see Schedule B for a reconciliation to net income) |
| --- | --- |
| • | Adjusted EBITDA increased 7.5% to $24.8 million (see Schedule A for a reconciliation to net income) |
| --- | --- |
| • | Diluted EPS of $0.53 and Adjusted Diluted EPS of $0.79 compared to $(0.93) and $0.69 in the same period one year ago, respectively (see Schedule B for a reconciliation to Diluted EPS) |
| --- | --- |
FY 2023 vs. FY 2022
| • | Total consolidated net sales decreased 2.3% to $405.4 million |
|---|---|
| o | Zig-Zag Products net sales decreased by 5.2% |
| --- | --- |
| o | Stoker’s Products net sales increased by 10.5% |
| --- | --- |
| o | Creative Distribution Solutions net sales decreased by 14.3% |
| --- | --- |
| • | Gross profit decreased 1.1% to $203.2 million |
| --- | --- |
| • | Net income increased 230.4% to $38.5 million |
| --- | --- |
| • | Adjusted net income increased 1.1% to $56.8 million (see Schedule B for a reconciliation to net income) |
| --- | --- |
| • | Adjusted EBITDA decreased 2.4% to $95.3 million (see Schedule A for a reconciliation to net income) |
| --- | --- |
| • | Diluted EPS of $2.01 and Adjusted Diluted EPS of $2.91 compared to $0.64 and $2.83 in the same period one year ago, respectively (see Schedule B for a reconciliation to Diluted EPS) |
| --- | --- |
Graham Purdy, President and CEO, commented: “Our fourth quarter results were at the high-end of our expectations. The Zig-Zag segment was stable from the previous year excluding the impact of a discontinued product line and is well positioned to return to growth in 2024. Stoker’s had an outstanding quarter posting its highest growth rate in over four years led by double-digit growth year-over-year in Stoker’s MST. We also had strong free cash flow generation during the year allowing us to build a cash balance to address the remaining principal amount of our convertible notes at maturity in July. Our outlook for 2024 is positive as we expect solid growth in our Zig-Zag and Stoker’s Products businesses.”
Zig-Zag Products Segment (46% of total net sales in the quarter)
For the fourth quarter, Zig-Zag Products net sales decreased 2.9% to $45.1 million due to the discontinuation of an unprofitable product line in Canada that impacted sales by $1.4 million.
For the quarter, the Zig-Zag Products segment gross profit decreased 1.0% to $25.5 million. Gross margin increased 100 basis points to 56.5% driven by product mix.
For the full year, net sales of Zig-Zag Products decreased 5.2% to $180.5 million due to the reduction of trade inventory earlier in the year and the discontinuation of an unprofitable product line in Canada that impacted sales by $4.9 million.
For the full year, Zig-Zag Products segment gross profit decreased 5.2% to $101.1 million. Gross margin was steady at 56.0%.
“Our US Zig-Zag papers and alternative channel business posted a strong quarter with double-digit growth to close the year,” said Purdy. “With the reduction of trade inventory through the year, Zig-Zag is now positioned to return to growth aided by industry secular growth trends and internal growth initiatives.”
Stoker’s Products Segment (39% of total net sales in the quarter)
For the fourth quarter, Stoker’s Products net sales increased 18.6% to $38.0 million on double-digit growth of MST and high-single-digit growth of loose-leaf. For the fourth quarter, total Stoker’s Products segment volume increased 14.2%, while price / mix increased 4.4%.
For the quarter, the Stoker’s Products segment gross profit increased 27.2% to $21.9 million. Gross margin expanded 380 basis points to 57.6% due to MST pricing gains and operating leverage.
For the full year, net sales of Stoker’s Products increased 10.5% to $144.6 million on double-digit growth of MST and low-single-digit growth of loose-leaf. For the full year, total Stoker’s Products segment volume increased 4.2%, while price / mix increased 6.3%.
For the full year, the Stoker’s Products segment gross profit increased 14.9% to $81.9 million. Gross margin increased 210 basis points to 56.6% due to MST pricing gains.
“Stoker’s had an exceptional quarter with strong market share gains in both the MST and loose-leaf categories as its value proposition continues to resonate with consumers,” continued Purdy. “We are excited about the planned expansion of our FRĒ white nicotine pouch product throughout the year.”
Performance Measures in the Fourth Quarter
Fourth quarter consolidated selling, general and administrative (“SG&A”) expenses were $30.9 million compared to $31.2 million in the fourth quarter of 2022.
Fourth quarter SG&A included the following notable items:
| • | $1.9 million of stock options, restricted stock and incentive expense compared to $1.2 million in the year-ago period |
|---|---|
| • | $1.0 million of FDA PMTA-related expenses for modern oral products compared to $0.3 million in the year-ago period |
| --- | --- |
| • | $0.2 million of restructuring costs compared to $1.8 million in the year-ago period |
| --- | --- |
| • | $0.1 million of ERP / CRM duplicative system costs compared to $0.3 million of ERP / CRM scoping expenses in the year-ago period |
| --- | --- |
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Turning Point Brands, Inc. | www.turningpointbrands.com | ir@tpbi.com | 502.774.9238
Total gross debt as of December 31, 2023 was $368.5 million. Net debt (total gross debt less unrestricted cash) at December 31, 2023 was $250.7 million. The Company ended the quarter with total liquidity of $177.9 million, comprised of $117.9 million in cash and $60.0 million of revolving credit facility capacity.
During the quarter, the Company received a net federal excise tax refund of $4.3 million, which is included in other operating income and $0.8 million of interest income related to the refund, which is included in net interest expense. The Company also recorded $4.0 million in other income related to a legal settlement receivable and a $1.0 million impairment of a minority investment in a development stage venture.
2024 Outlook
Management expects full-year 2024 adjusted EBITDA to be $95 to $100 million. This excludes any contribution from our CDS business which contributed a little over $2 million of EBITDA in FY 2023.
Creative Distribution Solutions (“CDS”) (15% of total net sales in the quarter)
For the fourth quarter, CDS net sales were $14.1 million, gross profit was $3.1 million, and gross margin was 22.4%.
Earnings Conference Call
As previously disclosed, a conference call with the investment community to review TPB’s financial results has been scheduled for 10:00 a.m. Eastern on Wednesday, February 28, 2024. Investment community participants should dial in 10 minutes ahead of time using the toll-free number 888-330-2502 (international participants should call 240-789-2713), and follow the audio prompts after typing in the event ID: 6640134. A live listen-only webcast of the call will be available on the Events and Presentations section of the investor relations portion of the Company website (www.turningpointbrands.com). A replay of the webcast will be available on the site two hours following the call.
Non-GAAP Financial Measures
In addition to financial measures prepared in accordance with generally accepted accounting principles in the United States (GAAP), this press release includes certain non-GAAP financial measures including EBITDA, Adjusted EBITDA, Adjusted Net Income, Adjusted Diluted EPS, Adjusted Operating Income (Loss) and Free Cash Flow. A reconciliation of these non-GAAP financial measures accompanies this release.
About Turning Point Brands, Inc.
Turning Point Brands (NYSE: TPB) is a manufacturer, marketer and distributor of branded consumer products including alternative smoking accessories and consumables with active ingredients through its iconic Zig-Zag® and Stoker’s® brands. TPB’s products are available in more than 215,000 retail outlets in North America, and on sites such as www.zigzag.com. For the latest news and information about TPB and its brands, please visit www.turningpointbrands.com.
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Turning Point Brands, Inc. | www.turningpointbrands.com | ir@tpbi.com | 502.774.9238
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.
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<br><br> <br>December 31, | ||||||
|---|---|---|---|---|---|---|
| 2023 | 2022 | |||||
| Net sales | $ | 97,120 | $ | 103,392 | ||
| Cost of sales | 46,596 | 53,829 | ||||
| Gross profit | 50,524 | 49,563 | ||||
| Selling, general, and administrative expenses | 30,916 | 31,245 | ||||
| Other operating income, net | (4,345 | ) | - | |||
| Operating income | 23,953 | 18,318 | ||||
| Interest expense, net | 2,632 | 4,382 | ||||
| Investment loss | 934 | 7,229 | ||||
| Other income | (4,000 | ) | - | |||
| Goodwill and intangible impairment loss | - | 27,566 | ||||
| Loss (gain) on extinguishment of debt | 194 | (885 | ) | |||
| Income (loss) before income taxes | 24,193 | (19,974 | ) | |||
| Income tax expense (benefit) | 14,328 | (3,857 | ) | |||
| Consolidated net income (loss) | 9,865 | (16,117 | ) | |||
| Net (loss) income attributable to non-controlling interest | (244 | ) | 200 | |||
| Net income (loss) attributable to Turning Point Brands, Inc. | $ | 10,109 | $ | (16,317 | ) | |
| Basic income (loss) per common share: | ||||||
| Net income (loss) attributable to Turning Point Brands, Inc. | $ | 0.57 | $ | (0.93 | ) | |
| Diluted income (loss) per common share: | ||||||
| Net income (loss) attributable to Turning Point Brands, Inc. | $ | 0.53 | $ | (0.93 | ) | |
| Weighted average common shares outstanding: | ||||||
| Basic | 17,604,313 | 17,530,278 | ||||
| Diluted | 20,153,157 | 17,530,278 | ||||
| Supplemental disclosures of statement of income information: | ||||||
| Excise tax expense | $ | 5,137 | $ | 5,771 | ||
| FDA fees | $ | 138 | $ | 158 |
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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)
| For the year ended<br><br> <br>December 31, | ||||||
|---|---|---|---|---|---|---|
| 2023 | 2022 | |||||
| Net sales | $ | 405,393 | $ | 415,013 | ||
| Cost of sales | 202,152 | 209,475 | ||||
| Gross profit | 203,241 | 205,538 | ||||
| Selling, general, and administrative expenses | 125,009 | 130,024 | ||||
| Other operating income, net | (4,345 | ) | - | |||
| Operating income | 82,577 | 75,514 | ||||
| Interest expense, net | 14,645 | 19,524 | ||||
| Investment loss | 11,914 | 13,303 | ||||
| Other income | (4,000 | ) | - | |||
| Goodwill and intangible impairment loss | - | 27,566 | ||||
| Gain on extinguishment of debt | (1,664 | ) | (885 | ) | ||
| Income before income taxes | 61,682 | 16,006 | ||||
| Income tax expense | 23,901 | 4,849 | ||||
| Consolidated net income | 37,781 | 11,157 | ||||
| Net loss attributable to non-controlling interest | (681 | ) | (484 | ) | ||
| Net income attributable to Turning Point Brands, Inc. | $ | 38,462 | $ | 11,641 | ||
| Basic income per common share: | ||||||
| Net income attributable to Turning Point Brands, Inc. | $ | 2.19 | $ | 0.65 | ||
| Diluted income per common share: | ||||||
| Net income attributable to Turning Point Brands, Inc. | $ | 2.01 | $ | 0.64 | ||
| Weighted average common shares outstanding: | ||||||
| Basic | 17,578,270 | 17,899,794 | ||||
| Diluted | 20,467,406 | 18,055,015 | ||||
| Supplemental disclosures of statement of income information: | ||||||
| Excise tax expense | $ | 20,575 | $ | 23,274 | ||
| FDA fees | $ | 586 | $ | 623 |
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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 | 2022 | ||||
| Current assets: | |||||
| Cash | 117,886 | $ | 106,403 | ||
| Accounts receivable, net of allowances of 78 in 2023 and 114 in 2022 | 9,989 | 8,377 | |||
| Inventories, net | 98,960 | 119,915 | |||
| Other current assets | 40,781 | 22,959 | |||
| Total current assets | 267,616 | 257,654 | |||
| Property, plant, and equipment, net | 25,300 | 22,788 | |||
| Deferred income taxes | 1,468 | 8,443 | |||
| Right of use assets | 11,480 | 12,465 | |||
| Deferred financing costs, net | 2,450 | 282 | |||
| Goodwill | 136,250 | 136,253 | |||
| Other intangible assets, net | 80,942 | 83,592 | |||
| Master Settlement Agreement (MSA) escrow deposits | 28,684 | 27,980 | |||
| Other assets | 15,166 | 22,649 | |||
| Total assets | 569,356 | $ | 572,106 | ||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||
| Current liabilities: | |||||
| Accounts payable | 8,407 | $ | 8,355 | ||
| Accrued liabilities | 33,635 | 33,001 | |||
| Current portion of long-term debt, net | 58,294 | - | |||
| Other current liabilities | - | 20 | |||
| Total current liabilities | 100,336 | 41,376 | |||
| Notes payable and long-term debt | 307,064 | 406,757 | |||
| Lease liabilities | 9,950 | 10,593 | |||
| Total liabilities | 417,350 | 458,726 | |||
| Commitments and contingencies | |||||
| Stockholders' equity: | |||||
| Preferred stock; 0.01 par value; authorized shares 40,000,000; issued and outstanding shares -0- | - | - | |||
| Common stock, voting, 0.01 par value; authorized shares, 190,000,000; 19,922,137 issued shares, 17,605,677 outstanding shares at <br> December 31, 2023, and 19,801,623 issued shares, 17,485,163 outstanding shares at December 31, 2022 | 199 | 198 | |||
| Common stock, nonvoting, 0.01 par value; authorized shares, 10,000,000;<br> issued and outstanding shares -0- | - | - | |||
| Additional paid-in capital | 119,075 | 113,242 | |||
| Cost of repurchased common stock<br> (2,316,460 shares at December 31, 2023 and 2022) | (78,093 | ) | (78,093 | ) | |
| Accumulated other comprehensive loss | (2,648 | ) | (2,393 | ) | |
| Accumulated earnings | 112,443 | 78,691 | |||
| Non-controlling interest | 1,030 | 1,735 | |||
| Total stockholders' equity | 152,006 | 113,380 | |||
| Total liabilities and stockholders' equity | 569,356 | $ | 572,106 |
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)
| For the Year Ended<br><br> <br>December 31, | ||||||
|---|---|---|---|---|---|---|
| 2023 | 2022 | |||||
| Cash flows from operating activities: | ||||||
| Consolidated net income | $ | 37,781 | $ | 11,157 | ||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
| Gain on extinguishment of debt | (1,664 | ) | (885 | ) | ||
| Loss (gain) on sale of property, plant, and equipment | 90 | (9 | ) | |||
| Loss on goodwill impairment | - | 25,585 | ||||
| Loss on intangible asset impairment | - | 1,982 | ||||
| Gain on insurance recovery of inventory loss | (15,181 | ) | - | |||
| Loss on investments | 12,177 | 13,570 | ||||
| Depreciation and other amortization expense | 3,262 | 3,388 | ||||
| Amortization of other intangible assets | 3,096 | 1,911 | ||||
| Amortization of deferred financing costs | 2,445 | 2,576 | ||||
| Deferred income tax expense (benefit) | 7,024 | (6,506 | ) | |||
| Stock compensation expense | 6,561 | 5,273 | ||||
| Noncash lease income | (82 | ) | (29 | ) | ||
| Gain on MSA escrow deposits | - | (54 | ) | |||
| Changes in operating assets and liabilities: | ||||||
| Accounts receivable | (1,609 | ) | (2,103 | ) | ||
| Inventories | 20,977 | (32,653 | ) | |||
| Other current assets | (3,533 | ) | 4,581 | |||
| Other assets | (4,835 | ) | 420 | |||
| Accounts payable | (14 | ) | 1,240 | |||
| Accrued liabilities and other | 386 | 830 | ||||
| Net cash provided by operating activities | 66,881 | 30,273 | ||||
| Cash flows from investing activities: | ||||||
| Capital expenditures | $ | (5,707 | ) | $ | (7,685 | ) |
| Payments for investments | (202 | ) | (1,000 | ) | ||
| Restricted cash, MSA escrow deposits | - | (10,170 | ) | |||
| Proceeds on the sale of property, plant and equipment | 3 | 62 | ||||
| Net cash used in investing activities | (5,906 | ) | (18,793 | ) |
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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 (Cont.)
(dollars in thousands)
(unaudited)
| For the Year Ended<br><br> <br>December 31, | ||||||
|---|---|---|---|---|---|---|
| 2023 | 2022 | |||||
| Cash flows from financing activities: | ||||||
| Convertible Senior Notes repurchased | (41,794 | ) | (9,000 | ) | ||
| Proceeds from call options | 114 | 51 | ||||
| Payment of dividends | (4,497 | ) | (4,250 | ) | ||
| Payments of financing costs | (2,437 | ) | - | |||
| Exercise of options | 450 | 504 | ||||
| Redemption of options | (346 | ) | (155 | ) | ||
| Redemption of restricted stock units | (995 | ) | (1,229 | ) | ||
| Common stock repurchased | - | (29,224 | ) | |||
| Net cash used in financing activities | $ | (49,505 | ) | $ | (43,303 | ) |
| Net increase (decrease) in cash | $ | 11,470 | $ | (31,823 | ) | |
| Effect of foreign currency translation on cash | $ | 13 | $ | (320 | ) | |
| Cash, beginning of period: | ||||||
| Unrestricted | $ | 106,403 | $ | 128,320 | ||
| Restricted | 4,929 | 15,155 | ||||
| Total cash at beginning of period | $ | 111,332 | $ | 143,475 | ||
| Unrestricted | $ | 117,886 | $ | 106,403 | ||
| Restricted | 4,929 | 4,929 | ||||
| Total cash at end of period | $ | 122,815 | $ | 111,332 |
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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 Net Income, Adjusted Diluted EPS, Adjusted Gross Profit and Adjusted Operating Income (Loss). We believe Adjusted EBITDA provides useful information to management and investors regarding certain financial and business trends relating to our financial condition and results of operations. Adjusted EBITDA, Adjusted Net Income, Adjusted Diluted EPS, Adjusted Gross Profit and Adjusted Operating Income (Loss) are used by management to compare our performance to that of prior periods for trend analyses and planning purposes and are presented to our board of directors. We believe that EBITDA, Adjusted EBITDA, Adjusted Net Income, Adjusted Diluted EPS, Adjusted Gross Profit and Adjusted Operating Income (Loss) are appropriate measures of operating performance because they eliminate the impact of expenses that do not relate to business performance.
We define “EBITDA” as net income (loss) before interest expense, gain (loss) on extinguishment of debt, provision for (benefit from) income taxes, depreciation and amortization. We define “Adjusted EBITDA” as net income before interest expense, gain (loss) on extinguishment of debt, provision for (benefit from) income taxes, depreciation, amortization, other non-cash items and other items that we do not consider ordinary course in our evaluation of ongoing operating performance. We define “Adjusted Net Income” as net income excluding items that we do not consider ordinary course in our evaluation of ongoing operating performance. We define “Adjusted Diluted EPS” as diluted earnings per share excluding items that we do not consider ordinary course in our evaluation of ongoing operating performance. We define “Adjusted Gross Profit: as gross profit excluding other non-cash items and other items that we do not consider ordinary course in our evaluation of ongoing operating performance. We define “Adjusted Operating Income (Loss)” as operating income excluding other non-cash items and other items that we do not consider ordinary course in our evaluation of ongoing operating performance. We define “Free Cash Flow” as “Net Cash provided by operating activities” less Capital expenditures.
Non-U.S. GAAP measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with U.S. GAAP. EBITDA, Adjusted Net Income, Adjusted EBITDA Adjusted Diluted EPS, Adjusted Gross Profit and Adjusted Operating Income (Loss) exclude significant expenses that are required by U.S. GAAP to be recorded in our financial statements and are 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 their usefulness as comparative measures.
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.
10
Turning Point Brands, Inc. | www.turningpointbrands.com | ir@tpbi.com | 502.774.9238
Schedule A
Turning Point Brands, Inc.
Reconciliation of GAAP Net Income (Loss) to Adjusted EBITDA
(dollars in thousands)
(unaudited)
| Three Months Ended<br><br> <br>December 31, | ||||||
|---|---|---|---|---|---|---|
| 2023 | 2022 | |||||
| Net income (loss) attributable to Turning Point Brands, Inc. | $ | 10,109 | $ | (16,317 | ) | |
| Add: | ||||||
| Interest expense, net | 2,632 | 4,382 | ||||
| Loss (gain) on extinguishment of debt | 194 | (885 | ) | |||
| Income tax expense (benefit) | 14,328 | (3,857 | ) | |||
| Depreciation expense | 804 | 777 | ||||
| Amortization expense | 851 | 538 | ||||
| EBITDA | $ | 28,918 | $ | (15,362 | ) | |
| Components of Adjusted EBITDA | ||||||
| Corporate and CDS restructuring (a) | 199 | 1,825 | ||||
| ERP/CRM (b) | 138 | 336 | ||||
| Stock options, restricted stock, and incentives expense (c) | 1,901 | 1,170 | ||||
| Transactional expenses and strategic initiatives(d) | 3 | 12 | ||||
| FDA PMTA (e) | 1,003 | 289 | ||||
| Non-cash asset impairment (f) | 1,015 | 34,836 | ||||
| FET refund (g) | (4,345 | ) | - | |||
| Legal settlement (h) | (4,000 | ) | - | |||
| Adjusted EBITDA | $ | 24,832 | $ | 23,106 |
| (a) | Represents costs associated with corporate and CDS restructuring, including severance. |
|---|---|
| (b) | Represents cost associated with scoping and mobilization of new ERP and CRM systems and cost of duplicative ERP licenses. |
| --- | --- |
| (c) | Represents non-cash stock options, restricted stock, incentives expense and Solace performance stock units. |
| --- | --- |
| (d) | Represents the fees incurred for transaction expenses. |
| --- | --- |
| (e) | Represents costs associated with applications related to FDA premarket tobacco product application ("PMTA"). |
| --- | --- |
| (f) | Represents impairment of goodwill, intangible and investment assets. |
| --- | --- |
| (g) | Represents federal excise tax refund included in other operating income, net. |
| --- | --- |
| (h) | Represents other income from litigation settlement. |
| --- | --- |
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)
(unaudited)
| For the Year Ended<br><br> <br>December 31, | ||||||
|---|---|---|---|---|---|---|
| 2023 | 2022 | |||||
| Net income attributable to Turning Point Brands, Inc. | $ | 38,462 | $ | 11,641 | ||
| Add: | ||||||
| Interest expense, net | 14,645 | 19,524 | ||||
| Gain on extinguishment of debt | (1,664 | ) | (885 | ) | ||
| Income tax expense | 23,901 | 4,849 | ||||
| Depreciation expense | 3,121 | 3,388 | ||||
| Amortization expense | 3,237 | 1,911 | ||||
| EBITDA | $ | 81,702 | $ | 40,428 | ||
| Components of Adjusted EBITDA | ||||||
| Corporate and CDS restructuring (a) | 389 | 3,444 | ||||
| ERP/CRM (b) | 552 | 1,962 | ||||
| Stock options, restricted stock, and incentives expense (c) | 6,561 | 5,273 | ||||
| Transactional expenses and strategic initiatives (d) | 165 | 801 | ||||
| FDA PMTA (e) | 2,098 | 4,554 | ||||
| Non-cash asset impairment (f) | 12,177 | 41,136 | ||||
| FET refund (g) | (4,345 | ) | - | |||
| Legal settlement (h) | (4,000 | ) | - | |||
| Adjusted EBITDA | $ | 95,299 | $ | 97,598 |
| (a) | Represents costs associated with corporate and CDS restructuring, including severance. |
|---|---|
| (b) | Represents cost associated with scoping and mobilization of new ERP and CRM systems and cost of duplicative ERP licenses. |
| --- | --- |
| (c) | Represents non-cash stock options, restricted stock, incentives expense and Solace performance stock units. |
| --- | --- |
| (d) | Represents the fees incurred for transaction expenses. |
| --- | --- |
| (e) | Represents costs associated with applications related to FDA premarket tobacco product application ("PMTA"). |
| --- | --- |
| (f) | Represents impairment of goodwill, intangible and investment assets. |
| --- | --- |
| (g) | Represents federal excise tax refund included in other operating income, net. |
| --- | --- |
| (h) | Represents other income from litigation settlement. |
| --- | --- |
12
Turning Point Brands, Inc. | www.turningpointbrands.com | ir@tpbi.com | 502.774.9238
Schedule B
Turning Point Brands, Inc.
Reconciliation of GAAP Net Income (Loss) to Adjusted Net Income and Diluted EPS to Adjusted Diluted EPS
(dollars in thousands except share data)
(unaudited)
| Three Months Ended<br><br> <br>December 31, 2023 | Three Months Ended<br><br> <br>December 31, 2022 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net Income | Diluted EPS | Net Income (Loss) | Diluted EPS | |||||||||
| GAAP | $ | 10,109 | $ | 0.53 | $ | (16,317 | ) | $ | (0.93 | ) | ||
| Anti-dilutive impact (a) | - | 0.00 | - | 0.20 | ||||||||
| Gain on extinguishment of debt (b) | 146 | 0.01 | (714 | ) | (0.03 | ) | ||||||
| Corporate and CDS restructuring (c) | 150 | 0.01 | 1,473 | 0.07 | ||||||||
| ERP/CRM (d) | 104 | 0.01 | 271 | 0.01 | ||||||||
| Stock options, restricted stock, and incentives expense (e) | 1,434 | 0.07 | 944 | 0.05 | ||||||||
| Transactional expenses and strategic initiatives (f) | 2 | 0.00 | 10 | 0.00 | ||||||||
| FDA PMTA (g) | 757 | 0.04 | 233 | 0.01 | ||||||||
| Non-cash asset impairment (h) | 766 | 0.04 | 28,109 | 1.35 | ||||||||
| FET refund (i) | (3,843 | ) | (0.19 | ) | - | - | ||||||
| Legal settlement (j) | (3,017 | ) | (0.15 | ) | - | - | ||||||
| Deferred tax valuation allowance (k) | 8,383 | 0.42 | - | - | ||||||||
| Impact of quarterly tax items to effective tax rate (l) | 311 | 0.02 | (804 | ) | (0.04 | ) | ||||||
| Adjusted | $ | 15,302 | $ | 0.79 | $ | 13,205 | $ | 0.69 |
Total may not foot due to rounding
Note: Quarterly tax rate used excludes impact of deferred tax valuation allowance.
| (a) | Represents dilution of options and debt conversion that is anti-dilutive and not included for GAAP. |
|---|---|
| (b) | Represents gain on extinguishment of debt tax effected at the quarterly tax rate. |
| --- | --- |
| (c) | Represents costs associated with corporate and CDS restructuring, including severance tax effected at the quarterly tax rate. |
| --- | --- |
| (d) | Represents cost associated with scoping and mobilization of new ERP and CRM systems and cost of duplicative ERP licenses tax effected at the quarterly tax rate. |
| --- | --- |
| (e) | Represents non-cash stock options, restricted stock, incentives expense and Solace PRSUs tax effected at the quarterly tax rate. |
| --- | --- |
| (f) | Represents the fees incurred for transaction expenses tax effected at the quarterly tax rate. |
| --- | --- |
| (g) | Represents costs associated with applications related to the FDA PMTA tax effected at the quarterly tax rate. |
| --- | --- |
| (h) | Represents impairment of goodwill, intangible and investment assets tax effected at the quarterly tax rate. |
| --- | --- |
| (i) | Represents federal excise tax refund and related interest income effected at the quarterly tax rate. |
| --- | --- |
| (j) | Represents receivable from legal settlement tax effected at the quarterly tax rate. |
| --- | --- |
| (k) | Represents deferred tax valuation allowance. |
| --- | --- |
| (l) | Represents adjustment from quarterly tax rate to annual projected tax rate of 23% in 2023 and 2022. |
| --- | --- |
13
Turning Point Brands, Inc. | www.turningpointbrands.com | ir@tpbi.com | 502.774.9238
Schedule B
Turning Point Brands, Inc.
Reconciliation of GAAP Net Income to Adjusted Net Income and Diluted EPS to Adjusted Diluted EPS
(dollars in thousands except share data)
(unaudited)
| For the Year Ended<br><br> <br>December 31, 2023 | For the Year Ended<br><br> <br>December 31, 2022 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net Income | Diluted EPS | Net Income | Diluted EPS | |||||||||
| GAAP | $ | 38,462 | $ | 2.01 | $ | 11,641 | $ | 0.64 | ||||
| Anti-dilutive impact (a) | - | (0.00 | ) | - | 0.09 | |||||||
| Gain on extinguishment of debt (b) | (1,245 | ) | (0.06 | ) | (617 | ) | (0.03 | ) | ||||
| Corporate and CDS restructuring (c) | 291 | 0.01 | 2,401 | 0.11 | ||||||||
| ERP/CRM (d) | 413 | 0.02 | 1,368 | 0.06 | ||||||||
| Stock options, restricted stock, and incentives expense (e) | 4,910 | 0.24 | 3,676 | 0.17 | ||||||||
| Transactional expenses and strategic initiatives (f) | 123 | 0.01 | 558 | 0.03 | ||||||||
| FDA PMTA (g) | 1,570 | 0.08 | 3,174 | 0.15 | ||||||||
| Non-cash asset impairment (h) | 9,114 | 0.45 | 28,674 | 1.35 | ||||||||
| FET refund (i) | (3,813 | ) | (0.19 | ) | - | - | ||||||
| Legal settlement (j) | (2,994 | ) | (0.15 | ) | - | - | ||||||
| Deferred tax valuation allowance (k) | 8,383 | 0.41 | - | - | ||||||||
| Impact of annual tax items to effective tax rate (l) | 1,587 | 0.08 | 5,309 | 0.25 | ||||||||
| Adjusted | $ | 56,802 | $ | 2.91 | $ | 56,183 | $ | 2.83 |
Total may not foot due to rounding
Note: Annual tax rate used excludes impact of deferred tax valuation allowance.
| (a) | Represents dilution of debt conversion that is anti-dilutive and not included for GAAP. |
|---|---|
| (b) | Represents gain on extinguishment of debt tax effected at the annual tax rate. |
| --- | --- |
| (c) | Represents costs associated with corporate and CDS restructuring, including severance tax effected at the annual tax rate. |
| --- | --- |
| (d) | Represents cost associated with scoping and mobilization of new ERP and CRM systems and cost of duplicative ERP licenses tax effected at the<br> annual tax rate. |
| --- | --- |
| (e) | Represents non-cash stock options, restricted stock, incentives expense and Solace PRSUs tax effected at the annual tax rate. |
| --- | --- |
| (f) | Represents the fees incurred for transaction expenses tax effected at the annual tax rate. |
| --- | --- |
| (g) | Represents costs associated with applications related to the FDA PMTA tax effected at the annual tax rate. |
| --- | --- |
| (h) | Represents impairment of goodwill, intangible and investment assets tax effected at the annual tax rate. |
| --- | --- |
| (i) | Represents federal excise tax refund and related interest income effected at the annual tax rate. |
| --- | --- |
| (j) | Represents receivable from legal settlement tax effected at the annual tax rate. |
| --- | --- |
| (k) | Represents deferred tax valuation allowance. |
| --- | --- |
| (l) | Represents adjustment from annual tax rate to annual projected tax rate of 23% in 2023 and 2022. |
| --- | --- |
Schedule C
Turning Point Brands, Inc.
Reconciliation of GAAP Operating Income (Loss) to Adjusted Operating Income (Loss)
(dollars in thousands)
(unaudited)
| Consolidated | Zig-Zag | Stoker's | Creative Distribution Solutions | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 4th Quarter<br><br> <br>2023 | 4th Quarter<br><br> <br>2022 | 4th Quarter<br><br> <br>2023 | 4th Quarter<br><br> <br>2022 | 4th Quarter<br><br> <br>2023 | 4th Quarter<br><br> <br>2022 | 4th Quarter<br><br> <br>2023 | 4th Quarter<br><br> <br>2022 | ||||||||||||
| Net sales | $ | 97,120 | $ | 103,392 | $ | 45,092 | $ | 46,444 | $ | 37,976 | $ | 32,010 | $ | 14,052 | $ | 24,938 | |||
| Gross profit | $ | 50,524 | $ | 49,563 | $ | 25,499 | $ | 25,768 | $ | 21,883 | $ | 17,210 | $ | 3,142 | $ | 6,585 | |||
| Operating income (loss) | $ | 23,953 | $ | 18,318 | $ | 20,968 | $ | 17,362 | $ | 12,533 | $ | 12,794 | $ | (646 | ) | $ | 134 | ||
| Adjustments: | |||||||||||||||||||
| Transactional expenses and strategic initiatives | 3 | 12 | - | - | - | - | - | - | |||||||||||
| FDA PMTA | 1,003 | 289 | - | - | - | - | - | - | |||||||||||
| Corporate and CDS restructuring | 199 | 1,825 | - | - | - | - | - | - | |||||||||||
| ERP/CRM | 138 | 336 | - | - | - | - | - | - | |||||||||||
| FET refund | (4,345 | ) | - | - | - | (4,345 | ) | - | - | - | |||||||||
| Adjusted operating income (loss) | $ | 20,951 | $ | 20,780 | $ | 20,968 | $ | 17,362 | $ | 8,188 | $ | 12,794 | $ | (646 | ) | $ | 134 |
14
Turning Point Brands, Inc. | www.turningpointbrands.com | ir@tpbi.com | 502.774.9238
Schedule C
Turning Point Brands, Inc.
Reconciliation of GAAP Operating Income (Loss) to Adjusted Operating Income (Loss)
(dollars in thousands)
(unaudited)
| Consolidated | Zig-Zag | Stoker's | Creative Distribution Solutions | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| YTD<br><br> <br>2023 | YTD<br><br> <br>2022 | YTD<br><br> <br>2023 | YTD<br><br> <br>2022 | YTD<br><br> <br>2023 | YTD<br><br> <br>2022 | YTD<br><br> <br>2023 | YTD<br><br> <br>2022 | ||||||||||||
| Net sales | $ | 405,393 | $ | 415,013 | $ | 180,455 | $ | 190,403 | $ | 144,609 | $ | 130,826 | $ | 80,329 | $ | 93,784 | |||
| Gross profit | $ | 203,241 | $ | 205,538 | $ | 101,055 | $ | 106,576 | $ | 81,887 | $ | 71,254 | $ | 20,299 | $ | 27,708 | |||
| Operating income (loss) | $ | 82,577 | $ | 75,514 | $ | 68,280 | $ | 73,342 | $ | 58,180 | $ | 53,331 | $ | (383 | ) | $ | 1,506 | ||
| Adjustments: | |||||||||||||||||||
| Transactional expenses and strategic initiatives | 165 | 801 | - | - | - | - | - | - | |||||||||||
| FDA PMTA | 2,098 | 4,554 | - | - | - | - | - | - | |||||||||||
| Corporate and CDS restructuring | 389 | 3,444 | - | - | - | - | 190 | - | |||||||||||
| ERP/CRM | 552 | 1,962 | - | - | - | - | - | - | |||||||||||
| FET refund | (4,345 | ) | - | - | - | (4,345 | ) | - | - | - | |||||||||
| Adjusted operating income (loss) | $ | 81,436 | $ | 86,275 | $ | 68,280 | $ | 73,342 | $ | 53,835 | $ | 53,331 | $ | (193 | ) | $ | 1,506 |
15
Turning Point Brands, Inc. | www.turningpointbrands.com | ir@tpbi.com | 502.774.9238