-Net Sales for Q1 2023 Increased 0.1 Percent
Year-Over-Year
Turning Point Brands, Inc. (“TPB” or “the Company”) (NYSE: TPB),
a manufacturer, marketer and distributor of branded consumer
products, including alternative smoking accessories and consumables
with active ingredients, announced today financial results for the
first quarter ended March 31, 2023.
Q1 2023 vs. Q1 2022
- Total consolidated net sales increased 0.1% to $101.0 million
- Zig-Zag Products net sales decreased by 8.3% due to anticipated
reduction of trade inventory during the quarter
- Stoker’s Products net sales increased by 6.2%
- Creative Distribution Solutions net sales increased by
8.0%
- Gross profit decreased 6.1% to $48.6 million
- Net income decreased 30.9% to $7.6 million
- Adjusted net income decreased 18.1% to $11.9 million (see
Schedule B for a reconciliation to net income)
- Adjusted EBITDA decreased 17.7% to $20.8 million (see Schedule
A for a reconciliation to net income)
- Diluted EPS of $0.41 and Adjusted Diluted EPS of $0.62 compared
to $0.55 and $0.71 in the same period one year ago, respectively
(see Schedule B for a reconciliation to Diluted EPS)
Graham Purdy, President and CEO, commented: “We are encouraged
by our first quarter operating results which fell within our
expectations. The Zig-Zag segment had an anticipated inventory
reduction with certain wholesale customers but saw strong
performance from the alternative channel and the roll-out of
CLIPPER lighters. With the adjustment in trade inventory, Zig-Zag
is now well-positioned to demonstrate growth for the balance of the
year. Stoker’s had a solid quarter of performance as the value
proposition of Stoker’s MST and looseleaf led to another quarter of
market share gains. We opportunistically purchased another $13.9
million in aggregate principal amount of our convertible notes
during the first quarter while maintaining a strong cash balance.
We are currently maintaining our annual guidance as we focus on
executing against our plan for the balance of the year.”
Zig-Zag Products Segment (42% of total net sales in the
quarter)
For the first quarter, Zig-Zag Products net sales decreased 8.3%
to $41.9 million. TPB’s Canadian and other smoking accessories
businesses saw strong growth during the quarter. This was offset by
anticipated declines in the U.S. rolling papers and wraps
businesses which were impacted by reduction of trade inventory
during the quarter. For the first quarter, total Zig-Zag Products
segment volume decreased 8.6%, while price / mix increased
0.3%.
For the quarter, the Zig-Zag Products segment gross profit
decreased 15.0% to $22.4 million. Gross margin declined 420 basis
points to 53.5% driven primarily by product mix including the
decline of higher margin U.S. rolling paper and wraps products and
contribution of CLIPPER lighters which operates at lower gross
profit margins.
“Zig-Zag papers and wraps demonstrated solid results in-light of
planned inventory reduction with certain customers. Our e-commerce
business had another quarter of double-digit growth as we continue
to build our presence in the alternative channel,” said Purdy. “The
acceptance of CLIPPER lighters within the trade remains encouraging
and sets up well for increased penetration going forward.”
Stoker’s Products Segment (33% of total net sales in the
quarter)
For the first quarter, Stoker’s Products net sales increased
6.2% to $33.7 million on high single-digit growth of MST and
low-single digit growth of loose-leaf chewing tobacco. For the
first quarter, total Stoker’s Products segment volume increased
0.3%, while price / mix increased 5.9%.
For the quarter, the Stoker’s Products segment gross profit
increased 10.1% to $19.5 million. Gross margin expanded 200 basis
points to 57.8% due to MST pricing gains.
“Stoker’s saw another quarter of solid performance with strong
market share gains in both the MST and loose-leaf chewing tobacco
categories as its value proposition continues to resonate with
consumers,” continued Purdy.
Performance Measures in the First Quarter
First quarter consolidated selling, general and administrative
(“SG&A”) expenses were $30.8 million compared to $32.6 million
in the first quarter of 2022.
The first quarter SG&A included the following notable
items:
- $0.1 million of ERP / CRM duplicative system costs compared to
$0.3 million of ERP / CRP scoping expenses in the previous
year
- $0.7 million of stock options, restricted stock and incentive
expense compared to $1.2 million in the year-ago period
- $0.2 million of FDA PMTA-related expenses compared to $1.1
million in the year-ago period
- $0.0 million of transaction expenses as compared to $0.4
million in the year-ago period
- $0.0 million of restructuring costs as compared to $1.3 million
in the year-ago period
Total gross debt as of March 31, 2023 was $398.6 million. The
corresponding net debt (total gross debt less cash) at March 31,
2023 was $293.8 million. The Company ended the quarter with total
liquidity of $128.4 million, comprised of $104.8 million in cash
and $23.6 million of revolving credit facility capacity.
During the quarter, the Company repurchased $13.9 million in
aggregate principal amount of its 2.50% Convertible Senior Notes
due July 2024.
The Company recorded an impairment charge of $4.9 million during
the quarter related to a minority investment in a development stage
venture.
2023 Outlook
At this time, the Company is maintaining its previous
expectation of full-year 2023 adjusted EBITDA to be $88 to $94
million.
Creative Distribution Solutions (“CDS”) (25% of total net
sales in the quarter)
For the first quarter, CDS (formerly the Company’s “NewGen”
segment) net sales were $25.4 million, gross was $6.8 million, and
gross margin was 26.6%.
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, May 3, 2023. Investment community
participants should dial in 10 minutes ahead of time using the
toll-free number 888-330-2502 (international participants should
call 240-789-2713), and follow the audio prompts after typing in
the event ID: 6640134. A live listen-only webcast of the call will
be available on the Events and Presentations section of the
investor relations portion of the Company website
(www.turningpointbrands.com). A replay of the webcast will be
available on the site two hours following the call.
Non-GAAP Financial Measures
In addition to financial measures prepared in accordance with
generally accepted accounting principles in the United States
(GAAP), this press release includes certain non-GAAP financial
measures including EBITDA, Adjusted EBITDA, Adjusted Net Income,
Adjusted Diluted EPS and Adjusted Operating Income (Loss). A
reconciliation of these non-GAAP financial measures accompanies
this release.
About Turning Point Brands, Inc.
Turning Point Brands (NYSE: TPB) is a manufacturer, marketer and
distributor of branded consumer products including alternative
smoking accessories and consumables with active ingredients through
its iconic Zig-Zag® and Stoker’s® brands. TPB’s products are
available in more than 215,000 retail outlets in North America, and
on sites such as www.zigzag.com. For the latest news and
information about TPB and its brands, please visit
www.turningpointbrands.com.
Forward-Looking Statements
This press release contains forward-looking statements within
the meaning of the federal securities laws. Forward-looking
statements may generally be identified by the use of words such as
"anticipate," "believe," "expect," "intend," "plan" and "will" or,
in each case, their negative, or other variations or comparable
terminology. These forward-looking statements include all matters
that are not historical facts. By their nature, forward-looking
statements involve risks and uncertainties because they relate to
events and depend on circumstances that may or may not occur in the
future. As a result, these statements are not guarantees of future
performance and actual events may differ materially from those
expressed in or suggested by the forward-looking statements. Any
forward-looking statement made by TPB in this press release, its
reports filed with the Securities and Exchange Commission (the
“SEC”) and other public statements made from time-to-time speak
only as of the date made. New risks and uncertainties come up from
time to time, and it is impossible for TPB to predict or identify
all such events or how they may affect it. TPB has no obligation,
and does not intend, to update any forward-looking statements after
the date hereof, except as required by federal securities laws.
Factors that could cause these differences include, but are not
limited to those included it the Company’s Annual Reports on Form
10-K, Quarterly Reports on Form 10-Q and other reports filed by the
Company with the SEC. These statements constitute the Company’s
cautionary statements under the Private Securities Litigation
Reform Act of 1995.
Financial Statements Follow:
Turning Point Brands, Inc. Consolidated Statements of
Income (dollars in thousands except share data) (unaudited)
Three Months Ended March 31,
2023
2022
Net sales
$
100,956
$
100,894
Cost of sales
52,339
49,100
Gross profit
48,617
51,794
Selling, general, and administrative expenses
30,775
32,565
Operating income
17,842
19,229
Interest expense, net
4,010
5,196
Investment loss (gain)
4,799
(78
)
Gain on extinguishment of debt
(777
)
-
Income before income taxes
9,810
14,111
Income tax expense
2,468
3,340
Consolidated net income
7,342
10,771
Net loss attributable to non-controlling interest
(255
)
(227
)
Net income attributable to Turning Point Brands, Inc.
$
7,597
$
10,998
Basic income per common share: Net income attributable to
Turning Point Brands, Inc.
$
0.43
$
0.60
Diluted income per common share: Net income attributable to Turning
Point Brands, Inc.
$
0.41
$
0.55
Weighted average common shares outstanding: Basic
17,531,414
18,257,695
Diluted
20,669,152
21,749,510
Supplemental disclosures of statements of income
information: Excise tax expense
$
5,024
$
5,709
FDA fees
$
195
$
124
Turning Point Brands, Inc. Consolidated Balance
Sheets (dollars in thousands except share data)
(unaudited) March 31, December 31,
ASSETS
2023
2022
Current assets: Cash
$
104,801
$
106,403
Accounts receivable, net of allowances of $101 in 2023 and $114 in
2022
8,584
8,377
Inventories
113,738
119,915
Other current assets
19,961
22,959
Total current assets
247,084
257,654
Property, plant, and equipment, net
24,364
22,788
Deferred income taxes
8,069
8,443
Right of use assets
11,722
12,465
Deferred financing costs, net
256
282
Goodwill
136,253
136,253
Other intangible assets, net
82,821
83,592
Master Settlement Agreement (MSA) escrow deposits
28,710
27,980
Other assets
20,647
22,649
Total assets
$
559,926
$
572,106
LIABILITIES AND STOCKHOLDERS' EQUITY Current
liabilities: Accounts payable
$
10,390
$
8,355
Accrued liabilities
25,932
33,001
Other current liabilities
20
20
Total current liabilities
36,342
41,376
Notes payable and long-term debt
393,578
406,757
Lease liabilities
10,072
10,593
Total liabilities
439,992
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; 19,901,989 issued shares and 17,585,529 outstanding
shares at March 31, 2023, and 19,801,623 issued shares and
17,485,163 outstanding shares at December 31, 2022
199
198
Common stock, nonvoting, $0.01 par value; authorized shares,
10,000,000; issued and outstanding shares -0-
-
-
Additional paid-in capital
113,477
113,242
Cost of repurchased common stock (2,316,460 shares at March 31,
2023 and December 31, 2022)
(78,093
)
(78,093
)
Accumulated other comprehensive loss
(2,234
)
(2,393
)
Accumulated earnings
85,133
78,691
Non-controlling interest
1,452
1,735
Total stockholders' equity
119,934
113,380
Total liabilities and stockholders' equity
$
559,926
$
572,106
Turning Point Brands, Inc. Consolidated Statements
of Cash Flows (dollars in thousands) (unaudited)
Three Months Ended March
31,
2023
2022
Cash flows from operating activities: Consolidated net income
$
7,342
$
10,771
Adjustments to reconcile net income to net cash provided by
operating activities: Gain on extinguishment of debt
(777
)
-
Loss (gain) on sale of property, plant, and equipment
(6
)
1
Depreciation expense
776
871
Amortization of other intangible assets
771
463
Amortization of deferred financing costs
626
645
Deferred income tax expense (benefit)
299
(34
)
Stock compensation expense
743
1,159
Noncash lease income
(14
)
(5
)
Loss (gain) on investments
4,897
(14
)
Changes in operating assets and liabilities: Accounts receivable
(216
)
(2,958
)
Inventories
6,173
(18,258
)
Other current assets
2,639
1,081
Other assets
(2,895
)
382
Accounts payable
2,051
22,101
Accrued liabilities and other
(7,025
)
(3,165
)
Net cash provided by operating activities
$
15,384
$
13,040
Cash flows from investing activities: Capital expenditures
$
(2,435
)
$
(2,787
)
Restricted cash, MSA escrow deposits
-
(8,468
)
Proceeds on the sale of property, plant and equipment
3
1
Net cash used in investing activities
$
(2,432
)
$
(11,254
)
Cash flows from financing activities: Repurchased
Convertible Senior Notes
$
(13,002
)
$
-
Proceeds from call options
33
-
Payment of dividends
(1,052
)
(1,022
)
Exercise of options
357
245
Redemption of performance restricted stock units
(889
)
(1,141
)
Common stock repurchased
-
(10,622
)
Net cash used in financing activities
$
(14,553
)
$
(12,540
)
Net decrease in cash
$
(1,601
)
$
(10,754
)
Effect of foreign currency translation on cash
$
(1
)
$
(3
)
Cash, beginning of period: Unrestricted
106,403
128,320
Restricted
4,929
15,155
Total cash at beginning of period
111,332
143,475
Cash, end of period: Unrestricted
104,801
126,045
Restricted
4,929
6,673
Total cash at end of period
$
109,730
$
132,718
Non-GAAP Financial Measures
To supplement our financial information presented in accordance
with generally accepted accounting principles in the United States,
or U.S. GAAP, we use non-U.S. GAAP financial measures, including
EBITDA, Adjusted EBITDA, Adjusted Net Income, Adjusted Diluted EPS,
Adjusted Gross Profit and Adjusted Operating Income. We believe
Adjusted EBITDA provides useful information to management and
investors regarding certain financial and business trends relating
to our financial condition and results of operations. Adjusted
EBITDA, Adjusted Net Income, Adjusted Diluted EPS, Adjusted Gross
Profit and Adjusted Operating Income are used by management to
compare our performance to that of prior periods for trend analyses
and planning purposes and are presented to our board of directors.
We believe that EBITDA, Adjusted EBITDA, Adjusted Net Income,
Adjusted Diluted EPS, Adjusted Gross Profit and Adjusted Operating
Income are appropriate measures of operating performance because
they eliminate the impact of expenses that do not relate to
business performance.
We define “EBITDA” as net income before interest expense, loss
on extinguishment of debt, provision for income taxes, depreciation
and amortization. We define “Adjusted EBITDA” as net income before
interest expense, loss on extinguishment of debt, provision for
income taxes, depreciation, amortization, other non-cash items and
other items that we do not consider ordinary course in our
evaluation of ongoing operating performance. We define “Adjusted
Net Income” as net income excluding items that we do not consider
ordinary course in our evaluation of ongoing operating performance.
We define “Adjusted Diluted EPS” as diluted earnings per share
excluding items that we do not consider ordinary course in our
evaluation of ongoing operating performance. We define “Adjusted
Gross Profit: as gross profit excluding other non-cash items and
other items that we do not consider ordinary course in our
evaluation of ongoing operating performance. We define “Adjusted
Operating Income” as operating income excluding other non-cash
items and other items that we do not consider ordinary course in
our evaluation of ongoing operating performance.
Non-U.S. GAAP measures should not be considered a substitute
for, or superior to, financial measures calculated in accordance
with U.S. GAAP. EBITDA, Adjusted Net Income, Adjusted EBITDA
Adjusted Diluted EPS, Adjusted Gross Profit and Adjusted Operating
Income exclude significant expenses that are required by U.S. GAAP
to be recorded in our financial statements and is subject to
inherent limitations. In addition, other companies in our industry
may calculate this non-U.S. GAAP measure differently than we do or
may not calculate it at all, limiting its usefulness as a
comparative measure.
In accordance with SEC rules, we have provided, in the
supplemental information attached, a reconciliation of the non-GAAP
measures to the next directly comparable GAAP measures.
Schedule A Turning Point Brands, Inc.
Reconciliation of GAAP Net Income to Adjusted EBITDA
(dollars in thousands) (unaudited)
Three Months Ended
March 31,
2023
2022
Net income attributable to Turning Point Brands, Inc.
$
7,597
$
10,998
Add: Interest expense, net
4,010
5,196
Gain on extinguishment of debt
(777
)
-
Income tax expense
2,468
3,340
Depreciation expense
776
871
Amortization expense
771
463
EBITDA
$
14,845
$
20,868
Components of Adjusted EBITDA Corporate restructuring (a)
-
1,332
ERP/CRM (b)
138
330
Stock options, restricted stock, and incentives expense (c)
743
1,159
Transactional expenses (d)
4
425
FDA PMTA (e)
158
1,139
Non-cash asset impairment (f)
4,897
-
Adjusted EBITDA
$
20,785
$
25,253
(a) Represents costs associated with corporate
restructuring, including severance. (b) Represents cost associated
with scoping and mobilization of new ERP and CRM systems and cost
of duplicative ERP licenses. (c) Represents non-cash stock options,
restricted stock, incentives expense and Solace performance stock
units ("PRSUs"). (d) Represents the fees incurred for transaction
expenses. (e) Represents costs associated with applications related
to FDA premarket tobacco product application ("PMTA"). (f)
Represents impairment of investment assets.
Schedule B
Turning Point Brands Reconciliation of GAAP Net
Income to Adjusted Net Income and Diluted EPS to Adjusted Diluted
EPS (dollars in thousands except share data) (unaudited)
Three Months Ended Three Months Ended March 31,
2023 March 31, 2022 Net Income Diluted EPS
Net Income Diluted EPS GAAP EPS
$
7,597
$
0.41
$
10,998
$
0.55
Gain on extinguishment of debt (a)
(582
)
(0.03
)
-
-
Corporate restructuring (b)
-
-
1,017
0.05
ERP/CRM (c)
103
0.00
252
0.01
Stock options, restricted stock, and incentives expense (d)
556
0.03
885
0.04
Transactional expenses (e)
3
0.00
324
0.01
FDA PMTA (f)
118
0.01
869
0.04
Non-cash asset impairment (g)
3,665
0.18
-
-
Tax (expense) benefit (h)
415
0.02
152
0.01
Adjusted
$
11,876
$
0.62
$
14,497
$
0.71
Totals may not foot due to rounding (a)
Represents gain on extinguishment of debt tax effected at the
quarterly tax rate. (b) Represents costs associated with corporate
restructuring, including severance, tax effected at the quarterly
tax rate. (c) Represents cost associated with scoping and
mobilization of new ERP and CRM systems and cost of duplicative ERP
licenses tax effected at the quarterly tax rate. (d) Represents
non-cash stock options, restricted stock, incentives expense and
Solace PRSUs tax effected at the quarterly tax rate. (e) Represents
the fees incurred for transaction expenses tax effected at the
quarterly tax rate. (f) Represents costs associated with
applications related to the FDA PMTA tax effected at the quarterly
tax rate. (g) Represents impairment of investment assets tax
effected at the quarterly tax rate. (h) Represents adjustment from
quarterly tax rate to annual projected tax rate of 23% in 2023 and
2022.
Schedule C Turning Point Brands, Inc.
Reconciliation of GAAP Operating Income to Adjusted Operating
Income (dollars in thousands) (unaudited)
Consolidated Zig-Zag Products Stoker's
Products Creative Distribution Solutions 1st
Quarter 1st Quarter 1st Quarter 1st
Quarter 1st Quarter 1st Quarter 1st
Quarter 1st Quarter
2023
2022
2023
2022
2023
2022
2023
2022
Net sales
$
100,956
$
100,894
$
41,887
$
45,672
$
33,662
$
31,703
$
25,407
$
23,519
Gross profit
$
48,617
$
51,794
$
22,390
$
26,343
$
19,465
$
17,686
$
6,762
$
7,765
Operating income
$
17,842
$
19,229
$
13,641
$
18,737
$
14,563
$
13,506
$
261
$
678
Adjustments: Corporate restructuring
-
1,332
-
-
-
-
-
-
Transactional expenses
4
425
-
-
-
-
-
-
FDA PMTA
158
1,139
-
-
-
-
-
-
Adjusted operating income
$
18,004
$
22,125
$
13,641
$
18,737
$
14,563
$
13,506
$
261
$
678
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230503005270/en/
Investor Contacts Turning Point Brands, Inc.: Louie
Reformina, Senior Vice President, CFO Turning Point Brands, Inc.
502.774.9238 ir@tpbi.com
Turning Point Brands (NYSE:TPB)
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