-Q2 2021 Net Sales Increased 16.8 Percent
Year-Over-Year
-Q2 2021 Adjusted EBITDA Increased 31.7 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
second quarter ended June 30, 2021.
Q2 2021 vs. Q2 2020
- Net sales increased 16.8 percent to $122.6 million
- Gross profit increased 25.1 percent to $60.0 million
- Net income increased 49.2 percent to $15.4 million
- Adjusted EBITDA increased 31.7 percent to $30 million (see
Schedule A for a reconciliation to net income)
- Diluted EPS of $0.73 and Adjusted Diluted EPS of $0.84 as
compared to $0.49 and $0.66 in the same period one year ago,
respectively (see Schedule B for a reconciliation to Diluted
EPS)
“Our second quarter performance continued to demonstrate Turning
Point’s positive growth momentum, led by our core market segments.
Zig-Zag had an exceptional quarter with over 70 percent growth,
driven principally by our strategic initiatives and aided by a
favorable comparison against a COVID-related disruption in MYO
cigar wraps the previous year. Stoker’s also delivered a solid
quarter fueled by double-digit growth in our MST business,” said
Larry Wexler, President and CEO, Turning Point Brands.
Mr. Wexler continued, “NewGen outperformed expectations, while
also tackling the logistical challenge presented by the
implementation of the PACT Act. We were also very active during
this quarter deploying capital through opportunistic share
repurchases and recently announced a key investment in Old Pal
aimed at increasing our exposure to the cannabis market. Lastly, we
also announced a key acquisition of assets from Unitabac to build
on our competitive positioning in the large and growing cigars
market.”
Zig-Zag Products Segment (39 percent of total net sales in
the quarter)
For the second quarter, net sales of Zig-Zag Products increased
72.3 percent to $47.2 million. Growth was led by a doubling in
sales of our TPB’s Make-Your-Own (“MYO”) cigar wraps business,
which experienced a COVID-related manufacturing disruption in the
prior year period and trade inventory build that pulled orders into
the quarter. This growth was complemented by a double-digit advance
in U.S. rolling papers and a doubling of our Canadian business due
to the accounting consolidation of ReCreation Marketing in the
current year quarterly period. For the second quarter, total
Zig-Zag Products segment volume increased 64.6 percent, while price
/ mix increased 7.7 percent.
For the quarter, Zig-Zag Products segment gross profit increased
77 percent to $27.7 million. The segment’s gross margin expanded
160 basis points to 58.8 percent, driven by increased margin in MYO
cigar wraps sales as a result of the Durfort transaction in June
2020.
“We are seeing strong gains from the initiatives put in place to
accelerate growth in the segment as we allocate more resources to
further leverage and grow the Zig-Zag brand,” added Graham Purdy,
Chief Operating Officer, Turning Point Brands. “Our paper cones and
Zig-Zag e-commerce businesses continued to experience accelerated
growth, and our wraps business benefitted from a more streamlined
supply chain following the Durfort transaction to better serve
strong consumer demand as we rebounded from a COVID-related
disruption during the prior year period.”
Purdy continued, “Our growth initiatives, along with a favorable
environment resulting from evolving consumer perception and state
legalization efforts around cannabis, provide a strong tailwind for
our business going forward. With the acquisition of the Unitabac
assets, we are also adding a platform to address a large market
opportunity in cigars.”
Stoker’s Products Segment (27 percent of total net sales in
the quarter)
For the second quarter, net sales of Stoker’s Products increased
8.3 percent to $33.4 million on double-digit growth of MST,
partially offset by low single-digit decline of loose-leaf chewing
tobacco. MST represented 62 percent of Stoker’s Products revenues
in the quarter, up from 58 percent a year earlier. For the second
quarter, the total Stoker’s Products segment volume increased 2.4
percent, and price / mix advanced 5.9 percent.
For the quarter, the Stoker’s Products segment gross profit
increased 9.9 percent to $18.1 million. The segment’s gross margin
expanded 80 basis points to 54.4 percent.
“Our Stoker’s MST business continues its strong growth
trajectory and market share gains,” said Purdy. “Our loose-leaf
chew business performed well against the previous year period,
which had benefitted from a competitor being offline due to a
COVID-related disruption.”
NewGen Products Segment (34 percent of total net sales in the
quarter)
For the second quarter, net sales of NewGen Products decreased
10.0 percent to $42.1 million. The decline was a result of a
challenging comparison against the previous year period when TPB’s
vape distribution business benefitted from a COVID-related
disruption at a B2B competitor and strong B2C orders during state
stay-at-home provisions.
For the quarter, NewGen Products gross profit decreased 10.6
percent to $14.1 million. The segment gross margin contracted 20
basis points to 33.5 percent.
“NewGen performed above our expectations as our vape
distribution business was able to navigate the implementation of
the PACT Act, which increased the regulatory requirements around
transporting vape products,” said Purdy. “While we still expect
short-term volatility in the vape distribution business around the
PMTA process and PACT Act, we are encouraged by our current market
positioning and potential of our business in a post-PMTA regulatory
environment.”
Recent Events
Unitabac Asset Acquisition
On July 26 2021, TPB announced the acquisition of various cigar
assets of Unitabac, LLC (“Unitabac”). The acquisition is comprised
of a robust portfolio of cigarillo products and all related
intellectual property, including Cigarillo Non-Tip (NT) Homogenized
Tobacco Leaf (HTL), Rolled Leaf and Natural Leaf Cigarillo
Products. Terms of the transaction were not disclosed.
Old Pal Investment
On July 22, 2021, TPB announced an $8 million strategic
investment in Old Pal Holding Company LLC (“Old Pal”), one of the
most recognizable and top-selling brands in the cannabis lifestyle
space. TPB invested in the form of a convertible note, which
includes additional follow-on investment rights. Old Pal is a
leading brand in the cannabis space that operates a non-plant
touching licensing model. TPB’s investment will enable Old Pal to
expand product offerings in existing states, which include
California, Nevada, Michigan, Oklahoma, Ohio, Washington and
Massachusetts, and will help create the infrastructure necessary to
support continued territory and product expansion.
DVW Acquisition
In April 2021, TPB’s 50 percent-owned Canadian partner
ReCreation Marketing acquired Westhem Ventures LTD d/b/a Direct
Value Wholesale (“DVW”), a wholesale distribution company with a
strong presence in British Columbia. DVW expands ReCreation
Marketing’s distribution reach along with enhancing relationships
with major national chains such as Canadian Tire. During the LTM
period that ended March 2021, DVW had revenue of CAD $13.1 million
with 17 percent gross margins.
Performance Measures in the Second Quarter
Second quarter consolidated selling, general and administrative
(“SG&A”) expenses were $35.1 million compared to $30.8 million
in 2020.
The second quarter SG&A included the following notable
items:
- $2.8 million of stock options, restricted stock and incentive
expense as compared to $0.8 million in the year-ago period
- $0.7 million of transaction expenses principally related to
M&A activity as compared to $0.3 million in the year-ago
period
- $0.6 million of FDA PMTA-related expenses as compared to $3.3
million in the year-ago period (note that $0.9 million of
PMTA-related expenses incurred in the first six months of FY2021
have not been added back to Adjusted EBITDA)
- $5.8 million in outbound freight expense as compared to $4.4
million in the year-ago period with the increase due to higher
shipping costs on vapor products related to PACT Act implementation
and higher freight costs across all segments
- $1.0 million from the accounting consolidation of ReCreation
Marketing in the current year quarterly period
Total gross debt as of June 30, 2021, was $440.0 million. The
corresponding net debt (total gross debt less cash) at June 30,
2021, was $282.5 million. The Company ended the quarter with total
liquidity of $178.9 million, comprised of $157.5 million in cash
and $21.4 million of revolving credit facility capacity.
During the quarter, the Company spent $8.4 million to repurchase
175,000 shares at an average price of $47.73 per share.
2021 Outlook
With the continued operating momentum reflected in the first
half results, the Company is revising its annual guidance provided
on April 27, 2021, as follows:
Absent additional acquisitions, TPB projects the following for
2021:
- Net sales of $447 to $462 million (up from previous guidance of
$422 to $440 million), which assumes:
- Strong double-digit sales growth for Zig-Zag Products
- High single-digit sales growth for Stoker’s Products
- Flat sales growth for NewGen Products (up from previous
mid-to-low single-digit declines), which includes low single-digit
declines for vape distribution (up from single-digit declines)
offset by expected growth in Nu-X
- Adjusted EBITDA of $108 to $113 million (up from previous
guidance of $103 to $108 million)
Other projections for 2021 include:
- Stock compensation and non-cash incentive expense of $8
million
- Cash interest expense of $19 million and GAAP interest expense
of $22 million
- Effective income tax rate of 23 percent to 24 percent
- Capital expenditures of $5 to $6 million
For the third quarter of 2021, TPB projects:
- Net sales of $109 to $114 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. on Tuesday, July 27, 2021. Investment community
participants should dial in 10 minutes ahead of time using the
toll-free number 833-350-1456 (international participants should
call 647-689-6664), and follow the audio prompts after typing in
the event ID: 3397945. 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 Adjusted EBITDA, Adjusted diluted EPS and
Adjusted Operating Income. A reconciliation of these non-GAAP
financial measures accompanies this release.
About Turning Point Brands, Inc.
Turning Point Brands (NYSE: TPB) is a manufacturer, marketer and
distributor of branded consumer products including alternative
smoking accessories and consumables with active ingredients through
its iconic core brands Zig-Zag® and Stoker’s®, and its emerging
brands within the NewGen segment. TPB’s products are available in
more than 210,000 retail outlets in North America in addition to
sites such as www.zigzag.com, www.nu-x.com and www.solacevapor.com.
For the latest news and information about TPB and its brands,
please visit www.turningpointbrands.com.
Forward-Looking Statements
This press release contains forward-looking statements within
the meaning of the federal securities laws. Forward-looking
statements may generally be identified by the use of words such as
"anticipate," "believe," "expect," "intend," "plan" and "will" or,
in each case, their negative, or other variations or comparable
terminology. These forward-looking statements include all matters
that are not historical facts. By their nature, forward-looking
statements involve risks and uncertainties because they relate to
events and depend on circumstances that may or may not occur in the
future. As a result, these statements are not guarantees of future
performance and actual events may differ materially from those
expressed in or suggested by the forward-looking statements. Any
forward-looking statement made by TPB in this press release, its
reports filed with the Securities and Exchange Commission (the
“SEC”) and other public statements made from time-to-time speak
only as of the date made. New risks and uncertainties come up from
time to time, and it is impossible for TPB to predict or identify
all such events or how they may affect it. TPB has no obligation,
and does not intend, to update any forward-looking statements after
the date hereof, except as required by federal securities laws.
Factors that could cause these differences include, but are not
limited to those included it the company’s Annual reports on Form
10-K, Quarterly Reports on Form 10-Q and other reports filed by the
Company with the SEC. These statements constitute the Company’s
cautionary statements under the Private Securities Litigation
Reform Act of 1995.
Financial Statements Follow:
Turning Point Brands, Inc. Consolidated Statement of
Income (dollars in thousands except share data) (unaudited)
Three Months Ended June 30,
2021
2020
Net sales
$
122,643
$
104,963
Cost of sales
62,670
57,027
Gross profit
59,973
47,936
Selling, general, and administrative expenses
35,094
30,756
Operating income
24,879
17,180
Interest expense, net
5,522
3,295
Investment income
(110
)
(34
)
Net periodic income, excluding service cost
-
(104
)
Income before income taxes
19,467
14,023
Income tax expense
4,424
3,728
Consolidated net income
15,043
10,295
Net loss attributable to non-controlling interest
(312
)
-
Net income attributable to Turning Point Brands, Inc.
$
15,355
$
10,295
Basic income per common share: Net income attributable to
Turning Point Brands, Inc.
$
0.81
$
0.53
Diluted income per common share: Net income attributable to Turning
Point Brands, Inc.
$
0.73
$
0.49
Weighted average common shares outstanding: Basic
18,975,522
19,507,874
Diluted
22,489,662
23,037,153
Supplemental disclosures of statement of income information:
Excise tax expense
$
7,687
$
4,678
FDA fees
$
180
$
134
Turning Point Brands, Inc. Consolidated Balance Sheet
(dollars in thousands except share data)
(unaudited)
June 30,
December 31,
ASSETS
2021
2020
Current assets: Cash
$
157,474
$
41,765
Accounts receivable, net of allowances of $143 in 2021 and $150 in
2020
5,814
9,331
Inventories
99,010
85,856
Other current assets
25,809
26,451
Total current assets
288,107
163,403
Property, plant, and equipment, net
16,291
15,524
Deferred income taxes
-
610
Right of use assets
16,607
17,918
Deferred financing costs, net
441
641
Goodwill
162,768
159,621
Other intangible assets, net
78,468
79,422
Master Settlement Agreement (MSA) escrow deposits
31,819
32,074
Other assets
34,898
26,836
Total assets
$
629,399
$
496,049
LIABILITIES AND STOCKHOLDERS' EQUITY Current
liabilities: Accounts payable
$
11,159
$
9,201
Accrued liabilities
37,495
35,225
Current portion of long-term debt
12,485
12,000
Other current liabilities
104
203
Total current liabilities
61,243
56,629
Notes payable and long-term debt
417,935
302,112
Deferred income taxes
1,165
-
Lease liabilities
14,788
16,117
Other long-term liabilities
-
3,704
Total liabilities
495,131
378,562
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; 19,616,224 issued shares and 18,923,523 outstanding
shares at June 30, 2021, and 19,532,464 issued shares and
19,133,794 outstanding shares at December 31, 2020
196
195
Common stock, nonvoting, $0.01 par value; authorized shares,
10,000,000; issued and outstanding shares -0-
-
-
Additional paid-in capital
105,460
102,423
Cost of repurchased common stock (692,701 shares at June 30, 2021
and 398,670 shares at December 31, 2020)
(24,277
)
(10,191
)
Accumulated other comprehensive income (loss)
279
(2,635
)
Accumulated earnings
48,647
23,645
Non-controlling interest
3,963
4,050
Total stockholders' equity
134,268
117,487
Total liabilities and stockholders' equity
$
629,399
$
496,049
Turning Point Brands, Inc. Consolidated Statement of Cash
Flows (dollars in thousands) (unaudited)
Six Months
Ended June 30,
2021
2020
Cash flows from operating activities: Consolidated net income
$
26,570
$
14,794
Adjustments to reconcile net income to net cash provided by
operating activities: Loss on extinguishment of debt
5,706
-
Impairment loss
-
149
(Gain) loss on sale of property, plant, and equipment
(2
)
12
Depreciation expense
1,546
1,673
Amortization of other intangible assets
954
827
Amortization of deferred financing costs
1,251
1,113
Deferred income taxes
1,027
2,367
Stock compensation expense
4,263
1,213
Noncash lease expense
(19
)
18
Gain on investments
(34
)
-
Changes in operating assets and liabilities: Accounts receivable
3,955
1,794
Inventories
(12,007
)
(4,421
)
Other current assets
813
(253
)
Other assets
599
(766
)
Accounts payable
1,423
235
Accrued postretirement liabilities
-
(54
)
Accrued liabilities and other
1,370
(1,167
)
Net cash provided by operating activities
$
37,415
$
17,534
Cash flows from investing activities: Capital expenditures
$
(2,170
)
$
(1,956
)
Acquisitions, net of cash acquired
(3,419
)
(37,772
)
Payments for investments
(8,657
)
-
Restricted cash, MSA escrow deposits
(20,147
)
-
Proceeds on the sale of property, plant and equipment
2
-
Net cash used in investing activities
$
(34,391
)
$
(39,728
)
Cash flows from financing activities: Proceeds from Senior
Secured Notes
$
250,000
$
-
Payments of 2018 first lien term loan
(130,000
)
(5,000
)
Settlement of interest rate swaps
(3,573
)
-
Payment of IVG note
-
(4,240
)
Proceeds from unsecured notes
-
7,485
Payment of dividends
(2,006
)
(1,872
)
Payments of financing costs
(6,921
)
(194
)
Exercise of options
886
246
Redemption of options
(2,111
)
-
Common stock repurchased
(14,086
)
(5,289
)
Net cash provided by (used in) financing activities
$
92,189
$
(8,864
)
Net increase (decrease) in cash
$
95,213
$
(31,058
)
Effect of foreign currency translation on cash
$
315
$
-
Cash, beginning of period: Unrestricted
41,765
95,250
Restricted
35,074
32,074
Total cash at beginning of period
76,839
127,324
Cash, end of period: Unrestricted
157,474
64,192
Restricted
14,893
32,074
Total cash at end of period
$
172,367
$
96,266
Non-GAAP Financial Measures
To supplement our financial information presented in accordance
with generally accepted accounting principles in the United States,
or U.S. GAAP, we use non-U.S. GAAP financial measures, including
EBITDA, Adjusted EBITDA, Adjusted diluted EPS, and Adjusted
Operating Income. We believe Adjusted EBITDA provides useful
information to management and investors regarding certain financial
and business trends relating to our financial condition and results
of operations. Adjusted EBITDA, Adjusted diluted EPS, and Adjusted
Operating Income are used by management to compare our performance
to that of prior periods for trend analyses and planning purposes
and are presented to our board of directors. We believe that
EBITDA, Adjusted EBITDA, Adjusted diluted EPS and Adjusted
Operating Income are appropriate measures of operating performance
because they eliminate the impact of expenses that do not relate to
business performance.
We define “EBITDA” as net income before interest expense, loss
on extinguishment of debt, provision for income taxes, depreciation
and amortization. We define “Adjusted EBITDA” as net income before
interest expense, loss on extinguishment of debt, provision for
income taxes, depreciation, amortization, other non-cash items and
other items that we do not consider ordinary course in our
evaluation of ongoing operating performance. We define “Adjusted
diluted EPS” as diluted earnings per share excluding items that we
do not consider ordinary course in our evaluation of ongoing
operating performance. We define “Adjusted Operating Income” as
operating income excluding 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. 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.
Schedule A Turning Point Brands,
Inc. Reconciliation of GAAP Net Income to Adjusted
EBITDA (dollars in thousands) (unaudited)
Three Months
Ended June 30,
2021
2020
Net income attributable to Turning Point Brands, Inc.
$
15,355
$
10,295
Add: Interest expense, net
5,522
3,295
Income tax expense
4,424
3,728
Depreciation expense
758
822
Amortization expense
479
402
EBITDA
$
26,538
$
18,542
Components of Adjusted EBITDA Other (a)
-
(104
)
Stock options, restricted stock, and incentives expense (b)
2,764
760
Transactional expenses (c)
702
290
FDA PMTA (d)
-
3,290
Adjusted EBITDA
$
30,004
$
22,778
(a) Represents non-cash pension expense (income) and foreign
exchange hedging. (b) Represents non-cash stock options, restricted
stock, incentives expense and Solace performance stock units. (c)
Represents the fees incurred for transaction expenses. (d)
Represents costs associated with applications related to FDA
premarket tobacco product application ("PMTA").
Schedule B
Turning Point Brands Reconciliation of GAAP
diluted EPS to Adjusted diluted EPS (dollars in thousands
except share data) (unaudited)
Three Months Ended June
30,
2021
2020
GAAP EPS
$
0.73
$
0.49
Other (a)
-
(0.00
)
Stock options, restricted stock, and incentives expense (b)
0.09
0.02
Transactional expenses (c)
0.02
0.01
FDA PMTA (d)
-
0.10
Tax (expense) benefit (e)
(0.01
)
0.03
Adjusted diluted EPS (f)
$
0.84
$
0.66
Totals may not foot due to rounding (a) Represents
non-cash pension expense (income) and foreign exchange hedging
reporting tax effected at the quarterly tax rate. (b) Represents
non-cash stock options, restricted stock, incentives expense and
Solace PRSUs tax effected at the quarterly tax rate. (c) Represents
the fees incurred for transaction expenses tax effected at the
quarterly tax rate. (d) Represents costs associated with
applications related to the FDA PMTA tax effected at the quarterly
tax rate. (e) Represents adjustment from quarterly tax rate to
annual projected tax rate of 23% in 2021 and 2020. (f) Diluted
shares outstanding includes the full 3.2 million share dilution of
debt conversion without a 1.1 million share offsetting impact from
capped call transactions.
Schedule C Turning Point
Brands, Inc. Reconciliation of GAAP Operating Income to
Adjusted Operating Income (dollars in thousands) (unaudited)
Consolidated Zig-Zag Products Stoker's
Products NewGen Products 2nd Quarter 2nd
Quarter 2nd Quarter 2nd Quarter 2nd
Quarter 2nd Quarter 2nd Quarter 2nd
Quarter
2021
2020
2021
2020
2021
2020
2021
2020
Net sales
$
122,643
$
104,963
$
47,202
$
27,403
$
33,369
$
30,822
$
42,072
$
46,738
Gross profit
$
59,973
$
47,936
$
27,743
$
15,671
$
18,146
$
16,508
$
14,084
$
15,757
Operating income
$
24,879
$
17,180
$
21,338
$
12,227
$
13,826
$
12,084
$
1,657
$
3,271
Adjustments: Transactional expenses
702
290
-
-
-
-
-
-
FDA PMTA
-
3,290
-
-
-
-
-
-
Adjusted operating income
$
25,581
$
20,760
$
21,338
$
12,227
$
13,826
$
12,084
$
1,657
$
3,271
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210727005405/en/
Louie Reformina, Senior Vice President, CFO ir@tpbi.com (502)
774-9238
Turning Point Brands (NYSE:TPB)
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