Turning Point Brands Announces Third Quarter 2024 Results

Q3 2024 Adjusted EBITDA of $27.2 million, up 11% over prior year
Zig-Zag and Stoker’s Products Net Sales for Q3 2024 Increased 8% Year-Over-Year
Company increases full-year 2024 adjusted EBITDA guidance to $101 to $103 million

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, today announced financial results for the third quarter ended September 30, 2024.

Q3 2024 vs. Q3 2023

Total consolidated net sales increased 3.8% to $105.6 million
- Zig-Zag Products net sales increased 5.5%
- Stoker’s Products net sales increased 12.1%
- Creative Distribution Solutions net sales decreased 17.4%
Gross profit increased 4.0% to $53.7 million
Net income increased 14.3% to $12.4 million
Adjusted net income increased 9.8% to $15.9 million (see Schedule B for a reconciliation to net income)
Adjusted EBITDA increased 11.3% to $27.2 million (see Schedule A for a reconciliation to net income)
Diluted EPS of $0.68 and Adjusted Diluted EPS of $0.87 compared to $0.58 and $0.76, respectively, in the same period one year ago (see Schedule B for a reconciliation to Diluted EPS)

Graham Purdy, President and CEO, commented, “We were pleased by our third quarter results. We believe Zig-Zag is on a sustainable growth trajectory. Stoker’s MST continued to grow market share, while FRE sales more than quadrupled versus year-ago and grew 26% sequentially as we continue to expand our national footprint.”

Zig-Zag Products Segment (47% of total net sales in the quarter)

For the third quarter, Zig-Zag Products net sales increased 5.5% to $49.3 million driven by strong performance in our North American Papers & Wraps business as well as solid growth in cigars.

For the quarter, the Zig-Zag Products segment gross profit increased 2.2% to $27.3 million. Gross margin declined 180 basis points to 55.4% driven primarily by product mix.

Stoker’s Products Segment (39% of total net sales in the quarter)

For the third quarter, Stoker’s Products net sales increased 12.1% to $41.4 million. The segment was driven by low single-digit growth from MST and triple-digit growth off of a low base for FRE partially offset by low-single-digit decline in loose-leaf chew. For the third quarter, total Stoker’s Products segment volume increased 2.9%, while price / product mix increased 9.2%.

For the quarter, the Stoker’s Products segment gross profit increased 12.1% to $23.1 million. Gross margin increased 10 basis points to 55.8%

Creative Distribution Solutions (“CDS”) (14% of total net sales in the quarter)

For the third quarter, CDS net sales were $14.9 million, gross profit was $3.3 million, and gross margin was 22.1%.

Performance Measures in the Third Quarter

Third quarter consolidated selling, general and administrative (“SG&A”) expenses were $33.2 million compared to $31.4 million in the third quarter of 2023.

The third quarter SG&A included the following notable items:

$1.2 million of FDA PMTA-related expenses for modern oral products compared to $0.3 million in the year-ago period; and
$0.9 million of transaction related costs compared to $0.1 million in the year-ago period

Total gross debt as of September 30, 2024 was $250.0 million. Net debt (total gross debt less unrestricted cash) as of September 30, 2024 was $216.4 million. The Company ended the quarter with total liquidity of $92.4 million, comprised of $33.6 million in cash and $58.8 million of asset backed revolving credit facility capacity.

2024 Outlook

The Company is increasing its previous full-year 2024 adjusted EBITDA guidance from $98 to $102 million to $101 to $103 million, excluding CDS.

During the quarter, the Company re-purchased 26,978 shares of common stock at a cost of $1.1 million.

On November 6, 2024, the Board of Directors of the Company increased the Company’s share repurchase authorization by $77.9 million to an aggregate amount of $100.0 million.

Earnings Conference Call

As previously disclosed, a conference call with the investment community to review TPB’s financial results has been scheduled for 10:00 a.m. Eastern on Thursday, November 7, 2024. Investment community participants should dial in 10 minutes ahead of time using the toll-free number (800) 751-9871 (international participants should call (646) 307-1963) 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 217,000 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 on Subsequent Pages

Turning Point Brands, Inc. Consolidated Statements of Income (dollars in thousands except share data) (unaudited) Three Months Ended September 30,

2024

2023

Net sales (1)

105,617

101,722

Cost of sales

51,918

50,100

Gross profit

53,699

51,622

Selling, general, and administrative expenses

33,169

31,385

Operating income

20,530

20,237

Interest expense, net

3,773

3,984

Investment (gain) loss

(203

)

2,101

Gain on extinguishment of debt

(481

)

Income before income taxes

16,960

14,633

Income tax expense

4,601

3,767

Consolidated net income

12,359

10,866

Net (loss) income attributable to non-controlling interest

(16

)

Net income attributable to Turning Point Brands, Inc.

12,375

10,831

Basic income per common share: Net income attributable to Turning Point Brands, Inc.

0.70

0.62

Diluted income per common share: Net income attributable to Turning Point Brands, Inc.

0.68

0.58

Weighted average common shares outstanding: Basic

17,722,855

17,595,980

Diluted

18,448,720

20,098,450

(1) Net sales include excise taxes billed to customers of $0.8 million and $1.0 million for the three months ended September 30, 2024 and 2023, respectively. Turning Point Brands, Inc. Consolidated Balance Sheets (dollars in thousands except share data) (unaudited) September 30, December 31, ASSETS

2024

2023

Current assets: Cash

33,557

117,886

Accounts receivable, net of allowances of $59 in 2024 and $78 in 2023

10,582

9,989

Inventories, net

106,416

98,960

Other current assets

34,197

40,781

Total current assets

184,752

267,616

Property, plant, and equipment, net

26,082

25,300

Deferred income taxes

919

1,468

Right of use assets

10,788

11,480

Deferred financing costs, net

1,984

2,450

Goodwill

136,413

136,250

Other intangible assets, net

78,621

80,942

Master Settlement Agreement (MSA) escrow deposits

29,482

28,684

Other assets

18,968

15,166

Total assets

488,009

569,356

LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable

13,436

8,407

Accrued liabilities

30,475

33,635

Current portion of long-term debt

58,294

Total current liabilities

43,911

100,336

Notes payable and long-term debt

248,282

307,064

Lease liabilities

9,057

9,950

Total liabilities

301,250

417,350

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; 20,167,180 issued shares and 17,716,847 outstanding shares at September 30, 2024, and 19,922,137 issued shares and 17,605,677 outstanding shares at December 31, 2023

202

199

Common stock, nonvoting, $0.01 par value; authorized shares, 10,000,000; issued and outstanding shares -0-

Additional paid-in capital

123,833

119,075

Cost of repurchased common stock (2,450,333 shares at September 30, 2024, and 2,316,460 shares at December 31, 2023)

(82,263

)

(78,093

)

Accumulated other comprehensive loss

(2,112

)

(2,648

)

Accumulated earnings

146,014

112,443

Non-controlling interest

1,085

1,030

Total stockholders' equity

186,759

152,006

Total liabilities and stockholders' equity

488,009

569,356

Turning Point Brands, Inc. Consolidated Statements of Cash Flows (dollars in thousands) (unaudited)

Nine Months Ended September 30,

2024

2023

Cash flows from operating activities: Consolidated net income

37,455

27,916

Adjustments to reconcile net income to net cash provided by operating activities: Gain on extinguishment of debt

(1,858

)

Loss on sale of property, plant, and equipment

Gain on MSA investments

(14

)

Depreciation and other amortization expense

3,393

2,388

Amortization of other intangible assets

2,337

2,315

Amortization of deferred financing costs

1,947

1,795

Deferred income tax expense

349

694

Stock compensation expense

5,720

4,660

Noncash lease income

(317

)

(48

)

Loss on investments

2,722

11,162

Changes in operating assets and liabilities: Accounts receivable

(412

)

(2,112

)

Inventories

(7,281

)

3,036

Other current assets

3,075

(1,384

)

Other assets

(1,031

)

(5,110

)

Accounts payable

5,019

2,865

Accrued liabilities and other

(3,679

)

(6,348

)

Net cash provided by operating activities

49,321

40,005

Cash flows from investing activities: Capital expenditures

(3,516

)

(4,206

)

Purchases of investments

(8,865

)

(200

)

Proceeds from sale of investments

4,520

Purchases of non-marketable equity investments

(1,250

)

Proceeds on the sale of property, plant and equipment

MSA escrow deposits, net

Net cash used in investing activities

(9,064

)

(4,403

)

Cash flows from financing activities: Convertible Senior Notes repurchased

(41,794

)

Payment of Convertible Senior Notes

(118,541

)

Proceeds from call options

114

Payment of financing costs

(133

)

Payment of dividends

(3,644

)

(3,354

)

Exercise of options

1,341

419

Redemption of options

(328

)

(346

)

Redemption of restricted stock units

(840

)

Redemption of performance based restricted stock units

(1,212

)

(995

)

Common stock repurchased

(4,170

)

Net cash used in financing activities

(127,527

)

(45,956

)

Net decrease in cash

(87,270

)

(10,354

)

Effect of foreign currency translation on cash

(29

)

Cash, beginning of period: Unrestricted

117,886

106,403

Restricted

4,929

Total cash at beginning of period

122,815

111,332

Cash, end of period: Unrestricted

33,557

96,071

Restricted

1,959

4,929

Total cash at end of period

35,516

101,000

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, 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, 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, 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 before interest expense, gain (loss) on extinguishment of debt, income tax expense, depreciation, amortization. We define “Adjusted EBITDA” as net income before interest expense, gain (loss) on extinguishment of debt, income tax expense, 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 Operating Income (Loss)” as operating income (loss) 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, and Adjusted Operating Income (Loss) 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

September 30,

2024

2023

Net income attributable to Turning Point Brands, Inc.

12,375

10,831

Add: Interest expense, net

3,773

3,984

Gain on extinguishment of debt

(481

)

Income tax expense

4,601

3,767

Depreciation expense

981

782

Amortization expense

1,204

844

EBITDA

22,934

19,727

Components of Adjusted EBITDA Corporate and CDS restructuring (a)

186

190

ERP/CRM (b)

154

138

Stock options, restricted stock, and incentives expense (c)

1,769

1,824

Transactional expenses and strategic initiatives (d)

873

FDA PMTA (e)

1,242

275

Non-cash asset impairment (f)

2,173

Adjusted EBITDA

27,158

24,403

(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"). The PMTA regime requires the Company to submit an application to the FDA to receive marketing authorization to continue to sell certain of its product lines with continued sales permitted during the pendency of the applications. The application is a onetime resource-intensive process for each covered product line; however, due to the nature of the implementation process for those product lines already in the market, applications can take multiple years to complete rather than the typical one-time submission. The Company currently has only two product lines currently subject to the PMTA process, having utilized other regulatory pathway options available for our other product lines. The Company does not expect to submit additional PMTA applications for any new product lines after the submission for the remaining two are complete.

(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 September 30, 2024 September 30, 2023 Income before income taxes Income tax expense (h) Net loss attributable to non-controlling interest Adjusted Net Income Adjusted Diluted EPS Income before income taxes Income tax expense (h) Net loss attributable to non-controlling interest Net Income Diluted EPS GAAP Net Income and Diluted EPS

16,960

4,601

(16

)

12,375

0.68

14,633

3,767

10,831

0.58

Gain on extinguishment of debt (a)

(481

)

(124

)

(357

)

(0.02

)

Corporate restructuring (b)

186

136

0.01

190

141

0.01

ERP/CRM (c)

154

112

0.01

138

102

0.01

Stock options, restricted stock, and incentives expense (d)

1,769

480

1,289

0.07

1,824

470

1,354

0.07

Transactional expenses and strategic initiatives (e)

873

237

636

0.03

0.00

FDA PMTA (f)

1,242

337

905

0.05

275

204

0.01

Non-cash asset impairment (g)

2,173

559

1,614

0.08

Tax benefit (i)

(494

)

494

0.03

(575

)

575

0.03

Adjusted Net Income and Adjusted Diluted EPS

21,184

5,253

(16

)

15,947

0.87

18,828

4,272

14,521

0.76

Totals may not foot due to rounding

(a)

Represents gain on extinguishment of debt.

(b)

Represents costs associated with corporate and CDS restructuring, including severance.

(c)

Represents cost associated with scoping and mobilization of new ERP and CRM systems and cost of duplicative ERP licenses.

(d)

Represents non-cash stock options, restricted stock, incentives expense and Solace PRSUs.

(e)

Represents the fees incurred for transaction expenses.

(f)

(g)

Represents impairment of investment assets.

(h)

Income tax expense calculated using the effective tax rate for the quarter of 27.1% in 2024 and 25.7% in 2023.

(i)

Represents adjustment from quarterly tax rate to annual projected tax rate of 25% in 2024 and 23% in 2023.

Schedule C Turning Point Brands, Inc. Reconciliation of GAAP Operating Income (Loss) to Adjusted Operating Income (Loss) (dollars in thousands) (unaudited) Consolidated Zig-Zag Products Stoker's Products Creative Distribution Solutions

3rd Quarter