UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended March 31, 2024
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from _______________ to _______________
Commission file number: 001-37763
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of Incorporation or organization)
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(I.R.S. Employer Identification No.)
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(Address of principal executive offices)
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(Zip Code)
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(502 ) 778-4421
(Registrant’s telephone number, including area code)
Former name, former address and former fiscal year, if changed since last report: not applicable
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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☐
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☑
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Non-accelerated filer
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☐
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Smaller reporting company
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Emerging growth company
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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 ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
At April 26, 2024, there were 17,621,706
shares outstanding of the registrant’s voting common stock, par value $0.01 per share.
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Page No.
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PART I—FINANCIAL INFORMATION
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ITEM 1
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Financial Statements (Unaudited)
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5
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6
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7
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8
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9
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10
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ITEM 2
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30
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ITEM 3
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38 | ||
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ITEM 4
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39 |
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PART II—OTHER INFORMATION
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ITEM 1
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40 |
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ITEM 1A
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40 |
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ITEM 2
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40 |
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ITEM 3
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40 | ||
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ITEM 4
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40 |
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ITEM 5
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40 | ||
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ITEM 6
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41 | ||
| 42 |
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Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q for the quarter ended March 31, 2024 (this “Quarterly Report”), 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, actual events may differ materially from those expressed in, or suggested by, the forward-looking statements. Any forward-looking statement made by Turning Point Brands, Inc. (“TPB”), in this
Quarterly Report on Form 10-Q speaks only as of the date hereof. New risks and uncertainties come up from time to time, and it is impossible for TPB to predict these 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:
| ● |
declining sales of tobacco products, and expected continuing decline of sales in the tobacco industry overall;
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| ● |
our dependence on a small number of third-party suppliers and producers;
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| ● |
the possibility that we will be unable to identify or contract with new suppliers or producers in the event of a supply or product disruption, as well as
other supply chain concerns, including delays in product shipments and increases in freight cost;
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the possibility that our licenses to use certain brands or trademarks will be terminated, challenged or restricted;
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failure to maintain consumer brand recognition and loyalty of our customers;
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| ● |
our reliance on relationships with several large retailers and national chains for distribution of our products;
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intense competition and our ability to compete effectively;
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| ● |
competition from illicit sources and the damage caused by illicit products to our brand equity;
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●
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contamination of our tobacco supply or products;
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| ● |
uncertainty and continued evolution of the markets for our products;
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| ● |
complications with the design or implementation of our new enterprise resource planning system could adversely impact our business and operations;
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| ● |
substantial and increasing regulation and changes in U.S. Food and Drug Administration (“FDA”) enforcement priorities;
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| ● |
regulation or marketing denials of our products by the FDA, which has broad regulatory powers;
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| ● |
many of our products contain nicotine, which is considered to be a highly addictive substance;
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| ● |
requirement to maintain compliance with master settlement agreement escrow account;
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possible significant increases in federal, state and local municipal tobacco- and nicotine-related taxes;
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our products are marketed pursuant to a policy of FDA enforcement priorities which could change, and our products could become subject to increased
regulatory burdens by the FDA;
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| ● |
our products are subject to developing and unpredictable regulation, such as court actions that impact obligations;
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increase in state and local regulation of our products has been proposed or enacted;
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| ● |
increase in tax of our products could adversely affect our business;
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| ● |
sensitivity of end-customers to increased sales taxes and economic conditions, including as a result of inflation and other declines in purchasing power;
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possible increasing international control and regulation;
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failure to comply with environmental, health and safety regulations;
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| ● |
imposition of significant tariffs on imports into the U.S.;
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| ● |
the scientific community’s lack of information regarding the long-term health effects of certain substances contained in some of our products;
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| ● |
significant product liability litigation;
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| ● |
our amount of indebtedness;
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| ● |
the terms of our indebtedness, which may restrict our current and future operations;
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●
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our ability to establish and maintain effective internal controls over financial reporting;
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identification of material weaknesses in our internal control over financial reporting, which, if not remediated appropriately or timely, could result in
loss of investor confidence and adversely impact our stock price;
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| ● |
our certificate of incorporation and bylaws, as well as Delaware law and certain regulations, could discourage or prohibit acquisition bids or merger
proposals, which may adversely affect the market price of our common stock;
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| ● |
our certificate of incorporation limits the ownership of our common stock by individuals and entities that are Restricted Investors. These restrictions may
affect the liquidity of our common stock and may result in Restricted Investors (as defined in our Certificate of Incorporation) being required to sell or redeem their shares at a loss or relinquish their voting, dividend and distribution
rights;
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| ● |
future sales of our common stock in the public market could reduce our stock price, and any additional capital raised by us through the sale of equity or
convertible securities may dilute your ownership in us;
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| ● |
we may issue preferred stock whose terms could adversely affect the voting power or value of our common stock;
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| ● |
our business may be damaged by events outside of our suppliers’ control, such as the impact of epidemics (e.g., coronavirus), political upheavals, or natural
disasters;
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| ● |
adverse impact of climate change;
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| ● |
our reliance on information technology;
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| ● |
cybersecurity and privacy breaches, which have increased in part due to artificial intelligence;
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failure to manage our growth;
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failure to successfully integrate our acquisitions or otherwise be unable to benefit from pursuing acquisitions;
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fluctuations in our results;
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exchange rate fluctuations;
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adverse U.S. and global economic conditions;
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departure of key management personnel or our inability to attract and retain talent;
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infringement on or misappropriation of our intellectual property;
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| ● |
third-party claims that we infringe on their intellectual property; and
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| ● |
failure to meet expectations relating to environmental, social and governance factors.
|
Turning Point Brands, Inc.
(dollars in thousands except share data)
|
(unaudited)
|
||||||||
| March 31, | December 31, | |||||||
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ASSETS
|
2024
|
2023
|
||||||
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Current assets:
|
||||||||
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Cash
|
$
|
|
$
|
|
||||
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Accounts receivable, net of allowances of $
|
|
|
||||||
|
Inventories, net
|
|
|
||||||
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Other current assets
|
|
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||||||
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Total current assets
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||||||
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Property, plant, and equipment, net
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|
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||||||
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Deferred income taxes
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||||||
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Right of use assets
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||||||
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Deferred financing costs, net
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||||||
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Goodwill
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||||||
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Other intangible assets, net
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|
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||||||
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Master Settlement Agreement (MSA) escrow deposits
|
|
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||||||
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Other assets
|
|
|
||||||
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Total assets
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$
|
|
$
|
|
||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY
|
||||||||
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Current liabilities:
|
||||||||
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Accounts payable
|
$
|
|
$
|
|
||||
|
Accrued liabilities
|
|
|
||||||
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Current portion of long-term debt
|
||||||||
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Total current liabilities
|
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||||||
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Notes payable and long-term debt
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||||||
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Lease liabilities
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||||||
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Total liabilities
|
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||||||
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Commitments and contingencies
|
||||||||
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Stockholders’ equity:
|
||||||||
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Preferred stock; $
|
|
|
||||||
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Common stock, voting, $
|
|
|
||||||
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Common stock, nonvoting, $
|
|
|
||||||
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Additional paid-in capital
|
|
|
||||||
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Cost of repurchased common stock (
|
(
|
)
|
(
|
)
|
||||
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Accumulated other comprehensive loss
|
(
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)
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(
|
)
|
||||
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Accumulated earnings
|
|
|
||||||
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Non-controlling interest
|
|
|
||||||
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Total stockholders’ equity
|
|
|
||||||
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Total liabilities and stockholders’ equity
|
$
|
|
$
|
|
||||
The accompanying notes are an integral part of the consolidated financial statements.
Turning Point Brands, Inc.
(dollars in thousands except share and per share data)
(unaudited)
|
Three Months Ended
March 31,
|
||||||||
|
2024
|
2023
|
|||||||
|
Net sales
|
$
|
|
$
|
|
||||
|
Cost of sales
|
|
|
||||||
|
Gross profit
|
|
|
||||||
|
Selling, general, and administrative expenses
|
|
|
||||||
|
Operating income
|
|
|
||||||
|
Interest expense, net
|
|
|
||||||
|
Investment (gain) loss
|
(
|
)
|
|
|||||
|
Gain on extinguishment of debt
|
|
(
|
)
|
|||||
|
Income before income taxes
|
|
|
||||||
|
Income tax expense
|
|
|
||||||
|
Consolidated net income
|
|
|
||||||
|
Net income (loss) attributable to non-controlling interest
|
|
(
|
)
|
|||||
|
Net income attributable to Turning Point Brands, Inc.
|
$
|
|
$
|
|
||||
|
Basic income per common share:
|
||||||||
|
Net income attributable to Turning Point Brands, Inc.
|
$
|
|
$
|
|
||||
|
Diluted income per common share:
|
||||||||
|
Net income attributable to Turning Point Brands, Inc.
|
$
|
|
$
|
|
||||
|
Weighted average common shares outstanding:
|
||||||||
|
Basic
|
|
|
||||||
|
Diluted
|
|
|
||||||
The accompanying notes are an integral part of the consolidated financial statements.
Turning Point Brands, Inc.
(dollars in thousands)
(unaudited)
|
Three Months Ended
March 31,
|
||||||||
|
2024
|
2023
|
|||||||
|
Consolidated net income
|
$
|
|
$
|
|
||||
|
Other comprehensive income (loss), net of tax
|
||||||||
|
Unrealized loss on MSA investments, net of tax of $
|
(
|
)
|
|
|||||
|
Foreign currency translation, net of tax of $
|
|
(
|
)
|
|||||
|
Unrealized loss on derivative instruments, net of tax of $
|
(
|
)
|
(
|
)
|
||||
|
Unrealized gain on investments, net of tax of $
|
||||||||
|
(
|
)
|
|
||||||
|
Consolidated comprehensive income
|
|
|
||||||
|
Comprehensive income (loss) attributable to non-controlling interest
|
|
(
|
)
|
|||||
|
Comprehensive income attributable to Turning Point Brands, Inc.
|
$
|
|
$
|
|
||||
The accompanying notes are an integral part of the consolidated financial statements.
Turning Point Brands, Inc.
(dollars in thousands)
(unaudited)
|
Three
Months Ended
March 31,
|
||||||||
|
2024
|
2023
|
|||||||
|
Cash flows from operating activities:
|
||||||||
|
Consolidated net income
|
$
|
|
$
|
|
||||
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||
|
Gain on extinguishment of debt
|
|
(
|
)
|
|||||
|
Loss (gain) on sale of property, plant, and equipment
|
|
(
|
)
|
|||||
|
Gain on MSA investments
|
||||||||
|
Depreciation and other amortization expense
|
|
|
||||||
|
Amortization of other intangible assets
|
|
|
||||||
|
Amortization of deferred financing costs
|
|
|
||||||
|
Deferred income tax expense (benefit)
|
|
|
||||||
|
Stock compensation expense
|
|
|
||||||
|
Noncash lease income
|
(
|
)
|
(
|
)
|
||||
|
Loss on investments
|
|
|
||||||
|
Changes in operating assets and liabilities:
|
||||||||
|
Accounts receivable
|
|
(
|
)
|
|||||
|
Inventories
|
(
|
)
|
|
|||||
|
Other current assets
|
|
|
||||||
|
Other assets
|
(
|
)
|
(
|
)
|
||||
|
Accounts payable
|
|
|
||||||
|
Accrued liabilities and other
|
(
|
)
|
(
|
)
|
||||
|
Net cash provided by operating activities
|
$
|
|
$
|
|
||||
|
Cash flows from investing activities:
|
||||||||
|
Capital expenditures
|
$
|
(
|
)
|
$
|
(
|
)
|
||
|
Purchases of investments
|
( |
) | ||||||
|
Purchases of non-marketable equity investments
|
( |
) | ||||||
|
Proceeds on sale of property, plan and equipment
|
|
|
||||||
|
Restricted cash, MSA escrow deposits
|
( |
) | ||||||
|
Net cash used in investing activities
|
$
|
(
|
)
|
$
|
(
|
)
|
||
|
Cash flows from financing activities:
|
||||||||
|
Convertible Senior Notes repurchased
|
$ | $ | ( |
) | ||||
|
Proceeds from call options
|
||||||||
|
Payment of dividends
|
(
|
)
|
(
|
)
|
||||
|
Exercise of options
|
|
|
||||||
|
Redemption of restricted stock units
|
( |
) | ||||||
|
Redemption of performance restricted stock units
|
( |
) | ( |
) | ||||
|
Common stock repurchased
|
(
|
)
|
|
|||||
|
Net cash used in financing activities
|
$
|
(
|
)
|
$
|
(
|
)
|
||
|
Net increase (decrease) in cash
|
$
|
|
$
|
(
|
)
|
|||
|
Effect of foreign currency translation on cash
|
$
|
(
|
)
|
$
|
(
|
)
|
||
|
Cash, beginning of period:
|
||||||||
|
Unrestricted
|
$
|
|
$
|
|
||||
|
Restricted
|
|
|
||||||
|
Total cash at beginning of period
|
$
|
|
$
|
|
||||
|
Cash, end of period:
|
||||||||
|
Unrestricted
|
$
|
|
$
|
|
||||
|
Restricted
|
|
|
||||||
|
Total cash at end of period
|
$
|
|
$
|
|
||||
|
Supplemental schedule of noncash investing activities:
|
||||||||
|
Accrued capital expenditures
|
$
|
|
$
|
|
||||
|
Supplemental schedule of noncash financing activities:
|
||||||||
|
Dividends declared not paid
|
$
|
|
$
|
|
||||
The accompanying notes are an integral part of the consolidated financial statements.
Turning Point Brands, Inc.
For the Three Months Ended March 31, 2024 and 2023
(dollars in thousands except share data)
(unaudited)
| Cost of | Accumulated | |||||||||||||||||||||||||||||||
| Common | Additional |
Repurchased
|
Other |
Non-
|
||||||||||||||||||||||||||||
| Voting | Stock, | Paid-In |
Common
|
Comprehensive
|
Accumulated | Controlling | ||||||||||||||||||||||||||
|
Shares
|
Voting
|
Capital
|
Stock
|
Income (Loss)
|
Earnings
|
Interest
|
Total
|
|||||||||||||||||||||||||
|
Beginning balance January 1, 2024
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
|
|||||||||||||||
|
Unrealized loss on MSA investments, net of tax of $
|
–
|
|
|
|
(
|
)
|
|
|
(
|
)
|
||||||||||||||||||||||
|
Unrealized loss on derivative instruments, net of tax of $
|
– | ( |
) | ( |
) | |||||||||||||||||||||||||||
|
Foreign currency translation, net of tax of $
|
–
|
|
|
|
|
|
(
|
)
|
|
|||||||||||||||||||||||
|
Unrealized gain on investments, net of tax of $
|
– | |||||||||||||||||||||||||||||||
|
Stock compensation expense
|
–
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Exercise of options
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Cost of repurchased common stock
|
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
|
Issuance of performance based restricted stock units
|
||||||||||||||||||||||||||||||||
|
Issuance of restricted stock units
|
||||||||||||||||||||||||||||||||
|
Redemption of performance based restricted stock units
|
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
|
Redemption of restricted stock units
|
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
|
Dividends
|
–
|
|
|
|
|
(
|
)
|
|
(
|
)
|
||||||||||||||||||||||
|
Net income
|
–
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Ending balance March 31, 2024
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
|
|||||||||||||||
|
Beginning balance January 1, 2023
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
|
|||||||||||||||
|
Unrealized gain on MSA investments, net of tax of $
|
–
|
|
|
|
|
|
|
|||||||||||||||||||||||||
|
Unrealized loss on derivative instruments, net of tax of $
|
– |
( |
) | ( |
) | |||||||||||||||||||||||||||
|
Foreign currency translation, net of tax of $
|
– | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||
|
Stock compensation expense
|
–
|
|
|
|
|
|
|
|||||||||||||||||||||||||
|
Exercise of options
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||
|
Performance restricted stock units issuance
|
( |
) | ||||||||||||||||||||||||||||||
|
Performance restricted stock units redeemed
|
( |
) | ( |
) | ( |
) | ||||||||||||||||||||||||||
|
Settlement of call options, net of tax of $
|
– | |||||||||||||||||||||||||||||||
|
Dividends
|
–
|
|
|
|
|
(
|
)
|
(
|
)
|
|||||||||||||||||||||||
|
Net income
|
–
|
|
|
|
|
|
( |
) |
|
|||||||||||||||||||||||
|
Ending balance March 31, 2023
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
|
|||||||||||||||
The accompanying notes are an integral part of the consolidated financial statements.
Turning Point Brands, Inc.
(dollars in thousands, except where designated and per share data)
Note 1. Description of Business and Basis of Presentation
Description of Business
Turning Point Brands, Inc. and its subsidiaries (collectively referred to herein as the “Company,” “we,” “our,” or “us”) is a leading manufacturer, marketer and
distributor of branded consumer products. The Company sells a wide range of products to adult consumers consisting of staple products with its iconic brands Zig-Zag® and Stoker’s® and its next generation products to fulfill
evolving consumer preferences. Its segments are led by its core proprietary and iconic brands: Zig-Zag® and CLIPPER® in the Zig-Zag Products segment and Stoker’s® along with Beech-Nut® and Trophy® in the Stoker’s Products segment. The
Company’s products are available in more than 217 ,000 retail outlets in
North America. The Company operates in three segments: (i) Zig-Zag
Products, (ii) Stoker’s Products, and (iii) Creative Distribution Solutions (formerly known as NewGen).
Basis of Presentation
The accompanying
unaudited, interim, consolidated financial statements have been prepared in accordance with the accounting practices described in the Company’s audited, consolidated financial statements as of and for the year ended December 31, 2023. In the opinion
of management, the unaudited, interim, consolidated financial statements included herein contain all adjustments necessary to present fairly the financial position, results of operations, and cash flows of the Company for the periods presented. Such
adjustments, other than nonrecurring adjustments separately disclosed, are of a normal and recurring nature. The operating results for interim periods are not necessarily indicative of results to be expected for a full year or future interim periods.
The unaudited, interim, consolidated financial statements should be read in conjunction with the Company’s audited, consolidated financial statements and accompanying notes as of and for the year ended December 31, 2023. The accompanying interim,
consolidated financial statements are presented in accordance with the rules and regulations of the Securities and Exchange Commission (the “SEC”) and, accordingly, do not include all the disclosures required by generally accepted accounting
principles in the United States (“GAAP”) with respect to annual financial statements.
Note 2. Summary of Significant Accounting Policies
Consolidation
The consolidated financial statements include the accounts of the Company, its subsidiaries, all of which are wholly-owned, and variable interest entities for which the
Company is considered the primary beneficiary. All significant intercompany transactions have been eliminated.
Revenue Recognition
The Company recognizes revenues in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (Topic 606),
which includes excise taxes and shipping and handling charges billed to customers, net of cash discounts for prompt payment, sales returns and incentives, upon delivery of goods to the customer – at which time the Company’s performance obligation is
satisfied - at an amount that the Company expects to be entitled to in exchange for those goods in accordance with the five-step analysis outlined in Topic 606: (i) identify the contract with the customer, (ii) identify the performance obligations in
the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations, and (v) recognize revenue when (or as) performance obligations are satisfied. The Company excludes from the transaction price,
sales taxes and value-added taxes imposed at the time of sale (which do not include excise taxes on smokeless tobacco, cigars or other nicotine products billed to customers).
The Company records an allowance for sales returns, based principally on historical volume and return rates, which is included in accrued
liabilities on the consolidated balance sheets. The Company records sales incentives, which consist of consumer incentives and trade promotion activities, as a reduction in revenues (a portion of which is based on amounts estimated to be due to
wholesalers, retailers and consumers at the end of the period) based principally on historical volume and utilization rates. Expected payments for sales incentives are included in accrued liabilities on the consolidated balance sheets.
A further requirement of ASC 606 is for entities to disaggregate revenue recognized from contracts with customers into categories that depict how
the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. The Company’s management views business performance through segments that closely resemble the performance of major product lines. Thus, the
primary and most useful disaggregation of the Company’s contract revenue for decision making purposes is the disaggregation by segment which can be found in Note 16, “Segment Information”. An additional disaggregation of contract revenue by sales
channel can be found within Note 16 as well.
Shipping Costs
The Company records shipping costs incurred as a component of
selling, general, and administrative expenses. Shipping costs incurred were approximately $5.6 million and $6.2 million for the three months
ending March 31, 2024 and 2023, respectively.
Inventories
Inventories are stated at the lower of cost or net realizable value using the first-in, first-out method. Leaf tobacco is presented in current assets in accordance with standard industry
practice, notwithstanding the fact that such tobaccos are carried longer than one year for the purpose of curing.
Fair Value
GAAP establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation
techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).
The three levels of the fair value hierarchy under GAAP are described below:
| ● |
Level 1 – Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets at the measurement date.
|
| ● |
Level 2 – Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar
assets or liabilities in inactive markets, inputs other than quoted prices that are observable for the asset or liability, and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
|
| ● |
Level 3 – Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement
date.
|
Derivative Instruments
The Company enters into foreign currency forward contracts to hedge a portion of its exposure to changes in foreign currency exchange rates on inventory
purchase commitments. The Company accounts for its forward contracts under the provisions of ASC
815, Derivatives and Hedging. Under the Company’s policy, the Company may hedge up to 100 % of its
anticipated purchases of inventory in the denominated invoice currency over a forward period not to exceed twelve months . The
Company may also, from time to time, hedge up to 100 % of its non-inventory purchases (e.g., production equipment) in the denominated
invoice currency. Forward contracts that qualify as hedges are adjusted to their fair value through other comprehensive income as determined by market prices on the measurement date, except any hedge ineffectiveness which is recognized currently in
income. Gains and losses on these forward contracts are reclassified from other comprehensive income into inventory as the related inventories are received and are transferred to net income as inventory is sold. Changes in fair value of any
contracts that do not qualify for hedge accounting or are not designated as hedges are recognized currently in income.
Risks and Uncertainties
Manufacturers and sellers of tobacco products are subject to regulation at the federal, state, and local levels. Such regulations include, among
others, labeling requirements, limitations on advertising, and prohibition of sales to minors. The tobacco industry is likely to continue to be heavily regulated. There can be no assurance as to the ultimate content, timing, or effect of any
regulation of tobacco products by any federal, state, or local legislative or regulatory body, nor can there be any assurance that any such legislation or regulation would not have a material adverse effect on the Company’s financial position,
results of operations, or cash flows. In a number of states targeted flavor bans have been proposed or enacted legislatively or by the administrative process. Depending on the number and location of such bans, that legislation or regulation could
have a material adverse effect on the Company’s financial position, results of operations or cash flows. The U.S. Food and Drug Administration (“FDA”) continues to consider various restrictive regulations around our products, including targeted flavor bans; however, the details, timing, and ultimate
implementation of such measures remain unclear.
The tobacco industry has experienced, and is experiencing, significant product liability litigation. Most tobacco liability lawsuits have been brought against manufacturers and sellers of cigarettes for injuries
allegedly caused by smoking or exposure to smoke. However, several lawsuits have been brought against manufacturers and sellers of smokeless products for injuries to health allegedly caused by use of smokeless products. Typically, such claims
assert that use of smokeless products is addictive and causes oral cancer. Additionally, several lawsuits have been brought against manufacturers and distributors of Creative Distribution Solutions products due to malfunctioning devices.
There can be no assurance the Company will not sustain losses in connection with such lawsuits and that such losses will not have a material adverse effect on the Company’s financial position, results of operations, or cash flows.
Master Settlement Agreement (MSA)
Pursuant to the Master Settlement Agreement (the “MSA”) entered into in November 1998
by most states (represented by their attorneys general acting through the National Association of Attorneys General) and subsequent states’ statutes, a “cigarette manufacturer” (which is defined to include a manufacturer of make-your-own (“MYO”)
cigarette tobacco) has the option of either becoming a signatory to the MSA or opening, funding, and maintaining an escrow account to have funds available for certain potential tobacco-related liabilities with sub-accounts on behalf of each
settling state. Such companies are entitled to direct the investment of the escrowed funds and withdraw any appreciation but cannot withdraw the principal for twenty-five years from the year of each annual deposit, except to withdraw funds deposited pursuant to an individual
state’s escrow statute to pay a final judgement to that state’s plaintiffs in the event of such a final judgement against the Company. The Company chose to open and fund an escrow account as its method of compliance. It is the Company’s policy to
record amounts on deposit in the escrow account for prior years as a non-current asset. As of March 31, 2024, the Company had on deposit approximately $32.1 million, the fair value of which
was approximately $28.4 million. At December 31, 2023, the Company had on deposit approximately $32.1 million, the fair value of which was approximately $28.7
million. The Company discontinued its generic category of MYO in 2019 and its Zig-Zag branded MYO cigarette smoking tobacco in 2017. Thus, pending a change in MSA legislation, the Company has no remaining product lines covered by the MSA and will
not be required to make future escrow deposits.
The Company has chosen to invest a portion of the MSA escrow, from time to time, in U.S. Government securities including TIPS, Treasury Notes, and
Treasury Bonds. These investments are classified as available-for-sale and carried at fair value. Realized losses are prohibited under the MSA; any investment in an unrealized loss position will be held until the value is recovered, or until
maturity.
Fair values for the U.S. Governmental agency obligations are Level 2 in the fair value hierarchy. The
following tables show cost and estimated fair value of the assets held in the MSA account, respectively, as well as the maturities of the U.S. Governmental agency obligations held in such account for the periods indicated.
| As of March 31, 2024 | As of December 31, 2023 | |||||||||||||||||||||||
|
Gross
|
Estimated
|
Gross
|
Estimated
|
|||||||||||||||||||||
|
Unrealized
|
Fair
|
Unrealized
|
Fair
|
|||||||||||||||||||||
|
Cost
|
Gains (Losses)
|
Value
|
Cost
|
Losses
|
Value
|
|||||||||||||||||||
|
Cash and cash equivalents
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||
|
U.S. Governmental agency obligations (unrealized position < 12 months)
|
|
|
|
|
|
|
||||||||||||||||||
|
U.S. Governmental agency obligations (unrealized position > 12 months)
|
|
(
|
)
|
|
|
(
|
)
|
|
||||||||||||||||
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||||
|
As of
|
||||
|
March 31, 2024
|
||||
|
Less than one year
|
$
|
|
||
|
One to five years
|
|
|||
|
Five to ten years
|
|
|||
|
Greater than ten years
|
|
|||
|
Total
|
$
|
|
||
The following shows the amount of deposits by sales year for the MSA escrow account:
| |
Deposits as of
|
|||||||
|
Sales
Year
|
March 31,
2024
|
December 31,
2023
|
||||||
|
1999
|
$
|
|
$
|
|
||||
|
2000
|
|
|
||||||
|
2001
|
|
|
||||||
|
2002
|
|
|
||||||
|
2003
|
|
|
||||||
|
2004
|
|
|
||||||
|
2005
|
|
|
||||||
|
2006
|
|
|
||||||
|
2007
|
|
|
||||||
|
2008
|
|
|
||||||
|
2009
|
|
|
||||||
|
2010
|
|
|
||||||
|
2011
|
|
|
||||||
|
2012
|
|
|
||||||
|
2013
|
|
|
||||||
|
2014
|
|
|
||||||
|
2015
|
|
|
||||||
|
2016
|
|
|
||||||
|
2017
|
|
|
||||||
| Total | $ |
$ |
||||||
Note 3. Derivative Instruments
Foreign Currency
During the three months ended March 31, 2024, the Company
executed no foreign exchange contracts meeting hedge accounting requirements.
At March 31, 2024, the Company had foreign currency contracts outstanding for the purchase of €9.2
million and sale of €9.2 million. The foreign currency contracts’ fair value at March 31, 2024, resulted in an asset of $0.0 million included in Other current assets and a liability of $0.1 million included in Accrued liabilities. At December 31, 2023, the Company had foreign currency contracts outstanding for the purchase of €15.2 million and sale of €15.2 million. The foreign currency
contracts’ fair value at December 31, 2023, resulted in an asset of $0.3 million included in Other current assets and a liability of $0.1 million included in Accrued liabilities.
Note 4. Fair Value of Financial Instruments
The estimated fair value amounts have been determined by the Company using the methods and assumptions described below. However, considerable
judgment is required to interpret market data to develop estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different
market assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts.
Cash and Cash Equivalents
Cash and cash equivalents are, by definition, short-term. Thus, the carrying amount is a reasonable estimate of fair value.
Accounts Receivable
The fair value of accounts receivable approximates their carrying value due to their short-term nature.
Long-Term Debt
The Company’s Senior Secured Notes (as defined in Note 10) bear interest at a rate of 5.625 % per year. As of March 31, 2024, the fair value approximated $237.3 million, with a carrying value of $250 million. As of December 31, 2023, the fair value of the Senior Secured
Notes approximated $234.9 million, with a carrying value of $250
million.
The Convertible Senior Notes (as defined in Note 10) bear interest at a rate of 2.50 % per year, and the fair value of the Convertible Senior
Notes without the conversion feature approximated $117.5 million, with a carrying value of $118.5 million as of March 31,
2024. As of December 31, 2023, the fair value of the Convertible Senior Notes without the conversion feature approximated $114.7 million, with a carrying value of $118.5 million.
See Note 10, “Notes Payable and Long-Term Debt”, for further information regarding the Company’s long-term debt.
Note 5. Inventories
The components of inventories are as follows:
| March 31, | December 31, | |||||||
| |
2024
|
2023
|
||||||
|
Raw materials and work in process
|
$
|
|
$
|
|
||||
|
Leaf tobacco
|
|
|
||||||
|
Finished goods - Zig-Zag Products
|
|
|
||||||
|
Finished goods - Stoker’s Products
|
|
|
||||||
|
Finished goods - Creative Distribution Solutions
|
|
|
||||||
|
Other
|
|
|
||||||
|
Inventories
|
$
|
|
$
|
|
||||
The inventory valuation allowance was $20.6
In December 2023, a third-party warehouse in Tennessee used to store some of the Company’s leaf tobacco incurred significant tornado damage
resulting in damage to the leaf tobacco. As a result, the Company recorded a $15.2 million inventory reserve related to its leaf tobacco
inventory which is included in Other operating income, net in the consolidated statement of income for the quarter ended December 31, 2023. The leaf tobacco inventory is covered by the Company’s stock throughput insurance policy and the Company
believes the inventory loss is probable of being fully recovered under the policy. The Company does not expect to incur any delays in customer deliveries as a result of the damage.
Note 6. Other Current Assets
Other current assets consist of:
| March 31, | December 31, | |||||||
| |
2024
|
2023
|
||||||
|
Inventory deposits
|
$
|
|
$
|
|
||||
|
Insurance deposit
|
|
|
||||||
| Prepaid taxes |
||||||||
|
Settlement receivable
|
||||||||
|
Insurance recovery receivable
|
||||||||
|
Other
|
|
|
||||||
|
Total
|
$
|
|
$
|
|
||||
Note 7. Property, Plant, and Equipment
Property, plant, and equipment consists of:
| March 31, | December 31, | |||||||
|
2024
|
2023
|
|||||||
|
Land
|
$
|
|
$
|
|
||||
|
Buildings and improvements
|
|
|
||||||
|
Leasehold improvements
|
|
|
||||||
|
Machinery and equipment
|
|
|
||||||
|
Furniture and fixtures
|
|
|
||||||
|
Gross property, plant and equipment
|
|
|
||||||
|
Accumulated depreciation
|
(
|
)
|
(
|
)
|
||||
|
Net property, plant and equipment
|
$
|
|
$
|
|
||||
Note 8. Other Assets
Other assets consist of:
| March 31, | December 31, | |||||||
|
2024
|
2023
|
|||||||
|
Non-marketable equity investments
|
$
|
|
$
|
|
||||
| Debt security investment | ||||||||
| Capitalized software |
||||||||
| Available-for-sale marketable securities |
||||||||
|
Other
|
|
|
||||||
|
Total
|
$
|
|
$
|
|
||||
Debt and Non-Marketable Equity Investments
The Company
records its non-marketable equity investments without a readily determinable fair value, that are not accounted for under the equity method, at cost, with adjustments for impairment and observable price changes. Should assumptions
underlying the determination of the fair values of the Company’s non-marketable equity and debt security investments change, it could result in material future impairment charges.
In
January 2024, the Company invested $0.8 million to acquire an 18.744 % stake in Teaza Energy, LLC (“TeaZa”). TeaZa is an innovative brand of flavorful oral pouch products that can be dipped or sipped, designed as a
health-conscious alternative to high energy drinks and other conventional oral stimulants. The investment is comprised of $0.5
million in cash and a $0.3 million payable to be offset against the Company’s allocated portion of future profit
distributions. The Company also has options to purchase, at fair value, up to 51.744 % of the equity interest in TeaZa
between September 30, 2024 and January 31, 2025, and up to 100 % of the equity interest from February 1, 2025 to June 30,
2026. The Company accounts for its investment in TeaZa using the equity method of accounting.
In July 2021, the Company invested $8.0 million in Old Pal Holding Company LLC (“Old Pal”). In July 2022, the Company invested an additional $1.0 million in Old Pal. The Company invested in the form of a convertible note which includes additional follow-on investment rights. The accrued interest of $0.2 million from July 2021 to July 2022 was rolled into the convertible note in July 2022 resulting in a total investment of $9.2 million. Old Pal is a leading brand in the cannabis lifestyle space that operates a non-plant touching licensing model. The convertible
note bears an interest rate of 3.0 % per year and matures July 31, 2026.Interest and principal not paid to date
are receivable at maturity. Old Pal has the option to extend the maturity date in one-year increments. The interest rate is
subject to change based on Old Pal reaching certain sales thresholds. The weighted average interest rate on the convertible note was 3.0 7.7 million and 6.9 million,
respectively, and recorded an allowance for credit losses of $0.3 million and $1.0 million, respectively, included in investment loss for the quarters ended June 30 and December 31, 2023. The Company has recorded accrued interest receivable of $0.2 million and $0.1 million at
March 31, 2024 and December 31, 2023, respectively, in Other current assets on our Consolidated Balance Sheets.
In
April 2021, the Company invested $8.7 million in Docklight Brands, Inc., a pioneering consumer products company with celebrated
brands including Marley Natural® and Marley™. The Company has additional follow-on investment rights. As part of the investment, the Company has obtained exclusive U.S. distribution rights for Docklight’s Marley™ CBD topical products. In
the first quarter of 2023, based on Docklight’s financial results and other operating difficulties, and the decline in the revenue multiples for public companies comparable to Docklight, the Company deemed the investment in Docklight was
impaired resulting in a loss of $4.9 million which was recorded for the three months ended March 31, 2023. In the second quarter
of 2023, based on a significant change in Docklight’s business model, the Company deemed its investment in Docklight fully impaired. Fair value for all periods presented was determined using a valuation derived from relevant revenue
multiples (Level 3).
Available-for-Sale Marketable Securities
In December 2023, the Company formed a captive insurance company, Interchange IC, incorporated in the District of Columbia, to write a portion of our general product, and officer and director liability coverages under
deductible reinsurance policies. Interchange IC is a fully licensed captive insurance company holding a certificate of authority from the District of Columbia Department of Insurance, Securities and Banking. Interchange IC is a wholly-owned
subsidiary of Turning Point Brands and is consolidated in the Company’s financial statements.
The investments held within the captive are not available for operating activities and are carried at fair value on the consolidated balance sheet. They consist of money market, corporate bonds, government securities,
real estate investment trusts and
exchange traded funds. The Company believes any impairment of investments held with gross unrealized losses to be temporary and not the result of credit risk.
The Company’s captive investments are summarized in the following table.
|
As of March 31, 2024
|
||||||||||||
|
Gross
|
Estimated
|
|||||||||||
|
Amortized
|
Unrealized
|
Fair
|
||||||||||
|
Cost
|
Gains (Losses)
|
Value
|
||||||||||
|
Corporate bonds
|
$
|
|
$
|
|
$
|
|
||||||
|
U.S. Governmental agency obligations
|
|
(
|
)
|
|
||||||||
|
Real estate investment trusts and exchange traded funds
|
|
|
|
|||||||||
|
$
|
|
$
|
|
$
|
|
|||||||
The following table summarizes the fair value of the Company’s captive investments by contractual maturity.
|
As of
|
||||
|
March 31, 2024
|
||||
|
Due within one year
|
$
|
|
||
|
Due after ten years
|
|
|||
|
Real estate investment trusts and exchange traded funds
|
|
|||
|
Total investments at fair value
|
$
|
|
||
Note 9. Accrued Liabilities
Accrued liabilities consist of:
| March 31, | December 31, | |||||||
| |
2024
|
2023
|
||||||
|
Accrued payroll and related items
|
$
|
|
$
|
|
||||
|
Customer returns and allowances
|
|
|
||||||
|
Taxes payable
|
|
|
||||||
|
Lease liabilities
|
|
|
||||||
|
Accrued interest
|
|
|
||||||
|
Other
|
|
|
||||||
|
Total
|
$
|
|
$
|
|
||||
Note 10. Notes Payable and Long-Term Debt
Notes payable and long-term debt consists of the following in order of preference:
| March 31, | December 31, | |||||||
|
2024
|
2023
|
|||||||
|
Senior Secured Notes
|
$
|
|
$
|
|
||||
|
Convertible Senior Notes
|
|
|
||||||
|
Gross notes payable and long-term debt
|
|
|
||||||
|
Less deferred finance charges
|
(
|
)
|
(
|
)
|
||||
| Less current maturities |
( |
) | ( |
) | ||||
|
Notes payable and long-term debt
|
$
|
|
$
|
|
||||
Senior Secured Notes
On February 11, 2021, the Company closed a private offering (the “Offering”) of $250.0 million aggregate principal amount of its 5.625 % senior secured notes due
2026 (the “Senior Secured Notes” or the “Notes”). The Senior Secured Notes bear interest at a rate of 5.625 % and will mature on February 15, 2026 . Interest on the Senior Secured Notes is payable semi-annually in arrears on February 15 and August 15 of each year, commencing on
August 15, 2021.The Company used the proceeds from the Offering (i) to repay all obligations under and terminate the 2018 First Lien Credit Facility, (ii) to pay related fees, costs, and expenses and (iii) for general corporate purposes.
Obligations under the Senior Secured Notes are guaranteed by the Company’s existing
and future wholly-owned domestic subsidiaries (the “Guarantors”) that guarantee any credit facility (as defined in the indenture governing the Senior Secured Notes or the “Senior Secured Notes Indenture”) or capital markets debt securities of the
Company or Guarantors in excess of $15.0 million.
The Senior Secured Notes and the related guarantees are secured by first-priority liens on substantially all of the assets of the Company and the Guarantors, subject to certain exceptions.
The Company may redeem the Senior Secured Notes, in whole or in part, at any time at the redemption prices (expressed as a percentage of the
principal amount to be redeemed) set forth below, plus accrued and unpaid interest, if any, on the Senior Secured Notes to be redeemed to (but not including) the applicable redemption date if redeemed during the period indicated below:
|
On or after February 15, 2023
|
|
%
|
||
|
On or after February 15, 2024
|
|
%
|
||
|
On or after February 15, 2025 and thereafter
|
|
%
|
If the Company experiences a change of control (as defined in the Senior Secured Notes Indenture), the Company must offer to repurchase the Senior
Secured Notes at a repurchase price equal to 101 % of the principal amount of the Notes to be repurchased, plus accrued and unpaid
interest.
The Senior Secured Notes Indenture contains covenants that, among other things, restrict the ability of the Company and its restricted
subsidiaries to: (i) grant or incur liens; (ii) incur, assume or guarantee additional indebtedness; (iii) sell or otherwise dispose of assets, including capital stock of subsidiaries; (iv) make certain investments; (v) pay dividends, make
distributions or redeem or repurchase capital stock; (vi) engage in certain transactions with affiliates; and (vii) consolidate or merge with or into, or sell substantially all of our assets to another entity. These covenants are subject to a
number of limitations and exceptions set forth in the Senior Secured Notes Indenture. The Senior Secured Notes Indenture provides for customary events of default. The Company was in compliance with all covenants as of
March 31, 2024.
The Company incurred debt issuance costs attributable to the issuance of the Senior Secured Notes of $6.4 million which are amortized to interest expense using the straight-line method over the expected life of the Senior Secured Notes.
2021 Revolving Credit Facility
In connection with the Offering, the Company also entered into a $25.0
million senior secured revolving credit facility (the “2021 Revolving Credit Facility”) with the lenders party thereto and Barclays Bank PLC, as administrative agent and collateral agent (in such
capacity, the “Agent”). On May 10, 2023, the Company and certain of its subsidiaries, as guarantors, entered into an amendment (the “Amendment”) to the 2021 Revolving Credit Facility (as amended, the “Amended Revolving Credit Facility”).
The Amendment includes certain modifications to the 2021 Revolving Credit Facility relating to the replacement of the London Inter-Bank Offered Rate with a Secured Overnight Financing Rate (“SOFR”) as the interest rate benchmark under the 2021
Revolving Credit Facility and adjusts certain other provisions to reflect current documentation standards and other agreed modifications.
On November 7, 2023, in
connection with the entry by a subsidiary of the Company in a new asset-backed revolving credit facility, the Company terminated the Amended Revolving Credit Facility. See “2023 ABL Facility” below.
The Company had letters of credit outstanding under the Amended Revolving Credit Facility of approximately $1.4 million that were terminated with the facility in the fourth quarter of 2023.
The Company incurred debt issuance costs attributable to the issuance of the Amended Revolving Credit Facility of $0.5 million, with the remaining $0.2 million written off to gain on debt
extinguishment upon termination of the facility.
2023 ABL Facility
On November 7, 2023, TPB Specialty Finance, LLC, a wholly-owned
subsidiary of the Company (the “ABL Borrower”), entered into a new $75.0 million asset-backed revolving credit facility (the “2023 ABL
Facility”), with the several lenders thereunder, and Barclays Bank Plc, as administrative agent (the “Administrative Agent”) and as collateral agent (the “Collateral Agent”) and First-Citizens Bank & Trust Company as additional collateral
agent (the “Additional Collateral Agent”). Under the 2023 ABL Facility, the ABL Borrower may draw up to $75.0 million under Revolving
Credit Loans and Last In Last Out (“LILO”) Loans. The 2023 ABL Facility includes a $40.0 million accordion feature. In connection with
the 2023 ABL Facility, Turning Point Brands contributed certain existing inventory to the ABL Borrower. The 2023 ABL Facility is secured on a first priority basis (subject to customary exceptions) by all assets of the ABL Borrower.
The 2023 ABL Facility contains customary borrowing conditions including a
borrowing base equal to the sum of (a) the lesser of (1) 85 % of the lower of (A) the market value (on a first in first out
basis) of the sum of eligible inventory, plus eligible in-transit inventory of the ABL Borrower and (B) 85 % of the cost of the sum of
eligible inventory, plus eligible in-transit inventory of the ABL Borrower and (2) 85 % of the net orderly liquidation value (“NOLV”)
percentage of the lower of (1)(A) or (1)(B); plus (b) 85 % of the face value of all eligible accounts of the ABL Borrower minus (c) the
amount of all eligible reserves. The 2023 ABL Facility also includes a LILO borrowing base equal to the sum of (a) the lesser of: (1) 10 %
of the lower of (A) the market value (on a first in first out basis) of the sum of eligible inventory, plus eligible in-transit inventory of the ABL Borrower and (B) the cost of the sum of eligible inventory, plus eligible in-transit inventory
and (2) 10 % of the NOLV percentage of the lower of (1)(A) or (1)(B); plus (b) 10 % of the face amount of eligible account; minus (c) the amount of all eligible reserves.
Amounts borrowed under the 2023 ABL Facility are subject to an interest rate margin
per annum equal to (a) from and after the closing date until the last day of the first full fiscal quarter ended after the closing date, (i) 1.25 % per annum, in the case base rate loans, and (ii) 2.25 %
per annum, in the case of revolving credit loans that are SOFR Loans, (b)(i) 2.25 % per annum, in the case of LILO loans that are base
rate loans, and (ii) 3.25 % per annum, in the case of LILO loans that are SOFR loans, (c) on the first day of each fiscal quarter, the
applicable interest rate margins will be determined from the pricing grid below based upon the historical excess availability for the most recent fiscal quarter ended immediately prior to the relevant date, as calculated by the Administrative
Agent.
|
Level
|
Historical Excess Availability
|
Applicable Margin
for SOFR Loans
|
Applicable Margin
for Base Rate Loans
|
|
I
|
Greater than or equal to
|
|
|
|
II
|
Less than
|
|
|
|
III
|
Less than
|
|
|
The 2023 ABL Facility also requires the Company and its restricted subsidiaries
to maintain a fixed charge coverage ratio of at least 1.00 to 1.00 as of the end of any four consecutive fiscal quarters if excess availability shall be less than the greater of (a) 12.5 % of the line cap and (b) $9.4 million, at any time and continuing until
excess availability is equal to or exceeds the greater of (i) 12.5 % of the line and (ii) $9.4 million for thirty (30 ) consecutive calendar days; provided
that such $9.4 million level shall automatically increase in proportion to the amount of any increase in the aggregate revolving credit
commitments thereunder in connection with any incremental facility.
The 2023 ABL Facility shall mature on the earlier of (x) November 7, 2027 and (y) the date that is 91 days prior to the maturity date of any material debt of the ABL Borrower or the Company or any of its restricted subsidiaries (subject to customary extensions agreed by
the lenders thereunder); provided that clause (y) shall not apply to the extent that on any applicable date of determination (on any date prior to the date set forth in clause (y)), (A) the sum of (x) cash that is held in escrow for the
repayment of such material debt pursuant to arrangements satisfactory to the Administrative Agent, (y) cash that is held in accounts with the Administrative Agent and/or the Additional Collateral Agent, plus (z) excess availability, is
sufficient to repay such material debt and (B) the ABL Borrower has excess availability of at least $15.0 million after giving effect
to such repayment of material debt, including any borrowings under the commitments in connection therewith.
The Company has no t drawn any borrowings under the 2023 ABL
Facility but has letters of credit of approximately $1.2 million outstanding under the facility and has an available balance of $59.0 million based on the borrowing base as of March 31, 2024.
The Company incurred debt issuance costs attributable to the 2023 ABL Facility of $
Convertible Senior Notes
In July 2019, the Company closed an offering of $172.5
million in aggregate principal amount of its 2.50 % Convertible Senior Notes due July 15, 2024 (the “Convertible Senior Notes”). The Convertible Senior Notes bear interest at a rate of 2.50 % per year, payable semiannually in arrears on January 15 and July 15 of each year, beginning on January 15, 2020. The Convertible Senior Notes are senior unsecured obligations of the
Company.
In 2023, a wholly owned subsidiary of the Company repurchased $44.0 million in aggregate principal amount of the Convertible Senior Notes on the open market resulting in a $1.9 million gain on extinguishment of debt. The repurchased notes continue to be held by our subsidiary and may be resold subject to compliance with applicable
securities law. As of March 31, 2024, $118.5 million aggregate principal remains outstanding and held by third parties.
The Convertible Senior Notes held by third parties are convertible into approximately 2,219,704 shares of TPB Common Stock under certain circumstances prior to maturity at a conversion rate of 18.7252 shares per $1,000 principal amount of the Convertible Senior Notes, which
represents a conversion price of approximately $53.40 per share, subject to adjustment under certain conditions, but will not be adjusted
for any accrued and unpaid interest. The conversion price is adjusted periodically as a result of dividends paid by the Company in excess of pre-determined thresholds of $0.04 per share. Upon conversion, the Company may pay cash, shares of common stock or a combination of cash and stock, as determined by the Company at its discretion. The conditions required to
allow the holders to convert their Convertible Senior Notes were not met as of March 31, 2024.
As discussed above, on November 7, 2023, a wholly-owned subsidiary of the
Company entered into the 2023 ABL Facility to refinance up to $75.0 million of the Convertible Senior notes at maturity. As a result, the Company classified $59.0
million related to the Convertible Senior Notes in Notes
payable and long-term debt on
the Company’s March 31, 2024 Consolidated Balance Sheet. Based on current liquidity, free cash flow generation and availability under the 2023 ABL Facility, the Company believes it will have sufficient liquidity to address the maturity of the
remaining Convertible Senior Notes.
The Company incurred debt issuance costs attributable to the Convertible Senior Notes of $5.9 million which are amortized to interest expense using the straight-line method over the expected life of the Convertible Senior Notes.
In connection with the Convertible Senior Notes offering, the Company entered into privately negotiated capped call transactions with certain
financial institutions. The capped call transactions have a strike price of $53.40 per share and a cap price of $82.86 per share, and are exercisable when, and if, the Convertible Senior Notes are converted. The Company paid $20.53 million for these capped calls at the time they were entered into and charged that amount to additional paid-in capital.
Note 11. Leases
The Company’s leases consist primarily of leased property for manufacturing, warehouse, corporate offices and retail space, as well as vehicle
leases. At lease inception, the Company recognizes a lease right of use asset and lease liability calculated as the present value of future minimum lease payments. In general, the Company does not recognize any renewal periods within the lease
terms as there are no significant barriers to ending the lease at the initial term. Lease and non-lease components are accounted for as a single lease component.
Leases with an initial term of 12 months or less are not recorded on the balance sheet. Lease expense for these leases is recognized on a
straight-line basis over the lease term.
The components of lease expense consisted of the following:
|
Three Months Ended March 31,
|
||||||||
|
2024
|
2023
|
|||||||
|
Operating lease cost
|
||||||||
|
Cost of sales
|
$
|
|
$
|
|
||||
|
Selling, general and administrative
|
|
|
||||||
|
Variable lease cost (1)
|
|
|
||||||
|
Short-term lease cost
|
|
|
||||||
|
Total
|
$
|
|
$
|
|
||||
| (1) |
|
|
Three Months Ended March 31,
|
||||||||
|
2024
|
2023
|
|||||||
|
Financing lease cost
|
||||||||
|
Selling, general and administrative
|
$
|
|
$
|
|
||||
|
Total
|
$
|
|
$
|
|
||||
| March 31, | December 31, | |||||||
|
2024
|
2023
|
|||||||
|
Assets:
|
||||||||
|
|
$
|
|
$
|
|
||||
|
|
|
|
||||||
|
Total lease assets
|
$
|
|
$
|
|
||||
|
Liabilities:
|
||||||||
|
(2)
|
$
|
|
$
|
|
||||
|
|
|
|
||||||
|
|
|
|
|
|
||||
|
|
||||||||
|
Total lease liabilities
|
$
|
|
$
|
|
||||
| (2) |
|
Note 12. Income Taxes
The Company’s effective income tax rate for the three months ended March 31, 2024 was 23.4 %. The Company’s effective income tax rate for the three months ended March 31, 2023 was 25.2 %.
The Company follows the provisions of ASC 740-10-25, which prescribes a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The amount
recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. The Company has determined that the Company did not have any uncertain tax positions requiring recognition
under the provisions of ASC 740-10-25. The Company’s policy is to recognize interest and penalties accrued on uncertain tax positions, if any, as part of interest expense. The Company files income tax returns in the U.S. federal jurisdiction and
various state jurisdictions. In general, the Company is no longer subject to U.S. federal and state tax examinations for years prior to 2020.
Note 13. Share Incentive Plans
On March 22, 2021, the Company’s Board of Directors adopted the Turning Point Brands, Inc. 2021 Equity Incentive Plan (the “2021 Plan”), pursuant to which awards may be
granted to employees, non-employee directors, and consultants. In addition, the 2021 Plan provides for the granting of nonqualified stock options to employees of the Company or any subsidiary of the Company. Pursuant to the 2021 Plan, 1,290,000 shares, plus 100,052 shares
remaining available for issuance under the 2015 Equity Incentive Plan (the “2015 Plan”), of TPB Common Stock are reserved for issuance as awards to employees, non-employee directors, and consultants as compensation for past or future services or the
attainment of certain performance goals. The 2021 Plan is scheduled to terminate on March 21, 2031. The 2021 Plan is administered by the compensation committee (the “Committee”) of the Company’s Board of Directors. The Committee determines the
vesting criteria for the awards, with such criteria to be specified in the award agreement. As of March 31, 2024, net of forfeitures, there were 400,682 Restricted Stock Units (“RSUs”), 161,658 options and 102,216 Performance Based Restricted Stock Units (“PRSUs”) granted under the 2021 Plan. There are 725,496 shares available for future grant under the 2021 Plan.
On April 28, 2016, the Board of Directors of the Company adopted the 2015 Plan, pursuant to which awards could have been granted to employees,
non-employee directors, and consultants. In addition, the 2015 Plan provided for the granting of nonqualified stock options to employees of the Company or any subsidiary of the Company. Upon adoption of the 2021 Plan,
the 2015 Plan was terminated, and the Company determined no additional grants would be made under the 2015 Plan. However, all awards issued under the 2015 Plan that have not been previously terminated or
forfeited remain outstanding and continue unaffected. There are no shares available for grant
under the 2015 Plan.
On February 8, 2006, the Board of Directors of the Company adopted the 2006 Equity Incentive Plan (the “2006 Plan”) of North Atlantic Holding
Company, Inc., pursuant to which nonqualified stock options and restricted stock awards may be granted to employees. Upon the adoption of the Company’s 2015 Equity Incentive Plan in connection with its IPO, the Company determined no additional grants
would be made under the 2006 Plan. However, all awards issued under the 2006 Plan that have not been previously terminated or forfeited remain outstanding and continue unaffected. There are no shares available for grant under the 2006 Plan.
Stock option activity for the 2006, 2015 and 2021 Plans is summarized below:
| Weighted | Weighted | |||||||||||
| Stock | Average | Average | ||||||||||
| Option | Exercise |
Grant Date
|
||||||||||
|
Shares
|
Price
|
Fair Value
|
||||||||||
|
Outstanding, December 31, 2022
|
|
$
|
|
$
|
|
|||||||
|
Granted
|
|
|
|
|||||||||
|
Exercised
|
(
|
)
|
|
|
||||||||
|
Forfeited
|
(
|
)
|
|
|
||||||||
|
Outstanding, December 31, 2023
|
|
$ |
|
$ |
|
|||||||
|
Granted
|
||||||||||||
|
Exercised
|
(
|
)
|
|
|
||||||||
|
Forfeited
|
(
|
)
|
|
|
||||||||
|
Outstanding, March 31, 2024
|
|
$
|
|
$
|
|
|||||||
Under the 2006, 2015 and 2021 Plans, the total intrinsic value of options exercised during the three months ended March 31, 2024 and 2023, was $0 .0 million, and $0.2 million,
respectively.
At March 31, 2024, under the 2006 Plan, the exercise price for the 43,693 3.83 per share, all of which are exercisable. The
weighted average of the remaining lives of the outstanding stock options with an exercise price of $3.83 is approximately 0.35 years. The Company estimates the expected life of these stock options is ten years from the date of grant. For the $3.83 per share options, the weighted
average fair value of options at the date of grant was determined using the Black-Scholes model with the following assumptions: a ten-year
life from grant date, a current share price and exercise price of $3.83 , a risk-free interest rate of 3.57 %, volatility of 40 %, and no assumed dividend yield. Based on these assumptions, the fair value of these options is approximately $2.17 per share option granted.
At March 31, 2024, under the 2015 and 2021 Plans, the risk-free interest rate is based on the U.S. Treasury rate for the expected life at the time
of grant. The expected volatility is based on the average long-term historical volatilities of peer companies. We intend to continue to consistently use the same group of publicly traded peer companies to determine expected volatility until
sufficient information regarding volatility of our share price becomes available or until the selected companies are no longer suitable for this purpose. Due to our limited trading history, we are using the simplified method presented by SEC Staff
Accounting Bulletin No. 107 to calculate expected holding periods, which represent the periods of time for which options granted are expected to be outstanding. We will continue to use this method until we have sufficient historical exercise
experience to give us confidence in the reliability of our calculations. The fair values of these options were determined using the Black-Scholes option pricing model.
The following table outlines the assumptions based on the number of options granted under the 2015 Plan.
|
February 10,
|
May 17,
|
March 7,
|
March 20,
|
October 24,
|
March 18,
|
February 18,
|
May 3,
|
|||||||||||||||||||||||||
|
2017
|
2017
|
2018
|
2019
|
2019
|
2020
|
2021
|
2021
|
|||||||||||||||||||||||||
|
Number of options granted
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Options outstanding at March 31, 2024
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Number exercisable at March 31, 2024
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Exercise price
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||
|
Remaining lives
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Risk free interest rate
|
|
%
|
|
%
|
|
%
|
|
%
|
|
%
|
|
%
|
|
%
|
|
%
|
||||||||||||||||
|
Expected volatility
|
|
%
|
|
%
|
|
%
|
|
%
|
|
%
|
|
%
|
|
%
|
|
%
|
||||||||||||||||
|
Expected life
|
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
|
Dividend yield
|
|
|
|
%
|
|
%
|
|
%
|
|
%
|
|
%
|
|
%
|
||||||||||||||||||
|
Fair value at grant date
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||||
The following table outlines the assumptions based on the number of options granted under the 2021 Plan.
|
May 17,
|
March 14,
|
April 29,
|
May 12, | March 11, |
||||||||||||||||
|
|
2021
|
2022
|
2022
|
2023 | 2024 | |||||||||||||||
|
Number of options granted
|
|
|||||||||||||||||||
|
Options outstanding at March 31, 2024
|
|
|||||||||||||||||||
|
Number exercisable at March 31, 2024
|
|
|||||||||||||||||||
|
Exercise price
|
$
|
|
$ | $ | $ | $ | ||||||||||||||
|
Remaining lives
|
|
|||||||||||||||||||
|
Risk free interest rate
|
|
%
|
% | % | % | % | ||||||||||||||
|
Expected volatility
|
|
%
|
% | % | % | % | ||||||||||||||
|
Expected life
|
|
|||||||||||||||||||
|
Dividend yield
|
|
%
|
% | % | % | % | ||||||||||||||
|
Fair value at grant date
|
$
|
|
$ | $ | $ | $ | ||||||||||||||
The Company has recorded compensation expense related to the options based on the
provisions of ASC 718 under which the fixed portion of such expense is determined as the fair value of the options on the date of grant and amortized over the vesting period. The Company recorded compensation expense related to the options of
approximately $0.3 million and $0 .0
million for the three months ended March 31, 2024 and 2023, respectively. Total unrecognized compensation expense related to options at March 31, 2024, is $0.3
million, which will be expensed over 0.75 years.
PRSUs are restricted stock units subject to both performance-based and service-based
vesting conditions. The number of shares of TPB Common Stock a recipient will receive upon vesting of a PRSU will be calculated by reference to certain performance metrics related to the Company’s performance over a five-year period. PRSUs will vest on the
measurement date, which is no more than 65 days after the performance
period provided the applicable service and performance conditions are satisfied. As of March 31, 2024, there are 447,266 PRSUs outstanding. The
following table outlines the PRSUs granted and outstanding as of March 31, 2024 .
|
March 18,
|
February 18,
|
March 14,
|
May 4,
|
March 1,
|
||||||||||||||||
|
2020
|
2021
|
2022
|
2023
|
2024
|
||||||||||||||||
|
Number of PRSUs granted
|
|
|
|
|
||||||||||||||||
|
PRSUs outstanding at March 31, 2024
|
|
|
|
|
||||||||||||||||
|
Fair value as of grant date
|
$
|
|
$
|
|
$
|
|
$
|
|
$ | |||||||||||
|
Remaining lives
|
|
|
|
|
||||||||||||||||
The Company recorded compensation expense related to the PRSUs of approximately $0.9 million and $0.5 million in the
consolidated statements of income for the three months ended March 31, 2024 and 2023, respectively, based on the probability of achieving the performance condition. Total unrecognized compensation expense related to these awards at March 31, 2024,
is $6.1 million which will be expensed over the service periods based on the probability of achieving the performance condition.
The
Company has granted 325,523 RSUs which are outstanding and vest over to five years . The following table outlines the RSUs granted and outstanding as of March 31, 2024.
|
March 14,
|
March 14,
|
April 29,
|
May 5,
|
May 8, | March 1, | March 11, | ||||||||||||||||||||||
|
2022
|
2022
|
2022
|
2023
|
2023 | 2024 | 2024 | ||||||||||||||||||||||
|
Number of RSUs granted
|
|
|
|
|||||||||||||||||||||||||
|
RSUs outstanding at March 31, 2024
|
|
|
|
|||||||||||||||||||||||||
|
Fair value as of grant date
|
$
|
|
$
|
|
$
|
|
$ | $ | $ | $ |
||||||||||||||||||
|
Remaining lives
|
|
|
|
|||||||||||||||||||||||||
The Company has recorded compensation expense related to the RSUs based on the
provisions of ASC 718 under which the fixed portion of such expense is determined as the fair value of the RSUs on the date of grant and amortized over the vesting period. The Company recorded compensation expense related to the RSUs of
approximately $0.9 million and $0.3
million for the three months ended March 31, 2024 and 2023. Total unrecognized compensation expense related to RSUs at March 31, 2024, is $5.1
million, which will be expensed over 2.52 years.
Note 14. Contingencies
On October 9, 2020, a purported stockholder of Turning Point Brands, Inc., Paul-Emile Berteau, filed a complaint in the Delaware Court of Chancery relating to the
merger of Standard Diversified, Inc. (“SDI”) with a TPB subsidiary (“Merger Sub”)pursuant to the Agreement and Plan of Merger and Reorganization, dated as of April 7, 2020, by and among TPB, SDI and Merger Sub. The parties attended a mediation in late November 2022 where a settlement was reached.
On December 12, 2023, the Court approved the settlement and dismissed the action with prejudice. As of December 31, 2023, the Company recorded a $4.0
Other major tobacco companies are defendants in product liability claims. In a number
of these cases, the amounts of punitive and compensatory damages sought are significant and, if such a claim were brought against the Company, could have a material adverse effect on our business and results of operations. The Company is subject to
several lawsuits alleging personal injuries resulting from malfunctioning vaporizer devices or batteries and may be subject to claims in the future relating to our other Creative Distribution Solutions products. The Company is still evaluating these claims and the potential defenses to them. For example, the Company did not design or
manufacture the products at issue; rather, the Company was merely the distributor. Nonetheless, there can be no assurance that the Company will prevail in these cases, and they could have a material adverse effect on the financial position, results
of operations or cash flows of the Company.
We have several subsidiaries engaged in making, distributing, and selling liquid nicotine products. As a result of the overall publicity and controversy surrounding the industry generally, many companies have
received informational subpoenas from various regulatory bodies and in some jurisdictions regulatory lawsuits have been filed regarding marketing practices and possible underage sales. We expect that our subsidiaries will be subject to some
such cases and investigative requests. To the extent that litigation becomes necessary, we believe that the subsidiaries have strong factual and legal defenses against claims that they unfairly marketed products.
Note 15. Income Per Share
The following is a reconciliation of the numerators and denominators of the basic and diluted EPS computations of net income:
|
Three Months Ended March 31,
|
||||||||||||||||||||||||
|
2024
|
2023
|
|||||||||||||||||||||||
| Per | Per | |||||||||||||||||||||||
|
Income
|
Shares
|
Share
|
Income
|
Shares
|
Share
|
|||||||||||||||||||
|
Basic EPS:
|
||||||||||||||||||||||||
|
Numerator
|
||||||||||||||||||||||||
|
Net income attributable to Turning Point Brands, Inc.
|
$
|
|
$
|
|
||||||||||||||||||||
|
Denominator
|
||||||||||||||||||||||||
|
Weighted average
|
|
$
|
|
|
$
|
|
||||||||||||||||||
|
Diluted EPS:
|
||||||||||||||||||||||||
|
Numerator
|
||||||||||||||||||||||||
|
Net income attributable to Turning Point Brands, Inc.
|
$
|
|
$
|
|
||||||||||||||||||||
|
Interest expense related to Convertible Senior Notes, net of tax
|
|
|
||||||||||||||||||||||
|
Diluted net income attributable to Turning Point Brands. Inc.
|
$
|
|
$
|
|
||||||||||||||||||||
|
Denominator
|
||||||||||||||||||||||||
|
Basic weighted average
|
|
|
||||||||||||||||||||||
|
Convertible Senior Notes
|
|
|
||||||||||||||||||||||
|
Stock options and restricted stock units
|
|
|
||||||||||||||||||||||
|
|
$
|
|
|
$
|
|
|||||||||||||||||||
Note 16. Segment Information
In accordance with ASC
280, Segment Reporting, the Company has three reportable segments, (1) Zig-Zag Products; (2) Stoker’s Products; and (3) Creative
Distribution Solutions. The Zig-Zag Products segment markets and distributes (a) rolling papers, tubes, and related products; (b) finished cigars and MYO cigar wraps and (c) CLIPPER reusable lighters and other accessories. The Stoker’s Products
segment (a) manufactures and markets moist snuff and (b) contracts for and markets loose-leaf chewing tobacco products. The Creative Distribution Solutions segment (a) markets and distributes liquid nicotine products and certain other products
without tobacco and/or nicotine; (b) distributes a wide assortment of products to non-traditional retail outlets via Vapor Beast; and (c) markets and distributes a wide assortment of products to individual consumers via the VaporFi B2C online
platform. Products in the Zig-Zag Products and Stoker’s Products segments are distributed primarily through wholesale distributors in the U.S. and Canada while products in the Creative Distribution Solutions segment are distributed primarily
through e-commerce to non-traditional retail outlets and direct to consumers in the U.S. Corporate
unallocated includes the costs and assets of the Company not assigned to one of the three reportable segments such as intercompany
transfers, deferred taxes, deferred financing fees, and investments in subsidiaries.
The accounting policies of these segments are the same as those of the Company. Corporate costs are not directly charged
to the three reportable segments in the ordinary course of operations. The Company evaluates the performance of its segments and allocates
resources to them based on operating income.
The tables below present financial information about reported segments:
|
Three Months Ended
March 31,
|
||||||||
|
2024
|
2023
|
|||||||
|
Net sales
|
||||||||
|
Zig-Zag products
|
$
|
|
$
|
|
||||
|
Stoker’s products
|
|
|
||||||
| Total Zig-Zag and Stoker’s products |
$ | $ | ||||||
|
Creative Distribution Solutions
|
|
|
||||||
|
Total
|
$
|
|
$
|
|
||||
|
Gross profit
|
||||||||
|
Zig-Zag products
|
$
|
|
$
|
|
||||
|
Stoker’s products
|
|
|
||||||
| Total Zig-Zag and Stoker’s products | $ | $ | ||||||
|
Creative Distribution Solutions
|
|
|
||||||
|
Total
|
$
|
|
$
|
|
||||
|
Operating income (loss)
|
||||||||
|
Zig-Zag products
|
$
|
|
$
|
|
||||
|
Stoker’s products
|
|
|
||||||
|
Corporate unallocated (1)(2)
|
( |
) | ( |
) | ||||
| Total Zig-Zag and Stoker’s products | $ | $ | ||||||
|
Creative Distribution Solutions
|
(
|
)
|
|
|||||
|
Total
|
$
|
|
$
|
|
||||
|
Interest expense, net
|
|
|
||||||
|
Investment (income) loss
|
(
|
)
|
|
|||||
|
Gain on extinguishment of debt
|
|
(
|
)
|
|||||
|
Income before income taxes
|
$
|
|
$
|
|
||||
|
Capital expenditures
|
||||||||
|
Zig-Zag products
|
$
|
|
$
|
|
||||
|
Stoker’s products
|
|
|
||||||
| Total Zig-Zag and Stoker’s products | $ | $ | ||||||
|
Creative Distribution Solutions
|
|
|
||||||
|
Total
|
$
|
|
$
|
|
||||
|
Depreciation and amortization
|
||||||||
|
Zig-Zag products
|
$
|
|
$
|
|
||||
|
Stoker’s products
|
|
|
||||||
| Total Zig-Zag and Stoker’s products | $ | $ | ||||||
|
Creative Distribution Solutions
|
|
|
||||||
|
Total
|
$
|
|
$
|
|
||||
|
(1)
|
|
|
(2)
|
|
|
March 31,
|
December 31,
|
|||||||
|
2024
|
2023
|
|||||||
|
Assets
|
||||||||
|
Zig-Zag products
|
$
|
|
$
|
|
||||
|
Stoker’s products
|
|
|
||||||
|
Corporate unallocated (1)
|
||||||||
| Total Zig-Zag and Stoker’s products | $ |
$ |
||||||
|
Creative Distribution Solutions
|
|
|
||||||
|
Total
|
$
|
|
$
|
|
||||
|
(1)
|
|
Revenue
Disaggregation—Sales Channel
Revenues of the Zig-Zag Products and Stoker’s Products
segments are primarily comprised of sales made to wholesalers while Creative Distribution Solutions sales are made business to business and business to consumer, both online and through our corporate retail stores. Creative Distribution Solutions
net sales are broken out by sales channel below.
|
Creative Distribution
Solutions Segment
|
||||||||
| Three Months Ended | ||||||||
|
March 31,
|
||||||||
|
2024
|
2023
|
|||||||
|
Business to Business
|
$
|
|
$
|
|
||||
|
Business to Consumer - Online
|
|
|
||||||
|
Other
|
|
|
||||||
|
Total
|
$
|
|
$
|
|
||||
Net
Sales—Domestic vs. Foreign
The following table shows a breakdown of consolidated net sales between domestic and foreign customers.
| Three Months Ended | ||||||||
|
March 31,
|
||||||||
|
2024
|
2023
|
|||||||
|
Domestic
|
$
|
|
$
|
|
||||
|
Foreign
|
|
|
||||||
|
Total
|
$
|
|
$
|
|
||||
Note 17. Additional Information with Respect to Unrestricted Subsidiary
Under the terms of the Senior Secured Notes Indenture and Senior Secured Notes, the Company has designated its subsidiaries, South Beach Brands LLC, TPB Beast LLC
and Intrepid Brands, LLC as “Unrestricted Subsidiaries”. South Beach Brands LLC is a holding company under which our vape business TPB Beast LLC operating as Creative Distribution Solutions sits. The Company is required under the terms of the
Senior Secured Notes Indenture and the Senior Secured Notes to present additional information that reflects the financial condition and results of operations of the Company and its Restricted Subsidiaries separate from the financial condition and
results of operations of the Company’s Unrestricted Subsidiaries as of and for the periods presented. This additional information is below.
Income Statement for the Three Months Ended March 31, 2024 and 2023 (unaudited):
| Three Months Ended March 31 | ||||||||||||||||||||||||
| 2024 |
2023 | |||||||||||||||||||||||
|
Company and
Restricted
Subsidiaries
|
Unrestricted
Subsidiaries
|
Consolidated
|
Company and
Restricted
Subsidiaries
|
Unrestricted
Subsidiaries
|
Consolidated | |||||||||||||||||||
|
Net sales
|
$
|
|
$
|
|
$
|
|
$ | $ | $ | |||||||||||||||
|
Cost of sales
|
|
|
|
|||||||||||||||||||||
|
Gross profit
|
|
|
|
|||||||||||||||||||||
|
Selling, general, and administrative expenses
|
|
|
|
|||||||||||||||||||||
|
Operating income (loss)
|
|
(
|
)
|
|
||||||||||||||||||||
|
Interest expense, net
|
|
|
|
|||||||||||||||||||||
|
Investment (gain) loss
|
(
|
)
|
|
(
|
)
|
|||||||||||||||||||
|
Gain on extinguishment of debt
|
|
|
|
( |
) | ( |
) | |||||||||||||||||
|
Income (loss) before income taxes
|
|
(
|
)
|
|
||||||||||||||||||||
|
Income tax expense (benefit)
|
|
(
|
)
|
|
||||||||||||||||||||
|
Consolidated net income (loss)
|
|
(
|
)
|
|
||||||||||||||||||||
|
Net income (loss) attributable to non-controlling interest
|
|
|
|
( |
) | ( |
) | |||||||||||||||||
|
Net income (loss) attributable to Turning Point Brands, Inc.
|
$
|
|
$
|
(
|
)
|
$
|
|
$ | $ | $ | ||||||||||||||
Balance Sheet as of March 31, 2024 (unaudited):
|
ASSETS
|
Company and
Restricted
Subsidiaries
|
Unrestricted
Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||
|
Current assets:
|
||||||||||||||||
|
Cash
|
$
|
|
$
|
|
$ |
$
|
|
|||||||||
|
Accounts receivable, net
|
|
|
|
|||||||||||||
|
Inventories, net
|
|
|
|
|||||||||||||
|
Other current assets
|
|
|
|
|||||||||||||
|
Total current assets
|
|
|
|
|||||||||||||
|
Property, plant, and equipment, net
|
|
|
|
|||||||||||||
|
Deferred income taxes
|
|
|
|
|||||||||||||
|
Right of use assets
|
|
|
|
|||||||||||||
|
Deferred financing costs, net
|
|
|
|
|||||||||||||
|
Goodwill
|
|
|
|
|||||||||||||
|
Other intangible assets, net
|
|
|
|
|||||||||||||
|
Master Settlement Agreement (MSA) escrow deposits
|
|
|
|
|||||||||||||
|
Other assets
|
|
|
|
|||||||||||||
| Investment in unrestricted subsidiaries |
( |
) | ||||||||||||||
|
Total assets
|
$
|
|
$
|
|
$ | ( |
) |
$
|
|
|||||||
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
||||||||||||||||
|
Current liabilities:
|
||||||||||||||||
|
Accounts payable
|
$ | $ | $ | $ | ||||||||||||
|
Accrued liabilities
|
|
|
|
|||||||||||||
|
Current portion of long-term debt
|
||||||||||||||||
|
Total current liabilities
|
|
|
|
|||||||||||||
|
Notes payable and long-term debt
|
|
|
|
|||||||||||||
|
Lease liabilities
|
|
|
|
|||||||||||||
|
Total liabilities
|
|
|
|
|||||||||||||
|
Commitments and contingencies
|
||||||||||||||||
|
Stockholders’ equity:
|
||||||||||||||||
|
Total Turning Point Brands, Inc. Stockholders’ Equity/Net parent investment in unrestricted subsidiaries
|
|
|
( |
) |
|
|||||||||||
|
Non-controlling interest
|
|
|
|
|||||||||||||
|
Total stockholders’ equity
|
|
|
( |
) |
|
|||||||||||
|
Total liabilities and stockholders’ equity
|
$
|
|
$
|
|
$ | ( |
) |
$
|
|
|||||||
Balance Sheet as of December 31, 2023:
|
ASSETS
|
Company and
Restricted
Subsidiaries
|
Unrestricted
Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||
|
Current assets:
|
||||||||||||||||
|
Cash
|
$
|
|
$
|
|
$ |
$
|
|
|||||||||
|
Accounts receivable, net
|
|
|
|
|||||||||||||
|
Inventories, net
|
|
|
|
|||||||||||||
|
Other current assets
|
|
|
|
|||||||||||||
|
Total current assets
|
|
|
|
|||||||||||||
|
Property, plant, and equipment, net
|
|
|
|
|||||||||||||
|
Deferred income taxes
|
|
|
|
|||||||||||||
|
Right of use assets
|
|
|
|
|||||||||||||
|
Deferred financing costs, net
|
|
|
|
|||||||||||||
|
Goodwill
|
|
|
|
|||||||||||||
|
Other intangible assets, net
|
|
|
|
|||||||||||||
|
Master Settlement Agreement (MSA) escrow deposits
|
|
|
|
|||||||||||||
|
Other assets
|
|
|
|
|||||||||||||
| Investment in unrestricted subsidiaries |
( |
) | ||||||||||||||
|
Total assets
|
$
|
|
$
|
|
$ |
( |
) |
$
|
|
|||||||
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
||||||||||||||||
|
Current liabilities:
|
||||||||||||||||
|
Accounts payable
|
$
|
|
$
|
|
$ |
$
|
|
|||||||||
|
Accrued liabilities
|
|
|
|
|||||||||||||
|
Current portion of long-term debt
|
|
|
|
|||||||||||||
|
Total current liabilities
|
|
|
|
|||||||||||||
|
Notes payable and long-term debt
|
|
|
|
|||||||||||||
|
Lease liabilities
|
|
|
|
|||||||||||||
|
Total liabilities
|
|
|
|
|||||||||||||
|
Commitments and contingencies
|
||||||||||||||||
|
Stockholders’ equity:
|
||||||||||||||||
|
Total Turning Point Brands, Inc. Stockholders’ Equity/Net parent investment in unrestricted subsidiaries
|
|
|
( |
) |
|
|||||||||||
|
Non-controlling interest
|
|
|
|
|||||||||||||
|
Total stockholders’ equity
|
|
|
( |
) |
|
|||||||||||
|
Total liabilities and stockholders’ equity
|
$
|
|
$
|
|
$ |
( |
) |
$
|
|
|
||||||
Note 18. Dividends and Share Repurchases
A dividend of $0.07 per common share
was paid on April 12, 2024 , to shareholders of record at the close of business on March 22, 2024 .
The Company currently pays a quarterly cash dividend. Dividends are considered restricted payments under the Senior Secured Notes Indenture. The
Company is generally permitted to make restricted payments provided that, at the time of payment, or as a result of payment, the Company is not in default on its debt covenants. Additional earnings and market capitalization restrictions limit the
aggregate amount of restricted, quarterly dividends during a fiscal year.
On February 25, 2020, the Company’s Board of Directors approved a $50.0 million share repurchase program which is intended for opportunistic execution based upon a variety of factors including market dynamics. The program is subject to the ongoing discretion
of the Board of Directors. On October 25, 2021, the Board of Directors increased the approved share repurchase
program by $30.7 million and by an additional $24.6
million on February 24, 2022, in each case bringing the aggregate approval back to $50.0 2.1 million of common stock, with $25.1 million remaining available for share repurchases under the program at March 31, 2024.
You should read the following discussion of the historical financial conditions and results of operations in conjunction with our consolidated financial statements and
accompanying notes, which are included elsewhere in this Quarterly Report on Form 10-Q. In addition, this discussion includes forward-looking statements which are subject to risks and uncertainties that may result in actual results differing from
statements we make. See “Cautionary Note Regarding Forward-Looking Statements.” Factors that could cause actual results to differ include those risks and uncertainties discussed in “Risk Factors.”
The following Management’s Discussion and Analysis (“MD&A”) relates to the unaudited financial statements of Turning Point Brands, Inc., included elsewhere in this Quarterly
Report on Form 10-Q. The MD&A is intended to enable the reader to understand the Company’s financial condition and results of operations, including any material changes in the Company’s financial condition and results of operations since
December 31, 2023, and as compared with the three months ended March 31, 2023. The MD&A is provided as a supplement to and should be read in conjunction with the unaudited consolidated financial statements and notes thereto included in this
Quarterly report on Form 10-Q, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in the Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “2023 Annual Report”).
In this MD&A, unless the context requires otherwise, references to “our Company” “we,” “our,” or “us” refer to Turning Point Brands, Inc., and its consolidated subsidiaries.
References to “TPB” refer to Turning Point Brands, Inc., without any of its subsidiaries. We were incorporated in 2004 under the name North Atlantic Holding Company, Inc. On November 4, 2015, we changed our name to Turning Point Brands, Inc. Many
of the amounts and percentages in this discussion have been rounded for convenience of presentation.
Overview
Turning Point Brands, Inc. is a leading manufacturer, marketer and distributor of branded consumer products. We sell a wide range of products to adult consumers consisting of staple products with
our iconic brands Zig-Zag® and Stoker’s® and our next generation products to fulfill evolving consumer preferences. Among other markets, we compete in the alternative smoking
accessories and Other Tobacco Products (“OTP”) industries. The alternative smoking accessories market is a dynamic market experiencing robust secular growth driven by cannabinoid legalization in the U.S. and Canada, and positively evolving
consumer perception and acceptance in North America. The OTP industry, which consists of non-cigarette tobacco products, exhibited low-single-digit consumer unit annualized growth over the four-year period ended 2023 as reported by Management
Science Associates, Inc. a third-party analytics and information company. Our segments are led by our core proprietary and iconic brands: Zig-Zag® and CLIPPER® in the Zig-Zag Products segment and Stoker’s®
along with Beech-Nut® and Trophy® in the Stoker’s Products segment. Our businesses generate solid cash flow which we use to invest in our business, finance acquisitions, increase brand support,
expand our distribution infrastructure, and strengthen our capital position. We currently ship to approximately 820 distributors with an additional 650 secondary, indirect wholesalers in the U.S. that carry and sell our products. Under the
leadership of a senior management team with extensive experience in the consumer products, alternative smoking accessories and tobacco industries, we have grown and diversified our business through new product launches, category expansions, and
acquisitions while concurrently improving operational efficiency.
We believe there are meaningful opportunities to grow through investing in organic growth, acquisitions and joint ventures across all product categories. Our products are currently available in
approximately 197,000 U.S. retail locations which, with the addition of retail stores in Canada, brings our total North American retail presence to an estimated 217,000 points of distribution. Our sales team targets widespread distribution to all
traditional retail channels, including convenience stores, and we have a growing e-commerce business.
Products
We operate in three segments: Zig-Zag Products, Stoker’s Products and Creative Distribution Solutions. In our Zig-Zag Products segment, we principally market and distribute (i) rolling papers,
tubes, and related products; (ii) finished cigars and make-your-own (“MYO”) cigar wraps; and (iii) CLIPPER reusable lighters and other accessories. In addition, we have a majority stake in Turning Point Brands Canada which is a specialty
marketing and distribution firm focused on building brands in the Canadian cannabis accessories, tobacco and alternative products categories. In our Stoker’s Products segment, we (i) manufacture and market moist snuff tobacco (“MST”) and (ii)
contract for and market loose leaf chewing tobacco products. In our Creative Distribution Solutions segment, we (i) market and distribute liquid nicotine products and certain other products without tobacco and/or nicotine; (ii) distribute a wide
assortment of products to non-traditional retail via VaporBeast; and (iii) market and distribute a wide assortment of products to individual consumers via the VaporFi B2C online platform.
Operations
Our core Zig-Zag Products and Stoker’s Products segments primarily generate revenues from the sale of our products to wholesale distributors who, in turn, resell the products to retail operations.
Our acquisition of Vapor Beast in 2016 expanded our revenue streams as we began selling directly to non-traditional retail outlets. Our acquisition of IVG in 2018 enhanced our B2C revenue stream with the addition of the Vapor-Fi online
platform. Our net sales, which include federal excise taxes, consist of gross sales net of cash discounts, returns, and selling and marketing allowances.
We rely on long-standing relationships with high-quality, established manufacturers to provide the majority of our produced products. Approximately 75% of our production, as measured by net sales,
is outsourced to suppliers. The remaining production consists primarily of our moist snuff tobacco operations located in Dresden, Tennessee and Louisville, Kentucky. Our principal operating expenses include the cost of raw materials used to
manufacture the limited number of our products which we produce in-house; the cost of finished products, which are generally purchased goods; federal excise taxes; legal expenses; and compensation expenses, including benefits and costs of
salaried personnel.
Key Factors Affecting Our Results of Operations
We consider the following to be the key factors affecting our results of operations:
|
●
|
Our ability to further penetrate markets with our existing products;
|
| ● |
Our ability to introduce new products and product lines that complement our core business;
|
| ● |
Decreasing interest in some tobacco products among consumers;
|
| ● |
Price sensitivity in our end-markets;
|
| ● |
Marketing and promotional initiatives, which cause variability in our results;
|
| ● |
Costs and increasing regulation of promotional and advertising activities;
|
| ● |
General economic conditions, including consumer access to disposable income and other conditions affecting purchasing power such as inflation and the interest rate environment;
|
| ● |
Labor and production costs;
|
| ● |
Cost of complying with regulation, including the “deeming regulation”;
|
| ● |
Increasing and unpredictable regulation and/or marketing order decisions impacting Creative Distribution Solutions products;
|
| ● |
Counterfeit and other illegal products in our end-markets;
|
| ● |
Currency fluctuations;
|
| ● |
Our ability to identify attractive acquisition opportunities; and
|
| ● |
Our ability to successfully integrate acquisitions.
|
Critical Accounting Policies and Uses of Estimates
There have been no material changes to our critical accounting policies and estimates from the information provided in “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” included in our 2023 Annual Report on Form 10-K.
Recent Accounting Pronouncements
There are no recent accounting pronouncements that impact the Company.
Recent Developments
Non-Marketable Equity Investments
In January 2024, the Company invested $0.8 million in Teaza Energy, LLC (“TeaZa”), an innovative brand of flavorful oral pouch products designed as a healthier alternative to high energy drinks
and other oral stimulants. The Company’s investment is comprised of $0.5 million in cash and a $0.3 million payable to be offset against the Company’s allocated portion of future profit distributions.
Results of Operations
Comparison of the Three Months Ended March 31, 2024, to the Three Months Ended March 31, 2023
The table and discussion set forth below displays our consolidated results of operations (in thousands):
|
|
Three Months Ended March 31,
|
|||||||||||
|
|
2024
|
2023
|
% Change
|
|||||||||
|
Consolidated Results of Operations Data:
|
||||||||||||
|
Net sales
|
||||||||||||
|
Zig-Zag products
|
$
|
46,697
|
$
|
41,887
|
11.5
|
%
|
||||||
|
Stoker’s products
|
36,367
|
33,662
|
8.0
|
%
|
||||||||
|
Total Zig-Zag and Stoker’s products
|
83,064
|
75,549
|
9.9
|
%
|
||||||||
|
Creative Distribution Solutions
|
13,994
|
25,407
|
-44.9
|
%
|
||||||||
|
Total net sales
|
97,058
|
100,956
|
-3.9
|
%
|
||||||||
|
Cost of sales
|
45,146
|
52,339
|
-13.7
|
%
|
||||||||
|
Gross profit
|
||||||||||||
|
Zig-Zag products
|
27,538
|
22,390
|
23.0
|
%
|
||||||||
|
Stoker’s products
|
20,815
|
19,465
|
6.9
|
%
|
||||||||
|
Total Zig-Zag and Stoker’s products
|
48,353
|
41,855
|
15.5
|
%
|
||||||||
|
Creative Distribution Solutions
|
3,559
|
6,762
|
-47.4
|
%
|
||||||||
|
Total gross profit
|
51,912
|
48,617
|
6.8
|
%
|
||||||||
|
|
||||||||||||
|
Selling, general, and administrative expenses
|
32,646
|
30,775
|
6.1
|
%
|
||||||||
|
Operating income
|
19,266
|
17,842
|
8.0
|
%
|
||||||||
|
Interest expense, net
|
3,479
|
4,010
|
-13.2
|
%
|
||||||||
|
Investment (gain) loss
|
(119
|
)
|
4,799
|
-102.5
|
%
|
|||||||
|
Gain on extinguishment of debt
|
–
|
(777
|
)
|
NM
|
||||||||
|
Income before income taxes
|
15,906
|
9,810
|
62.1
|
%
|
||||||||
|
Income tax expense
|
3,727
|
2,468
|
51.0
|
%
|
||||||||
|
Consolidated net income
|
12,179
|
7,342
|
65.9
|
%
|
||||||||
|
Net income (loss) attributable to non-controlling interest
|
169
|
(255
|
)
|
-166.3
|
%
|
|||||||
|
Net income attributable to Turning Point Brands, Inc.
|
$
|
12,010
|
$
|
7,597
|
58.1
|
%
|
||||||
Net Sales: For the three months ended March 31, 2024, consolidated net sales decreased to $97.1 million from $101.0 million for the three months ended March
31, 2023, a decrease of $3.9 million or 3.9%.
For the three months ended March 31, 2024, net sales in the Zig-Zag Products segment increased to $46.7 million from $41.9 million for the three months ended March 31, 2023, an increase of $4.8
million or 11.5%. The increase in net sales was driven by growth in our U.S. papers and wraps businesses, partially offset by declines in sales in our Clipper business against trade load in prior year.
For the three months ended March 31, 2024, net sales in the Stoker’s Products segment increased to $36.4 million from $33.7 million for the three months ended March 31, 2023, an increase of $2.7
million or 8.0%. For the three months ended March 31, 2024, volume increased 0.1% and price/product mix increased 7.9%. The increase in net sales was driven by mid-single-digit growth of Stoker’s® MST and triple-digit growth of our modern oral product FRE, partially offset by mid-single-digit decline in loose-leaf chewing tobacco.
For the three months ended March 31, 2024, net sales in the Creative Distribution Solutions segment decreased to $14.0 million from $25.4 million for the three months ended March 31, 2023, a
decrease of $11.4 million or 44.9%. The decrease in net sales was primarily the result of lower volumes in the liquid nicotine distribution business and our strategic decision to eliminate certain unprofitable brands and to focus on a narrower
set of products.
Gross Profit: For the three months ended March 31, 2024, consolidated gross profit increased to $51.9 million from $48.6 million for the three months ended
March 31, 2023, an increase of $3.3 million or 6.8%. Gross profit as a percentage of net sales increased to 53.5% for the three months ended March 31, 2024, compared to 48.2% for the three months ended March 31, 2023 driven by product mix in our
Zig-Zag Products segment.
For the three months ended March 31, 2024, gross profit in the Zig-Zag Products segment increased to $27.5 million from $22.4 million for the three months ended March 31, 2023, an increase of $5.1
million or 23.0%. Gross profit as a percentage of net sales increased to 59.0% of net sales for the three months ended March 31, 2024, from 53.5% of net sales for the three months ended March 31, 2023, driven primarily by product mix.
For the three months ended March 31, 2024, gross profit in the Stoker’s Products segment increased to $20.8 million from $19.5 million for the three months ended March 31, 2023, an increase of $1.3
million or 6.9%. Gross profit as a percentage of net sales decreased to 57.2% of net sales for the three months ended March 31, 2024, from 57.8% of net sales for the three months ended March 31, 2023, primarily as a result of product mix, as net
sales of FRE were higher and have lower margins than other products in the segment.
For the three months ended March 31, 2024, gross profit in the Creative Distribution Solutions segment decreased to $3.6 million from $6.8 million for the three months ended March 31, 2023, a
decrease of $3.2 million or 47.4%. Gross profit as a percentage of net sales decreased to 25.4% of net sales for the three months ended March 31, 2024, from 26.6% of net sales for the three months ended March 31, 2023, primarily as a result of
channel mix and our strategic decision to eliminate certain unprofitable brands and to focus on a narrower set of products.
Selling, General, and Administrative Expenses: For the three months ended March 31, 2024, selling, general, and administrative expenses increased to $32.6
million from $30.8 million for the three months ended March 31, 2023, an increase of $1.9 million or 6.1%. Selling, general and administrative expenses in the three months ended March 31, 2024, included $2.1 million of stock options, restricted
stock and incentives expense, $0.8 million of expense related to PMTA, $1.3 million of expense related to corporate restructuring, and $0.1 million of expense related to the new ERP and CRM systems. Selling, general and administrative expenses in
the three months ended March 31, 2023, included $0.7 million of stock options, restricted stock and incentives expense, $0.2 million of expense related to PMTA and $0.1 million of consulting expense related to the scoping and mobilization of the
new ERP and CRM systems.
Interest Expense, net: For the three months ended March 31, 2024, interest expense, net decreased to $3.5 million from $4.0 million for the three months
ended March 31, 2023 as a result of increased interest income on cash deposits as a result of rising interest rates.
Investment (Gain) Loss: For the three months ended March 31, 2024, we had an investment gain of $0.1 million compared to a $4.8 million loss for the three
months ended March 31, 2023. The change is a result of an impairment charge recognized on our investment in Docklight for $4.9 million in the first quarter of 2023.
Gain on Extinguishment of Debt: There was no gain or loss on extinguishment of debt for the three months ended March 31, 2024 compared to a $0.8 million gain
for the three months ended March 31, 2023 as a result of repurchasing $13.9 million of Convertible Senior Notes in the first quarter of 2023.
Income Tax Expense: Our income tax expense of $3.7 million was 23.4% of income before income taxes for the three months ended March 31, 2024. Our effective
income tax rate was 25.2% for the three months ended March 31, 2023.
Net Income (Loss) Attributable to Non-Controlling Interest: Net gain attributable to non-controlling interest was $0.2 million for the three months ended
March 31, 2024 compared to $0.3 million net loss for the three months ended March 31, 2023.
Net Income Attributable to Turning Point Brands, Inc.: Due to the factors described above, net income attributable to Turning Point Brands, Inc. for the
three months ended March 31, 2024 and 2023, was $12.0 million and $7.6 million, respectively.
EBITDA and Adjusted EBITDA
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 and Adjusted EBITDA. We believe Adjusted EBITDA provides useful information to management and investors regarding certain financial and business trends relating to our financial condition and results of operations. Adjusted EBITDA is
used by management to compare our performance to that of prior periods for trend analyses and planning purposes and is presented to our Board of Directors. We believe that EBITDA and Adjusted EBITDA are appropriate measures of operating
performance because they eliminate the impact of expenses that do not relate to operating performance. In addition, our debt instruments contain covenants which use Adjusted EBITDA calculations.
We define “EBITDA” as net income before interest expense, gain (loss) on extinguishment of debt, provision for income taxes, depreciation, and amortization. We define “Adjusted EBITDA” as net
income before interest expense, gain (loss) on extinguishment of debt, provision for income taxes, depreciation, amortization, other non-cash items, and other items we do not consider the ordinary course in our evaluation of ongoing operating
performance noted in the reconciliation below.
Non-U.S. GAAP measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with U.S. GAAP. Adjusted EBITDA excludes significant expenses required
to be recorded in our financial statements by U.S. GAAP and is subject to inherent limitations. 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. The tables below provide reconciliations between net income and Adjusted EBITDA.
|
(in thousands)
|
Three Months Ended
March 31,
|
|||||||
|
|
2024
|
2023
|
||||||
|
Net income attributable to Turning Point Brands, Inc.
|
$
|
12,010
|
$
|
7,597
|
||||
|
Add:
|
||||||||
|
Interest expense, net
|
3,479
|
4,010
|
||||||
|
Gain on extinguishment of debt
|
–
|
(777
|
)
|
|||||
|
Income tax expense
|
3,727
|
2,468
|
||||||
|
Depreciation expense
|
837
|
776
|
||||||
|
Amortization expense
|
886
|
771
|
||||||
|
EBITDA
|
$
|
20,939
|
$
|
14,845
|
||||
|
Components of Adjusted EBITDA
|
||||||||
|
Corporate and CDS restructuring (a)
|
1,261
|
–
|
||||||
|
ERP/CRM (b)
|
138
|
138
|
||||||
|
Stock options, restricted stock, and incentives expense (c)
|
2,062
|
743
|
||||||
|
Transactional expenses and strategic initiatives (d)
|
30
|
4
|
||||||
|
FDA PMTA (e)
|
841
|
158
|
||||||
|
Non-cash asset impairment (f)
|
–
|
4,897
|
||||||
|
Adjusted EBITDA
|
$
|
25,271
|
$
|
20,785
|
||||
| (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 investment assets.
|
Liquidity and Capital Resources
As of March 31, 2024, we have $130.9 million of cash on hand and have $59.0 million of availability under the 2023 ABL Facility. Our principal uses for cash are working capital, debt service, and
capital expenditures.
Our Convertible Senior Notes, with an outstanding balance of $118.5 million as of March 31, 2024, mature in July 2024. On November 7, 2023, one of our wholly-owned subsidiaries entered into the
2023 ABL Facility to refinance up to $75.0 million of the Convertible Senior Notes at maturity. As a result, we classified $59.0 million (our current availability under the 2023 ABL Facility based on borrowing base calculations) related to the
Convertible Senior Notes in long-term liabilities on our March 31, 2024 Consolidated Balance Sheet. With our strong cash balance, free cash flow generation and borrowing availability under the 2023 ABL Facility, we expect to have ample
liquidity to address the remaining balance of the Convertible Senior Notes maturing in July, and to satisfy our operating cash requirements for the foreseeable future.
Our working capital, which we define as current assets less cash and current liabilities, decreased to $38.8 million at March 31, 2024, compared with $49.4 million at December 31, 2023. The decrease
in working capital is primarily a result of the timing of inventory payments as well as $3.0 million insurance deposits being invested in investments.
|
|
As of
|
|||||||
|
(in thousands)
|
March 31,
2024
|
December 31,
2023
|
||||||
|
|
||||||||
|
Current assets
|
$
|
148,102
|
$
|
149,730
|
||||
|
Current liabilities
|
109,305
|
100,336
|
||||||
|
Working capital
|
$
|
38,797
|
$
|
49,394
|
||||
Cash Flows from Operating Activities
For the three months ended March 31, 2024, net cash provided by operating activities was $22.6 million compared to net cash provided by operating activities of $15.4 million for the three months
ended March 31, 2023, an increase of $7.2 million, primarily due to the timing of changes in other working capital and net income from operations.
Cash Flows from Investing Activities
For the three months ended March 31, 2024, net cash used in investing activities was $8.0 million compared to net cash used in investing activities of $2.4 million for the three months ended March
31, 2023, an increase in cash used in investing activities of $5.6 million, primarily due to an increase in purchases of captive insurance investments.
Cash Flows from Financing Activities
For the three months ended March 31, 2024, net cash used in financing activities was $4.6 million compared to net cash used in financing activities of $14.6 million for the three months ended March
31, 2023, a decrease of $10.0 million, primarily due to an increase in repurchases of common stock of $2.1 million during the period, offset by $13.0 million in repurchases of Convertible Senior Notes during the same period in 2023.
Dividends and Share Repurchase
A dividend of $0.07 per common share was paid on April 12, 2024, to shareholders of record at the close of business on March 22, 2024.
On February 25, 2020, our Board of Directors approved a $50.0 million share repurchase program, which is intended for opportunistic execution based upon a variety of factors including market
dynamics. The program is subject to the ongoing discretion of the Board of Directors. On October 25, 2021, the Board of Directors increased the approved share repurchase program by $30.7 million and by an additional $24.6 million on February 24,
2022. In the first quarter of 2024, the Company repurchased $2.1 million of common stock, with $25.1 million remaining available for share repurchases under the program as of March 31, 2024.
Long-Term Debt
Notes payable and long-term debt consisted of the following at March 31, 2024 and December 31, 2023, in order of preference:
|
|
March 31,
2024
|
December 31,
2023
|
||||||
|
Senior Secured Notes
|
$
|
250,000
|
$
|
250,000
|
||||
|
Convertible Senior Notes
|
118,541
|
118,541
|
||||||
|
Gross notes payable and long-term debt
|
368,541
|
368,541
|
||||||
|
Less deferred finance charges
|
(2,648
|
)
|
(3,183
|
)
|
||||
|
Less current maturities
|
(59,397
|
)
|
(58,294
|
)
|
||||
|
Notes payable and long-term debt
|
$
|
306,496
|
$
|
307,064
|
||||
Senior Secured Notes
On February 11, 2021, we closed a private offering (the “Offering”) of $250 million aggregate principal amount of our 5.625% senior secured notes due 2026 (the “Senior Secured Notes”). The Senior
Secured Notes bear interest at a rate of 5.625% and will mature on February 15, 2026. Interest on the Senior Secured Notes is payable semi-annually in arrears on February 15 and August 15 of each year, commencing on August 15, 2021.We used the
proceeds from the Offering (i) to repay all obligations under and terminate the 2018 First Lien Credit Facility, (ii) to pay related fees, costs, and expenses and (iii) for general corporate purposes.
Obligations under the Senior Secured Notes are guaranteed by the Company’s existing and future wholly-owned domestic subsidiaries (the “Guarantors”) that guarantee any credit facility (as defined
in the indenture governing the Senior Secured Notes or the “Senior Secured Notes Indenture”) or capital markets debt securities of the Company or Guarantors in excess of $15.0 million. The Senior Secured Notes and the related guarantees are
secured by first-priority liens on substantially all of the assets of the Company and the Guarantors, subject to certain exceptions.
The Company may redeem the Senior Secured Notes, in whole or in part, at any time, at the redemption prices (expressed as a percentage of the principal amount to be redeemed) set forth below, plus
accrued and unpaid interest, if any, on the Senior Secured Notes to be redeemed to (but not including) the applicable redemption date if redeemed during the period indicated below:
|
On or after February 15, 2023
|
102.813
|
%
|
||
|
On or after February 15, 2024
|
101.406
|
%
|
||
|
On or after February 15, 2025 and thereafter
|
100.000
|
%
|
If we experience a change of control (as defined in the Senior Secured Notes Indenture), we must offer to repurchase the Senior Secured Notes at a repurchase price equal to 101% of the principal
amount of the Notes to be repurchased, plus accrued and unpaid interest.
The Senior Secured Notes Indenture contains covenants that, among other things, restrict the ability of the Company and its restricted subsidiaries to: (i) grant or incur liens; (ii) incur, assume
or guarantee additional indebtedness; (iii) sell or otherwise dispose of assets, including capital stock of subsidiaries; (iv) make certain investments; (v) pay dividends, make distributions or redeem or repurchase capital stock; (vi) engage in
certain transactions with affiliates; and (vii) consolidate or merge with or into, or sell substantially all of our assets to another entity. These covenants are subject to a number of limitations and exceptions set forth in the Senior Secured
Notes Indenture. The Senior Secured Notes Indenture provides for customary events of default. We were in compliance with all covenants as of March 31, 2024.
We incurred debt issuance costs attributable to the issuance of the Senior Secured Notes of $6.4 million which are amortized to interest expense using the straight-line method over the expected
life of the Senior Secured Notes.
2021 Revolving Credit Facility
In connection with the Offering, we also entered into a $25.0 million senior secured revolving credit facility (the “2021 Revolving Credit Facility”) with the lenders party thereto and Barclays
Bank PLC, as administrative agent and collateral agent (in such capacity, the “Agent”). This facility was terminated in November 2023 in connection with the entry by a subsidiary of the Company in a new asset-backed revolving credit facility.
See “2023 ABL Facility” below. We incurred debt issuance costs attributable to the issuance of the 2021 Revolving Credit Facility of $0.5 million, with the remaining $0.2 million written off to gain on debt extinguishment upon termination of
the facility.
2023 ABL Facility
On November 7, 2023, TPB Specialty Finance, LLC, a wholly-owned subsidiary of the Company (the “ABL Borrower”), entered into a new $75.0 million asset-backed revolving credit facility (the “2023
ABL Facility”), with the several lenders thereunder, and Barclays Bank Plc, as administrative agent (the “Administrative Agent”) and as collateral agent (the “Collateral Agent”) and First-Citizens Bank & Trust Company as additional
collateral agent (the “Additional Collateral Agent”). Under the 2023 ABL Facility, the ABL Borrower may draw up to $75.0 million under Revolving Credit Loans and Last In Last Out (“LILO”) Loans. The 2023 ABL Facility includes a $40.0 million
accordion feature. In connection with the 2023 ABL Facility, Turning Point Brands contributed certain existing inventory to the ABL Borrower. The 2023 ABL Facility is secured on a first priority basis (subject to customary exceptions) by all
assets of the ABL Borrower.
The 2023 ABL Facility contains customary borrowing conditions including a borrowing base equal to the sum of (a) the lesser of (1) 85% of the lower of (A) the market value (on a first in first out
basis) of the sum of eligible inventory, plus eligible in-transit inventory of the ABL Borrower and (B) 85% of the cost of the sum of eligible inventory, plus eligible in-transit inventory of the ABL Borrower and (2) 85% of the net orderly
liquidation value (“NOLV”) percentage of the lower of (1)(A) or (1)(B); plus (b) 85% of the face value of all eligible accounts of the ABL Borrower minus (c) the amount of all eligible reserves. The 2023 ABL Facility also includes a LILO
borrowing base equal to the sum of (a) the lesser of: (1) 10% of the lower of (A) the market value (on a first in first out basis) of the sum of eligible inventory, plus eligible in-transit inventory of the ABL Borrower and (B) the cost of the
sum of eligible inventory, plus eligible in-transit inventory and (2) 10% of the NOLV percentage of the lower of (1)(A) or (1)(B); plus (b) 10% of the face amount of eligible account; minus (c) the amount of all eligible reserves.
Amounts borrowed under the 2023 ABL Facility are subject to an interest rate margin per annum equal to (a) from and after the closing date until the last day of the first full fiscal quarter ended
after the closing date, (i) 1.25% per annum, in the case base rate loans, and (ii) 2.25% per annum, in the case of revolving credit loans that are SOFR Loans, (b)(i) 2.25% per annum, in the case of LILO loans that are base rate loans, and (ii)
3.25% per annum, in the case of LILO loans that are SOFR loans, (c) on the first day of each fiscal quarter, the applicable interest rate margins will be determined from the pricing grid below based upon the historical excess availability for the
most recent fiscal quarter ended immediately prior to the relevant date, as calculated by the Administrative Agent.
|
Level
|
Historical Excess Availability
|
Applicable Margin
for SOFR Loans
|
Applicable Margin
for Base Rate Loans
|
|
|
I
|
Greater than or equal to 66.66%
|
1.75%
|
0.75%
|
|
|
II
|
Less than 66.66%, but greater than or
equal to 33.33%
|
2.00%
|
1.00%
|
|
|
III
|
Less than 33.33%
|
2.25%
|
1.25%
|
The 2023 ABL Facility also requires the Company and its restricted subsidiaries to maintain a fixed charge coverage ratio of at least 1.00 to 1.00 as of the end of any four consecutive fiscal
quarters if excess availability shall be less than the greater of (a) 12.5% of the line cap and (b) $9.4 million, at any time and continuing until excess availability is equal to or exceeds the greater of (i) 12.5% of the line and (ii) $9.4
million for thirty (30) consecutive calendar days; provided that such $9.4 million level shall automatically increase in proportion to the amount of any increase in the aggregate revolving credit commitments thereunder in connection with any
incremental facility.
The 2023 ABL Facility will mature on the earlier of (x) November 7, 2027 and (y) the date that is 91 days prior to the maturity date of any material debt of the ABL Borrower or the Company or any
of its restricted subsidiaries (subject to customary extensions agreed by the lenders thereunder); provided that clause (y) shall not apply to the extent that on any applicable date of determination (on any date prior to the date set forth in
clause (y)), (A) the sum of (x) cash that is held in escrow for the repayment of such material debt pursuant to arrangements satisfactory to the Administrative Agent, (y) cash that is held in accounts with the Administrative Agent and/or the
Additional Collateral Agent, plus (z) excess availability, is sufficient to repay such material debt and (B) the ABL Borrower has excess availability of at least $15.0 million after giving effect to such repayment of material debt, including
any borrowings under the commitments in connection therewith.
The Company has not drawn any borrowings under the 2023 ABL Facility but has letters of credit of approximately $1.2 million outstanding under the facility and has an available balance of $59.0
million based on the borrowing base as of March 31, 2024.
The Company incurred debt issuance costs attributable to the 2023 ABL Facility of $2.6 million which are amortized to interest expense using the straight-line method over the expected life of the
2023 ABL Facility.
Convertible Senior Notes
In July 2019, the Company closed an offering of $172.5 million in aggregate principal amount of its 2.50% Convertible Senior Notes due July 15, 2024 (the “Convertible Senior Notes”). The
Convertible Senior Notes bear interest at a rate of 2.50% per year, payable semiannually in arrears on January 15 and July 15 of each year, beginning on January 15, 2020. The Convertible Senior Notes are senior unsecured obligations of the
Company.
In 2023, a wholly owned subsidiary of the Company repurchased $44.0 million in aggregate principal amount of the Convertible Senior Notes on the open market resulting in a $1.9 million gain on
extinguishment of debt. The repurchased notes continue to be held by our subsidiary and may be resold subject to compliance with applicable securities law. As of March 31, 2024, $118.5 million aggregate principal remains outstanding and held by
third parties.
The Convertible Senior Notes held by third parties are convertible into approximately 2,219,704 shares of TPB Common Stock under certain circumstances prior to maturity at a conversion rate of
18.7252 shares per $1,000 principal amount of the Convertible Senior Notes, which represents a conversion price of approximately $53.40 per share, subject to adjustment under certain conditions, but will not be adjusted for any accrued and
unpaid interest. The conversion price is adjusted periodically as a result of dividends paid by the Company in excess of pre-determined thresholds of $0.04 per share. Upon conversion, the Company may pay cash, shares of common stock or a
combination of cash and stock, as determined by the Company at its discretion. The conditions required to allow the holders to convert their Convertible Senior Notes were not met as of March 31, 2024.
As discussed above, on November 7, 2023, a wholly-owned subsidiary of the Company entered into the 2023 ABL Facility to refinance up to $75.0 million of the Convertible Senior notes at maturity.
As a result, the Company classified $59.0 million related to the Convertible Senior Notes in Notes payable and long-term debt on the Company’s March 31, 2024 Consolidated Balance Sheets. Based on current liquidity, free cash flow generation and
availability under the 2023 ABL Facility, the Company believes it will have sufficient liquidity to address the maturity of the remaining Convertible Senior Notes.
The Company incurred debt issuance costs attributable to the Convertible Senior Notes of $5.9 million which are amortized to interest expense using the straight-line method over the expected life
of the Convertible Senior Notes.
In connection with the Convertible Senior Notes offering, the Company entered into privately negotiated capped call transactions with certain financial institutions. The capped call transactions have a strike price of
$53.40 per share and a cap price of $82.86 per share, and are exercisable when, and if, the Convertible Senior Notes are converted. The Company paid $20.53 million for these capped calls at the time they were entered into and charged that amount
to additional paid-in capital.
Off-balance Sheet Arrangements
During the three months ended March 31, 2024, the Company executed no foreign exchange contracts meeting hedge accounting requirements. At March 31, 2024, we had foreign currency contracts
outstanding for the purchase of €9.2 million and sale of €9.2 million, with maturities ranging from April to September 2024. The fair value of the foreign currency contracts were based on quoted market prices and resulted in an asset of $0.0
million included in Other current assets and a liability of $0.1 million included in Accrued liabilities at March 31, 2024. During 2023, we executed various foreign exchange contracts for the purchase of €20.1 million and sale of €15.2 million.
At December 31, 2023, we had foreign currency contracts outstanding for the purchase of €15.2 million and sale of €15.2 million. The fair value of the foreign currency contracts were based on quoted market prices and resulted in an asset of $0.3
million included in Other current assets and a liability of $0.1 million included in Accrued liabilities at December 31, 2023.
Inflation
Inflation in general, coupled with increases in gas prices have had a substantial negative effect on the purchasing power of consumers. While historically, we have been able to increase prices at a
rate equal to or greater than that of inflation, doing so would be difficult in the current inflationary environment. However, we have implemented price increases in areas where doing so has been feasible. In addition, we have been able to
maintain a relatively stable variable cost structure for our products due, in part, to our successful procurement regarding our tobacco products and, in part, to our existing contractual agreement for the purchase of our premium cigarette papers.
Foreign Currency Sensitivity
During the quarter ended March 31, 2024, there have been no material changes in our exposure to exchange rate fluctuation risk, as reported within our 2023 Annual Report on Form 10-K. Please refer
to our ‘Quantitative and Qualitative Disclosures about Market Risk’ included in our 2023 Annual Report on Form 10-K filed with the SEC.
Credit Risk
There have been no material changes in our exposure to credit risk, as reported within our 2023 Annual Report on Form 10-K, during the three months ended March 31, 2024. Please refer to our
‘Quantitative and Qualitative Disclosures about Market Risk’ included in our 2023 Annual Report on Form 10-K filed with the SEC.
Interest Rate Sensitivity
In February 2021, we issued the Senior Secured Notes in an aggregate principal amount of $250 million. In July 2019, we issued Convertible Senior Notes in an aggregate principal amount of $172.5
million. We carry the Senior Secured Notes and Convertible Senior Notes at face value. Since the Senior Secured Notes and Convertible Senior Notes bear interest at a fixed rate, we have no financial statement risk associated with changes in
interest rates. However, the fair value of the Convertible Senior Notes changes when the market price of our stock fluctuates, or interest rates change. Our remaining debt instrument is a revolving credit facility, which has no borrowing
outstanding.
We have carried out an evaluation under the supervision, and with the participation of, our management including our Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”), and Chief
Accounting Officer (“CAO”), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act of 1934), as of March 31, 2024. Based upon the evaluation,
our CEO, CFO, and CAO concluded our disclosure controls and procedures are not effective as of such date solely due to material weaknesses in internal controls over financial reporting that were disclosed in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2023.
As previously described in Part II, Item 9A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, during our evaluation of the effectiveness of our internal control over
financial reporting as of December 31, 2023, we concluded that our internal control over financial reporting was not effective solely due to the existence of the following material weakness:
We did not design and maintain effective internal controls related to our information technology general controls (“ITGCs”) in the areas of user access and
program change-management over certain information technology (“IT”) systems that support the Company’s financial reporting processes. Our business process controls (automated and manual) that are dependent on the affected ITGCs were also deemed
ineffective because they could have been adversely impacted. We believe that these control deficiencies were a result of: IT control processes lacking sufficient documentation such that the successful operation of ITGCs was overly dependent upon
knowledge and actions of certain individuals with IT expertise and inherent system limitations.
The material weakness did not result in any identified misstatements to our financial statements, and there were no changes to previously released financial results. The material weakness will not
be considered remediated until the applicable controls operate for a sufficient period of time, and management has concluded through testing that these controls are operating effectively.
Remediation Plan
While our remediation plan may evolve and expand, management has been implementing and continues to implement measures designed to ensure that control deficiencies contributing to the material
weakness are remediated, such that these controls are designed, implemented, and operating effectively. The remediation actions include: (i) implementation of a new ERP system in 2024; (ii) developing and maintaining documentation underlying
ITGCs; (iii) implementing an IT management review and testing plan to monitor ITGCs with a specific focus on systems supporting our financial reporting processes; and (iv) enhanced quarterly reporting on the remediation measures to the Audit
Committee of the Board of Directors.
We believe that these actions will remediate the material weakness. The material weakness will not be considered remediated, however, until the applicable controls operate for a sufficient period of
time and management has concluded, through testing, that these controls are operating effectively.
PART II—OTHER INFORMATION
For a description of our material pending legal proceedings, please see Contingencies in Note 14 to the Notes to the Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report.
See ‘Risk Factors—We are subject to significant product liability litigation’ within our 2023 Annual Report on Form 10-K for additional details.
In addition to the other information set forth in this report, carefully consider the factors discussed in the ‘Risk Factors’ section contained in our 2023 Annual Report on Form 10-K. There have
been no material changes to the Risk Factors set forth in the 2023 Annual Report on Form 10-K.
On February 25, 2020, the Company’s Board of Directors approved a $50.0 million share repurchase program, which is intended for opportunistic execution based upon a variety of factors including
market dynamics. On October 25, 2021, the Board of Directors increased the approved share repurchase program by $30.7 million bringing the authority at the time back to $50.0 million (including approximately $19.3 million available for
repurchases under the Board of Directors’ previous authorization). On February 24, 2022, the Board of Directors increased the approved share repurchase program by $24.6 million bringing total authority at that time to $50.0 million. This share
repurchase program has no expiration date and is subject to the ongoing discretion of the Board of Directors. All repurchases to date under our stock repurchase programs have been made through open market transactions, but in the future, we may
also purchase shares through privately negotiated transactions or 10b5-1 repurchase plans.
The following table includes information regarding purchases of our common stock made by us during the quarter ended March 31, 2024 in connection with the repurchase program described above.
|
Period
|
Total Number
of Shares
Purchased (1)
|
Average
Price Paid
per Share
|
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
|
Approximate Dollar
Value of Shares
that May Yet Be
Purchased Under the
Plans or Programs
|
||||||||||||
|
January 1 to January 31
|
3,015
|
$
|
26.32
|
–
|
$
|
27,197,886
|
||||||||||
|
February 1 to February 29
|
39,429
|
$
|
24.84
|
–
|
$
|
27,197,886
|
||||||||||
|
March 1 to March 31
|
83,420
|
$
|
27.94
|
72,545
|
$
|
25,118,746
|
||||||||||
|
Total
|
125,864
|
72,545
|
||||||||||||||
| (1) |
The total number of shares purchased includes shares withheld by the Company in an amount equal to the statutory withholding taxes for holders who vested in stock-based awards, which totaled 3,015 shares in
January, 39,429 shares in February and 10,875 shares in March. Shares withheld by the Company to cover statutory withholdings taxes are repurchased pursuant to the applicable plan and not the authorization under the share repurchase
program.
|
Not applicable.
Not applicable.
|
Exhibit No.
|
Description
|
|
Employment Agreement by and between the Company and Andrew Flynn, dated as of March 6, 2024 (incorporated herein by reference to Exhibit 10.1 of Turning Point Brands, Inc’s Current Report
on Form 8-K filed with the Commission on March 12, 2024 (File No. 001-37763)).
|
|
|
Employment Agreement by and between the Company and David Glazek, dated as of March 29, 2024.*
|
|
|
Rule 13a-14(a)/15d-14(a) Certification of Graham Purdy.*
|
|
|
Rule 13a-14(a)/15d-14(a) Certification of Andrew Flynn.*
|
|
|
Rule 13a-14(a)/15d-14(a) Certification of Brian Wigginton.*
|
|
|
Section 1350 Certifications pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
|
|
|
101
|
XBRL (eXtensible Business Reporting Language). The following materials from Turning Point Brands, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2024, filed on May 2,
2024, formatted in Inline XBRL (iXBRL): (i) consolidated balance sheets, (ii) consolidated statements of income, (iii) consolidated statements of comprehensive income, (iv) consolidated statements of cash flows, and (v) the notes to
consolidated financial statements.*
|
|
104
|
Cover Page Interactive Data File (formatted in iXBRL and included in Exhibit 101).*
|
| * |
Filed or furnished herewith
|
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 thereunto duly authorized.
|
TURNING POINT BRANDS, INC.
|
|||
|
By: /s/ Graham Purdy
|
|||
|
Name: Graham Purdy
|
|||
|
Title: President and Chief Executive Officer
|
|||
|
By: /s/ Andrew Flynn
|
|||
|
Name: Andrew Flynn
|
|||
|
Title: Chief Financial Officer
|
|||
|
By: /s/ Brian Wigginton
|
|||
|
Name: Brian Wigginton
|
|||
|
Title: Chief Accounting Officer
|
|||
|
Date: May 2, 2024
|
|||
42