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Turning Point Brands Announces Fourth Quarter and Full Year 2022 Results

-Net Sales for FY 2022 Zig-Zag and Stoker’s Products Increased 6.8 Percent Year-Over-Year

Turning Point Brands, Inc. (“TPB” or “the Company”) (NYSE: TPB), a manufacturer, marketer and distributor of branded consumer products, including alternative smoking accessories and consumables with active ingredients, announced today financial results for the fourth quarter and full year ended December 31, 2022.

Q4 2022 vs. Q4 2021

  • Total consolidated net sales decreased 1.8% to $103.4 million
    • Combined net sales for Zig-Zag and Stoker’s Products increased 1.6% (increased 0.9% and 2.6%, respectively)
    • NewGen net sales declined by 11.1%
  • Gross profit decreased 1.5% to $49.6 million
  • Net income decreased $27.8 million to $($16.3) million primarily due to $34.8 million non-cash asset impairments
  • Adjusted net income decreased $0.2 million to $13.2 million
  • Adjusted EBITDA decreased 2.9% to $23.1 million (see Schedule A for a reconciliation to net income)
  • Diluted EPS of $(0.93) and Adjusted Diluted EPS of $0.69 compared to $0.57 and $0.66 in the same period one year ago, respectively (see Schedule B for a reconciliation to Diluted EPS)

FY 2022 vs. FY 2021

  • Total consolidated net sales decreased 6.8% to $415.0 million
    • Combined net sales for Zig-Zag and Stoker’s Products increased 6.8% (increased 7.9% and 5.3%, respectively)
    • NewGen net sales declined by 35.2%
  • Gross profit decreased 5.6% to $205.5 million
  • Net income decreased $40.4 million to $11.6 million due in part to $41.1 million non-cash asset impairments
  • Adjusted net income decreased $7.4 million to $56.2 million
  • Adjusted EBITDA decreased 9.7% to $97.6 million (see Schedule A for a reconciliation to net income)
  • Diluted EPS of $0.64 and Adjusted Diluted EPS of $2.83 as compared to $2.52 and $3.03 in the same period one year ago, respectively (see Schedule B for a reconciliation to Diluted EPS)

Graham Purdy, President and CEO, commented: “The fourth quarter operating results finished in-line with our expectations with solid execution across our segments. The Zig-Zag segment grew during the quarter despite the impact of a previously disclosed pull-forward in the prior quarter, benefitting from continued market share gains and the contribution from a full quarter of CLIPPER lighters. We are pleased with the ongoing roll-out and strong channel receptivity to the world’s #1 reusable lighter. Stoker’s MST experienced strong share gains as consumer trade-downs to value accelerated, consistent with the current inflationary and economic backdrop. The challenging regulatory environment continues to negatively affect the NewGen segment which was down materially vs. 2021, but with declines moderating in the back half of the year. In addition to returning capital to our shareholders through share repurchases, we opportunistically purchased $10 million notional of our convertible notes during the fourth quarter while maintaining a strong cash balance. Over the last few months since taking on the CEO role, my primary objective has been to re-direct our focus and energy towards driving organic long-term growth. This starts with allocating resources to products, initiatives, and channels best positioned towards this goal. Our organization is now better aligned towards capitalizing on the opportunities in front of us and we look forward to delivering against our long-term plans going forward.”

Zig-Zag Products Segment (45% of total net sales in the quarter)

For the fourth quarter, Zig-Zag Products net sales increased 0.9% to $46.4 million. Both of TPB’s Canadian and other smoking accessories businesses saw strong growth during the quarter. This was partially offset by anticipated declines in the U.S. rolling papers and wraps businesses which were impacted by the previously disclosed pull-forward of sales into the prior quarter due to the timing of promotional programs. For the fourth quarter, total Zig-Zag Products segment volume increased 0.8%, while price / mix increased 0.1%.

For the quarter, the Zig-Zag Products segment gross profit decreased 2.4% to $25.8 million. Gross margin declined 180 basis points to 55.5% driven primarily by product mix including the ramp of our CLIPPER lighters business which operates at lower gross profit margins.

For the full year, net sales of Zig-Zag Products increased 7.9% to $190.4 million with double-digit advances in the U.S. rolling papers and e-commerce, other smoking accessories, and Canadian businesses partially offset by a double-digit decline in the wraps business. For the full year, total Zig-Zag Products segment volume increased 6.4%, while price / mix increased 1.5%.

For the full year, Zig-Zag Products segment gross profit increased 3.7% to $106.6 million. Gross margin contracted 220 basis points to 56.0%, driven primarily by product mix including the launch of our CLIPPER lighters business which operates at lower gross profit margins.

“Zig-Zag papers demonstrated solid share growth for the year while we continue to build our presence in the alternative channel,” said Purdy. “Furthermore, we remain excited about our continued roll-out of CLIPPER lighters in the U.S. and Canada.”

Stoker’s Products Segment (31% of total net sales in the quarter)

For the fourth quarter, Stoker’s Products net sales increased 2.6% to $32.0 million on double-digit growth of MST partially offset by a double-digit decline in loose-leaf chewing tobacco. For the fourth quarter, total Stoker’s Products segment volume decreased 6.1%, while price / mix increased 8.7%.

For the quarter, the Stoker’s Products segment gross profit increased 1.6% to $17.2 million. Gross margin contracted 50 basis points to 53.8% due to product mix shift.

For the full year, net sales of Stoker’s Products increased 5.3% to $130.8 million on double-digit growth of MST partially offset by a high single-digit decline of loose-leaf chewing tobacco. For the full year, total Stoker’s Products segment volume decreased 2.6%, while price / mix increased 7.9%.

For the full year, the Stoker’s Products segment gross profit increased 4.7% to $71.3 million. Gross margin contracted 30 basis points to 54.5% due to the impact of product mix shift including growth in discount looseleaf products.

“Stoker’s saw strong market share gains in both the MST and loose-leaf chewing tobacco categories during the quarter,” continued Purdy. “Stoker’s strong value proposition continues to resonate with consumers in the current inflationary environment that has challenged their budgets.”

NewGen Products Segment (24% of total net sales in the quarter)

For the fourth quarter, NewGen Products net sales decreased 11.1% to $24.9 million. The regulatory environment continues to negatively impact sales.

For the quarter, NewGen Products segment gross profit decreased 5.8% to $6.6 million. Gross margin increased 150 basis points from the previous year to 26.4% primarily due to higher inventory write-downs in the previous year period.

For the full year, net sales of NewGen Products decreased 35.2% to $93.8 million and gross profit decreased 41.1% to $27.7 million. Gross margin contracted 300 basis points to 29.5% due to product mix and the highly promotional environment.

“The regulatory environment for NewGen remains dynamic given the uncertainty over the outcome of the PMTA process and the potential for additional state and federal regulations,” concluded Purdy.

Recent Events

Creative Distribution Solutions

On December 21, 2022, Turning Point Brands contributed its NewGen Products business to South Beach Holdings LLC doing business as Creative Distribution Solutions ("CDS"), a newly-formed wholly-owned subsidiary. CDS specializes in the distribution of vapor and related products to B2B and B2C customers throughout the United States. CDS will be overseen by an independent board of management. “We believe this reorganization best positions CDS to navigate the current regulatory environment, adapt to future marketplace changes, and pursue further value maximizing opportunities as they arise,” noted Mr. Purdy.

Performance Measures in the Fourth Quarter

Fourth quarter consolidated selling, general and administrative (“SG&A”) expenses were $31.2 million compared to $31.6 million in the fourth quarter of 2021.

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

  • $0.3 million of ERP / CRM duplicative system costs compared to none in the previous year
  • $1.2 million of stock options, restricted stock and incentive expense compared to $1.5 million in the year-ago period
  • $0.3 million of FDA PMTA-related expenses compared to $0.7 million in the year-ago period
  • $0.0 million of transaction expenses as compared to $0.2 million in the year-ago period
  • $1.8 million of restructuring costs as compared to $0.9 million in the year-ago period

Total gross debt as of December 31, 2022 was $412.5 million. The corresponding net debt (total gross debt less cash) at December 31, 2022 was $306.1 million. The Company ended the quarter with total liquidity of $127.8 million, comprised of $106.4 million in cash and $21.4 million of revolving credit facility capacity.

During the quarter, the Company spent $2.2 million to repurchase 101,959 shares at an average price of $21.50 per share. During the quarter, the Company also spent $9.0 million to purchase $10.0 million in aggregate principal amount of its 2.50% Convertible Senior Notes due July 2024.

The Company recorded impairment charges of $34.8 million during the quarter related to goodwill and intangible assets of the NewGen segment and certain minority investments in development stage ventures.

2023 Outlook

At this time, the Company expects full-year 2023 adjusted EBITDA to be $88 to $94 million.

Earnings Conference Call

As previously disclosed, a conference call with the investment community to review TPB’s financial results has been scheduled for 10:00 a.m. Eastern on Friday, February 24, 2023. Investment community participants should dial in 10 minutes ahead of time using the toll-free number 888-330-2502 (international participants should call 240-789-2713), and follow the audio prompts after typing in the event ID: 6640134. A live listen-only webcast of the call will be available on the Events and Presentations section of the investor relations portion of the Company website (www.turningpointbrands.com). A replay of the webcast will be available on the site two hours following the call.

Non-GAAP Financial Measures

In addition to financial measures prepared in accordance with generally accepted accounting principles in the United States (GAAP), this press release includes certain non-GAAP financial measures including EBITDA, Adjusted EBITDA, Adjusted Net Income, Adjusted Diluted EPS and Adjusted Operating Income (Loss). A reconciliation of these non-GAAP financial measures accompanies this release.

About Turning Point Brands, Inc.

Turning Point Brands (NYSE: TPB) is a manufacturer, marketer and distributor of branded consumer products including alternative smoking accessories and consumables with active ingredients through its iconic Zig-Zag® and Stoker’s® brands, and its emerging brands within the NewGen segment. TPB’s products are available in more than 215,000 retail outlets in North America, and on sites such as www.zigzag.com and www.solacevapor.com. For the latest news and information about TPB and its brands, please visit www.turningpointbrands.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements may generally be identified by the use of words such as "anticipate," "believe," "expect," "intend," "plan" and "will" or, in each case, their negative, or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. As a result, these statements are not guarantees of future performance and actual events may differ materially from those expressed in or suggested by the forward-looking statements. Any forward-looking statement made by TPB in this press release, its reports filed with the Securities and Exchange Commission (the “SEC”) and other public statements made from time-to-time speak only as of the date made. New risks and uncertainties come up from time to time, and it is impossible for TPB to predict or identify all such events or how they may affect it. TPB has no obligation, and does not intend, to update any forward-looking statements after the date hereof, except as required by federal securities laws. Factors that could cause these differences include, but are not limited to those included it the Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and other reports filed by the Company with the SEC. These statements constitute the Company’s cautionary statements under the Private Securities Litigation Reform Act of 1995.

Financial Statements Follow:

Turning Point Brands, Inc.
Consolidated Statements of Income
(dollars in thousands except share data)
(unaudited)

Three Months Ended

December 31,

 

2022

 

 

2021

 

Net sales

$

103,392

 

$

105,283

 

Cost of sales

 

53,829

 

 

54,952

 

Gross profit

 

49,563

 

 

50,331

 

Selling, general, and administrative expenses

 

31,245

 

 

31,613

 

Operating income

 

18,318

 

 

18,718

 

Interest expense, net

 

4,382

 

 

5,094

 

Investment loss

 

7,229

 

 

6,965

 

Goodwill and intangible impairment loss

 

27,566

 

 

-

 

Gain on extinguishment of debt

 

(885

)

 

(7,485

)

Income (loss) before income taxes

 

(19,974

)

 

14,144

 

Income tax (benefit) expense

 

(3,857

)

 

2,889

 

Consolidated net income (loss)

 

(16,117

)

 

11,255

 

Net income (loss) attributable to non-controlling interest

 

200

 

 

(199

)

Net income (loss) attributable to Turning Point Brands, Inc.

$

(16,317

)

$

11,454

 

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

$

(0.93

)

$

0.61

 

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

$

(0.93

)

$

0.57

 

Weighted average common shares outstanding:
Basic

 

17,530,278

 

 

18,707,286

 

Diluted

 

17,530,278

 

 

22,153,988

 

 
Supplemental disclosures of statement of income information:
Excise tax expense

$

5,771

 

$

6,212

 

FDA fees

$

158

 

$

166

 

 
Turning Point Brands, Inc.
Consolidated Statements of Income
(dollars in thousands except share data)
(unaudited)

For the year ended

December 31,

 

2022

 

 

2021

 

Net sales

$

415,013

 

$

445,471

 

Cost of sales

 

209,475

 

 

227,637

 

Gross profit

 

205,538

 

 

217,834

 

Selling, general, and administrative expenses

 

130,024

 

 

127,513

 

Operating income

 

75,514

 

 

90,321

 

Interest expense, net

 

19,524

 

 

20,500

 

Investment loss

 

13,303

 

 

6,673

 

Goodwill and intangible impairment loss

 

27,566

 

 

-

 

Gain on extinguishment of debt, net

 

(885

)

 

(2,154

)

Income before income taxes

 

16,006

 

 

65,302

 

Income tax expense

 

4,849

 

 

14,040

 

Consolidated net income

 

11,157

 

 

51,262

 

Net loss attributable to non-controlling interest

 

(484

)

 

(797

)

Net income attributable to Turning Point Brands, Inc.

$

11,641

 

$

52,059

 

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

$

0.65

 

$

2.75

 

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

$

0.64

 

$

2.52

 

Weighted average common shares outstanding:
Basic

 

17,899,794

 

 

18,917,570

 

Diluted

 

18,055,015

 

 

22,381,994

 

 
Supplemental disclosures of statement of income information:
Excise tax expense

$

23,274

 

$

27,353

 

FDA fees

$

623

 

$

679

 

Turning Point Brands, Inc.
Consolidated Balance Sheets
(dollars in thousands except share data)
(unaudited)
December 31,
ASSETS

 

2022

 

 

2021

 

Current assets:
Cash

$

106,403

 

$

128,320

 

Accounts receivable, net of allowances of $114 in 2022 and $262 in 2021

 

8,377

 

 

6,496

 

Inventories

 

119,915

 

 

87,607

 

Other current assets

 

21,800

 

 

26,746

 

Total current assets

 

256,495

 

 

249,169

 

Property, plant, and equipment, net

 

22,788

 

 

18,650

 

Deferred income taxes

 

9,602

 

 

1,363

 

Right of use assets

 

12,465

 

 

15,053

 

Deferred financing costs, net

 

282

 

 

388

 

Goodwill

 

136,253

 

 

162,333

 

Other intangible assets, net

 

83,592

 

 

87,485

 

Master Settlement Agreement (MSA) escrow deposits

 

27,980

 

 

31,720

 

Other assets

 

22,649

 

 

35,399

 

Total assets

$

572,106

 

$

601,560

 

 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable

$

8,355

 

$

7,361

 

Accrued liabilities

 

33,001

 

 

32,937

 

Current portion of long-term debt

 

-

 

 

-

 

Other current liabilities

 

20

 

 

38

 

Total current liabilities

 

41,376

 

 

40,336

 

Notes payable and long-term debt

 

406,757

 

 

414,172

 

Lease liabilities

 

10,593

 

 

13,336

 

Total liabilities

 

458,726

 

 

467,844

 

 
Commitments and contingencies
 
Stockholders' equity:
Preferred stock; $0.01 par value; authorized shares 40,000,000; issued and outstanding shares -0-

 

-

 

 

-

 

Common stock, voting, $0.01 par value; authorized shares, 190,000,000; 19,801,623 issued shares, 17,485,163 outstanding shares at December 31, 2022, and 19,690,884 issued shares, 18,395,476 outstanding shares at December 31, 2021

 

198

 

 

197

 

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

 

-

 

 

-

 

Additional paid-in capital

 

113,242

 

 

108,811

 

Cost of repurchased common stock (2,316,460 shares at December 31, 2022 and 1,295,408 shares at December 31, 2021)

 

(78,093

)

 

(48,869

)

Accumulated other comprehensive loss

 

(2,393

)

 

(195

)

Accumulated earnings

 

78,691

 

 

71,460

 

Non-controlling interest

 

1,735

 

 

2,312

 

Total stockholders' equity

 

113,380

 

 

133,716

 

Total liabilities and stockholders' equity

$

572,106

 

$

601,560

 

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

For the Year Ended

December 31,

 

2022

 

 

2021

 

Cash flows from operating activities:
Consolidated net income

$

11,157

 

$

51,262

 

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

 

(885

)

 

(2,154

)

Gain on disposal of property, plant, and equipment

 

(9

)

 

(54

)

Loss on goodwill impairment

 

25,585

 

 

-

 

Loss on intangible asset impairment

 

1,982

 

 

-

 

Loss on investments

 

13,570

 

 

7,100

 

Depreciation expense

 

3,388

 

 

3,105

 

Amortization of other intangible assets

 

1,911

 

 

1,907

 

Amortization of deferred financing costs

 

2,576

 

 

2,541

 

Deferred income taxes

 

(7,665

)

 

(1,485

)

Stock compensation expense

 

5,273

 

 

7,557

 

Noncash lease income

 

(29

)

 

(167

)

Gain on MSA escrow deposits

 

(54

)

 

(255

)

Changes in operating assets and liabilities:
Accounts receivable

 

(2,103

)

 

3,317

 

Inventories

 

(32,653

)

 

(9

)

Other current assets

 

5,739

 

 

(134

)

Other assets

 

420

 

 

996

 

Accounts payable

 

1,240

 

 

(2,367

)

Accrued liabilities and other

 

830

 

 

(2,943

)

Net cash provided by operating activities

 

30,273

 

 

68,217

 

 
Cash flows from investing activities:
Capital expenditures

$

(7,685

)

$

(6,156

)

Acquisitions, net of cash acquired

 

-

 

 

(16,416

)

Payments for investments

 

(1,000

)

 

(16,657

)

Restricted cash, MSA escrow deposits

 

(10,170

)

 

(19,664

)

Proceeds on the sale of property, plant and equipment

 

62

 

 

54

 

Net cash used in investing activities

 

(18,793

)

 

(58,839

)

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

For the Year Ended

December 31,

 

2022

 

 

2021

 

Cash flows from financing activities:
Proceeds from Senior Notes

$

-

 

$

250,000

 

Payments of 2018 first lien term loan

 

-

 

 

(130,000

)

Settlement of interest rate swaps

 

-

 

 

(3,573

)

Payments of Convertible Senior Notes

 

(9,000

)

 

-

 

Proceeds from call options

 

51

 

 

-

 

Payment of promissory note

 

-

 

 

(9,625

)

Payment of dividends

 

(4,250

)

 

(4,096

)

Payments of financing costs

 

-

 

 

(6,921

)

Exercise of options

 

504

 

 

2,071

 

Redemption of options

 

(155

)

 

(2,111

)

Redemption of restricted stock

 

(1,229

)

 

-

 

Common stock repurchased

 

(29,224

)

 

(38,678

)

Net cash provided by (used in) financing activities

$

(43,303

)

$

57,067

 

 
Net increase (decrease) in cash

$

(31,823

)

$

66,445

 

Effect of foreign currency translation on cash

$

(320

)

$

191

 

 
Cash, beginning of period:
Unrestricted

$

128,320

 

$

41,765

 

Restricted

 

15,155

 

 

35,074

 

Total cash at beginning of period

$

143,475

 

$

76,839

 

 
 
Unrestricted

$

106,403

 

$

128,320

 

Restricted

 

4,929

 

 

15,155

 

Total cash at end of period

$

111,332

 

$

143,475

 

Non-GAAP Financial Measures

To supplement our financial information presented in accordance with generally accepted accounting principles in the United States, or U.S. GAAP, we use non-U.S. GAAP financial measures, including EBITDA, Adjusted EBITDA, Adjusted Net Income, Adjusted Diluted EPS, Adjusted Gross Profit and Adjusted Operating Income (Loss). We believe Adjusted EBITDA provides useful information to management and investors regarding certain financial and business trends relating to our financial condition and results of operations. Adjusted EBITDA, Adjusted Net Income, Adjusted Diluted EPS, Adjusted Gross Profit and Adjusted Operating Income (Loss) are used by management to compare our performance to that of prior periods for trend analyses and planning purposes and are presented to our board of directors. We believe that EBITDA, Adjusted EBITDA, Adjusted Net Income, Adjusted Diluted EPS, Adjusted Gross Profit and Adjusted Operating Income (Loss) are appropriate measures of operating performance because they eliminate the impact of expenses that do not relate to business performance.

We define “EBITDA” as net income before interest expense, loss on extinguishment of debt, provision for income taxes, depreciation and amortization. We define “Adjusted EBITDA” as net income before interest expense, loss on extinguishment of debt, provision for income taxes, depreciation, amortization, other non-cash items and other items that we do not consider ordinary course in our evaluation of ongoing operating performance. We define “Adjusted Net Income” as net income excluding items that we do not consider ordinary course in our evaluation of ongoing operating performance. We define “Adjusted Diluted EPS” as diluted earnings per share excluding items that we do not consider ordinary course in our evaluation of ongoing operating performance. We define “Adjusted Gross Profit: as gross profit excluding other non-cash items and other items that we do not consider ordinary course in our evaluation of ongoing operating performance. We define “Adjusted Operating Income (Loss)” as operating income (loss) excluding other non-cash items and other items that we do not consider ordinary course in our evaluation of ongoing operating performance.

Non-U.S. GAAP measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with U.S. GAAP. EBITDA, Adjusted Net Income, Adjusted EBITDA Adjusted Diluted EPS, Adjusted Gross Profit and Adjusted Operating Income (Loss) exclude significant expenses that are required by U.S. GAAP to be recorded in our financial statements and is subject to inherent limitations. In addition, other companies in our industry may calculate this non-U.S. GAAP measure differently than we do or may not calculate it at all, limiting its usefulness as a comparative measure.

In accordance with SEC rules, we have provided, in the supplemental information attached, a reconciliation of the non-GAAP measures to the next directly comparable GAAP measures.

Schedule A
 
Turning Point Brands, Inc.
Reconciliation of GAAP Net Income (Loss) to Adjusted EBITDA
(dollars in thousands)
(unaudited)

Three Months Ended

December 31,

 

2022

 

 

2021

 

Net income (loss) attributable to Turning Point Brands, Inc.

$

(16,317

)

$

11,454

 

Add:
Interest expense, net

 

4,382

 

 

5,094

 

Gain on extinguishment of debt

 

(885

)

 

(7,485

)

Income tax (benefit) expense

 

(3,857

)

 

2,889

 

Depreciation expense

 

777

 

 

792

 

Amortization expense

 

538

 

 

476

 

EBITDA

$

(15,362

)

$

13,220

 

Components of Adjusted EBITDA
Corporate restructuring (a)

 

1,825

 

 

1,026

 

ERP/CRM (b)

 

336

 

 

-

 

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

 

1,170

 

 

1,542

 

Transactional expenses (d)

 

12

 

 

190

 

FDA PMTA (e)

 

289

 

 

708

 

Non-cash asset impairment (f)

 

34,836

 

 

7,100

 

Adjusted EBITDA

$

23,106

 

$

23,786

 

 
 
(a) Represents costs associated with corporate and vape restructuring, including severance.
(b) Represents cost associated with scoping and mobilization of new ERP and CRM systems and cost of duplicative ERP licenses.
(c) Represents non-cash stock options, restricted stock, incentives expense and Solace performance stock units.
(d) Represents the fees incurred for transaction expenses.
(e) Represents costs associated with applications related to FDA premarket tobacco product application ("PMTA").
(f) Represents impairment of goodwill, intangible and investment assets.
Schedule A
 
Turning Point Brands, Inc.
Reconciliation of GAAP Net Income to Adjusted EBITDA
(dollars in thousands)
(unaudited)

For the Year Ended

December 31,

 

2022

 

 

2021

 

Net income attributable to Turning Point Brands, Inc.

$

11,641

 

$

52,059

 

Add:
Interest expense, net

 

19,524

 

 

20,500

 

Gain on extinguishment of debt

 

(885

)

 

(2,154

)

Income tax expense

 

4,849

 

 

14,040

 

Depreciation expense

 

3,388

 

 

3,105

 

Amortization expense

 

1,911

 

 

1,907

 

EBITDA

$

40,428

 

$

89,457

 

Components of Adjusted EBITDA
Corporate restructuring (a)

 

3,444

 

 

1,026

 

ERP/CRM (b)

 

1,962

 

 

-

 

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

 

5,273

 

 

7,557

 

Transactional expenses (d)

 

801

 

 

1,267

 

FDA PMTA (e)

 

4,554

 

 

1,668

 

Non-cash asset impairment (f)

 

41,136

 

 

7,100

 

Adjusted EBITDA

$

97,598

 

$

108,075

 

 
 
(a) Represents costs associated with corporate and vape restructuring, including severance.
(b) Represents cost associated with scoping and mobilization of new ERP and CRM systems and cost of duplicative ERP licenses.
(c) Represents non-cash stock options, restricted stock, incentives expense and Solace performance stock units.
(d) Represents the fees incurred for transaction expenses.
(e) Represents costs associated with applications related to FDA premarket tobacco product application ("PMTA").
(f) Represents impairment of goodwill, intangible and investment assets.
Schedule B
 
Turning Point Brands, Inc.
Reconciliation of GAAP Net Income to Adjusted Net Income and Diluted EPS to Adjusted Diluted EPS
(dollars in thousands except share data)
(unaudited)
Three Months Ended Three Months Ended
December 31, 2022 December 31, 2021
Net Income Diluted EPS Net Income Diluted EPS
GAAP

$

(16,317

)

$

(0.93

)

$

11,454

 

$

0.57

 

Anti-dilutive impact (a)

 

-

 

 

0.20

 

 

-

 

 

-

 

Gain on extinguishment of debt (b)

 

(714

)

 

(0.03

)

 

(5,956

)

 

(0.27

)

Corporate restructuring (c)

 

1,473

 

 

0.07

 

 

816

 

 

0.04

 

ERP/CRM (d)

 

271

 

 

0.01

 

 

-

 

 

-

 

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

 

944

 

 

0.05

 

 

1,227

 

 

0.06

 

Transactional expenses (f)

 

10

 

 

0.00

 

 

151

 

 

0.01

 

FDA PMTA (g)

 

233

 

 

0.01

 

 

563

 

 

0.03

 

Non-cash asset impairment (h)

 

28,109

 

 

1.35

 

 

5,650

 

 

0.26

 

Impact of quarterly tax items to effective tax rate (i)

 

(804

)

 

(0.04

)

 

(540

)

 

(0.02

)

Adjusted (j)

$

13,205

 

$

0.69

 

$

13,366

 

$

0.66

 

 
Total may not foot due to rounding
 
(a) Represents dilution of options and debt conversion that is anti-dilutive and not included for GAAP.
(b) Represents gain on extinguishment of debt tax effected at the quarterly tax rate.
(c) Represents costs associated with corporate restructuring, including severance tax effected at the quarterly tax rate.
(d) Represents cost associated with scoping and mobilization of new ERP and CRM systems and cost of duplicative ERP licenses tax effected at the quarterly tax rate.
(e) Represents non-cash stock options, restricted stock, incentives expense and Solace PRSUs tax effected at the quarterly tax rate.
(f) Represents the fees incurred for transaction expenses tax effected at the quarterly tax rate.
(g) Represents costs associated with applications related to the FDA PMTA tax effected at the quarterly tax rate.
(h) Represents impairment of goodwill, intangible and investment assets tax effected at the quarterly tax rate.
(i) Represents adjustment from quarterly tax rate to annual projected tax rate of 23% in 2022 and 2021.
(j) Diluted shares outstanding includes the full 3.2 million share dilution of debt conversion without a 1.1 million share offsetting impact from capped call transactions.
Schedule B
 
Turning Point Brands, Inc.
Reconciliation of GAAP Net Income to Adjusted Net Income and Diluted EPS to Adjusted Diluted EPS
(dollars in thousands except share data)
(unaudited)
For the Year Ended For the Year Ended
December 31, 2022 December 31, 2021
Net Income Diluted EPS Net Income Diluted EPS
GAAP

$

11,641

 

$

0.64

 

$

52,059

 

$

2.52

 

Anti-dilutive impact (a)

 

-

 

 

0.09

 

 

-

 

 

-

 

Gain on extinguishment of debt (b)

 

(617

)

 

(0.03

)

 

(1,691

)

 

(0.08

)

Corporate restructuring (c)

 

2,401

 

 

0.11

 

 

805

 

 

0.04

 

ERP/CRM (d)

 

1,368

 

 

0.06

 

 

-

 

 

-

 

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

 

3,676

 

 

0.17

 

 

5,932

 

 

0.27

 

Transactional expenses (f)

 

558

 

 

0.03

 

 

995

 

 

0.04

 

FDA PMTA (g)

 

3,174

 

 

0.15

 

 

1,309

 

 

0.06

 

Non-cash asset impairment (h)

 

28,674

 

 

1.35

 

 

5,573

 

 

0.25

 

Impact of quarterly tax items to effective tax rate (i)

 

5,309

 

 

0.25

 

 

(1,432

)

 

(0.06

)

Adjusted (j)

$

56,183

 

$

2.83

 

$

63,551

 

$

3.03

 

 
Total may not foot due to rounding
 
(a) Represents dilution of debt conversion that is anti-dilutive and not included for GAAP.
(b) Represents gain on extinguishment of debt tax effected at the quarterly tax rate.
(c) Represents costs associated with corporate restructuring, including severance tax effected at the quarterly tax rate.
(d) Represents cost associated with scoping and mobilization of new ERP and CRM systems and cost of duplicative ERP licenses tax effected at the quarterly tax rate.
(e) Represents non-cash stock options, restricted stock, incentives expense and Solace PRSUs tax effected at the quarterly tax rate.
(f) Represents the fees incurred for transaction expenses tax effected at the quarterly tax rate.
(g) Represents costs associated with applications related to the FDA PMTA tax effected at the quarterly tax rate.
(h) Represents impairment of goodwill, intangible and investment assets tax effected at the quarterly tax rate.
(i) Represents adjustment from quarterly tax rate to annual projected tax rate of 23% in 2022 and 2021.
(j) Diluted shares outstanding includes the full 3.2 million share dilution of debt conversion without a 1.1 million share offsetting impact from capped call transactions.
Schedule C
 
Turning Point Brands, Inc.
Reconciliation of GAAP Gross Profit to Adjusted Gross Profit and GAAP Operating Income to Adjusted Operating Income (Loss)
(dollars in thousands)
(unaudited)
Consolidated Zig-Zag Stoker's NewGen
4th Quarter 4th Quarter 4th Quarter 4th Quarter 4th Quarter 4th Quarter 4th Quarter 4th Quarter

2022

2021

2022

2021

2022

2021

2022

 

2021

 

 
Net sales

$

103,392

$

105,283

$

46,444

$

46,051

$

32,010

$

31,184

$

24,938

$

28,048

 

 
Gross profit

$

49,563

$

50,331

$

25,768

$

26,397

$

17,210

$

16,942

$

6,585

$

6,992

 

Adjustments:
Corporate and vapor restructuring

 

-

 

90

 

-

 

-

 

-

 

-

 

-

 

90

 

Adjusted gross profit

$

49,563

$

50,421

$

25,768

$

26,397

$

17,210

$

16,942

$

6,585

$

7,082

 

 
Operating income (loss)

$

18,318

$

18,718

$

17,362

$

19,212

$

12,794

$

12,687

$

134

$

(3,427

)

Adjustments:
Transaction costs

 

12

 

190

 

-

 

-

 

-

 

-

 

-

 

-

 

FDA PMTA

 

289

 

708

 

-

 

-

 

-

 

-

 

-

 

-

 

Corporate and vapor restructuring

 

1,825

 

1,026

 

-

 

-

 

-

 

-

 

-

 

1,026

 

Adjusted operating income (loss)

$

20,444

$

20,642

$

17,362

$

19,212

$

12,794

$

12,687

$

134

$

(2,401

)

 
Schedule C
 
Turning Point Brands, Inc.
Reconciliation of GAAP Gross Profit to Adjusted Gross Profit and GAAP Operating Income to Adjusted Operating Income
(dollars in thousands)
(unaudited)
Consolidated Zig-Zag Stoker's NewGen
YTD YTD YTD YTD YTD YTD YTD YTD

2022

2021

2022

2021

2022

2021

2022

2021

 
Net sales

$

415,013

$

445,471

$

190,403

$

176,491

$

130,826

$

124,280

$

93,784

$

144,700

 
Gross profit

$

205,538

$

217,834

$

106,576

$

102,739

$

71,254

$

68,084

$

27,708

$

47,011

Adjustments:
Corporate and vapor restructuring

 

-

 

90

 

-

 

-

 

-

 

-

 

-

 

90

Adjusted gross profit

$

205,538

$

217,924

$

106,576

$

102,739

$

71,254

$

68,084

$

27,708

$

47,101

 
Operating income

$

75,514

$

90,321

$

73,342

$

77,109

$

51,929

$

52,073

$

1,506

$

2,263

Adjustments:
Transaction costs

 

801

 

1,267

 

-

 

-

 

-

 

-

 

-

 

-

FDA PMTA

 

4,554

 

1,668

 

-

 

-

 

-

 

-

 

-

 

-

Corporate and vapor restructuring

 

3,444

 

1,026

 

-

 

-

 

-

 

-

 

-

 

1,026

Adjusted operating income

$

84,313

$

94,282

$

73,342

$

77,109

$

51,929

$

52,073

$

1,506

$

3,289

 

Contacts

Investor Contacts

Turning Point Brands, Inc.:

Louie Reformina, Senior Vice President, CFO

Turning Point Brands, Inc.

502.774.9238

ir@tpbi.com

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