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Earnings Conference Call

As previously disclosed, a conference call with the investment community to review TPB’s financial results has been scheduled for 10 a.m. Wednesday, May 9, 2018.  Investment community participants should dial in ten minutes ahead of time using the toll free number 844-889-4324 (International participants should call 412-317-9262).  A live listen-only webcast of the call is available from 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 one hour following the call.

Non-GAAP Financial Measures

About Turning Point Brands, Inc.

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, 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 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;

·	our dependence on a small number of third-party suppliers and producers;

·	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;

·	the possibility that our licenses to use certain brands or trademarks will be terminated, challenged or restricted;

·	failure to maintain consumer brand recognition and loyalty of our customers;

·	substantial and increasing U.S. regulation;

·	regulation of our products by the FDA, which has broad regulatory powers;

·	uncertainty related to the regulation and taxation of our NewGen products;

·	possible significant increases in federal, state and local municipal tobacco-related taxes;

·	possible increasing international control and regulation;

·	our reliance on relationships with several large retailers and national chains for distribution of our products;

·	our amount of indebtedness;

·	the terms of our credit facilities, which may restrict our current and future operations;

·	intense competition and our ability to compete effectively;

·	uncertainty and continued evolution of markets containing our NewGen products;

·	significant product liability litigation;

·	the scientific community’s lack of information regarding the long-term health effects of electronic cigarettes, vaporizer and e-liquid use;

·	requirement to maintain compliance with master settlement agreement escrow account;

·	competition from illicit sources;

·	our reliance on information technology;

·	security and privacy breaches;

·	contamination of our tobacco supply or products;

·	infringement on our intellectual property;

·	third-party claims that we infringe on their intellectual property;

·	failure to manage our growth;

·	failure to successfully integrate our acquisitions or otherwise be unable to benefit from pursuing acquisitions;

·	fluctuations in our results;

·	exchange rate fluctuations;

·	adverse U.S. and global economic conditions;

·	sensitivity of end-customers to increased sales taxes and economic conditions;

·	failure to comply with certain regulations;

·	departure of key management personnel or our inability to attract and retain talent;

·	imposition of significant tariffs on imports into the U.S.;

·	reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors, potentially decreasing our stock price;

 

·	failure to maintain our status as an emerging growth company before the five-year maximum time period a company may retain such status;

·	our principal stockholders will be able to exert significant influence over matters submitted to our stockholders and may take certain actions to prevent takeovers;

·	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;

·

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 being required to sell or redeem their shares at a loss or relinquish their voting, dividend and distribution rights;

·	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;

·	we may issue preferred stock whose terms could adversely affect the voting power or value of our common stock; and

·	our status as a “controlled company” could make our common stock less attractive to some investors or otherwise harm our stock price.

Contacts:

Robert Lavan, Senior Vice President, CFO

 

Turning Point Brands, Inc. | www.turningpointbrands.com | ir@tpbi.com | 502.774.9238

 

Financial statements follow:

Turning Point Brands, Inc.

Consolidated Statement of Income

(dollars in thousands except share data)

 

		Three Months Ended March 31,
		2018				2017
Net sales		$	73,942			$	66,788
Cost of sales			42,133				39,116
Gross profit			31,809				27,672
Selling, general and administrative expenses			22,068				16,823
Operating income			9,741				10,849
Interest expense			3,654				4,933
Gain on investment			(95	)			(114	)
Loss on extinguishment of debt			2,384				6,116
Net periodic benefit expense (income), excluding service cost			(43	)			92
Income (loss) before income taxes			3,841				(178	)
Income tax expense (benefit)			809				(2,055	)
Consolidated net income		$	3,032			$	1,877
Basic earnings per common share:
Net income		$	0.16			$	0.10
Diluted earnings per common share:
Net income		$	0.15			$	0.10
Weighted average common shares outstanding:
Basic			19,221,892				18,734,393
Diluted			19,762,194				19,633,353
Supplemental disclosures of statement of income information:
Excise tax expense		$	4,885			$	5,079
FDA fees		$	153			$	150

 

Turning Point Brands, Inc. | www.turningpointbrands.com | ir@tpbi.com | 502.774.9238

 

Turning Point Brands, Inc.

Consolidated Balance Sheet

(dollars in thousands except share data)

ASSETS		(unaudited) March 31, 2018				December 31, 2017
Current assets:
Cash		$	3,792			$	2,607
Accounts receivable, net of allowances of $46 in 2018 and $17 in 2017			2,283				3,248
Inventories			58,059				63,296
Other current assets			12,387				10,342
Total current assets			76,521				79,493
Property, plant, and equipment, net			8,662				8,859
Deferred income taxes			-				450
Deferred financing costs, net			1,025				630
Goodwill			134,620				134,620
Other intangible assets, net			26,260				26,436
Master Settlement Agreement (MSA) escrow deposits			30,316				30,826
Other assets			1,021				963
Total assets		$	278,425			$	282,277
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable		$	6,641			$	3,686
Accrued liabilities			13,586				18,694
Current portion of long-term debt			10,000				7,850
Revolving credit facility			-				8,000
Total current liabilities			30,227				38,230
Notes payable and long-term debt			188,165				186,190
Deferred income taxes			35				-
Postretirement benefits			3,968				3,962
Other long-term liabilities			1,138				571
Total liabilities			223,533				228,953
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; issued and			192				192
outstanding shares - 19,222,617 at March 31, 2018, and 19,210,633 at December 31, 2017			-				-
Common stock, nonvoting, $0.01 par value; authorized shares, 10,000,000;			-				-
issued and outstanding shares -0-			-				-
Additional paid-in capital			103,833				103,640
Accumulated other comprehensive loss			(3,829	)			(2,973	)
Accumulated deficit			(45,304	)			(47,535	)
Total stockholders' equity			54,892				53,324
Total liabilities and stockholders' equity		$	278,425			$	282,277

 

Turning Point Brands, Inc.

Consolidated Statement of Cash Flows

(dollars in thousands)

		Three Months Ended
		March 31, 2018				March 31, 2017
Cash flows from operating activities:
Consolidated net income		$	3,032			$	1,877
Adjustments to reconcile net income to net cash provided by operating activities:
Loss on extinguishment of debt			2,384				6,116
Depreciation expense			560				354
Amortization of other intangible assets			176				175
Amortization of deferred financing costs			238				294
Amortization of original issue discount			-				66
Deferred income taxes			793				(2,564	)
Stock compensation expense			197				45
Changes in operating assets and liabilities:			-				-
Accounts receivable			965				(1,801	)
Inventories			5,237				1,299
Other current assets			(2,051	)			(1,420	)
Other assets			(23	)			26
Accounts payable			2,955				(1,597	)
Accrued liabilities and other			(6,029	)			(5,242	)
Accrued postretirement liabilities			(14	)			32
Net cash provided by (used in) operating activities		$	8,420			$	(2,340	)
Cash flows from investing activities:
Capital expenditures		$	(363	)		$	(368	)
Restricted cash, MSA escrow deposits			(530	)			1,192
Net cash provided by (used in) investing activities		$	(893	)		$	824

 

Turning Point Brands, Inc.

Consolidated Statement of Cash Flows (Cont.)

(dollars in thousands)

		Three Months Ended
		March 31, 2018				March 31, 2017
Cash flows from financing activities:
Proceeds from 2018 first lien term loan		$	160,000			$	-
Proceeds from 2018 second lien term loan			40,000				-
Payments of 2017 first lien term loans			(140,613	)			-
Payments of 2017 second lien term loan			(55,000	)			-
Proceeds from (payments of) 2017 revolving credit facility			(8,000	)			29,550
Proceeds from 2017 first lien term loans			-				145,000
Proceeds from 2017 second lien term loan			-				55,000
Payments of first lien term loan			-				(147,312	)
Payments of second lien term loan			-				(60,000	)
Payments of revolving credit facility			-				(15,034	)
Payments of financing costs			(3,279	)			(4,792	)
Exercise of options			20				679
Surrender of options			-				(1,000	)
Net cash provided by (used in) financing activities		$	(6,872	)		$	2,091
Net increase in cash:		$	655			$	575
Cash, beginning of period:
Unrestricted			2,607				2,865
Restricted			4,709				3,889
Total cash at beginning of period			7,316				6,754
Cash, end of period:
Unrestricted			3,792				2,248
Restricted			4,179				5,081
Total cash at end of period		$	7,971			$	7,329

 

Turning Point Brands, Inc. | www.turningpointbrands.com | ir@tpbi.com | 502.774.9238

 

Non-GAAP Financial Measures

To supplement our financial information presented in accordance with generally accepted accounting principles in the United States, or U.S. GAAP, we use non-U.S. GAAP financial measures, including EBITDA, Adjusted EBITDA, Adjusted diluted EPS, Net Debt and Gross Profit excluding LIFO.  We believe Adjusted EBITDA provides useful information to management and investors regarding certain financial and business trends relating to our financial condition and results of operations.  Adjusted EBITDA, Adjusted diluted EPS, Net Debt and Gross Profit excluding LIFO are 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, Adjusted EBITDA, Adjusted diluted EPS and Gross Profit excluding LIFO are appropriate measures of operating performance because they eliminate the impact of expenses that do not relate to business performance.

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

Non-U.S. GAAP measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with U.S. GAAP.  EBITDA, Adjusted EBITDA and Adjusted diluted EPS 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.

 

Turning Point Brands, Inc. | www.turningpointbrands.com | ir@tpbi.com | 502.774.9238

 

Schedule A

Turning Point Brands, Inc.

Reconciliation of GAAP Net Income to Adjusted EBITDA

(dollars in thousands)

		Three Months Ended March 31,
		2018				2017
Consolidated net income		$	3,032			$	1,877
Add:
Interest expense			3,654				4,933
Loss on extinguishment of debt			2,384				6,116
Income tax expense (benefit)			809				(2,055	)
Depreciation expense			560				354
Amortization expense			175				175
EBITDA		$	10,614			$	11,400
Components of Adjusted EBITDA
LIFO adjustment (a)			(57	)			1,189
Pension/postretirement expense (b)			(17	)			118
Stock options, restricted stock, and incentives expense (c)			197				45
Foreign exchange hedging (d)			46				(69	)
Product line rationalizations (e)			1,008				-
Strategic initiatives (f)			599				327
New product launch costs (g)			682				628
Organizational development (h)			636				-
Adjusted EBITDA		$	13,708			$	13,638

 

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(a)	Represents expense related to an inventory valuation allowance for last-in, first-out ("LIFO") reporting.

(b)	Represents our non-cash Pension/postretirement expense.

(c)	Represents non-cash stock options, restricted stock and incentives expense.

(d)	Represents non-cash gain and loss stemming from our foreign exchange hedging activities.

(e)	Represents costs associated with discontinued products related to product line rationalization.

(f)	Represents the fees incurred for the study of strategic initiatives and acquisition expenses.

(g)	Represents product launch costs of our new product lines.

(h)	Represents costs associated with departmental restructuring.

 

Turning Point Brands, Inc. | www.turningpointbrands.com | ir@tpbi.com | 502.774.9238

 

Schedule B

Turning Point Brands, Inc.

Reconciliation of GAAP Gross Profit to Gross Profit excluding LIFO

(dollars in thousands)

		Consolidated
		Three Months Ended
		March 31, 2018				March 31, 2017
Net sales		$	73,942			$	66,788
Cost of sales			42,133				39,116
Gross profit			31,809				27,672
Gross margin			43.0	%			41.4	%
LIFO adjustment (a)			(57	)			1,189
Gross profit excluding LIFO		$	31,752			$	28,861
Gross margin excluding LIFO			42.9	%			43.2	%

		Smokeless Segment
		Three Months Ended
		March 31, 2018				March 31, 2017
Net sales		$	20,747			$	20,248
Cost of sales			9,754				10,988
Gross profit			10,993				9,260
Gross margin			53.0	%			45.7	%
LIFO adjustment (a)			(57	)			1,124
Gross profit excluding LIFO		$	10,936			$	10,384
Gross margin excluding LIFO			52.7	%			51.3	%

		Smoking Segment
		Three Months Ended
		March 31, 2018				March 31, 2017
Net sales		$	26,996			$	27,177
Cost of sales			13,832				13,477
Gross profit			13,164				13,700
Gross margin			48.8	%			50.4	%
LIFO adjustment (a)			-				65
Gross profit excluding LIFO		$	13,164			$	13,765
Gross margin excluding LIFO			48.8	%			50.6	%

 

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(a)	Represents expense related to an inventory valuation allowance for last-in, first-out ("LIFO") reporting.

 

Turning Point Brands, Inc. | www.turningpointbrands.com | ir@tpbi.com | 502.774.9238

 

Schedule C

Turning Point Brands, Inc.

Reconciliation of GAAP Total Debt to Net Debt

(dollars in thousands)

		March 31, 2018				December 31, 2017
Cash		$	3,792			$	2,607
Total Debt		$	198,165			$	202,040
Net Debt		$	194,373			$	199,433
Leverage Ratio (a)			3.2	x			3.3	x

(a)	Leverage ratio is calculated by net debt / adjusted EBITDA.

Turning Point Brands, Inc.

Reconciliation of GAAP Net Income to Adjusted EBITDA

April 1, 2017 - March 31, 2018

(dollars in thousands)

		2nd Quarter 2017				3rd Quarter 2017				4th Quarter 2017				1st Quarter 2018				Rolling 12 Months
Net income attributable to Turning Point Brands, Inc.		$	7,439			$	7,374			$	3,519			$	3,032			$	21,364
Add:
Interest expense			4,046				4,023				3,887				3,654				15,610
Loss on extinguishment of debt			-				-				-				2,384				2,384
Income tax expense (benefit)			2,795				3,110				3,430				809				10,144
Depreciation expense			417				421				434				560				1,832
Amortization expense			176				175				176				175				702
EBITDA		$	14,873			$	15,103			$	11,446			$	10,614			$	52,036
Components of Adjusted EBITDA
LIFO adjustment			(302	)			(641	)			877				(57	)			(123	)
Pension/Postretirement expense			50				84				32				(17	)			149
Stock option and incentives expense			175				226				222				197				820
Foreign exchange hedging (gain) loss			(21	)			-				-				46				25
Strategic initiatives			444				219				1,143				599				2,405
New product launch costs			533				566				687				682				2,468
Product line rationalization			-				314				249				1,008				1,571
Bonus			-				-				107				-				107
Organizational development			-				-				-				636				636
Adjusted EBITDA		$	15,752			$	15,871			$	14,763			$	13,708			$	60,094

Net Debt / 12 months ended March 31, 2018, rolling Adjusted EBITDA

3.2x

 

Turning Point Brands, Inc. | www.turningpointbrands.com | ir@tpbi.com | 502.774.9238

 

Schedule D

Turning Point Brands, Inc.

Reconciliation of GAAP Diluted EPS to Adjusted Diluted EPS

(dollars in thousands)

			1Q17				2Q17				3Q17				4Q17				1Q18
Net income attributable to Turning Point Brands, Inc.		$	1,877			$	7,439			$	7,374			$	3,519			$	3,032
Interest expense			4,933				4,046				4,023				3,887				3,654
Loss on extinguishment of debt			6,116				-				-				-				2,384
Income tax expense (benefit)			(2,055	)			2,795				3,110				3,430				809
Depreciation expense			354				417				421				434				560
Amortization expense			175				176				175				176				175
EBITDA:		$	11,400			$	14,873			$	15,103			$	11,446			$	10,614
LIFO adjustment			1,189				(302	)			(641	)			877				(57	)
Pension/Postretirement expense			118				50				84				32				(17	)
Stock option and incentive expense			45				175				226				222				197
Foreign exchange hedging (gain) loss			(69	)			(21	)			-				-				46
Strategic initiatives			327				444				219				1,143				599
New product launch costs			628				533				566				687				682
Product line rationalization			-				-				314				249				1,008
Bonus			-				-				-				107				-
Organizational development			-				-				-				-				636
Adjusted EBITDA		$	13,638			$	15,752			$	15,871			$	14,763			$	13,708
Diluted wighted average common shares outstanding			19,633				19,585				19,589				19,723				19,762
Diluted earning per common share		$	0.10			$	0.38			$	0.38			$	0.18			$	0.15
Adjusted EBITDA		$	13,638			$	15,752			$	15,871			$	14,763			$	13,708
Depreciation			(354	)			(417	)			(421	)			(434	)			(560	)
Amortization			(175	)			(176	)			(175	)			(176	)			(175	)
Interest Expense			(4,933	)			(4,046	)			(4,023	)			(3,887	)			(3,654	)
Pension/Postretirement expense			(118	)			(50	)			(84	)			(32	)			17
Stock option and incentive expense			(45	)			(175	)			(226	)			(222	)			(197	)
Foreign exchange hedging gain (loss)			69				21				-				-				(46	)
Adjusted Pre-Tax Income			8,082				10,909				10,942				10,012				9,093
Estimated Tax Expense			(3,071	)			(4,145	)			(4,158	)			(3,805	)			(2,182	)
Adjusted Net Income		$	5,011			$	6,764			$	6,784			$	6,207			$	6,911
Adjusted Diluted EPS		$	0.26			$	0.35			$	0.35			$	0.31			$	0.35

Turning Point Brands, Inc. | www.turningpointbrands.com | ir@tpbi.com | 502.774.9238

 

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