Turning Point Brands Inc
For the period ended Jun 30, 2024. Filed Aug 1, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 1, 2024
TPB$65.88-2.4%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-02.
0001140361-24-024041
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-01.
0001140361-24-035344
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 86 previous paragraphs and 111 current paragraphs.
46 unchanged; 27 reworded; 32 added; 13 removed; 0 previous and 6 current paragraphs rearranged.
Tables are not compared: 26 previous and 29 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (32)
Current report
See Item 1 of Part I, “Notes to Consolidated Financial Statements - Note 1 - Business and Basis of Presentation - Recent Accounting Pronouncements.”
Current report
Net Sales: For the three months ended June 30, 2024, consolidated net sales increased $2.9 million, or 2.8% compared to the prior year period, driven by an increase in the Zig-Zag and Stoker’s segments partially offset by a decline in the Creative Distribution Solutions segment.
Current report
For the three months ended June 30, 2024, gross profit in the Zig-Zag Products segment increased $0.5 million, or 1.7% compared to the prior year period. Gross profit as a percentage of net sales decreased to 53.2% of net sales for the three months ended June 30, 2024, from 56.6% of net sales for the three months ended June 30, 2023, driven primarily by growth during the quarter in our Canadian products business described above, and higher net sales of cigar products, which generate a lower margin than other products in the segment.
Current report
For the three months ended June 30, 2024, gross profit in the Stoker’s Products segment increased $3.6 million, or 17.8% compared to the prior year period. Gross profit as a percentage of net sales decreased to 55.0% of net sales for the three months ended June 30, 2024, from 55.4% of net sales for the three months ended June 30, 2023, primarily driven by Stoker’s MST net sales growth at higher margins, and higher net sales of FRE, though at lower margins than other products in the segment.
Current report
For the three months ended June 30, 2024, gross profit in the Creative Distribution Solutions segment decreased $2.6 million, or 43.4% compared to the prior year period. Gross profit as a percentage of net sales decreased to 22.5% of net sales for the three months ended June 30, 2024, from 26.7% of net sales for the three months ended June 30, 2023, primarily as a result of sales channel mix as business-to-business net sales which generates lower margins than business-to-consumer sales increased to 70% of net sales for the three months ended June 30, 2024 from 65% of net sales for the three months ended June 30, 2023.
Current report
Other Operating Income: For the three months ended June 30, 2024, other operating income increased $1.7 million compared to the prior year period due to a federal excise tax refund of $1.7 million received in the second quarter of 2024.
Current report
Operating Income (Loss): For the three months ended June 30, 2024, consolidated operating income increased $2.2 million, or 10.8% compared to the prior year period. Operating income as a percentage of net sales increased to 21.0% of net sales for the three months ended June 30, 2024 from 19.5% of net sales for the three months ended June 30, 2023, primarily driven by increased gross profit in the Stoker’s and Zig-Zag products segments, partially offset by decreased gross profit in the Creative Distribution Solutions segment.
Current report
For the three months ended June 30, 2024, operating income in the Zig-Zag Products segment increased $1.3 million, or 7.4% compared to the prior year period. Operating income as a percentage of net sales increased to 16.8% of net sales for the three months ended June 30, 2024 from 16.1% of net sales for the three months ended June 30, 2023, primarily driven by increased gross profit in our Canadian products business, U.S. Wraps and cigar products, combined with lower operational costs.
Current report
For the three months ended June 30, 2024, operating income in the Stoker’s Products segment increased $2.8 million, or 18.2% compared to the prior year period. Operating income as a percentage of net sales increased to 16.5% of net sales for the three months ended June 30, 2024 from 14.3% of net sales for the three months ended June 30, 2023, primarily driven by Stoker’s MST net sales growth at higher margins, and higher net sales of FRE which represented a higher percentage of the segment’s sales compared to the prior year period and has lower margins than other products in the segment.
Current report
For the three months ended June 30, 2024, operating income in the Creative Distribution Solutions segment decreased $0.6 million, or 123.5% compared to the prior year period. Operating income as a percentage of net sales decreased to (0.1)% of net sales for the three months ended June 30, 2024, from 0.4% of net sales for the three months ended June 30, 2023, primarily driven by a decline in gross profit that was not matched with cost savings. The decline was expected in light of our decision to focus on more profitable products.
Current report
Included in consolidated operating income are costsof the Company which are not assigned to one of the three reportable segments and includes: (i) corporate overhead expense, including executive management, finance, legal and information technology salaries, and professional services, such as audit, external legal costs and information technology services, as well as (ii) costs related to the FDA premarket tobacco product application. For the three months ended June 30, 2024, unallocated costs were $13.3 million compared to $12.0 million in the prior year period, an increase of $1.2 million or 10.2%.
Current report
Interest Expense, net: For the three months ended June 30, 2024, interest expense, net decreased $1.0 million compared to the prior year period as a result of the repurchase of $30.1 million of Convertible Senior Notes in the second and third quarters of 2023, and increased interest income on cash deposits due to rising interest rates.
Current report
Comparison of the Six Months Ended June 30, 2024, to the Six Months Ended June 30, 2023
Current report
Net Sales: For the six months ended June 30, 2024, consolidated net sales decreased $1.0 million, or 0.5% compared to the prior year period, driven by a decline in the Creative Distribution Solutions segment partially offset by an increase in the Stoker’s and Zig-Zag Products segments.
Current report
For the six months ended June 30, 2024, net sales in the Zig-Zag Products segment increased $8.6 million, or 9.7% compared to the prior year period. The increase in net sales was driven primarily by $4.9 million of growth in Wraps and U.S. Papers, $3.8 million of growth in cigars, $1.4 million of growth in our Canadian products business and $1.8 million of growth in the alternative channel, partially offset by declines of $3.2 million in our Clipper business against trade load in the prior year.
Current report
For the six months ended June 30, 2024, net sales in the Stoker’s Products segment increased $9.4 million, or 13.5% compared to the prior year period. For the six months ended June 30, 2024, volume increased 2.8% as compared with the prior year period contributing $2.0 million to the increase, and price/product mix increased 10.6% which contributed $7.4 million to the increase. The increase in net sales was driven primarily by $5.1 million of growth of modern oral product FRE and $5.0 million of growth of Stoker’s MST, partially offset by a $0.6 million decline in loose-leaf chewing tobacco.
Current report
Gross Profit: For the six months ended June 30, 2024, consolidated gross profit increased $4.7 million, or 4.6% compared to the prior year period. Gross profit as a percentage of net sales increased to 51.4% for the six months ended June 30, 2024, compared to 48.9% for the six months ended June 30, 2023, primarily driven by increased margins as the Creative Distribution Solutions segment became a smaller part of the overall company.
Current report
For the six months ended June 30, 2024, gross profit in the Zig-Zag Products segment increased $5.6 million, or 11.5% compared to the prior year period. Gross profit as a percentage of net sales increased to 56.0% of net sales for the six months ended June 30, 2024, from 55.1% of net sales for the six months ended June 30, 2023 as a result of product mix. Net sales increased in U.S. Papers and Wraps products which generate a higher gross margin than Clipper products in which net sales declined.
Current report
For the six months ended June 30, 2024, gross profit in the Stoker’s Products segment increased $4.9 million, or 12.4% compared to the prior year period. Gross profit as a percentage of net sales decreased to 56.0% of net sales for the six months ended June 30, 2024, from 56.6% of net sales for the six months ended June 30, 2023, as a result of product mix as the growth in our modern oral product FRE, which generates lower margins as compared with other products in the Stoker’s Products segment, outpaced the growth of MST.
Current report
For the six months ended June 30, 2024, gross profit in the Creative Distribution Solutions segment decreased $5.8 million, or 45.5% compared to the prior year period. Gross profit as a percentage of net sales decreased to 23.9% of net sales for the six months ended June 30, 2024, from 26.6% of net sales for the six months ended June 30, 2023, primarily as a result of sales channel mix as business-to-business net sales, which generate lower margins than business-to-consumer sales, increased to 83% of net sales for the six months ended June 30, 2024 from 79% of net sales for the six months ended June 30, 2023.
Current report
Other Operating Income: For the six months ended June 30, 2024, other operating income increased $1.7 million compared to the prior year period due to a federal excise tax refund of $1.7 million received in the first half of 2024.
Current report
Operating Income (Loss): For the six months ended June 30, 2024, consolidated operating income increased $3.6 million, or 9.5% compared to the prior year period. Operating income as a percentage of net sales increased to 20.4% of net sales for the six months ended June 30, 2024 from 18.6% of net sales for the six months ended June 30, 2023, primarily driven by increased gross profit in the Stoker's and Zig-Zag Products segments partially offset by decreased gross profit in the Creative Distribution Solutions segment.
Current report
For the six months ended June 30, 2024, operating income in the Zig-Zag Products segment increased $5.6 million, or 18.3% compared to the prior year period. Operating income as a percentage of net sales increased to 17.6% of net sales for the six months ended June 30, 2024 from 14.8% of net sales for the six months ended June 30, 2023, primarily driven by increased gross profit in our Canadian products business, U.S. Wraps and papers products.
Current report
For the six months ended June 30, 2024, operating income in the Stoker’s Products segment increased $3.6 million, or 12.1% compared to the prior year period. Operating income as a percentage of net sales increased to 16.2% of net sales for the six months ended June 30, 2024 from 14.4% of net sales for the six months ended June 30, 2023, primarily driven by Stoker’s MST net sales growth at higher margins and higher net sales of FRE.
Current report
For the six months ended June 30, 2024, operating income in the Creative Distribution Solutions segment decreased $0.8 million, or 115.3% compared to the prior year period. Operating income as a percentage of net sales decreased to (0.1)% of net sales for the six months ended June 30, 2024, from 0.3% of net sales for the six months ended June 30, 2023, primarily driven by a decline in gross profit that was not matched with cost savings.
Current report
Included in consolidated operating income are costsof the Company which are not assigned to one of the three reportable segments and includes: (i) corporate overhead expense, including executive management, finance, legal and information technology salaries, and professional services, such as audit, external legal costs and information technology services, as well as (ii) costs related to the FDA premarket tobacco product application. For the six months ended June 30, 2024, unallocated costs were $27.4 million compared to $22.6 million in the prior year period, an increase of $4.7 million or 20.9%.
Current report
Investment Loss: For the six months ended June 30, 2024, investment loss decreased to $2.3 million compared to $8.9 million for the six months ended June 30, 2023. The change is primarily the result of an impairment charge recognized on our investments in Bomani for $1.8 million and Old Pal for $0.8 million in the second quarter of 2024, compared to an impairment charge of $8.7 million in the first half of 2023 related to our investment in Docklight.
Current report
Gain on Extinguishment of Debt: There was no gain or loss on extinguishment of debt for the six months ended June 30, 2024 compared to a gain on extinguishment of debt of $1.4 million for the six months ended June 30, 2023 as a result of repurchasing $29.0 million of Convertible Senior Notes in the first half of 2023.
Current report
Our Convertible Senior Notes, with an outstanding balance of $118.5 million as of June 30, 2024, matured on July 15, 2024 and are reported in current liabilities on the Company's Consolidated Balance Sheet. The Convertible Senior Notes were retired on July 15, 2024 with cash, leaving us with pro forma cash of $23.7 million and no borrowings outstanding under our ABL as of June 30, 2024.
Current report
Our adjusted working capital, which we define as current assets less cash and current liabilities, decreased $62.6 million compared to the prior year end. The decrease in working capital is primarily a result of a $60.2 million increase in current liabilities due to the July 15, 2024 maturity of our Convertible Senior Notes which were retired on that date. With our strong cash balance, free cash flow generation and borrowing availability under the 2023 ABL Facility, we expect to have ample liquidity to satisfy our operating cash requirements for the foreseeable future.
Current report
Our cash flows from operations as reflected in the Consolidated Statements of Cash Flows are summarized as follows:
Current report
For the six months ended June 30, 2024, net cash provided by operating activities was $36.1 million, an increase of $8.5 million compared to the prior year period, primarily dueto an increase in net income, net of non-cash items of $4.5 million, and an increase in the change in other assets of $4.3 million. The primary drivers of non-cash items were a $6.3 million decrease in loss on investments compared to the prior year period, partially offset by a $1.1 million increase in stock compensation expense and a $1.4 million decrease in gains on extinguishment of debt compared to the prior year period. The increase in other assets was primarily driven by cash paid for capitalized software in 2023 that did not repeat in 2024.
Removed paragraphs (13)
Previous report
There are no recent accounting pronouncements that impact the Company.
Previous report
Recent Developments
Previous report
Non-Marketable Equity Investments
Previous report
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.
Previous report
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%.
Previous report
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.
Previous report
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.
Previous report
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.
Previous report
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.
Previous report
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.
Previous report
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.
Previous report
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.
Previous report
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.
Reworded paragraphs (27)
Previous wording
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”).
Current wording
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 and six months ended June 30, 2024. 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”).
Previous wording
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.
Current wording
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. Many of the amounts and percentages in this discussion have been rounded for convenience of presentation.
Previous wording
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.
Current wording
We operate in three segments: Zig-Zag Products, Stoker’s Products and Creative Distribution Solutions (“CDS”). 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.
Previous wording
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.
Current wording
For the three months ended June 30, 2024, net sales in the Zig-Zag Products segment increased $3.8 million, or 8.0% compared to the prior year period. The increase in net sales was driven primarily by an increase of $3.8 million of growth in our cigar products and $1.2 million of growth in our Canadian products business, partially offset by a decline of $1.6 million in our Clipper business against trade load in the prior year.
Previous wording
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.
Current wording
For the three months ended June 30, 2024, net sales in the Stoker’s Products segment increased $6.7 million, or 18.5% compared to the prior year period. For the three months ended June 30, 2024, volume increased 5.3% as compared with the prior year period contributing $1.9 million to the increase, and price/product mix increased 13.2% which contributed $4.8 million to the increase. The increase in net sales was driven by $3.5 million of growth of Stoker’s® MST and $3.4 million of growth in our modern oral product FRE, partially offset by a $0.1 million decline in net sales of loose-leaf chewing tobacco.
Previous wording
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.
Current wording
For the three months ended June 30, 2024, net sales in the Creative Distribution Solutions segment decreased $7.5 million, or 33.0% compared to the prior year period. The decrease in net sales was primarily the result of lower volumes in the liquid nicotine distribution business, contributing $7.5 million to the decrease, and our strategic decision to eliminate certain unprofitable brands and to focus on a narrower set of products.
Previous wording
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.
Current wording
Gross Profit: For the three months ended June 30, 2024, consolidated gross profit increased $1.4 million, or 2.6% compared to the prior year period. Gross profit as a percentage of net sales decreased slightly to 49.6% for the three months ended June 30, 2024, compared to 49.7% for the three months ended June 30, 2023.
Previous wording
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.
Current wording
Selling, General, and Administrative Expenses: For the three months ended June 30, 2024, selling, general, and administrative expenses increased $0.8 million, or 2.6% compared to the prior year period. Selling, general and administrative expenses in the three months ended June 30, 2024, included $1.9 million of stock options, restricted stock and incentives expense, $1.0 million of expense related to PMTA, $0.5 million of expense related to the implementation of the new ERP and CRM systems, $0.3 million of expense related to corporate restructuring and $0.1 million of transaction costs. Selling, general and administrative expenses in the three months ended June 30, 2023, included $2.1 million of stock options, restricted stock and incentives expense, $0.7 million of expense related to PMTA, $0.1 million of transaction costs and $0.1 million of expense related to the implementation of the new ERP and CRM systems.
Previous wording
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.
Current wording
Investment Loss: For the three months ended June 30, 2024, we had an investment loss of $2.4 million compared to a $4.1 million loss for the three months ended June 30, 2023. The change is primarily the result of an impairment charge recognized on our investments in Bomani for $1.8 million and Old Pal for $0.8 million in the second quarter of 2024, compared to an impairment charge recognized on our investment in Docklight for $3.8 million in the second quarter of 2023.
Previous wording
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.
Current wording
Gain on Extinguishment of Debt: There was no gain or loss on extinguishment of debt for the three months ended June 30, 2024 compared to a $0.6 million gain on extinguishment of debt for the three months ended June 30, 2023 as a result of repurchasing $15.1 million of Convertible Senior Notes in the second quarter of 2023.
Previous wording
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.
Current wording
Income Tax Expense: Our income tax expense of $4.4 million was 25.5% of income before income taxes for the three months ended June 30, 2024. Our effective income tax rate was 25.6% for the three months ended June 30, 2023.
Previous wording
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.
Current wording
Net Income (Loss) Attributable to Non-Controlling Interest: Net loss attributable to non-controlling interest was $0.1 million for the three months ended June 30, 2024 compared to $0.2 million net loss for the three months ended June 30, 2023.
Previous wording
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.
Current wording
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 June 30, 2024 and 2023, was $13.0 million and $9.9 million, respectively.
Previous wording
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.
Current wording
Interest Expense, net: For the six months ended June 30, 2024, interest expense, net decreased $1.6 million compared to the prior year period as a result of the repurchases of $44.0 million of Convertible Senior Notes in 2023, and increased interest income on cash as a result of rising interest rates.
Previous wording
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.
Current wording
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. Among other items that we adjust Adjusted EBITDA for is FDA PMTA expense. The Company believes it is appropriate to adjust for this spend as the costs are incurred in connection with what we view as a non-traditional regulatory process that requires applications be submitted for covered products that are already on the market. As a result, Company’s management believes it is most appropriate to assess the performance of the Company’s business – the sale of our various products - without regard to these costs and believes that adjusting for these costs provides investors and the public markets with the most meaningful metrics to assess performance of the business.
Previous wording
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.
Current wording
As of June 30, 2024, we have $142.2 million of cash on hand and have $58.8 million of availability under the 2023 ABL Facility. Our principal uses for cash are working capital, debt service, and capital expenditures.
Previous wording
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.
Current wording
For the six months ended June 30, 2024, net cash used in investing activities was $8.0 million, an increase of $5.0 million compared to the prior year period, primarily due to the net purchase of $4.6 million in investments by our captive insurance subsidiary.
Previous wording
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.
Current wording
For the six months ended June 30, 2024, net cash used in financing activities was $6.7 million, a decrease of $23.7 million compared to the prior year period, primarily due to the repurchase of $27.4 million of Convertible Senior Notes that occurred during the period in 2023 that did not repeat in 2024, partially offset by an increase in repurchases of common stock of $3.1 million during the period in 2024.
Previous wording
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.
Current wording
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 three and six months ended June 30, 2024, the Company repurchased $1.0 million and $3.1 million of common stock, respectively, with $24.1 million remaining available for share repurchases under the program as of June 30, 2024.
Previous wording
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.
Current wording
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. For instance, the Company is generally permitted to make restricted payments, including the payment of dividends to shareholders, provided that, at the time of payment, or as a result of payment, the Company is not in default on its debt covenants; however, there are earnings and market capitalization requirements that if not met could limit the aggregate amount of quarterly dividends payable during a fiscal year. The Senior Secured Notes Indenture provides for customary events of default. We were in compliance with all covenants as of June 30, 2024.
Previous wording
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.
Current wording
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 in November 2023.
Previous wording
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.
Current wording
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 is 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 with the $9.4 million level automatically increased in proportion to the amount of any increase in the aggregate revolving credit commitments thereunder in connection with any incremental facility.
Previous wording
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.
Current wording
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) will 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.
Previous wording
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.
Current wording
The Company has not drawn any borrowings under the 2023 ABL Facility but has letters of credit of approximately $2.6 million outstanding under the facility and has an available balance of $58.8 million based on the borrowing base as of June 30, 2024.
Previous wording
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.
Current wording
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 were retired on July 1, 2024, with $118.5 million aggregate principal remaining outstanding and held by third parties as of June 30, 2024.
Previous wording
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.
Current wording
The Convertible Senior Notes held by third parties were convertible into shares of TPB common stock, par value $0.01 per share (“Common Stock”), under certain circumstances prior to maturity. The conditions required to allow the holders to convert their Convertible Senior Notes were not met as of June 30, 2024. The Convertible Senior Notes matured on July 15, 2024 and were retired with cash. As of June 30, 2024, $118.5 million aggregate principal is recorded in current liabilities on the Company’s Consolidated Balance Sheet.
Previous wording
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.
Current wording
During the six months ended June 30, 2024, we executed various foreign exchange contracts for the purchase and sale of €1.5 million with maturity dates ranging from October to December 2024. At June 30, 2024, we had foreign currency contracts outstanding for the purchase of €6.1 million and sale of €6.1 million, with maturities ranging from July to December 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 June 30, 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.
Rearranged current paragraphs (6)
Current report — wording carried from elsewhere
The table and discussion set forth below displays our consolidated results of operations (in thousands):
Current report — wording carried from elsewhere
For the six months ended June 30, 2024, net sales in the Creative Distribution Solutions segment decreased $18.9 million, or 39.3% compared to the prior year period. The decrease in net sales was primarily the result of reduced volumes in the liquid nicotine distribution business contributing $18.9 million to the decrease, and our strategic decision to eliminate certain unprofitable brands and to focus on a narrower set of products.
Current report — wording carried from elsewhere
Selling, General, and Administrative Expenses: For the six months ended June 30, 2024, selling, general, and administrative expenses increased $2.7 million, or 4.3%. Selling, general and administrative expenses in the six months ended June 30, 2024, included $4.0 million of stock options, restricted stock and incentives expense, $1.9 million of expense related to PMTA, $1.5 million of expense related to corporate restructuring, $0.7 million of expense related to the implementation of the new ERP and CRM systems and $0.1 million related to transaction costs. Selling, general and administrative expenses in the six months ended June 30, 2023, included $2.8 million of stock options, restricted stock and incentives expense, $0.8 million of expense related to PMTA, $0.3 million of expense related to the implementation of the new ERP and CRM systems and $0.1 million related to transaction costs.
Current report — wording carried from elsewhere
Income Tax Expense: Our income tax expense of $8.1 million was 24.5% of income before income taxes for the six months ended June 30, 2024. Our effective income tax rate was 25.4% for the six months ended June 30, 2023.
Current report — wording carried from elsewhere
Net Income (Loss) Attributable to Non-Controlling Interest: Net income attributable to non-controlling interest was $0.1 million for the six months ended June 30, 2024 compared to a $0.5 million loss for the six months ended June 30, 2023.
Current report — wording carried from elsewhere
Net Income Attributable to Turning Point Brands, Inc.: Due to the factors described above, net income attributable to Turning Point Brands, Inc. for the six months ended June 30, 2024 and 2023, was $25.0 million and $17.5 million, respectively.