Turning Point Brands, Inc., a manufacturer, marketer and distributor of branded consumer products, including alternative smoking accessories and consumables with active ingredients, announced today financial results for the second quarter ended June 30, 2023.
Q2 2023 vs. Q2 2022
- Total consolidated net sales increased 2.6% to $105.6 million
- Zig-Zag Products net sales increased by 1.1%
- Stoker’s Products net sales increased by 7.3%
- Creative Distribution Solutions net sales decreased by 1.3%
- Gross profit increased 2.0% to $52.5 million
- Net income increased 83.0% to $9.9 million
- Adjusted net income increased 8.4% to $15.3 million (see Schedule B for a reconciliation to net income)
- Adjusted EBITDA increased 2.2% to $25.3 million (see Schedule A for a reconciliation to net income)
- Diluted EPS of $0.53 and Adjusted Diluted EPS of $0.79 compared to $0.30 and $0.70 in the same period one year ago, respectively (see Schedule B for a reconciliation to Diluted EPS)
Graham Purdy, President and CEO, commented: “Our second quarter results demonstrated continued progress against our plan. The Zig-Zag segment grew double-digits sequentially from the first quarter as trade inventory normalized. Stoker’s had another solid quarter of performance led by double-digit growth in Stoker’s MST. We opportunistically purchased another $15.1 million in aggregate principal amount of our convertible notes during the second quarter while maintaining a strong cash balance. Given our solid first half performance, we are raising our guidance for the full year.”
Zig-Zag Products Segment (44% of total net sales in the quarter)
For the second quarter, Zig-Zag Products net sales increased 1.1% to $46.7 million. TPB’s Canadian and other smoking accessories businesses saw strong growth during the quarter which was partially offset by declines in the U.S. rolling papers and wraps businesses. For the quarter, the Zig-Zag Products segment gross profit was steady at $26.4 million. Gross margin declined 60 basis points to 56.6% driven primarily by product mix.
“Our e-commerce business had another quarter of double-digit growth as we continue to build our omni-channel presence,” said Purdy. “We remain encouraged by our prospects with secular cannabis consumption growth trends driving demand for our products.”
Stoker’s Products Segment (34% of total net sales in the quarter)
For the second quarter, Stoker’s Products net sales increased 7.3% to $36.1 million. Double-digit growth of MST offset a decline in loose-leaf chewing tobacco. For the second quarter, total Stoker’s Products segment volume increased 0.7%, while price / mix increased 6.6%. For the quarter, the Stoker’s Products segment gross profit increased 10.4% to $20.0 million. Gross margin expanded 160 basis points to 55.4% due to MST pricing gains.
“Stoker’s continues to benefit from strong market share gains in both the MST and loose-leaf chewing tobacco categories as its value proposition continues to resonate with consumers,” continued Purdy.
Performance Measures in the Second Quarter
Second quarter consolidated selling, general and administrative (“SG&A”) expenses were $31.9 million compared to $33.3 million in the second quarter of 2022. The second quarter SG&A included the following notable items:
- $0.1 million of ERP / CRM duplicative system costs compared to $0.9 million of ERP / CRP scoping expenses in the previous year
- $2.1 million of stock options, restricted stock and incentive expense compared to $1.5 million in the year-ago period
- $0.7 million of FDA PMTA-related expenses for modern oral products compared to $2.0 million in the year-ago period
- $0.1 million of transaction expenses compared to $0.4 million in the year-ago period
- $0.0 million of restructuring costs as compared to $0.3 million in the year-ago period
Total gross debt as of June 30, 2023 was $383.5 million. Net debt (total gross debt less unrestricted cash) at June 30, 2023 was $283.0 million. The Company ended the quarter with total liquidity of $124.1 million, comprised of $100.5 million in cash and $23.6 million of revolving credit facility capacity.
During the quarter, the Company repurchased $15.1 million in aggregate principal amount of its 2.50% Convertible Senior Notes due July 2024. The Company recorded an impairment charge of $4.1 million during the quarter related to historical minority investments in development stage ventures.
2023 Outlook
At this time, the Company expects full-year 2023 adjusted EBITDA to be $90 to $95 million (compared to previous outlook of $88 to $94 million).
Creative Distribution Solutions (“CDS”) (22% of total net sales in the quarter)
For the second quarter, CDS (formerly the Company’s “NewGen” segment) net sales were $22.8 million, gross profit was $6.1 million, and gross margin was 26.7%.
About Turning Point Brands, Inc.
Turning Point Brands is a manufacturer, marketer and distributor of branded consumer products including alternative smoking accessories and consumables with active ingredients through its iconic Zig-Zag® and Stoker’s® brands. TPB’s products are available in more than 215,000 retail outlets in North America, and on sites such as www.zigzag.com. For the latest news and information about TPB and its brands, please visit www.turningpointbrands.com.
