Turning Point Brands(US:TPB)2020-04-28 21:11Financial Performance - Total net sales for Q1 2020 were $90.689 million, a decrease of 1.0% from $91.628 million in Q1 2019[15]. - Gross profit increased to $41.431 million in Q1 2020, compared to $40.464 million in Q1 2019, reflecting a gross margin improvement[15]. - Consolidated net income for Q1 2020 was $3.275 million, down 50.0% from $6.560 million in Q1 2019[15]. - Basic income per common share decreased to $0.17 in Q1 2020 from $0.34 in Q1 2019[15]. - For the three months ended March 31, 2020, consolidated net income was $3.275 million, resulting in a basic EPS of $0.17, compared to $6.560 million and $0.34 in the same period of 2019[113]. - Consolidated net income for the three months ended March 31, 2020, was $3.3 million, down 50.1% from $6.6 million in the same period in 2019[157]. Assets and Liabilities - Total current assets increased to $191.779 million as of March 31, 2020, compared to $189.250 million as of December 31, 2019[14]. - Total liabilities rose to $344.009 million as of March 31, 2020, compared to $339.999 million as of December 31, 2019[14]. - Total stockholders' equity decreased to $105.311 million as of March 31, 2020, from $106.585 million as of December 31, 2019[14]. - The company reported net inventory of $69.195 million as of March 31, 2020, a decrease from $70.979 million as of December 31, 2019[68]. - The total amount of accrued liabilities increased to $28.754 million as of March 31, 2020, compared to $26.520 million as of December 31, 2019[74]. - As of March 31, 2020, the net notes payable and long-term debt amounted to $267.977 million, a slight decrease from $268.951 million as of December 31, 2019[172]. Cash Flow - Cash provided by operating activities was $14.727 million in Q1 2020, slightly up from $14.025 million in Q1 2019[19]. - The company reported a net increase in cash of $4.156 million for Q1 2020, ending the period with total cash of $131.480 million[19]. - Net cash provided by operating activities was $14.7 million, an increase of $0.7 million compared to $14.0 million for the same period in 2019[166]. Shareholder Actions - The company repurchased 134,130 shares of common stock at a cost of $2.627 million during Q1 2020[14]. - A total of 134,130 shares were repurchased for $2.6 million at an average price of $19.59 per share during the three months ended March 31, 2020[125]. - The Board of Directors approved a $50.0 million share repurchase authorization, with 134,130 shares repurchased for a total cost of $2.6 million[170]. - The company paid a dividend of $0.05 per common share on April 10, 2020, to shareholders of record as of March 20, 2020[123]. Segment Performance - The Smokeless products segment reported net sales of $26.495 million, up from $22.544 million in 2019, while the Smoking products segment increased to $28.914 million from $25.519 million[116]. - The NewGen products segment saw a decline in net sales to $35.280 million from $43.565 million in the previous year[116]. - Operating income for the Smokeless products segment was $9.746 million, an increase from $7.487 million, while the Smoking products segment rose to $12.417 million from $9.946 million[116]. - The NewGen products segment reported an operating income of $477, down from $2.838 million in 2019[116]. - Net sales in the Smokeless products segment increased to $26.5 million, up 17.5% from $22.5 million in the prior year, driven by a 16.7% volume increase[147]. - Net sales in the Smoking products segment increased to $28.9 million, a 13.3% increase from $25.5 million in the previous year, with a volume increase of 10.9%[148]. - Net sales in the NewGen products segment decreased to $35.3 million, down 19.0% from $43.6 million in the prior year, primarily due to market disruptions[149]. Regulatory and Legal Issues - The company is subject to heavy regulation in the tobacco industry, which may impact its financial position and operations due to potential flavor bans and other restrictions[33]. - The company has experienced significant product liability litigation, which could adversely affect its financial position and results of operations[34]. - The company is facing significant product liability claims related to malfunctioning vaporizer devices and e-liquids, which could materially affect its financial position and operations[195]. - A subsidiary is involved in a lawsuit from a franchisee seeking compensatory and punitive damages, alleging failure to disclose information in the Franchise Disclosure Document[196]. - The company has several subsidiaries engaged in the vapor products market, which are subject to regulatory scrutiny and potential lawsuits regarding marketing practices and underage sales[197]. - Financial "hold-backs" were negotiated during the acquisition of vapor businesses to cover expenses related to information requests and potential litigation costs[197]. - The company believes its subsidiaries have strong defenses against claims of unfair marketing practices in the vapor products sector[197]. - There have been no material changes to the risk factors outlined in the 2019 Annual Report on Form 10-K[199]. Acquisitions and Investments - The Company acquired Solace Technologies for a total consideration of $9.4 million, which included $7.7 million in cash and an earn-out of $1.1 million[53]. - The acquisition of Solace Technologies is expected to enhance the Company's product development capabilities in alternative ingredients[53]. - The Company is currently evaluating the impact of ASU 2019-12 on its financial statements, which will be effective in the first quarter of fiscal year 2021[52]. - The Company has not completed the accounting for the acquisition of Solace Technologies as of March 31, 2020[53]. Debt and Financing - The company had a $250 million credit facility, with a $160 million First Lien Term Loan and a $50 million Revolving Credit Facility[76]. - The weighted average interest rate of the 2018 First Lien Term Loan was 3.74% as of March 31, 2020[78]. - The company had no borrowings outstanding under the 2018 Revolving Credit Facility as of March 31, 2020, with $46.3 million available[78]. - The company closed an offering of $172.5 million in Convertible Senior Notes in July 2019, bearing interest at 2.50% per year[80]. - The Convertible Senior Notes can be converted into approximately 3,202,808 shares at a conversion price of approximately $53.86 per share[81]. - The debt discount of $35.0 million will be amortized to interest expense using an effective interest rate of 7.5% over the expected life of the Convertible Senior Notes[82]. - The total lease liabilities increased to $14,204 million as of March 31, 2020, compared to $13,285 million as of December 31, 2019[89]. - The Company entered into a $7.5 million unsecured loan under the CARES Act, scheduled to mature on April 17, 2022, with a 1.00% interest rate[183]. Market Conditions - The company expects COVID-19 to impact future results, with temporary closures affecting production and in-person selling[140]. - The OTP industry generated approximately $11.5 billion in manufacturer revenue in 2019, with TPB being the 6th largest competitor in terms of total OTP consumer units sold[130]. - The company has identified growth opportunities in the emerging alternatives market, establishing a subsidiary, Nu-X, for development and production of alternative products[131]. - As of December 31, 2019, TPB's products were available in approximately 210,000 retail locations across North America[132].