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Turning Point Brands(TPB) - 2025 Q1 - Quarterly Report

Part I Item 1. Financial Statements (Unaudited) Unaudited Q1 2025 financials show strong growth, asset increase from debt refinancing, and CDS segment divestiture Consolidated Balance Sheets Total assets increased to $564.6 million by March 31, 2025, driven by cash from debt refinancing, with liabilities and equity also rising Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Current Assets | $259,013 | $198,205 | | Total Assets | $564,552 | $493,353 | | Total Current Liabilities | $58,603 | $44,820 | | Notes payable and long-term debt | $293,062 | $248,604 | | Total Liabilities | $361,115 | $302,973 | | Total Stockholders' Equity | $203,437 | $190,380 | - Assets and liabilities held for sale, which were $15.3 million and $2.0 million respectively at year-end 2024, were disposed of and are no longer on the balance sheet as of March 31, 20251122 Consolidated Statements of Income Q1 2025 saw net sales rise 28.1% to $106.4 million, with operating income up 20.3% and diluted EPS at $0.79, despite a debt extinguishment loss Consolidated Income Statement Highlights (in thousands, except per share data) | Metric | Q1 2025 | Q1 2024 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $106,436 | $83,064 | 28.1% | | Gross Profit | $59,610 | $48,354 | 23.3% | | Operating Income | $23,189 | $19,270 | 20.3% | | Net Income Attributable to TPB | $14,395 | $12,010 | 19.8% | | Diluted EPS | $0.79 | $0.63 | 25.4% | - The company recorded a $1.235 million loss on extinguishment of debt in Q1 2025, which was not present in the prior year12 Consolidated Statements of Cash Flows Net cash from operations decreased to $17.4 million in Q1 2025, while financing activities provided $38.5 million due to new debt issuance Cash Flow Summary (in thousands) | Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $17,409 | $22,639 | | Net cash used in investing activities | $(5,230) | $(7,986) | | Net cash provided by (used in) financing activities | $38,520 | $(4,573) | - Financing activities were driven by receiving $300.0 million from the issuance of 2032 Notes and paying $250.0 million for the redemption of 2026 Notes16 Notes to Consolidated Financial Statements Notes detail business structure, accounting policies, CDS divestiture, debt refinancing, lower tax rate, and Stoker's segment performance Note 1. Business and Basis of Presentation The company manufactures branded consumer products through Zig-Zag and Stoker's segments, divesting its CDS segment on January 2, 2025 - The company operates two segments: Zig-Zag products (rolling papers, cigars, accessories) and Stoker's products (moist snuff, chewing tobacco, modern oral products)20 - On January 2, 2025, the company contributed its interest in the Creative Distribution Solutions (CDS) segment to General Wireless Operations, Inc. (GWO) in exchange for a 49% stake in GWO, with financial results of CDS now reported as discontinued operations2122 Note 3. Assets and Liabilities Held for Sale and Discontinued Operations CDS segment divestiture completed January 2, 2025, for a 49% equity interest in GWO, with no additional loss recognized in Q1 2025 - The company contributed its CDS segment to GWO in exchange for 49% of GWO common stock and an option to purchase the remaining 51% for an initial price of $22.0 million49 Loss from Discontinued Operations (in thousands) | Metric | Three Months Ended March 31, 2024 | | :--- | :--- | | Net sales | $13,994 | | Operating loss | $(3) | | Loss from discontinued operations | $(2) | Note 11. Notes Payable and Long-Term Debt In February 2025, the company issued $300.0 million of 7.625% Notes due 2032 to redeem $250.0 million of 5.625% Notes due 2026 - On February 19, 2025, the company issued $300.0 million of 7.625% Senior Secured Notes due 203273 - On February 20, 2025, the company used proceeds from the new notes to redeem all $250.0 million of its 5.625% Notes due 2026, resulting in a write-off of $1.2 million in remaining debt issuance costs7879 - The company has an available balance of $62.2 million under its 2023 ABL Facility as of March 31, 2025, with no borrowings drawn87 Note 12. Income Taxes The effective income tax rate for Q1 2025 significantly decreased to 11.4% from 23.4% due to permanent tax differences from restricted stock units - The effective tax rate was 11.4% for Q1 2025, compared to 23.4% for Q1 202489 - The decrease in the tax rate was due to permanent tax differences from restricted stock units issued in Q1 202589 Note 16. Segment Information Stoker's products segment drove Q1 2025 growth with 62.7% net sales increase, while Zig-Zag saw modest growth and increased corporate costs Segment Performance for Q1 2025 vs Q1 2024 (in thousands) | Segment | Net Sales 2025 | Net Sales 2024 | % Change | Operating Income 2025 | Operating Income 2024 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Zig-Zag products | $47,265 | $46,697 | 1.2% | $16,930 | $18,000 | -5.9% | | Stoker's products | $59,171 | $36,367 | 62.7% | $24,134 | $15,396 | 56.8% | | Total Segment | $106,436 | $83,064 | 28.1% | $41,064 | $33,396 | 23.0% | - Corporate unallocated costs, which include executive management, finance, legal, IT, and PMTA expenses, increased to $17.9 million in Q1 2025 from $14.1 million in Q1 2024109 Note 17. Dividends and Share Repurchases A quarterly dividend of $0.075 per share was paid, and no shares were repurchased under the $100.0 million authorization in Q1 2025 - A dividend of $0.075 per common share was paid on April 11, 2025112 - The company has a $100.0 million share repurchase authorization, but no shares were repurchased under the program in Q1 2025114 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Strong 28.1% YoY revenue growth driven by Stoker's products, successful debt refinancing, and strong liquidity with $99.6 million cash Results of Operations Consolidated net sales rose 28.1% to $106.4 million in Q1 2025, primarily from Stoker's products, with operating income up 20.3% Consolidated Results Summary (in thousands) | Metric | Q1 2025 | Q1 2024 | % Change | | :--- | :--- | :--- | :--- | | Total net sales | $106,436 | $83,064 | 28.1% | | Total gross profit | $59,610 | $48,354 | 23.3% | | Total operating income | $23,189 | $19,270 | 20.3% | - Stoker's products segment net sales increased 62.7%, driven by $20.0 million of sales in modern oral products and $2.4 million of growth of Stoker's® MST132 - Zig-Zag products segment gross profit decreased 7.2% YoY, with margins declining from 59.0% to 54.1%, primarily due to a shift in sales from higher-margin U.S. papers to lower-margin cigar products134 EBITDA and Adjusted EBITDA Adjusted EBITDA increased to $27.7 million in Q1 2025, with key adjustments including stock-based compensation and FDA PMTA expenses Reconciliation of Net Income to Adjusted EBITDA (in thousands) | Line Item | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net income attributable to TPB | $14,395 | $12,010 | | Interest expense, net | 4,401 | 3,479 | | Income tax expense | 2,040 | 3,729 | | Depreciation & Amortization | 1,650 | 1,153 | | EBITDA | $23,721 | $20,371 | | Stock based compensation | 1,664 | 2,062 | | FDA PMTA | 1,591 | 841 | | Other Adjustments | 702 | 1,429 | | Adjusted EBITDA | $27,678 | $24,703 | Liquidity and Capital Resources Strong liquidity with $99.6 million cash and $62.2 million ABL availability, enhanced by $300.0 million debt refinancing - As of March 31, 2025, the company had $99.6 million of cash on hand and $62.2 million of availability under the 2023 ABL Facility, with no borrowings outstanding153 - Net cash provided by operating activities was $17.4 million for Q1 2025, a decrease from $19.2 million in the prior year period (from continuing operations)156157 - In February 2025, the company issued $300.0 million in new 2032 Notes and redeemed its $250.0 million 2026 Notes163166 Item 3. Quantitative and Qualitative Disclosures about Market Risk No material changes to market risk exposures, with minimal interest rate risk due to fixed-rate debt and no ABL borrowings - There have been no material changes in exposure to exchange rate fluctuation risk or credit risk during the quarter182183 - The new 2032 Notes bear a fixed interest rate, and the 2023 ABL Facility has no borrowings outstanding, mitigating interest rate sensitivity184 Item 4. Controls and Procedures Disclosure controls were ineffective due to a material weakness in IT general controls, with a remediation plan expected by end of fiscal 2025 - Disclosure controls and procedures were deemed not effective as of March 31, 2025, due to a material weakness in IT general controls (ITGCs)185 - The material weakness relates to user access and program change-management over certain IT systems and did not result in no identified misstatements to financial statements186187 - A remediation plan is underway, including the implementation of a new ERP system, and is expected to be completed by the end of fiscal 2025188189 Part II Item 1. Legal Proceedings Readers are directed to the 2024 Annual Report on Form 10-K for details on product liability litigation risks - For information on legal proceedings, the company refers to the risk factors concerning product liability litigation in its 2024 Annual Report on Form 10-K194 Item 1A. Risk Factors No material changes have occurred to the Risk Factors previously disclosed in the 2024 Annual Report on Form 10-K - No material changes have occurred to the Risk Factors set forth in the 2024 Annual Report on Form 10-K195 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds A $100.0 million share repurchase program is authorized, but no shares were repurchased in Q1 2025, except for tax withholdings - The Board of Directors has authorized a $100.0 million share repurchase program196 Share Repurchase Activity for Q1 2025 | Period | Total Shares Purchased | Average Price Paid | Shares Purchased as Part of Program | Approx. Value Remaining in Program | | :--- | :--- | :--- | :--- | :--- | | Jan 2025 | 64,209 (1) | - | 0 | $100,000,000 | | Feb 2025 | 0 | - | 0 | $100,000,000 | | Mar 2025 | 0 | - | 0 | $100,000,000 | | Total | 64,209 | - | 0 | | - (1) Shares purchased consist of shares withheld to satisfy statutory tax withholdings for stock-based awards and were not part of the publicly announced repurchase program198 Item 3. Defaults Upon Senior Securities Not applicable Item 4. Mine Safety Disclosures Not applicable Item 5. Other Information Not applicable Item 6. Exhibits The report includes certifications by CEO, CFO, and CAO, along with financial statements in Inline XBRL format - Filed exhibits include Rule 13a-14(a)/15d-14(a) certifications for the CEO, CFO, and CAO202 - Section 1350 certifications and Inline XBRL data files are also included as exhibits202