Turning Point Brands(US:TPB)2021-02-19 21:42Company Overview - Turning Point Brands, Inc. operates in three segments: Zig-Zag Products, Stoker's Products, and NewGen Products, with a focus on branded consumer products in the alternative smoking accessories and Other Tobacco Products (OTP) industries [257]. - The company has a market share of 34.0% in cigarette papers and 63.0% in make-your-own (MYO) cigar wraps, ranking 1 overall in both categories [263]. - As of December 31, 2020, the company's products were available in approximately 190,000 U.S. retail locations, expanding its North American retail presence to an estimated 210,000 points of distribution [259]. Acquisitions and Investments - In June 2020, the company acquired certain tobacco assets from Durfort Holdings for $47.7 million, enhancing its product offerings in the alternative cigar and cigar wrap market [272]. - In October 2020, the company acquired a 20% stake in Wild Hempettes LLC for $2.5 million, with options to increase ownership based on milestones [275]. - The company made acquisitions totaling $39.4 million in 2020, compared to $7.7 million in 2019 [409]. Financial Performance - Total net sales for the year ended December 31, 2020, increased to $405.1 million, up 11.9% from $361.9 million in 2019 [303]. - Consolidated net income for the year ended December 31, 2020, was $33.0 million, up 139.9% from $13.8 million in 2019 [303]. - The company’s operating income for 2020 was $64.1 million, a substantial increase from $26.9 million in 2019 [405]. - Adjusted EBITDA for 2020 was $90.236 million, up from $67.337 million in 2019, representing a growth of 34% [340]. Segment Performance - Zig-Zag products segment net sales rose to $132.8 million, a 22.1% increase from $108.7 million in 2019, driven by a 19.7% volume increase [304]. - Stoker's products segment net sales increased to $115.9 million, up 16.0% from $99.9 million in 2019, with volume growth of 12.0% [306]. - NewGen products segment net sales grew to $156.4 million, a 2.0% increase from $153.4 million in 2019, primarily due to growth in Nu-X and vape distribution businesses [307]. Profitability Metrics - Gross profit for the year ended December 31, 2020, was $189.6 million, reflecting a 38.7% increase from $136.7 million in 2019 [303]. - Gross profit in the Zig-Zag Products segment rose to $78.2 million, an increase of 31.7% from $59.4 million in 2019, with gross profit as a percentage of net sales increasing to 58.9% [309]. - Gross profit in the Stoker's Products segment increased to $61.5 million, up 17.6% from $52.3 million in 2019, with gross profit as a percentage of net sales rising to 53.0% [310]. - NewGen products segment gross profit surged to $49.9 million, a 99.1% increase from $25.1 million in 2019, with gross profit as a percentage of net sales increasing to 31.9% [311]. Expenses and Liabilities - Selling, general, and administrative expenses increased to $125.6 million, a 14.3% rise from $109.9 million in 2019 [303]. - Interest expense, net, rose to $20.2 million, reflecting a 16.6% increase from $17.3 million in 2019 [303]. - Income tax expense increased significantly to $10.0 million, a 390.0% rise from $2.0 million in 2019 [303]. - Total liabilities increased to $358.5 million in 2020 from $340.0 million in 2019 [403]. Cash Flow and Capital Structure - Net cash provided by operating activities rose to $43.7 million in 2020, a 16% increase from $37.8 million in 2019 [347]. - Net cash used in investing activities was $64.8 million in 2020, a decrease of 508% compared to net cash provided of $15.9 million in 2019 [349]. - Long-term debt as of December 31, 2020, was $277.962 million, slightly up from $268.951 million in 2019 [353]. - The company had unrestricted cash on hand of $41.8 million as of December 31, 2020, down from $95.3 million in 2019 [345]. Market Presence and Growth Opportunities - The company has identified additional growth opportunities in the emerging alternatives market, establishing Nu-X as a subsidiary dedicated to alternative products [258]. - The company reported a significant increase in inventories, rising to $79.8 million in 2020 from $71.0 million in 2019 [403]. - The company’s products are available in over 210,000 retail outlets across North America, indicating a strong market presence [414]. Regulatory and Compliance Matters - The company submitted Premarket Tobacco Applications (PMTAs) for 250 products to the FDA prior to the September 9, 2020 deadline, covering a broad assortment of products in the vapor category [274]. - The Company has established an MSA escrow account as a means of compliance with the Master Settlement Agreement, which may not prevent future regulations from adversely affecting operations [448]. - Federal excise taxes on tobacco products could materially affect the Company's financial condition, although e-cigarettes and related products are not currently assessed federal excise taxes as of December 31, 2020 [455].