You should read the following discussion of the historical financial condition
and results of operations in conjunction with our historical consolidated
financial statements and accompanying notes, which are included elsewhere in
this Quarterly Report on Form 10-Q. In addition, this discussion includes
forward-looking statements subject to risks and uncertainties that may result in
actual results differing from statements we make. See "Cautionary Note Regarding
Forward-Looking Statements." Factors that could cause actual results to differ
include those risks and uncertainties discussed in "Risk Factors."
The following discussion relates to the unaudited financial statements of
Turning Point Brands, Inc., included elsewhere in this Quarterly Report on Form
10-Q. In this discussion, 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.
Overview
Turning Point Brands, Inc. (the "Company," "we," "our," or "us") is a leading
manufacturer, marketer and distributor of branded consumer products with active
ingredients. We sell a wide range of products to adult consumers, from our
iconic brands to our next generation products to fulfill evolving consumer
preferences. Among other markets, we compete in the Other Tobacco Products
("OTP") industry which we estimate generated approximately $11.5 billion of
manufacturer revenue in 2019 and is exhibiting low to mid-single digit consumer
unit growth as reported by Management Science Associates, Inc. ("MSAi"), a
third-party analytics and information company. Our three focus segments are led
by our core, proprietary brands - Stoker's® along with Beech-Nut® and Trophy® in
Smokeless Products; Zig-Zag® in Smoking Products; and Nu-X®, Solace® along with
our distribution platforms (VaporBeast®, VaporFi® and Direct Vapor®) in NewGen.
Our businesses generate solid cash flow which we use to finance acquisitions,
increase brand support, expand our distribution infrastructure, and strengthen
our capital position. We currently ship to approximately 800 distributors with
an additional 100 secondary, indirect wholesalers in the U.S. that carry and
sell our products. Under the leadership of a senior management team with an
average of 24 years of experience in the tobacco industry, we have grown and
diversified our business through new product launches, category expansions, and
acquisitions while concurrently improving operational efficiency.
We have identified additional growth opportunities in the emerging alternatives
market. In January 2019, we established our subsidiary, Nu-X Ventures LLC
("Nu-X"), a new company and wholly-owned subsidiary dedicated to the
development, production and sale of alternative products and acquisitions in
related spaces. The creation of Nu-X allows TPB to leverage its expertise in
traditional OTP management to alternative products. The TPB management team has
over 100 years of experience navigating federal, state and local regulations
that are directly applicable to the growing alternatives market. In July 2019,
we acquired the assets of Solace Technology ("Solace"). Solace is an innovative
product development company which established one of the top e-liquid brands and
has since grown into a leader in alternative products. Solace's legacy and
innovation will enhance Nu-X's strong and nimble development engine. In July
2019, we acquired a 30% stake in ReCreation Marketing ("ReCreation). ReCreation
is a specialty marketing and distribution firm focused on building brands in the
Canadian smoking, vaping and alternative products categories. The investment
will leverage ReCreation's significant expertise in marketing and distributing
tobacco and cannabis products throughout Canada. The investment is part of Nu-X
and we plan to make additional investments, partnerships and acquisitions to
drive the business of Nu-X. These endeavors will enable us to continue to
identify unmet customer needs and provide quality products that we believe will
result in genuine customer satisfaction and foster the growth of revenue.
We believe there are meaningful opportunities to grow our business organically
and through acquisitions and joint ventures across all product categories. As of
December 31, 2019, our products are available in approximately 185,000 U.S.
retail locations which, with the addition of retail stores in Canada, brings our
total North American retail presence to an estimated 210,000 points of
distribution. Our sales team targets widespread distribution to all traditional
retail channels, including convenience stores.
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Products
We operate in three segments: Smokeless products, Smoking products and NewGen
products. In our Smokeless products segment, we (i) manufacture and market moist
snuff and (ii) contract for and market loose leaf chewing tobacco products. In
our Smoking products segment, we principally (i) market and distribute cigarette
papers, tubes, and related products; and (ii) contract for, market and
distribute finished cigars and MYO cigar wraps. In our NewGen products segment,
we (i) market and distribute CBD, liquid vapor 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. Our portfolio of brands includes some of the most widely
recognized names in the OTP industry such as Stoker's® in the Smokeless segment,
Zig-Zag® in the Smoking segment, and VaporBeast®, VaporFi® and Solace© in the
NewGen segment.
Operations
Our core tobacco business (Smokeless and Smoking segments) primarily generates
revenues from the sale of our products to wholesale distributors who, in turn,
resell the products to retail operations. Our acquisition of VaporBeast in 2016
expanded our revenue streams as we began selling directly to non-traditional
retail outlets. Our acquisition of IVG in 2018 enhanced our business-to-consumer
revenue stream with the addition of the Vapor-Fi online platform. Our net sales,
which include federal excise taxes, consist of gross sales net of cash
discounts, returns, and selling and marketing allowances.
We rely on long-standing relationships with high-quality, established
manufacturers to provide the majority of our produced products. More than 80% of
our production, as measured by net sales, is outsourced to suppliers. The
remaining production consists of our moist snuff tobacco operations located in
Dresden, Tennessee, and Louisville, Kentucky. Our principal operating expenses
include the cost of raw materials used to manufacture the limited number of our
products which we produce in-house; the cost of finished products, which are
generally purchased goods; federal excise taxes; legal expenses; and
compensation expenses, including benefits and costs of salaried personnel. Our
other principal expenses include interest expense and other expenses.
Key Factors Affecting Our Results of Operations
We consider the following to be the key factors affecting our results of
operations:
• Our ability to further penetrate markets with our existing products;
• Our ability to introduce new products and product lines that complement our
core business;
• Decreasing interest in some tobacco products among consumers;
• Price sensitivity in our end-markets;
• Marketing and promotional initiatives, which cause variability in our results;
• General economic conditions, including consumer access to disposable income;
• Cost and increasing regulation of promotional and advertising activities;
• Cost of complying with regulation, including the "deeming regulations";
• Counterfeit and other illegal products in our end-markets;
• Currency fluctuations;
• Our ability to identify attractive acquisition opportunities in OTP; and
• Our ability to integrate acquisitions.
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Recent Developments
Standard Diversified Inc. ("SDI") Reorganization
On July 16, 2020, we completed our merger with SDI, whereby SDI was merged into
a wholly-owned subsidiary of TPB in a tax-free downstream merger. Under the
terms of the agreement, the holders of SDI's Class A Common Stock and SDI's
Class B Common Stock (collectively, "SDI Common Stock") received in the
aggregate, in return for their SDI Common Stock, TPB Voting Common Stock ("TPB
Common Stock") at a ratio of 0.52095 shares of TPB Common Stock for each share
SDI Common Stock. SDI divested its assets prior to close of the merger such that
SDI's net liabilities at closing were minimal and the only assets that it
retained were the remaining TPB Common Stock holdings. We no longer have a
controlling shareholder and 244,214 shares of TPB Common Stock were retired. The
transaction significantly improved the public float of shares outstanding and
eliminated the overhang of a controlling holding company structure.
COVID-19 Impact
As a result of the extraordinary situation we are facing, our focus is on the
safety and well-being of our colleagues and the communities and customers we
serve. As an organization, we have implemented several changes to enhance safety
and mitigate health risk in our work environment. For our warehouse and
manufacturing operations, these include split shifts, temperature scans,
additional contactless hand sanitizing stations, protective equipment, social
distancing guidelines, and increased cleaning and sanitization. These changes
resulted in higher operational costs related to maintaining a safer work
environment and fulfilling orders.
We canceled all unnecessary travel and facilitated telecommuting where possible.
Like many companies, we have changed the way we communicate through increased
use of videoconferencing and have implemented tele-selling initiatives through
our sales force. Some of these changes that are proving to be efficient are
likely to remain in-place even after this crisis and lead to on-going cost
savings. We have also put a hold on new spending commitments as we cautiously
manage through this environment.
We hired additional employees in our Louisville facility and implemented
temporary wage increases for our hourly employees to meet increased demand. We
shifted production capacity to manufacture hand sanitizers and have donated
bottles to hospitals, nursing homes and first responders in our local
communities.
COVID-19 may impact our results. Our third-party cigar wrap manufacturer in the
Dominican Republic was temporarily shut down. Our supply chain has remained
operational otherwise. Select budgeted annual price increases will be delayed.
Our B2C platforms have seen elevated sales levels from consumer shifts to online
purchasing, and we gained market share. We continue to monitor this challenging
environment closely and will make necessary adjustments as needed to make sure
we are serving our employees and customers, while also protecting the safety of
employees and communities.
Premarket Tobacco Applications
We submitted Premarket Tobacco Applications ("PMTAs") covering 250 products to
the FDA prior to the September 9, 2020 filing deadline. The PMTAs cover a broad
assortment of products in the vapor category including multiple proprietary
e-liquid offerings in varying nicotine strengths, technologies and sizes;
proprietary replacement parts and components of open system tank devices through
partnerships with two leading manufacturers for exclusive distribution of
products in the United States; and a closed system e-cigarette.
Wild Hempettes LLC
On October 1, 2020, we acquired a 20% stake in Wild Hempettes LLC ("Wild
Hempettes"), a leading manufacturer of hemp cigarettes under the WildHemp™ and
Hempettes™ brands, for $2.5 million. We have options to increase our stake to a
100% ownership position based on certain milestones. As part of the transaction,
the Wild Hempettes joint venture was spun off from Crown Distributing LLC and
formed as a vehicle for us to be the exclusive distributor of Hempettes™ to U.S.
bricks and mortar retailers under a profit-sharing arrangement.
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Sale of Vapor Shark Retail Assets
On October 1, 2020, we sold the assets of its remaining 7 Vapor Shark retail
stores in Oklahoma. We will receive monthly royalties over the next 4 years as
consideration for the assets. Net sales and gross profit were $2.9 million and
$1.6 million, respectively, for the nine months ended September 30, 2020.
dosistTM
On October 27, 2020, we invested $15.0 million in dosistTM, a global cannabinoid
company, with an option to invest an additional $15.0 million at pre-determined
terms over the next 12 months. We will receive a warrant to receive preferred
shares of dosist that will automatically be exercised upon the changing of
federal laws in the United States, rescheduling cannabis and/or permitting the
general cultivation, distribution and possession of cannabis. As part of the
investment, we also entered into an exclusive co-development and distribution of
a new national CBD brand, created in partnership with dosist.
Critical Accounting Policies and Uses of Estimates
There have been no material changes to our critical accounting policies and
estimates from the information provided in "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included in our 2019 Annual
Report on Form 10-K.
Recent Accounting Pronouncements
Refer to Note 2, "Summary of Significant Accounting Policies," of Notes to
Consolidated Financial Statements included in this Quarterly Report for a
description of recently issued accounting pronouncements, including those
recently adopted.
Results of Operations
Comparison of the Three Months Ended September 30, 2020, to the Three Months
Ended September 30, 2019
The table and discussion set forth below displays our consolidated results of
operations (in thousands):
Three Months Ended September 30,
2020 2019 % Change
Consolidated Results of Operations Data:
Net sales
Smokeless products $ 29,764 $ 26,187 13.7 %
Smoking products 35,973 30,222 19.0 %
NewGen products 38,437 40,391 -4.8 %
Total net sales 104,174 96,800 7.6 %
Cost of sales 55,867 53,984 3.5 %
Gross profit
Smokeless products 16,042 13,587 18.1 %
Smoking products 21,263 16,619 27.9 %
NewGen products 11,002 12,610 -12.8 %
Total gross profit 48,307 42,816 12.8 %
Selling, general, and administrative expenses 32,286 29,784 8.4 %
Operating income 16,021 13,032 22.9 %
Interest expense, net 5,224 3,641 43.5 %
Investment income (3 ) (265 ) -98.9 %
Loss on extinguishment of debt - 1,158 NM
Net periodic cost (income), excluding service cost 1,188 (12 ) NM
Income before income taxes 9,612 8,510 12.9 %
Income tax expense 1,816 2,236 -18.8 %
Consolidated net income $ 7,796 $ 6,274 24.3 %
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Net Sales: For the three months ended September 30, 2020, consolidated net
sales increased to $104.2 million from $96.8 million for the three months ended
September 30, 2019, an increase of $7.4 million or 7.6%. The increase in net
sales was primarily driven by increased sales volume in the Smoking and
Smokeless segments, partially offset by lower sales in the NewGen segment.
For the three months ended September 30, 2020, net sales in the Smokeless
products segment increased to $29.8 million from $26.2 million for the three
months ended September 30, 2019, an increase of $3.6 million or 13.7%. For the
three months ended September 30, 2020, volume increased 10.3% and price/mix
increased 3.4%. The increase in net sales was driven by the continuing
double-digit volume growth of Stoker's® MST. Sales in chewing tobacco products
were up double digits as compared to prior year.
For the three months ended September 30, 2020, net sales in the Smoking products
segment increased to $36.0 million from $30.2 million for the three months ended
September 30, 2019, an increase of $5.8 million or 19.0%. For the three months
ended September 30, 2020, volume increased 18.0% and price/mix increased 1.0%.
The increase in net sales was primarily related to double digit growth in US
rolling papers and MYO cigar wraps, partially offset by a $2.0 million decline
in Canada papers and a $0.3 million decline in non-focus cigars and MYO pipe.
For the three months ended September 30, 2020, net sales in the NewGen products
segment decreased to $38.4 million from $40.4 million for the three months ended
September 30, 2019, a decrease of $2.0 million or 4.8%. Flat performance in our
vape distribution business and double-digit growth from Solace® and other Nu-X®
products was offset by a decline in RipTide® which compared against a trade
load-in during its launch in the prior year period.
Gross Profit: For the three months ended September 30, 2020, consolidated gross
profit increased to $48.3 million from $42.8 million for the three months ended
September 30, 2019, an increase of $5.5 million or 12.8%. Gross profit as a
percentage of revenue increased to 46.4% for the three months ended September
30, 2020, compared to 44.2% for the three months ended September 30, 2019.
For the three months ended September 30, 2020, gross profit in the Smokeless
products segment increased to $16.0 million from $13.6 million for the three
months ended September 30, 2019, an increase of $2.5 million or 18.1%. Gross
profit as a percentage of net sales increased to 53.9% of net sales for the
three months ended September 30, 2020, from 51.9% of net sales for the three
months ended September 30, 2019, primarily as a result of strong incremental
margin contribution of MST.
For the three months ended September 30, 2020, gross profit in the Smoking
products segment increased to $21.3 million from $16.6 million for the three
months ended September 30, 2019, an increase of $4.6 million or 27.9%. Gross
profit as a percentage of net sales increased to 59.1% of net sales for the
three months ended September 30, 2020, from 55.0% of net sales for the three
months ended September 30, 2019, as a result of increased US rolling paper sales
and increased margin in MYO cigar sales as a result of the Durfort transaction.
For the three months ended September 30, 2020, gross profit in the NewGen
products segment decreased to $11.0 million from $12.6 million for the three
months ended September 30, 2019, a decrease of $1.6 million or 12.8%. Gross
profit as a percentage of net sales decreased to 28.6% of net sales for the
three months ended September 30, 2020, from 31.2% of net sales for the three
months ended September 30, 2019 primarily due to temporary pricing pressure as
competitors exited the market due to the PMTA deadline. For the three months
ended September 30, 2020, gross profit included $2.3 million of tariff expenses
compared to $2.6 million for the three months ended September 30, 2019.
Selling, General, and Administrative Expenses: For the three months ended
September 30, 2020, selling, general, and administrative expenses increased to
$32.3 million from $29.8 million for the three months ended September 30, 2019,
an increase of $2.5 million or 8.4%. Selling, general and administrative
expenses in the three months ended September 30, 2020 included $0.8 million of
stock options, restricted stock and incentives expense, $0.6 million of
transaction expenses and $5.3 million of expense related to PMTA. Selling,
general and administrative expenses in the three months ended September 30, 2019
included $1.3 million of stock option, restricted stock and incentives expense,
$0.5 million of transaction costs, $0.3 million in corporate and vapor
restructuring and $2.0 million of new product launch costs for Nu-X products.
Interest Expense, net: For the three months ended September 30, 2020, as a
result of the amortization of the debt discount on the Convertible Senior Notes
of $1.8 million, interest expense, net increased to $5.2 million, from $3.6
million for the three months ended September 30, 2019.
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Investment Income: Investment income relating to investment of the MSA deposits
was less than $0.1 million for the three months ended September 30, 2020,
compared to approximately $0.3 million for the three months ended September 30,
2019.
Loss on Extinguishment of Debt: There was no loss on extinguishment of debt for
the three months ended September 30, 2020, compared to $1.2 million for the
three months ended September 30, 2019 related to the paying off of the 2018
Second Lien Credit Facility.
Net Periodic Cost (Income): Net periodic cost was $1.2 million for the three
months ended September 30, 2020 as a result of the curtailment from the shutdown
of the pension plan compared to net periodic income of less than $0.1 million
for the three months ended September 30, 2019.
Income Tax Expense: Our income tax expense of $1.8 million was 18.9% of income
before income taxes for the three months ended September 30, 2020 and included a
discrete tax benefit of $0.6 million from the shutdown of the pension plan. Our
effective income tax rate of 26.3% for the three months ended September 30, 2019
and included a discrete tax deduction $0.1 million relating to stock option
exercises.
Consolidated Net Income: Due to the factors described above, consolidated net
income for the three months ended September 30, 2020 and 2019, was $7.8 million
and $6.3 million, respectively.
Comparison of the Nine Months Ended September 30, 2020, to the Nine Months Ended
September 30, 2019
The table and discussion set forth below displays our consolidated results of
operations (in thousands):
Nine Months Ended September 30,
2020 2019 % Change
Consolidated Results of Operations Data:
Net sales
Smokeless products $ 87,081 $ 74,907 16.3 %
Smoking products 92,290 81,104 13.8 %
NewGen products 120,455 125,756 -4.2 %
Total net sales 299,826 281,767 6.4 %
Cost of sales 161,996 157,304 3.0 %
Gross profit
Smokeless products 46,580 39,723 17.3 %
Smoking products 53,066 43,841 21.0 %
NewGen products 38,184 40,899 -6.6 %
Total gross profit 137,830 124,463 10.7 %
Selling, general, and administrative expenses 95,436 79,455 20.1 %
Operating income 42,394 45,008 -5.8 %
Interest expense, net 15,198 11,233 35.3 %
Investment income (128 ) (527 ) -75.7 %
Loss on extinguishment of debt - 1,308 NM
Net periodic cost (income), excluding service cost 997 (34 ) NM
Income before income taxes 26,327 33,028 -20.3 %
Income tax expense 6,029 6,989 -13.7 %
Consolidated net income $ 20,298 $ 26,039 -22.0 %
Net Sales: For the nine months ended September 30, 2020, consolidated net sales
increased to $299.8 million from $281.8 million for the nine months ended
September 30, 2019, an increase of $18.1 million or 6.4%. The increase in net
sales was primarily driven by increased sales volume in the Smoking and
Smokeless segments, partially offset by lower sales in the NewGen segment.
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For the nine months ended September 30, 2020, net sales in the Smokeless
products segment increased to $87.1 million from $74.9 million for the nine
months ended September 30, 2019, an increase of $12.2 million or 16.3%. For the
nine months ended September 30, 2020, volume increased 13.5% and price/mix
increased 2.8%. The increase in net sales was primarily driven by the continuing
double-digit volume growth of Stoker's® MST. Sales in chewing tobacco products
were up mid-single digits as compared to prior year.
For the nine months ended September 30, 2020, net sales in the Smoking products
segment increased to $92.3 million from $81.1 million for the nine months ended
September 30, 2019, an increase of $11.2 million or 13.8%. For the nine months
ended September 30, 2020, volume increased 12.5% and price/mix increased 1.3%.
The increase in net sales was primarily related to double digit growth in US
papers, partially offset by a $0.2 million decline in non-focus cigars and MYO
pipe.
For the nine months ended September 30, 2020, net sales in the NewGen products
segment decreased to $120.5 million from $125.8 million for the nine months
ended September 30, 2019, a decrease of $5.3 million or 4.2%. The decrease in
net sales was primarily the result of the non-focus and discontinued products as
well as a decline in RipTide® which compared to a trade load-in during its
launch in the prior year.
Gross Profit: For the nine months ended September 30, 2020, consolidated gross
profit increased to $137.8 million from $124.5 million for the nine months ended
September 30, 2019, an increase of $13.4 million or 10.7%. Gross profit as a
percentage of revenue increased to 46.0% for the nine months ended September 30,
2020, compared to 44.2% for the nine months ended September 30, 2019.
For the nine months ended September 30, 2020, gross profit in the Smokeless
products segment increased to $46.6 million from $39.7 million for the nine
months ended September 30, 2019, an increase of $6.9 million or 17.3%. Gross
profit as a percentage of net sales increased to 53.5% of net sales for the nine
months ended September 30, 2020, from 53.0% of net sales for the nine months
ended September 30, 2019, primarily as a result of strong incremental margin
contribution of MST.
For the nine months ended September 30, 2020, gross profit in the Smoking
products segment increased to $53.1 million from $43.8 million for the nine
months ended September 30, 2019, an increase of $9.2 million or 21.0%. Gross
profit as a percentage of net sales increased to 57.5% of net sales for the nine
months ended September 30, 2020, from 54.1% of net sales for the nine months
ended September 30, 2019, as a result of increased US paper sales and increased
margin in MYO cigar sales as a result of the Durfort transaction.
For the nine months ended September 30, 2020, gross profit in the NewGen
products segment decreased to $38.2 million from $40.9 million for the nine
months ended September 30, 2019, a decrease of $2.7 million or 6.6%. Gross
profit as a percentage of net sales decreased to 31.7% of net sales for the nine
months ended September 30, 2020, from 32.5% of net sales for the nine months
ended September 30, 2019 primarily due to temporary pricing pressure as
competitors exited the market due to the PMTA deadline. For the nine months
ended September 30, 2020, gross profit included $8.7 million of tariff expenses
compared to $6.6 million for the nine months ended September 30, 2019.
Selling, General, and Administrative Expenses: For the nine months ended
September 30, 2020, selling, general, and administrative expenses increased to
$95.4 million from $79.5 million for the nine months ended September 30, 2019,
an increase of $15.9 million or 20.1%. Selling, general and administrative
expenses in the nine months ended September 30, 2020 included $2.0 million of
stock options, restricted stock and incentives expense, $1.9 million of
transaction expenses and $14.4 million of expense related to PMTA. Selling,
general and administrative expenses in the nine months ended September 30, 2019
included $3.2 million of stock option, restricted stock and incentives expense,
$1.6 million of transaction costs, $1.4 million in corporate and vapor
restructuring and $3.7 million of new product launch costs for Nu-X products.
These costs were partially offset by a net $5.5 million gain related to the
settlement of the VMR Distribution and Supply agreement during the second
quarter 2019.
Interest Expense, net: For the nine months ended September 30, 2020, as a
result of the amortization of the debt discount on the Convertible Senior Notes
of $5.3 million, interest expense, net increased to $15.2 million, from $11.2
million for the nine months ended September 30, 2019.
Investment Income: Investment income relating to investment of the MSA deposits
was $0.1 million for the nine months ended September 30, 2020, compared to $0.5
million for the nine months ended September 30, 2019.
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Loss on Extinguishment of Debt: There was no loss on extinguishment of debt for
the nine months ended September 30, 2020, compared to $1.3 million for the nine
months ended September 30, 2019 related to the paying off of the 2018 Second
Lien Credit Facility.
Net Periodic Cost (Income): Net periodic cost was $1.0 million for the nine
months ended September 30, 2020 as a result of the curtailment from the shutdown
of the pension plan compared to net periodic income of less than $0.1 million
for the nine months ended September 30, 2019.
Income Tax Expense: Our income tax expense of $6.0 million was 22.9% of income
before income taxes for the nine months ended September 30, 2020 and included a
discrete tax deduction of $0.9 million relating to stock option exercises and a
discrete tax benefit of $0.6 million from the shutdown of the pension plan. Our
effective income tax rate of 21.2% for the nine months ended September 30, 2019
included a discrete tax deduction of $4.6 million relating to stock option
exercises.
Consolidated Net Income: Due to the factors described above, consolidated net
income for the nine months ended September 30, 2020 and 2019, was $20.3 million
and $26.0 million, respectively.
EBITDA and Adjusted EBITDA
To supplement our financial information presented in accordance with generally
accepted accounting principles in the United States, or U.S. GAAP, we use
non-U.S. GAAP financial measures including EBITDA and Adjusted EBITDA. We
believe Adjusted EBITDA provides useful information to management and investors
regarding certain financial and business trends relating to our financial
condition and results of operations. Adjusted EBITDA is used by management to
compare our performance to that of prior periods for trend analyses and planning
purposes and is presented to our Board of Directors. We believe that EBITDA and
Adjusted EBITDA are appropriate measures of operating performance because they
eliminate the impact of expenses that do not relate to operating performance. In
addition, our credit agreements contain financial covenants which use Adjusted
EBITDA calculations.
We define "EBITDA" as net income before interest expense, loss on extinguishment
of debt, provision for income taxes, depreciation, and amortization. We define
"Adjusted EBITDA" as net income before interest expense, loss on extinguishment
of debt, provision for income taxes, depreciation, amortization, other non-cash
items, and other items we do not consider ordinary course in our evaluation of
ongoing operating performance.
Non-U.S. GAAP measures should not be considered a substitute for, or superior
to, financial measures calculated in accordance with U.S. GAAP. Adjusted EBITDA
excludes significant expenses required to be recorded in our financial
statements by U.S. GAAP and is subject to inherent limitations. Other companies
in our industry may calculate this non-U.S. GAAP measure differently than we do
or may not calculate it at all, limiting its usefulness as a comparative
measure. The tables below provide reconciliations between net income and
Adjusted EBITDA.
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