TPB) (NYSE: Brands Point Turning
INVESTOR PRESENTATION
Q 3 2 0 2 0
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Disclaimer
FORWARD LOOKING STATEMENTS
This presentation contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements may generally be identified by the use of words such as "anticipate," "believe," "expect," "intend," "plan" and "will" or, in each case, their negative, or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. As a result, actual events may differ materially from those expressed in or suggested by the forward-looking statements. Factors that could cause these differences include, but are not limited to, the factors set forth in "Risk Factors" included in TPB's annual report on Form 10-K and other reports filed with the Securities and Exchange Commission from time to time. Any forward-looking statement made by TPB in this presentation speaks only as of the date hereof. New risks and uncertainties come up from time to time, and it is impossible for TPB to predict these events or how they may affect it. TPB has no obligation, and does not intend, to update any forward-looking statements after the date hereof, except as required by federal securities laws.
This presentation includes industry and market data derived from internal analyses based upon publicly available data or proprietary research and analysis, surveys or studies conducted by third parties and industry and general publications, including those by the Management Science Associates, Inc. ("MSAi") and Nielsen Holdings, N.V. ("Nielsen"). Third-party industry and general publications, research, surveys and studies generally state that the information contained therein has been obtained from sources believed to be reliable. Although there can be no assurance as to the accuracy or completeness of the included information, we believe that this information is reliable. While we believe our internal analyses are reliable, they have not been verified by any independent sources. Any such data and analysis involve risks and uncertainties and are subject to change based on various factors, including those set forth in "Risk Factors" included in TPB's annual report on Form 10-K and other reports filed with the Securities and Exchange Commission from time to time.
NON-GAAP RECONCILIATION
This presentation includes certain non-U.S. generally accepted accounting principles ("GAAP") financial measures, including EBITDA, Adjusted EBITDA and Net Debt. Such non-GAAP financial measures are not in accordance with, or an alternative to, financial measures prepared in accordance with GAAP. Please refer to the Appendix of this presentation for a reconciliation of EBITDA and Adjusted EBITDA to net income and Net Debt to Debt. 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, Adjusted EBITDA and Net Debt. We believe EBITDA and Adjusted EBITDA provide useful information to management and investors regarding certain financial and business trends relating to financial condition and results of operations. Adjusted EBITDA and Net Debt are used by management to compare 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 business 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. EBITDA and Adjusted EBITDA exclude significant expenses that are required by U.S. GAAP to be recorded in our financial statements and is subject to inherent limitations. In addition, other companies in our industry may calculate these non-U.S. GAAP measure differently than we do or may not calculate it at all, limiting its usefulness as a comparative measure.
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TPB: Investment Highlights
TPB Investment Highlights
Point Turning
Resilient
Core Business with
Leading Brands
NewGen
Value Creation Potential
Powerful
Distribution Infrastructure
Stable
Free Cash Flow Generation for Capital Deployment
- MST product gaining share with long runway for distribution gains
- Leading value brand in tobacco chew
- #1 premium rolling paper brand with unparalleled brand recognition
- Accelerating growth through new product and channel initiatives
- Online distribution businesses gives access to new customers
- PMTA process will consolidate vape market with TPB well positioned to gain share
- Nu-XVentures product development engine: high-margin, proprietary products such as CBD, nutraceuticals, nicotine chew and modern oral pouches
- Widespread presence and long-standing relationships in core convenience store channel
- Increasing brand presence through non-traditional channels
- Re-vampedbrand e-commerce platforms (ZigZag.com,Nu-X.com,SolaceVapor.com)
- Leveraging distribution infrastructure for new product introductions and acquired brands
- Asset-lightbusiness model leads to high free cash flow conversion for capital deployment
- Acquisition of Durfort assets and investments in Wild Hempettes and dosist in 2020
- Robust pipeline of acquisition opportunities
TPB) (NYSE: Brands
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We are a consumer products company that markets products with active ingredients through iconic and emerging brands
BROAD PORTFOLIO OF ACTIVE INGREDIENT ALTERNATIVES AND BRANDS
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Distribution Infrastructure
Powerful Distribution Infrastructure
North American retail presence that reaches over ~210,000 outlets + B2C online sites
TPB) (NYSE: Brands Point Turning
National | Regional | Product | B2C | B2B |
Distribution | Sales Teams | Sales Teams | Distribution | Distribution |
National sales team | Regional sales team selling | Dedicated product sales | Online B2C distribution | Online B2B platform | |
selling to over 85,000 | to over 95,000 independent | teams and brand specific | platforms selling to ~1.5 | reaching ~4,000 | |
national chain stores | convenience stores | B2C/B2B platforms | million unique customers | alternative stores | |
zigzag.com | solacevapor.com | directvapor.com | vaporbeast.com | ||
nu-x.com | solacechew.com | vaporfi.com | |||
nu-xnutra.com |
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Smokeless: Stoker's Brand Equity
Smokeless: Iconic Brand with Sustained Growth
Brands Point Turning
About Stoker's
Building brand equity for
over 80 years. Stoker's is
the #1 loose-leaf chew
brand1 and a leading MST value brand
60%
Stoker's created the MST Tubs category and is the category leader with ~60%1 share
1. Per MSAi at the end of 3Q20.
MST TUBS
Introduced a larger tub format Moist Snuff Tobacco (MST) product driving category over the last 10+ years
MST Cans
Accelerating strength from
distribution gains and
same-store sales growth.
Significant chain launches
in 2019 and 2020
Chew
#1 discount and overall
loose-leaf chew brand in the
US1. TPB's brands
collectively hold ~32%1 of the
loose-leaf chew market
TPB) (NYSE:
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Smokeless: Stoker's MST Distribution Growth
Smokeless: Continued MST
Distribution Gains
(NYSE: Brands Point Turning
66.1 67.6 68.3 70.4
61.4 61.6 61.3 62.3 63.2 63.1
57.0 57.7 58.0
52.2
48.1
41.4 43.0
72.8 74.9 76.8
Long Runway for Growth
Currently in stores representing ~59%1 of volume weighted distribution
Additional ~30-50k stores targeted for national distribution
TPB)
4Q15 | 2Q16 | 4Q16 | 2Q17 | 4Q17 | 2Q18 | 4Q18 | 2Q19 | 4Q19 | 2Q20 |
Store count excludes ~14k lower sales velocity Dollar General stores added in 2Q18.
1. Per MSAi at the end of 3Q20.
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Zig-Zag: Brand Equity | |||
Smoking: Iconic Brand with | |||
Leading Market Share | |||
About Zig-Zag | Papers | Wraps | New Product Launches |
Embedded into pop culture | #1 premium rolling paper | Market leader in MYO cigar | Continued roll-out of paper |
with a storied history that | brand sold in the U.S. 1 and | wraps with a majority share | cones, unbleached and hemp |
dates over 140 years | Canada | of the market 1 | rolling papers along with new |
product introductions |
TPB) (NYSE: Brands Point Turning
35%
Zig Zag owns >35%1 of
the rolling paper market in
the United States
1. Per MSAi at the end of 3Q20.
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Zig-Zag: Growth Initiatives
Smoking: Expanding Portfolio
and Sales Channels
Classic Zig-Zag Products | Growth Initiatives | |
TPB) (NYSE: Brands Point Turning
Iconic Products with
Unparalleled Recognition
"Zig-Zag Orange" and "Zig-Zag White" are
long-standing industry staples
New products and accessories
Re-vampede-commerce platform
Enhanced brand presence in headshops and dispensaries; ReCreation Marketing partnership in Canada
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Acquisition of Durfort Holdings Assets
Acquisition of assets of Durfort Holdings
Acquisition of assets from Durfort Holdings S.R.L. ("Durfort") in Q2 2020
- Acquired a co-ownership interest in our long-term partner Durfort's intellectual property related to TPB's MYO cigar wraps and cones
- $46 million purchase price ($36 million in cash and $10 million seller note)
- $5 million net sales and $7 million EBITDA contribution on an annualized basis (mostly in COGS savings)
Increases Exposure to Attractive Zig-Zag MYO Cigar Wraps Product and Secures Long-Term Control
- Benefitting from increased demand related to cannabis legalization and decriminalization in certain jurisdictions
- Acquisition allowed TPB to realize higher gross margins by capturing more of the profitability by eliminating royalty- related payments for a growth product it already controls
More Direct Manufacturing Relationship
- More direct relationship with third-party manufacturer allowing business to scale and align production with market demand
Master Distribution Agreement for Blunt Wrap USA
- Adds complementary product to TPB's MYO cigar wrap offerings
- Presents cross-selling synergy opportunities with product primarily sold in non-traditional channels where TPB products are currently under-represented
- Distribution of Blunt Wraps began in October 2020
TPB) (NYSE: Brands Point Turning
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NewGen Segment
NewGen: Proprietary Products Growth
Executing on a multi-year journey to increase proprietary products sales in the NewGen segment
Proprietary product gross margins (50%+) exceed third-party product gross margins (20% - 40%)
TPB) (NYSE: Brands Point Turning
2016 | 2017 | 2018 | 2019 |
Acquired VaporBeast, | Acquired VaporShark, | Acquired IVG, | Acquired Solace, a |
leading third-party B2B | one of the first | expanding B2C | leading proprietary |
distributor of open | proprietary vaping | distribution including | open systems vaping |
systems vaping | brands | proprietary VaporFi | brand; and launched |
products | brand and the Direct | Nu-X, a development | |
Vapor platform | engine for non-vape | ||
proprietary actives | |||
Proprietary Products as % of Net Sales1 | products | ||
1% | ~5% | ~10% | ~17% |
1. Excludes V2 and RipTide.
2020
Submitted applications covering 250 products through the FDA PMTA process that will consolidate the market; Invested in Wild Hempettes to become its exclusive distributor
YTD Q3: ~20%
2021-2023
Continue expanding proprietary growth through new introductions on Nu-X and significant SKU consolidation in the vaping market
Target 50%+
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Nu-X New Product Portfolio
Robust Pipeline of New Product Introductions
Nu-X: New Product Portfolio
Brands Point Turning
Nu-X Nutra
Caffeine B12 - Café Disposable
Caffeine B12 - Energy Disposable
Caffeine B12 - Tablets
Cannabinoids
Pet CBD Tincture
CBG Tinctures
CBN Tinctures
CBD Tinctures 16.5ml
CBD Pre-Rolls
CBG Flower
CBD Awake Shot
CBD Relax Shot
CBD Hemperettes
CBD Lip Balm
CBD Muscle/Joint Topical
CBD Youth Serum
CBD Gummies
Nicotine Chew
Solace Chew - Mint 4mg Solace Chew - Cinnamon 4mg Solace Chew - Fruit 4mg
Modern Oral Pouches
Fré 9mg and 12mg - Mocha
Fré 9mg and 12 mg - Mint
Fré 9mg and 12mg - Lush
RipTide
G2 Battery
Nicotine Salt Menthol Pod
Nicotine Salt Tobacco Pod
CBD TFN Pod
Solace
35 unique flavors in
5 nicotine strength variants filed PMTAs
TPB) (NYSE:
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TPB: Navigating Regulated Environments
Management of Regulatory Environments
Extensive experience managing regulatory regime changes
REGULATORY STRATEGY
- TPB does not sell cigarettes, the primary target of the FDA
- Concentrated effort to shape premarket pathway for future innovation
- Experienced team of QA, R&D, legal and scientific professionals
- Building consensus among like-minded small and mid-sized businesses to drive policy
- Increased regulation rationalizes market in favor of those who can navigate shifting regulation
• Invested ~$17 million to support an extensive portfolio of products through the PMTA process
TPB) (NYSE: Brands Point Turning
TPB has unique capabilities to get proprietary brands through regulatory regime changes
- FDA's PMTA process is a transformational regulatory process that likely consolidates the vape market
- Submitted applications for 250 products ahead of the PMTA deadline on September 9, 2020
- NewGen is well-positioned for growth in a post-PMTA environment with its extensive product portfolio
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Strategic Investments dosist and Wild Hempettes
dosist - announced $15 million strategic investment on October 27, 2020
- Leading globally recognized cannabis brand with powerful marketing organization
- Products currently available in CA, CO, NV and Canada with plans for further expansion
- Expanding offerings from disposable pens to rechargeable pens and other form factors
- Exclusive co-development and distribution agreement of a new national CBD brand, created in partnership with dosist's thc-free business unit targeting the c-store channel
- Option to invest another $15 million at pre-determined terms within the next 12 months
- US legal cannabis market projected to grow from $16 billion in 2020E to $34 billion by 20251
Wild Hempettes - announced acquisition of 20% stake on October 5, 2020
- Leading manufacturer of hemp cigarettes under the WildHemp™ and Hempettes™ brands
- Exclusive distribution agreement under a profit-sharing agreement where TPB will extend the product's reach through its sales infrastructure
- Options to increase stake to a 100% ownership position based on certain milestones
- Smokable hemp CBD market expected to grow from $70-80 million in 2020E to $300-400 million by 20252
Focus on value-accretive investments that extend TPB's reach into
large and growing addressable markets
- Source: Arcview Research/BDSA August 2020
- Source: Nielsen Research September 2020
Strategic Investments
TPB) (NYSE: Brands Point Turning
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Segment Breakdown
Total Sales and Segment Breakdown
Internal initiatives leading to accelerated organic growth in our core segments
Brands Point Turning
2016 | 2017 | 2018 | 2019 | 9mo 19 | 9mo 20 | YoY | ||
Smokeless (Stoker's) | ||||||||
Looseleaf | $47 | $49 | $48 | $46 | $34 | $36 | 6% | |
MST | 31 | 35 | 42 | 54 | 41 | 51 | 25% | |
Total Smokeless | $78 | $85 | $90 | $100 | $75 | $87 | 16% | |
Smoking (Zig-Zag) | ||||||||
Wraps | $46 | $47 | $49 | $52 | $40 | $43 | 6% | |
US Papers1 | 36 | 38 | 38 | 38 | 28 | 38 | 38% | |
Canadian Papers | 11 | 12 | 14 | 11 | 7 | 7 | -8% | |
Core Smoking | $93 | $96 | $102 | $102 | $75 | $88 | 17% | |
Other (Non-Core)2 | 18 | 14 | 10 | 7 | 6 | 4 | -22% | |
Total Smoking | $111 | $110 | $112 | $109 | $81 | $92 | 14% | |
Total NewGen | $17 | $91 | $131 | $153 | $126 | $120 | -4% | |
Total Net Sales | $206 | $286 | $333 | $362 | $282 | $300 | 6% |
Note: $ in millions.
- Includes Zig-Zage-commerce sales
- Includes de-emphasizedlow-margin products including MYO / pipe products (discontinued in 1Q20) and Cigars.
Smokeless (Stoker's) Drivers
- Looseleaf: Targeted sales initiatives in 2020
- MST: Same-store sales growth and long runway for distribution ramp
Smoking (Zig-Zag) Drivers
- Industry levered to cannabis consumption
- Alternative channel penetration (headshops and dispensaries) and e-commerce ramp
- Wraps: Blunt Wraps distribution and new product introductions in 2021
- US Papers: New product ramp-up (eg cones)
- Canada: Alternative channel growth (Rec Marketing) and recent price increase (Q4 20)
- Non-Core: Declines less of a headwind
NewGen Drivers
- PMTA causing short-term disruption but creating tremendous long-term opportunity
- Nu-Xnew product introductions driving proprietary products mix higher
TPB) (NYSE:
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TPB Earnings Performance
Robust Adjusted EBITDA growth with significant acceleration expected for 2020
2016 - 2020E Adjusted EBITDA CAGR: ~14%* | $87-90* |
TPB: Financial Summary
TPB) (NYSE: Brands Point Turning
$64.6
$60.0
$52.4
$67.3
2016 | 2017 | 2018 | 2019 | 2020E |
Note: $ in millions. Reference GAAP reconciliation in Appendix.
*2020E estimate based on guidance provided on October 27, 2020; CAGR based on mid-point of guidance
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Building a Capital Efficient Business Model
Asset-lightbusiness model that generates significant free cash flow
Asset-Light Business Model
Brands Point Turning
Initiatives:
-
Outsourced manufacturing of most products except Stoker's
MST supports our asset-light model - Capital efficiency enables investment in sales force
ADJUSTED EBITDA VS. CAPITAL EXPENDITURES
Adjusted EBITDA1 | Capital Expenditures | ||
$64.6$67.3
$60.0
$52.4
TPB) (NYSE:
Results:
Significant cash flow
expansion (a proven revenue driver), working capital and infrastructure to support new product launches
- Re-deploycash flow from recession-resistant, traditional tobacco business for accretive acquisitions and strategic investments
$3.2 | $2.0 | $2.3 | $4.8 | |
2016 | 2017 | 2018 | 2019 |
available to
reinvest in
the business
Note: $ in millions.
1. Reference GAAP reconciliation in Appendix.
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Recent Business Highlights
Recent Business Highlights
Strong recent performance is a result of tactical repositioning of the business over the last 12 months and executing on this plan
Q3 2020 | • Net Sales of $104 million versus late-July guidance of $90 to $95 million with core segments outperforming | |
• Announced investments in Wild Hempettes and dosist | ||
Highlights | ||
• 2020 Guidance increased again | ||
• 2020 Net Sales $395 to $401 million (vs previous guidance of $353 to $370 million) | ||
• 2020 Adjusted EBITDA of $87 million to $90 million (vs previous guidance of $78 to $83 million) | ||
• Q4 Net Sales of $95 to $101 million | ||
Why We | • Internal growth initiatives are driving a majority of the growth with core businesses outpacing market growth | |
• Consumer down-trading benefitting Stoker's; increased cannabis consumption benefitting rolling paper market | ||
Are Winning | ||
• Operating leverage: Streamlining the business (announced 11/2019) has led to $10 million in SG&A cost savings | ||
• Value-accretive capital deployment: Durfort assets, Wild Hempettes, dosist and opportunistic share repurchases | ||
• ~$100 million in liquidity leaves us well capitalized to take advantage of market opportunities | ||
TPB) (NYSE: Brands Point Turning
Management is focused on executing on its plan for growth during
and after COVID-19 related impacts
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2020 in Focus: Strategies and Objectives
Maximize the Core Business
- Drive Stoker's MST growth through increased distribution and same-store-sales growth
- Expand Zig-Zag's reach with new product introductions, channel specific strategies and e-commerce initiatives
Position NewGen for Profitable Growth
- Streamline vaping, maintain profitability while investing in new products via the PMTA process
- Introduce products from Nu-X Ventures into companywide distribution infrastructure
2020 Objectives
TPB) (NYSE: Brands Point Turning
Drive Cost Efficiency
- Increased operating leverage through solid cost controls and spending efficiencies to deliver higher ROIC
Introduce Proprietary Products
- Identify and develop emerging product forms that consumers are increasingly gravitating towards (eg modern oral)
Engage in Strategic Acquisitions
- Efficiently deploy capital on accretive acquisitions to accelerate company growth
- Execute on Blunt Wraps and Wild Hempettes distribution and dosist thc-free brand development
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TPB) (NYSE: Brands Point Turning
Appendix
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GAAP Reconciliation
Reconciliation of GAAP Net Income to Adjusted EBITDA | ||||
($ in millions) | 2016 | 2017 | 2018 | 2019 |
Net income attributable to Turning Point Brands, Inc. | $26.9 | $20.2 | $25.3 | $13.8 |
Add: | ||||
Interest expense, net | $26.6 | $16.9 | $14.8 | $17.3 |
Loss on extinguishment of debt | 2.8 | 6.1 | 2.4 | 1.3 |
Income tax expense | (12.0) | 7.3 | 6.3 | 2.0 |
Depreciation expense | 1.2 | 1.6 | 2.1 | 2.6 |
Amortization expense | 0.1 | 0.7 | 1.0 | 1.5 |
EBITDA | $45.6 | $52.8 | $51.9 | $38.6 |
Components of Adjusted EBITDA | ||||
Other (a) | $1.5 | $1.3 | $0.4 | $0.4 |
Stock options, restricted stock, and incentives expense (b) | 0.2 | 0.7 | 1.4 | 4.6 |
Transactional expenses and strategic initiatives (c) | 1.6 | 2.1 | 4.5 | 1.8 |
New product launch costs (d) | 2.7 | 2.4 | 1.8 | 6.2 |
FDA PMTA (e) | 0.0 | 0.0 | 0.0 | 2.2 |
Corporate and vapor restructuring (f) | 0.0 | 0.6 | 4.6 | 19.2 |
Vendor settlement (g) | 0.0 | 0.0 | 0.0 | (5.5) |
Bonus (h) | 0.9 | 0.1 | 0.0 | 0.0 |
Adjusted EBITDA | $52.4 | $60.0 | $64.6 | $67.3 |
- Represents LIFO adjustment, non-cash pension expense (income) and foreign exchange hedging.
- Represents non-cash stock options, restricted stock, incentives expense and Solace PRSUs.
- Represents the fees incurred for transaction expenses and strategic initiatives.
- Represents product launch costs for our new product lines.
- Represents costs associated with applications related to FDA PMT A.
- Represents costs associated with corporate and vapor restructuring including severance and inventory reserves.
- Represents net gain associated with the settlement of a vendor contract.
- Represents bonuses associated with the December 2017 T ax Cuts and Jobs Act and non-recurring compensation expenses incurred coinciding with the May 2016 IPO.
GAAP Reconciliation
TPB) (NYSE: Brands Point Turning
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TPB) (NYSE: Brands Point Turning
T H A N K Y O U
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Turning Point Brands Inc. published this content on 27 October 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 27 October 2020 11:39:04 UTC