Turning Point Brands (TPB) Q1 2025 Earnings Call May 07, 2025 09:30 AM ET Company Participants Andrew Flynn - CFOGraham Purdy - CEO, President & DirectorSummer Frein - Chief Revenue OfficerAaron Grey - Managing Director, Head of Consumer ResearchIan Zaffino - Managing Director Conference Call Participants Eric Des Lauriers - Senior Research AnalystNick Anderson - Director & Research Analyst Operator Good morning, and welcome to the Turning Point Brand Q1 twenty twenty five Conference Call. All participants ...

Financial Data and Key Metrics Changes - Revenue increased by 28% to $106.4 million for Q1 2025, with adjusted EBITDA rising by 12% to $27.7 million [4][13] - Gross margin was 56%, down 220 basis points year over year but flat sequentially [13] - Free cash flow for the quarter was $12.4 million, with capital expenditures of $2.2 million [16] Business Line Data and Key Metrics Changes - Modern Oral revenue reached $22.3 million, with sales increasing nearly 10 times year over year [5][16] - Stoker's revenue increased by 63% to $59.2 million, with MST portfolio net sales growing by 10% to $26.3 million [7][15] - Zig Zag sales increased by 1% year over year to $47.3 million, with gross profit decreasing by 7.2% compared to the prior year [14] Market Data and Key Metrics Changes - The company anticipates the modern oral category will exceed $5 billion in manufacturers' revenue by the end of the decade [5] - The company aims for a long-term target of double-digit market share in the modern oral space [6] Company Strategy and Development Direction - The company is increasing full-year consolidated nicotine pouch sales guidance to a range of $80 million to $95 million from $60 million to $80 million [5][17] - Key initiatives include reallocating sales and marketing resources, increasing sales force headcount, and improving online presence [6][10] - The company is exploring U.S. manufacturing to improve profitability and mitigate supply chain risks [6][7] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the growth of white nicotine pouch brands and the overall modern oral category [5][6] - The company is focused on building brands for the long term and executing against an omnichannel plan [11][12] - Management acknowledged potential headwinds from tariffs and foreign exchange impacts on the Zig Zag segment [17] Other Important Information - The company reaffirmed its previously announced 2025 adjusted EBITDA guidance of $108 million to $113 million [5][17] - Budgeted capital expenditures for 2025 are projected to be between $4 million to $5 million, excluding modern oral business projects [17] Q&A Session Summary Question: Comments on distribution gains in Modern Oral and rollout expectations for ALP - Management noted strong traction with retailers and plans for rollouts and enhancements later in the year [22][23] Question: Capacity to produce nicotine pouches at current facilities - Management confirmed adequate supply and ongoing exploration of onshoring production options [26] Question: Timing impact on pouch shipments and brand awareness for ALP - Management indicated that ALP's rollout is focused on online direct-to-consumer channels and is seeing good brand awareness [30][32] Question: Stoker segment gross margin performance - Management stated that pouch margins are within previously discussed ranges and are performing well [35] Question: Advertising regulations for nicotine pouches - Management acknowledged more flexibility in advertising compared to traditional tobacco products but emphasized responsible marketing [44] Question: Timing of PMTA applications amid FDA changes - Management indicated uncertainty regarding timing due to changes in government but continues to monitor the situation [46]

Turning Point Brands (TPB) came out with quarterly earnings of $0.91 per share, beating the Zacks Consensus Estimate of $0.75 per share. This compares to earnings of $0.80 per share a year ago. These figures are adjusted for non-recurring items. This quarterly report represents an earnings surprise of 21.33%. A quarter ago, it was expected that this company would post earnings of $0.57 per share when it actually produced earnings of $0.53, delivering a surprise of -7.02%. Over the last four quarters, the co ...

Financial Performance - Q1 2025 net sales increased 28.1% year-over-year to $106.4 million, with Stoker's Products net sales up 62.7% and Zig-Zag Products net sales up 1.2%[6] - Modern Oral sales reached $22.3 million, nearly 10 times the prior year and almost double the previous quarter[3] - Adjusted EBITDA for Q1 2025 was $27.7 million, up 12.0% compared to the prior year[6] - Gross profit increased 23.3% to $59.6 million, while gross margin was 56.0%[6] - Net income rose 19.8% to $14.4 million, with adjusted net income increasing 8.0% to $16.7 million[6] - Consolidated net income for Q1 2025 was $15,791,000, an increase of 29.5% compared to $12,179,000 in Q1 2024[20] - Adjusted EBITDA for Q1 2025 reached $27,678,000, up 12% from $24,703,000 in Q1 2024[26] - Adjusted net income for Q1 2025 was $23.023 million, compared to $20.242 million in Q1 2024, representing a 8.8% increase[30] - The diluted EPS for Q1 2025 was $0.91, an increase from $0.80 in Q1 2024, marking a 13.8% rise[30] - Adjusted operating income for Q1 2025 was $25.482 million, compared to $21.540 million in Q1 2024, indicating a 18.2% increase[35] - The company’s operating income for Q1 2025 was $23.189 million, up from $19.270 million in Q1 2024, reflecting a 20.0% increase[35] Sales Guidance - The company is raising its full-year 2025 Modern Oral sales guidance to a range of $80.0 – 95.0 million, up from $60.0 – 80.0 million[9] Debt and Liquidity - Total gross debt as of March 31, 2025, was $300.0 million, with net debt at $200.4 million[8] - The company ended the quarter with total liquidity of $161.8 million, including $99.6 million in cash[8] - The company redeemed $250,000,000 of 2026 Notes and raised $300,000,000 from 2032 Notes in Q1 2025[20] - The company reported a loss on extinguishment of debt of $1,235,000 in Q1 2025, compared to no such loss in Q1 2024[20] Cash Flow and Expenditures - Net cash provided by operating activities decreased to $14,626,000 in Q1 2025 from $22,639,000 in Q1 2024, reflecting a decline of 35.4%[20] - Total cash at the end of Q1 2025 was $101,553,000, down from $132,837,000 at the end of Q1 2024[20] - Capital expenditures increased significantly to $2,185,000 in Q1 2025 from $366,000 in Q1 2024[20] - The company incurred $1,591,000 in costs related to FDA PMTA applications in Q1 2025, up from $841,000 in Q1 2024[26] Profitability Metrics - Total consolidated net sales for Q1 2025 included a gross profit of $25.6 million from the Zig-Zag Products segment, despite a 7.2% decrease from the prior year[4] - Stoker's Products segment gross profit increased 63.6% year-over-year to $34.0 million, with a gross margin of 57.5%[7] - The net income attributable to non-controlling interest for Q1 2025 was $2.040 million, compared to $3.729 million in Q1 2024, showing a decrease of 45.4%[30] Other Financial Impacts - The company experienced a mark-to-market loss of $315,000 due to foreign exchange fluctuations in Q1 2025[26] - Corporate restructuring costs were $1.261 million in Q1 2024, which were not present in Q1 2025[35]

Core Insights - ALP has partnered with Gopuff to introduce an instant delivery feature for its nicotine pouches, enhancing customer accessibility and experience [1][3] - The new service allows customers to order ALP products through Alppouch.com and receive them almost instantly, utilizing Gopuff's extensive network of over 200 micro distribution centers across the U.S. [2][3] - This partnership marks a significant innovation in the nicotine pouch market, focusing on a customer-centric approach and leveraging Gopuff's advanced technology [3] Company Overview - ALP Supply Co. LLC specializes in the sale, marketing, and distribution of nicotine pouches in the United States, co-owned by Turning Point Brands and Tucker Carlson Network [6] - Gopuff, founded in 2013, is a leader in instant commerce, providing a wide range of products delivered to customers' doors in as fast as 15 minutes, supported by a robust logistics network [5]

Financial Performance - For the year ended December 31, 2024, consolidated net sales increased by $35.6 million, or 11.0%, compared to the prior year, driven by growth in both Zig-Zag and Stoker's product segments [282]. - Zig-Zag products segment net sales increased by $11.9 million, or 6.6%, primarily due to $11.5 million growth in papers, wraps, and accessories, and $5.6 million growth in cigars [283]. - Stoker's products segment net sales increased by $23.7 million, or 16.4%, with a sales volume increase of 6.8% contributing $9.9 million and price/product mix contributing $13.8 million [284]. - For the year ended December 31, 2024, net income from continuing operations attributable to Turning Point Brands, Inc. was $47.3 million for the year ended December 31, 2024, compared to $38.7 million in the prior year [300]. - Consolidated net income for 2024 was $40.51 million, up from $37.78 million in 2023, reflecting a growth of 1.9% [427]. - Basic earnings per share for continuing operations increased to $2.67 in 2024 from $2.20 in 2023, marking a rise of 21.4% [425]. - The company’s accumulated earnings increased to $147.16 million in 2024 from $112.44 million in 2023, an increase of 30.9% [423]. - The company’s total stockholders' equity rose to $190.38 million in 2024, compared to $152.01 million in 2023, reflecting a growth of 25.3% [423]. Profitability and Margins - Consolidated gross profit increased by $18.6 million, or 10.2%, but gross profit margin decreased to 55.9% of net sales from 56.3% in the prior year [286]. - Zig-Zag products segment gross profit increased by $5.5 million, or 5.5%, with gross profit margin decreasing to 55.4% due to growth in lower-margin cigar products [287]. - For the year ended December 31, 2024, gross profit in the Stoker's products segment increased by $13.1 million, or 16.0%, compared to the prior year, while gross profit as a percentage of net sales decreased to 56.4% from 56.6% [288]. - The company’s operating income for the year ended December 31, 2024, was $80.832 million, indicating strong operational performance [362]. Expenses and Costs - Selling, general and administrative expenses increased by $18.1 million, or 17.3%, for the year ended December 31, 2024, including $7.2 million related to stock options and $4.6 million for corporate restructuring [289]. - Operating income in the Zig-Zag products segment decreased by $1.6 million, or 2.3%, for the year ended December 31, 2024, with operating income as a percentage of net sales decreasing to 34.7% from 37.8% [292]. - Operating income in the Stoker's products segment increased by $6.1 million, or 9.7%, for the year ended December 31, 2024, while operating income as a percentage of net sales decreased to 40.6% from 43.0% [293]. - Unallocated costs increased to $54.1 million for the year ended December 31, 2024, compared to $47.5 million in the prior year, marking a 13.9% increase [294]. Cash Flow and Financing - Cash provided by operating activities for the year ended December 31, 2024, was $60,958 thousand, an increase of $4.7 million compared to the prior year [336]. - For the year ended December 31, 2024, net cash used in financing activities was $128.3 million, an increase of $78.8 million primarily due to the retirement of Convertible Senior Notes [341]. - The company had restricted assets of $30.7 million and $33.6 million as of December 31, 2024, and 2023, respectively [334]. - The company’s adjusted working capital increased by $57.3 million compared to the prior year end, primarily due to a $58.3 million decrease in current liabilities [333]. - The company recorded a non-cash charge of $8.8 million to reduce the carrying value of the disposal group to fair value upon meeting the criteria for held for sale classification [323]. Debt and Interest - The company’s long-term debt was $248.604 million, down from $307.064 million in 2023, representing a decrease of approximately 19% [347]. - Interest expense for the year ended December 31, 2024, was $13.983 million, reflecting the company's debt obligations [362]. - Interest expense, net decreased by $0.7 million for the year ended December 31, 2024, due to the maturity of Convertible Senior Notes and increased interest income on cash [295]. Market and Regulatory Environment - The alternative smoking accessories market is experiencing robust growth driven by cannabinoid legalization in the U.S. and Canada [269]. - The FDA has proposed regulations that could significantly impact the company's products and premarket filings [379]. - The company is subject to federal and state excise taxes, which may increase and affect product demand [372][373]. Asset Management - Total assets as of December 31, 2024, amounted to $493.353 million, with current assets totaling $198.205 million [363]. - The company reported total liabilities of $302.973 million, including long-term debt of $248.604 million [363]. - Stockholders' equity reached $190.380 million, with unrestricted subsidiaries contributing $187.981 million [363]. Stock and Shareholder Activity - In 2024, the company repurchased 154,945 shares of common stock for a total cost of $5.1 million, averaging $32.60 per share [370]. - The company has $100 million remaining under its Board-approved stock repurchase program as of December 31, 2024 [370]. Internal Controls and Compliance - The company has not maintained effective internal control over financial reporting as of December 31, 2024, due to identified material weaknesses [414]. - The company reported a material weakness in internal control over financial reporting related to information technology general controls [416]. Research and Development - Research and development and quality assurance costs were approximately $1.3 million in 2024, up from $0.6 million in both 2023 and 2022, indicating a significant increase in investment in these areas [450]. - Advertising and promotion costs amounted to $12.0 million in 2024, compared to $7.6 million in 2023 and $6.2 million in 2022, representing a 57.9% increase from 2023 to 2024 [466].

Financial Data and Key Metrics Changes - Revenue increased 13% to $93.7 million for Q4 2024, and full-year sales were up 11% to $360.7 million [6][25] - Adjusted EBITDA for Q4 increased 5% to $26.2 million, while full-year adjusted EBITDA rose 12% to $104.5 million [7][27] - Gross margin for the full year decreased by 39 basis points to 55.9%, and for Q4, it was 56%, down 108 basis points year over year [25][27] Business Line Data and Key Metrics Changes - Zig Zag sales increased 7% year over year to $192.4 million, with Q4 sales up 2% to $45.9 million [27][28] - Stoker's net sales increased 16% year over year to $168.3 million, with Q4 sales up 26% to $47.8 million [28] - Modern oral revenue included a 419% increase in Free sales to approximately $6.3 million for Q4, reflecting strong growth [14][32] Market Data and Key Metrics Changes - Nearly 75% of Americans now live in states with legal regulated cannabis, expanding the total addressable market (TAM) for related products [12] - Stoker's MST volume was up 10 basis points despite a category volume decline of 6.4%, with market share growing by 50 basis points year over year to 7.6% [29][30] Company Strategy and Development Direction - The company is focusing on growth opportunities in its core business after divesting the CDS segment, which is now classified as discontinued operations [4][6] - The goal is to achieve a 10% market share in the modern oral category, with significant investments planned for sales and marketing [8][34] - The company aims to leverage cross-selling opportunities between its Zig Zag and modern oral products [11][21] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the growth momentum across the organization and initiated 2025 adjusted EBITDA guidance of $108 million to $113 million [8][34] - The company is confident in the performance of its modern oral brands, particularly Free and Out, and plans to expand their market presence [17][20] Other Important Information - The company ended the quarter with over $46 million in cash and reported free cash flow of $56.3 million for the year [32] - Capital expenditures for 2024 were $4.6 million, with a budget of $4 to $5 million for 2025 [36] Q&A Session Summary Question: Outlook for modern oral products in national convenience store chains - Management is in discussions with partners and has rolled out a regional partnership with 7-Eleven, showing early positive results [40][43] Question: Growth and distribution opportunities for Stoker's MST - Management believes there are synergies between MST and modern oral products, presenting opportunities for cross-selling [45][47] Question: Drivers of guidance for modern oral products - Guidance is based on expected growth for Free and early reorder rates, with both Free and Out seen as synergistic [50][52] Question: Contribution margin and manufacturing considerations - Gross profit margins for modern oral are in the mid-thirties, with plans to reinvest profits into sales and marketing [56][58] Question: Regulatory environment regarding nicotine products - Management views recent regulatory actions as positive, particularly with the approval of flavored products [62][63] Question: Direct-to-consumer opportunities in the nicotine patch category - Management sees a strong online opportunity for the Out brand, while Free will focus on brick-and-mortar sales [65][67] Question: Marketing strategies for Free and Out brands - The company plans to leverage both online and brick-and-mortar channels to maximize reach across its product portfolio [71][73] Question: Zig Zag's growth and margin profile - Zig Zag is expected to see single-digit growth, with a mix shift impacting gross margins [75][77]

Financial Data and Key Metrics Changes - Revenue increased 13% to $93.7 million for Q4 2024, and full-year sales were up 11% to $360.7 million [6][25] - Adjusted EBITDA for Q4 increased 5% to $26.2 million, while full-year adjusted EBITDA rose 12% to $104.5 million [7][27] - Gross margin for the full year decreased by 39 basis points to 55.9%, and for Q4, it was 56%, down 108 basis points year over year [25][27] Business Line Data and Key Metrics Changes - Zig Zag sales increased 7% year over year to $192.4 million, with Q4 sales up 2% to $45.9 million [27][28] - Stoker's net sales increased 16% year over year to $168.3 million, with Q4 sales up 26% to $47.8 million [28] - Modern oral revenue included a 419% increase in Free sales to approximately $6.3 million for Q4, reflecting strong growth [14][32] Market Data and Key Metrics Changes - Nearly 75% of Americans now live in states with legal regulated cannabis, expanding the total addressable market (TAM) for related products [12] - Stoker's MST volume was up 10 basis points despite a category volume decline of 6.4%, with market share growing by 50 basis points year over year to 7.6% [29][30] Company Strategy and Development Direction - The company is focusing on growth opportunities in its core business after divesting the CDS segment, which is now classified as discontinued operations [4][6] - The goal is to achieve a 10% market share in the modern oral category, with significant investments planned for sales and marketing [8][34] - The company aims to leverage cross-selling opportunities between its modern oral products and Zig Zag portfolio [11][21] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the growth momentum across the organization and initiated 2025 adjusted EBITDA guidance of $108 million to $113 million [8][34] - The company is confident in the performance of its modern oral brands, particularly Free and Out, and plans to expand distribution and marketing efforts [19][20] Other Important Information - The company ended the quarter with over $46 million in cash and reported free cash flow of $56.3 million for the year [32] - Capital expenditures for 2024 were $4.6 million, with a budgeted range of $4 to $5 million for 2025 [36] Q&A Session Summary Question: Outlook for modern oral products in national convenience store chains - Management is in discussions with partners and has rolled out a regional partnership with 7-Eleven, showing early positive results [40][43] Question: Growth and distribution opportunities for Stoker's MST - Management believes there are synergies between MST and modern oral products, presenting opportunities for cross-selling [45][47] Question: Drivers of guidance for modern oral products - Guidance is based on expected growth for Free and early reorder rates, with both Free and Out seen as synergistic [50][52] Question: Contribution margin and manufacturing considerations - Gross profit margins for modern oral are in the mid-thirties, with plans to reinvest profits into sales and marketing [56][58] Question: Regulatory environment regarding nicotine products - Management views recent regulatory actions as positive and is not currently concerned about nicotine strength regulations [62][64] Question: Direct-to-consumer opportunities in the nicotine patch category - Management sees a strong online opportunity for Out, while Free will focus on brick-and-mortar channels [65][67] Question: Marketing strategies for Free and Out - The company plans to leverage both online and brick-and-mortar strategies to maximize reach across its brand portfolio [71][73] Question: Zig Zag's growth and margin profile - Zig Zag is expected to see single-digit growth, with a mix shift into lower-margin products anticipated to continue [75][78]

Company Performance - Turning Point Brands (TPB) reported quarterly earnings of $0.53 per share, missing the Zacks Consensus Estimate of $0.57 per share, and down from $0.79 per share a year ago, representing an earnings surprise of -7.02% [1] - The company posted revenues of $93.67 million for the quarter ended December 2024, surpassing the Zacks Consensus Estimate by 0.23%, but down from $97.12 million year-over-year [2] - Over the last four quarters, the company has surpassed consensus EPS estimates just once and topped consensus revenue estimates two times [2] Stock Performance - Turning Point Brands shares have increased approximately 11.5% since the beginning of the year, contrasting with the S&P 500's decline of -0.7% [3] - The current consensus EPS estimate for the coming quarter is $0.73 on revenues of $91.9 million, and for the current fiscal year, it is $3.17 on revenues of $384.7 million [7] Industry Outlook - The Tobacco industry, to which Turning Point Brands belongs, is currently ranked in the bottom 36% of over 250 Zacks industries, indicating potential challenges ahead [8] - The performance of Turning Point Brands' stock may be influenced by the overall outlook for the Tobacco industry [8]

Financial Performance - Q4 2024 net sales increased 12.8% year-over-year to $93.7 million, with total consolidated net sales for FY 2024 increasing 11.0% to $360.7 million[5]. - Adjusted EBITDA for Q4 2024 was $26.2 million, up 5.3% from the prior year, while FY 2024 Adjusted EBITDA increased 12.0% to $104.5 million[5]. - Consolidated net income for 2024 was $40,510,000, an increase from $37,781,000 in 2023, representing a growth of 4.8%[25]. - Adjusted EBITDA for 2024 was $104,459,000, up from $93,252,000 in 2023, reflecting a growth of 11.9%[31]. - Adjusted diluted EPS for the year ended December 31, 2024, was $3.49, an increase from $2.93 in 2023[37]. - Adjusted net income for the quarter was $21.68 million, compared to $20.20 million in the prior year, reflecting an increase of 7.3%[39]. - Adjusted diluted EPS for the quarter was $0.98, compared to $0.82 in the same quarter of the previous year, marking an increase of 19.5%[39]. Segment Performance - Zig-Zag Products segment net sales increased 1.8% to $45.9 million in Q4 2024, while Stoker's Products segment net sales rose 25.8% to $47.8 million[6][8]. - Modern Oral combined sales reached $11.2 million for Q4 2024, with FRE sales more than quadrupling year-over-year and growing 26% sequentially[4]. - Stoker's Products segment gross profit increased 26.0% to $27.6 million in Q4 2024, with a gross margin of 57.7%[9]. Income and Expenses - Net income for Q4 2024 decreased 76.1% to $2.4 million, primarily due to a one-time loss from discontinued operations of $7.3 million[5]. - The company incurred $4,634,000 in corporate restructuring costs for the year ended December 31, 2024[37]. - The FDA PMTA-related costs for the year ended December 31, 2024, amounted to $3,592,000, compared to $2,098,000 in 2023[38]. - The company incurred $1.11 million in transactional expenses and strategic initiatives during the quarter, compared to $3,000 in the same quarter last year[40]. - Loss on extinguishment of debt was reported at $194,000 for Q4 2024, while the previous year showed a gain of $146,000[39]. Balance Sheet and Liquidity - Total gross debt as of December 31, 2024, was $248.6 million, with net debt at $202.4 million and total liquidity of $103.6 million[10]. - Total current assets decreased to $198,205,000 in 2024 from $267,629,000 in 2023, a decline of 26%[24]. - Total liabilities reduced to $302,973,000 in 2024 from $417,363,000 in 2023, a decrease of 27.3%[24]. - Total stockholders' equity increased to $190,380,000 in 2024 from $152,006,000 in 2023, a growth of 25.3%[24]. - Cash at the end of the period decreased to $50,902,000 in 2024 from $122,815,000 in 2023, a decline of 58.6%[26]. Guidance and Future Outlook - FY 2025 guidance projects Adjusted EBITDA of $108-113 million and Modern Oral sales of $60-80 million[14]. - The company expects to maintain its focus on FDA PMTA applications, with costs of $512,000 incurred in Q4 2024[40]. Other Notable Items - The company reported a loss from discontinued operations of $7,517,000 in 2024, compared to $285,000 in 2023[25]. - The company recognized a mark-to-market loss of $942,000 on a Canadian inter-company note in Q4 2024[39]. - The effective tax rate for the quarter was 28.4% in 2024, compared to 24.6% in 2023[41]. - The federal excise tax refund for the year ended December 31, 2024, was $(1,674,000), compared to $(5,095,000) in 2023[37].