Turning Point Brands(US:TPB)2024-11-09 16:13Financial Data and Key Metrics Changes - Adjusted EBITDA increased 11% to $27.2 million for Q3 2024, with EBITDA excluding CDS up 12% to $26.9 million [5][13] - Q3 sales rose 3.8% to $105.6 million, with overall revenue excluding CDS up 8.4% year-over-year [13] - Gross margin improved by 10 basis points year-over-year to 50.8% [13] - Free cash flow for the quarter was $12.6 million, with year-to-date free cash flow at $45.8 million [15][16] Business Line Data and Key Metrics Changes - Zig-Zag sales increased 5.5% year-over-year to $49.3 million, with growth across all categories except lighters [14] - Stoker's revenue rose 12.1% year-over-year to $41.4 million, with a 2.9% volume increase and a 9.2% price/mix increase [14] - FRE sales more than quadrupled year-over-year, reflecting strong consumer acceptance and market rollout [14][15] Market Data and Key Metrics Changes - Nearly 75% of Americans now live in a legal medical or adult-use state, benefiting businesses like TPB [6] - The alternative channel experienced low double-digit growth both sequentially and year-to-date [6] - Stoker's gained 230 basis points of market share in chewing tobacco, reaching 32.9% [15] Company Strategy and Development Direction - The company is increasing its guidance for full-year 2024 adjusted EBITDA to $101 million to $103 million, up from prior guidance [5][16] - There is a focus on expanding distribution channels, particularly in the alternative market, leveraging a diverse SKU portfolio [6][9] - The cigar category is identified as a significant growth opportunity, with potential for substantial revenue [30] Management Comments on Operating Environment and Future Outlook - Management expressed optimism about the continued growth of Zig-Zag and Stoker's brands, with plans to enhance the commercial system and go-to-market strategy [10][12] - The company is assessing the strategy for the lighter category due to weaker-than-expected performance [5][6] - Management is exploring U.S. manufacturing options in light of recent election results and potential tariff changes [25] Other Important Information - The company retired a $118.5 million convertible note with cash on hand, maintaining a comfortable liquidity position [16] - A share repurchase program with a capacity of $100 million has been authorized by the Board [16] Q&A Session Summary Question: Growth outlook for FRE - Management indicated that growth will come from both expanded velocity in existing stores and new door penetration, with a focus on national distribution [19][20] Question: Comments on the Alp brand partnership - Management refrained from discussing the Alp brand but indicated updates would be provided in the near future [21][22] Question: Sales expectations for new 3 and 6 milligram products - Management noted that nearly 70% of the category is comprised of 3 and 6 milligram products, and early consumer feedback has been positive [24] Question: Supply chain limitations for FRE - Management stated that manufacturing capacity is sufficient, but entering chains can be a lengthy process due to varying planograms [25] Question: Revenue opportunities in alternative channels - Management believes the total addressable market for the alternative space is significant, potentially larger than traditional convenience stores [26] Question: Pricing strategy for FRE - Management confirmed that FRE is positioned as a premium brand and will follow a competitive pricing strategy [28][29] Question: Cigar growth expectations - Management highlighted the cigar category as a massive opportunity, with significant potential for revenue growth [30]