Turning Point Brands Announces First Quarter 2024 Results

-Q1 2024 Adjusted EBITDA of $25.3 million, up 22% over prior year

- Net Sales for Q1 2024 Zig-Zag and Stoker’s Products Increased 10% Year-Over-Year

-Company reaffirms full-year 2024 adjusted EBITDA guidance of $95 to $100 million.

Turning Point Brands, Inc. (“TPB” or “the Company”) (NYSE: TPB), a manufacturer, marketer and distributor of branded consumer products, including alternative smoking accessories and consumables with active ingredients, announced today financial results for the first quarter ended March 31, 2024.

Q1 2024 vs. Q1 2023

• Total consolidated net sales decreased 3.9% to $97.1 million
  • Zig-Zag Products net sales increased by 11.5%
  • Stoker’s Products net sales increased by 8.0%
  • Creative Distribution Solutions net sales decreased by 44.9%
• Gross profit increased 6.8% to $51.9 million
• Net income increased 58.1% to $12.0 million
• Adjusted net income increased 29.8% to $15.4 million (see Schedule B for a reconciliation to net income)
• Adjusted EBITDA increased 21.6% to $25.3 million (see Schedule A for a reconciliation to net income)
• Diluted EPS of $0.63 and Adjusted Diluted EPS of $0.80 compared to $0.41 and $0.62 in the same period one year ago, respectively (see Schedule B for a reconciliation to Diluted EPS)

Graham Purdy, President and CEO, commented: “We are encouraged by our first quarter results. We believe the execution of our strategy has Zig-Zag back on a sustainable growth trajectory; Stoker’s continued to grow and improved its market share; and the national launch of our FRE Modern Oral product is off to a good start.”

Zig-Zag Products Segment (48% of total net sales in the quarter)

For the first quarter, Zig-Zag Products net sales increased 11.5% to $46.7 million. The Alternative business saw strong growth in the quarter complemented by modest growth in US Papers and Wraps partially offset by Clipper sales declines against prior year trade load.

For the quarter, the Zig-Zag Products segment gross profit increased 23.0% to $27.5 million. Gross margin increased 550 basis points to 59.0% driven primarily by product mix.

“We were encouraged by the outsized performance of the alternative channel in the quarter,” said Purdy. “Our ongoing efforts continue to demonstrate progress toward sustainably growing the Zig-Zag brand.”

Stoker’s Products Segment (38% of total net sales in the quarter)

For the first quarter, Stoker’s Products net sales increased 8.0% to $36.4 million on mid-single-digit growth of MST and triple-digit growth off a low base for our Modern Oral product FRE partially offset by mid-single-digit decline in loose-leaf chewing tobacco. For the first quarter, total Stoker’s Products segment volume increased 0.1%, while price / mix increased 7.9%.

For the quarter, the Stoker’s Products segment gross profit increased 6.9% to $20.8 million. Gross margin contracted 60 basis points to 57.2%

Performance Measures in the First Quarter

First quarter consolidated selling, general and administrative (“SG&A”) expenses were $32.6 million compared to $30.8 million in the first quarter of 2023.

The first quarter SG&A included the following notable items:

• $1.3 million of accrued legal and severance costs;
• $2.1 million of stock compensation expense compared to $0.7 million in the year-ago period; and
• $0.8 million of FDA PMTA-related expenses for modern oral products compared to $0.2 million in the year-ago period.

Total gross debt as of March 31, 2024 was $368.5 million. Net debt (total gross debt less unrestricted cash) at March 31, 2023 was $237.6 million. The Company ended the quarter with total liquidity of $189.9 million, comprised of $130.9 million in cash and $59.0 million of asset backed revolving credit facility capacity.

During the quarter, the Company re-purchased 72,545 shares at a cost of $2.1 million.

2024 Outlook

The Company is maintaining its previous expectation of full-year 2024 adjusted EBITDA of $95 to $100 million.

Creative Distribution Solutions (“CDS”) (14% of total net sales in the quarter)

For the first quarter, CDS net sales were $14.0 million, gross profit was $3.6 million, and gross margin was 25.4%.

Earnings Conference Call

As previously disclosed, a conference call with the investment community to review TPB’s financial results has been scheduled for 10:00 a.m. Eastern on Thursday, May 2, 2024. Investment community participants should dial in 10 minutes ahead of time using the toll-free number (888) 330-2502 (international participants should call (240) 789-2713 and follow the audio prompts after typing in the event ID: 6640134. A live listen-only webcast of the call will be available on the Events and Presentations section of the investor relations portion of the Company website (www.turningpointbrands.com). A replay of the webcast will be available on the site two hours following the call.

Non-GAAP Financial Measures

In addition to financial measures prepared in accordance with generally accepted accounting principles in the United States (GAAP), this press release includes certain non-GAAP financial measures including EBITDA, Adjusted EBITDA, Adjusted Net Income, Adjusted Diluted EPS and Adjusted Operating Income (Loss). A reconciliation of these non-GAAP financial measures accompanies this release.

About Turning Point Brands, Inc.

Turning Point Brands (NYSE: TPB) is a manufacturer, marketer and distributor of branded consumer products including alternative smoking accessories and consumables with active ingredients through its iconic Zig-Zag® and Stoker’s® brands. TPB’s products are available in more than 215,000 retail outlets in North America, and on sites such as www.zigzag.com. For the latest news and information about TPB and its brands, please visit www.turningpointbrands.com.

Forward-Looking Statements

This press release 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, these statements are not guarantees of future performance and actual events may differ materially from those expressed in or suggested by the forward-looking statements. Any forward-looking statement made by TPB in this press release, its reports filed with the Securities and Exchange Commission (the “SEC”) and other public statements made from time-to-time speak only as of the date made. New risks and uncertainties come up from time to time, and it is impossible for TPB to predict or identify all such 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. Factors that could cause these differences include, but are not limited to those included it the Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and other reports filed by the Company with the SEC. These statements constitute the Company’s cautionary statements under the Private Securities Litigation Reform Act of 1995.

Financial Statements Follow:

Non-GAAP Financial Measures

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, Adjusted Net Income, Adjusted Diluted EPS, and Adjusted Operating Income (Loss). 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, Adjusted Net Income, Adjusted Diluted EPS, and Adjusted Operating Income (Loss) are used by management to compare our performance to that of prior periods for trend analyses and planning purposes and are presented to our board of directors. We believe that EBITDA, Adjusted EBITDA, Adjusted Net Income, Adjusted Diluted EPS, and Adjusted Operating Income (Loss) are appropriate measures of operating performance because they eliminate the impact of expenses that do not relate to business performance.

We define “EBITDA” as net income before interest expense, gain (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 that we do not consider ordinary course in our evaluation of ongoing operating performance. We define “Adjusted Net Income” as net income excluding items that we do not consider ordinary course in our evaluation of ongoing operating performance. We define “Adjusted Diluted EPS” as diluted earnings per share excluding items that we do not consider ordinary course in our evaluation of ongoing operating performance. We define “Adjusted Operating Income (Loss)” as operating income excluding other non-cash items and other items that 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. EBITDA, Adjusted Net Income, Adjusted EBITDA Adjusted Diluted EPS, and Adjusted Operating Income (Loss) 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 this non-U.S. GAAP measure differently than we do or may not calculate it at all, limiting its usefulness as a comparative measure.

In accordance with SEC rules, we have provided, in the supplemental information attached, a reconciliation of the non-GAAP measures to the next directly comparable GAAP measures.

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