Turning Point Brands, Inc. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Consolidated Q4 revenue increased 13% to $93.7 million, adjusted EBITDA up 5% to $26.2 million. Full-year adjusted EBITDA up 12% to $104.5 million.
• Divested CDS business is classified as discontinued operations. 2025 adjusted EBITDA guidance is $108 million to $113 million, with modern oral brands Free and Out expected to generate $60 million to $80 million combined revenue.
• Zig Zag revenue up 2%, Stoker's revenue up 26%, Free sales up 419% in Q4. Secular tailwind from cannabis and hemp adoption benefits picks and shovels businesses like Zig Zag, with cross-selling opportunities across product lines.

Segment Performance

• Zig Zag: Sales increased 7% year over year to $192.4 million and 2% to $45.9 million in Q4. Gross margin decreased due to product mix, with a 60 basis point year-over-year decline to 55.4% for the year and a 240 basis point decline to 54.1% in Q4.
• Stoker's: Net sales increased 16% year over year to $168.3 million and 26% to $47.8 million in Q4. MST portfolio net sales grew 6% year over year to $103.3 million and declined 1% to $25.9 million in Q4. Stoker's MST volume was up 10 basis points with share growing to 7.6%, and Stoker's chewing tobacco was the number one brand in the quarter.

Guidance

• 2025 adjusted EBITDA guidance: $108 million to $113 million.
• Modern oral sales guidance: $60 million to $80 million.
• CapEx budget for 2025: $4 million to $5 million, with potential additional spending depending on FDA PMTAs.

Risks

• Regulatory risks related to FDA regulations on nicotine products, including potential rule changes on nicotine levels.
• Product mix impact on gross margins.
• Dependence on chain store distribution and potential delays in expanding into national c-stores.

Question and Answer

Q: In terms of modern oral, could you just talk about the outlook for getting into national c-store chains this year?

A: Summer Frein discussed ongoing discussions with many chain partners, having a regional partnership with 7-Eleven, and plan to continue progress throughout the year.

Q: How do you view the FDA's potential rule capping nicotine levels for combustion products?

A: Graham Purdy mentioned excitement about ZYN's marketing authorization and confidence in the company's filings, noting no immediate concern about nicotine strengths at this time.

Q: Just wanted to follow-up on Modern Oral. Wondering if you could provide your sense just for the direct-to-consumer opportunity within the nicotine patch category?

A: Graham Purdy mentioned dependency on route to market for brand properties, with potential outsized online opportunity for Out based on demographic dynamics, while Free has a strong bricks-and-mortar presence.