Q4 2023 Turning Point Brands Inc Earnings Call

Operator: Ladies and gentlemen, good morning and welcome to the Turning Point Brands fourth quarter 2023 earnings conference call. All participants will be in listen-only mode.

Ladies and gentlemen, good morning, and welcome to the turning point brands fourth quarter 2023 earnings Conference call.

All participants will be in listen only mode.

Operator: All lines have been placed on mute to help prevent any background noise. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. And please note that this ribbon. Pardon me, this event is being recorded. I would now like to turn the conference over to Louis Refermina, Chief Financial Officer. Please go ahead.

All lines have been placed on mute to help prevent any background noise.

Should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions.

Please note that this rubin.

This event is being recorded.

I would now like to turn the conference over to buoy Retro Mena Chief Financial Officer. Please go ahead.

Louis Refermina: Thank you. Good morning, everyone. This is Louie Raffermina, Chief Financial Officer. Joining me are Turning Point Brands President and CEO, Graham Purdy. Chief Revenue Officer Summer. This morning, we issued a news release covering our fourth quarter results. This release is located in the Investor Relations section of our website, www.turningpointbrands.com. During this call, we will discuss consolidated and segmented operating results and provide our perspective on the operating environment and our progress with the strategic plan. As is customary, I direct your attention to the discussion of forward-looking and cautionary statements in today's press release and the risk factors in our filings with the FDA. During the call today, we will reference certain non-GAAP financial measures.

Thank you. Good morning, everyone. This is Louis Refered meter Chief Financial Officer, joining me are turning point brands', President and CEO Graham Purdy Chief.

Chief revenue officers some refrain.

This morning, we issued a news release covering our fourth quarter results.

Elyse is located in the IR section of our website Www Dot turning point brands Dot com.

During this call we will discuss our consolidated and segment operating results and provide our perspective on the operating environment and our progress against our strategic plan.

As discussed May I direct your attention to the discussion of forward looking and cautionary statements today's press release and the risk factors in our filings with the SEC.

On the call today, we will reference certain non-GAAP financial measures.

Louis Refermina: These measures and reconciliations to GAP can be found in today's urgency release, along with reasons why the manager believes that they provide useful information. I will now turn the call over to our CEO, Graham Purdy. Thanks, Louie.

Measures and reconciliations to GAAP can be found in today's earnings release, along with the slide manager believes that they provide useful information.

I will now turn the call over to our CEO Graham Purdy.

Thanks, Larry Good morning, everyone and thank you for joining our call our fourth quarter results were at the high end of our expectations and demonstrated continued progress against our plan.

Graham A. Purdy: Good morning, everyone, and thank you for joining our call. Our fourth-quarter results were at the high end of our expectations and demonstrated continued progress against our. Adjusted EBITDA increased 7.5% to $24.8 million for the quarter, and we finished 2023 having generated $61.2 million of free cash. During Q4, Stokers finished the year on a high note, posting extraordinary 18.6% revenue growth for the quarter, although zigzags down 2.9 percent for the quarter due to the previously discussed discontinuation of an unprofitable product line in Canada. We are pleased with the market share increases for Stokers, which continues to be a steady growth engine with a long runway for volume growth and favorable pricing dynamics. That said, to be clear.

Adjusted EBITDA increased seven 5% to $24 8 million for the quarter and we finished 2023, having generated $61 2 million of free cash flow.

During Q4 Stokers finished the year on a high note posting extraordinary 18, 6% revenue growth for the quarter.

It's exactly was down to nine for the quarter due to the previously discussed discontinuation of an unprofitable product line in Canada.

We are pleased with the market share increases for stokers, which continues to be a steady growth engine with a long runway for volume growth and favorable pricing dynamics.

That said to be clear.

Graham A. Purdy: While Stokers continues to gain momentum, we do not believe 19% organic revenue growth for our legacy Stokers products is sustainable over the long term. However, we do believe these levels of growth are achievable for free using modern oral or white pouch nicotine products. This product will compete in the category that is trending towards $2 billion in manufacturer revenue and grew volume by over 50% last year, per MSAI. Up until recently, we were focused on optimizing our supply chain to ensure consistent product quality, analyzing consumer feedback, and testing online and in-store marketing and merchandising programs to best position us for a successful rollout of Freeze. We are now focusing on prudently ramping up our sales and distribution efforts with the goal of achieving sustainable, consistent growth.

While stokers continues to gain momentum, we do not believe 19% organic revenue growth for our legacy stokers products and sustainable over the long term.

However, we do believe these and greater levels of growth are achievable for free our modern oral or white pouch nicotine product.

This product will compete in the category that is trending towards $2 billion in manufacturer revenue and grew volume by over 50% last year per MSA.

Up until recently.

We are focused on optimizing our supply chain to ensure consistent product quality.

Analyzing consumer feedback and testing online and in store marketing and merchandising programs to best position us for a successful rollout of free.

We are now focusing on prudently ramping up our sales and distribution efforts with the goal of achieving sustainable consistent growth.

Graham A. Purdy: Our strategy for this exciting category focuses on leveraging our sales and distribution expertise to profitably expand freeze present and store count over an extended time frame similar to what we have achieved with Stoker's MST. It brief presents a significant opportunity for the company given its differentiated offering. Like Stoker's MST, we don't need an outsized share in the market to have a significant impact on our overall bottom line. We look forward to providing updates on this exciting new product in quarters to come. Moving on to ZigZag, while we faced a headwind from previously discussed inventory destocking throughout much of the year, we believe that the reduction in trade inventory is behind us, setting the backdrop for a return to growth in 2024.

Our strategy for this exciting category focuses on leveraging our sales and distribution expertise to profitably expand <unk> president.

And store count over an extended timeframe similar to what we have achieved with stokers MST.

<unk> presents a significant opportunity for the company given its differentiated offering like.

Stokers MST, we don't need outsized share in the market to have a significant impact on our overall bottom line.

We look forward to providing updates on this exciting new product in quarters to come.

Moving on to Zig Zag, while we faced headwinds from previously discussed inventory destocking throughout much of the year. We believe the reduction in trade inventory is behind us setting the backdrop for a return to growth in 2024.

Graham A. Purdy: We were pleased that both our Zigzag Papers and the Traditional Channel and Alternative Channel business posted double-digit growth. We are encouraged by our wholesale customers and consumers' response to our expanding and more complete portfolio, fueled by many new products launched over the past few years. In Q4, we launched combo books, as well as our first seasonal vintage apparel line.

We were pleased that both our zig zag papers in the traditional channel and alternative channel business posted double digit growth.

We are encouraged by our wholesale customers and in consumers' response to our expanding and more complete portfolio fueled by many new products launched over the past few years.

In Q4, we launched combo box as well as our first seasonal vintage apparel line.

Graham A. Purdy: As you may have noticed, we lean into our direct relationships with our consumers using several social media tactics to engage our growing audience. As mentioned, we continue to see strong demand from consumers in the alternative channel as legalization and further normalization of cannabis are expanding the alternative store footprint, dispensaries, head shops, and smoke shops, which cater to a growing accessory market. Our alternative B2B business saw continued momentum with zigzag sales growing by over 30% during the quarter, driven by an acceleration in premium paper sales in the second half of 2023. Our strategy in the alternative channel is to be a valued partner to the growing distributor, retailer, and manufacturing network serving this ecosystem. In addition to growing traffic, alternative stores are attractive because they offer a zigzag portfolio, more valuable shelf space, and merchandising real estate than traditional C stores.

As you may have noticed we leaned into our direct relationships with our consumers using several social media tactics to engage our growing audience.

As mentioned, we continue to see strong demand from consumers in the alternative channel as legalization and further normalization of candidates is expanding the alternative store footprint.

<unk> had shops smoke shops.

Which cater to a growing accessory market.

Our alternative <unk> business saw continued momentum with zigzag sales growing by over 30% during the quarter driven by an acceleration in premium papers sales in the second half of 2023.

Our strategy in the alternative channel is to be a valued partner to the growing distributor retailer and manufacturing network serving this ecosystem.

In addition to growing traffic.

Alternative stores are attracted because they offered us exact portfolio more valuable shelf space and merchandising real estate than traditional C stores.

Graham A. Purdy: We try to be a solution provider to various customers throughout the ecosystem. And in doing so, we're able to build brand awareness and consumer trial to ensure we satisfy this growing consumer base. As discussed in the past, our growth in the alternative market has been driven by two drivers. 1.

We tried to be a solutions provider to our various customers throughout the ecosystem.

In doing so we're able to build brand awareness and consumer trial to ensure we satisfy this growing consumer base.

As discussed in the past our growth in the alternative market has been driven by two drivers.

Graham A. Purdy: Gaining new customers across the retail, distributor, and manufacturing landscape, and 2. Increasing order sizes to both existing and new customers as we expand our portfolio. Cross-selling Clipper Lighters is an example of this. Both drivers continue to be helpful.

One gaining new customers across the retail distributor and manufacturing landscape and to increasing order sizes to both existing and new customers as we expand our portfolio.

Cross selling clipper lighters as an example of that.

Both drivers continued to be healthy.

Graham A. Purdy: Lastly, in 2023, we were pleased to close on our ABL facility, which, along with the cash we have on hand, gives us ample liquidity to address our convertible debt maturity later this year. With that, I will hand the call over to Summer to walk through the progress and the results of several of our specific go-to-market initiatives. Thank you, Graham.

Lastly in 2023, we were pleased to close on our ABL facility, which along with the cash we have on hand gives us ample liquidity to address our convertible debt maturity later this year.

With that let me hand, the call over to summer to walk through our progress and the results of several of our specific go to market initiatives.

Thank you Graham throughout Q4, we continued to make progress against our roadmap of furthering zig zag position as a lifestyle brand.

Summer: Throughout Q4, we continued to make progress against our roadmap of furthering ZigZag's position as a lifestyle brand. Our focus on growing ZigZag's portfolio and the alternative channel, while increasing the brand's ubiquity, remains a core tenet of that portfolio. In Q4, we continued building a product assortment that aligns with market demand. In early December, at MJBizCon, we launched our new ZigZag Combo Booklet, a convenient package combining both papers and tips available in several varieties of our paper assortment. Since its launch, our team is ahead of schedule and gaining valuable shelf space. In 2024 and beyond, you should expect us to continue to launch new products that cater to this rapidly evolving consumer. We also launched ZigZag's first seasonal apparel collection, The Vintage Collection, which garnered the attention of the fashion and streetwear community with two of the largest culture publications, Complex and Hypebeast, covering the line. The vintage collection paid homage to Zig Zag's century-long influence in the smoking world by blending style, heritage, and culture.

Our focus on growing the bank portfolio in the alternative channel, while increasingly brand ubiquity remains a core tenet of that plan.

In Q4, we continued building a product assortment that aligns with market demands in early December at MJ beds Con, we launched our new Zig Zag combo booklets, a convenient package combining both papers and chips available in several varieties of our paper assortment.

Since its launch our team is ahead of plan and gaining valuable shelf space and.

In 2024, and beyond you should expect us to continue to launch new products that cater to the rapidly evolving consumer.

We also launched the exact first seasonal apparel collection and the vintage collection, which garnered the attention of the fashion and street wear community with sort of the largest culture publication complex and heightened east covering the lines.

Scientists collection paid homage to Zig Zag century long influence in the smoking world by blending style heritage and culture.

Summer: 2024 marks the 145th anniversary of the brand, and launching the vintage collection is just the first of many moments we'll bring to consumers and retail to celebrate this remarkable milestone. Furthermore, we continue to develop our event and partnership strategy to integrate ZigZag into music, entertainment, and other creative communities, including recent collaborations with major record labels. Leading into 2024, we hosted Grammy events within the Afrobeat community in partnership with Rock Nation, with the famous DJ collective, Solection, and five-time Grammy award-winning producer, D-Mile, who added another Grammy at the ceremony for Producer of the Year.

2024 marks of 140 <unk> anniversary of the brand and launching the vintage collection is just the first of many moments will bring to consumers and retail to celebrate this remarkable milestone.

Furthermore, we continue to develop our event in partnership strategy to integrate and Zig Zag into music entertainment and other creative community, including recent collaborations with major record labels.

Leading into 2024, we hosted Grammy events within the Afrobeat community in partnership with ROC Nation with the famous DJ collective selection and five time Grammy Award winning producer D mile. Two added another Grammy at the ceremony for producer of the year.

Summer: Throughout Q4, we continued increasing store penetration for Clipper lighters and capitalizing on the synergies between Clipper and ZigZag. We look forward to continuing to provide updates that showcase the momentum and efforts that support ZigZag's growth. Moving to stokers, Graham noted the success we had for the second quarter. The strength was driven by another strong quarter of share gains for both Stoker's MFT and Loose

Throughout Q4, we continued increasing penetration for clipper lighters and capitalizing on the synergies between Clipper Zig Zag.

Look forward to continuing to provide updates that showcase the momentum and efforts that's important the exact growth.

Moving to Stokers Graham noted the success, we had for this segment.

This strength was driven by another strong quarter of share gains for both stokers MST and loose leaf with its product quality and value proposition continuing to resonate with consumers, we expect that trend to continue.

Summer: With its product quality and value proposition continuing to resonate with consumers, we expect that trend to continue. While a small contributor during the quarter, we are excited about the broader rollout of our free white nicotine pouch product. We are in the midst of our initial push on free in both brick-and-mortar stores and digital marketplaces, both on our own and other parties' websites.

While a small contributor during the quarter. We are excited about the broader rollout of our free white nicotine pouch product. We are in the midst of our initial push on free in both brick and mortar stores and digital marketplaces, both our own and other parties web sites.

Summer: The receptivity and engagement from our trade partners and with consumers continue to reinforce that our product quality, moisture content, pouch size, and differentiated nicotine offerings are leading to positive consumer sentiment. In summary, we continue building our brand for the long term, executing against the plan we've established, and growing our business and retail partners and with our consumers. Our efforts are focusing on maximizing the value of our world-class brands and strengthening our extensive distribution capability. I will now turn the call back over to Louis to go through our results. Thank you, Summer.

This activity and engagement from our trade partners and with consumers continue to reinforce that our product quality.

Your content pouch size and differentiate our nicotine offerings are leading to positive consumer sentiment.

In summary, we continue building our brands for the long term executing against the plan, we have established and growing our business in retail and with our consumers.

Our efforts are focusing on maximizing the value of our world class brands and strengthening our extensive distribution capabilities. Let me now turn the call back over to Louis to go through our results.

Thank you summer.

Louis Refermina: Starting the consolidated quarterly... Q4 sales were down 6.1% to $97.1 million. This margin was up 410 basis points to 52.0% due to segment and product. Adjusted EBITDA was up 7.5% to $24.8 million. Going into the segmented performance, Zigzag sales decreased 2.9% year-over-year to $45.1 million due to the discontinuation of an unprofitable product line in Canada that impacted sales by $1.4 million.

Starting with our consolidated quarterly results.

Q4 sales were down six 1% to $97 1 million.

This margin was up 410 basis points to 52% due to segment and product mix.

Adjusted EBITDA was up seven 5% to 24 months.

Your line is the segment performance.

This exact sales decreased two 9% year over year to $45 1 million. This continuation of an unprofitable product line in Canada that impacted sales by one $4 million.

Louis Refermina: Our U.S. papers and rafts business was stable, with double-digit growth in our B2B alternative sales. Our Canadian and other smoking accessories category saw declines during the quarter due to the discontinuation of low-margin third-party products. This margin increased 100 basis points to 56.5% during the quarter, driven primarily by product mix, including the discontinuation of a low-margin product. Silica's net sales increased 18.6% to $38.0 million in the quarter, with a 14.2% volume increase and a 4.4% price increase. MST, CHU, and PRE all delivered strong growth during the pandemic. Net sales from the MST portfolio will be double-digit. Sofras Retail Shipment Pounds were up, despite the category being down 5.6%, with the share growing 50 basis points year over year to 7.1% during the second quarter, according to MSAI.

Our U S paper <unk> business was stable with double digit growth in our BTB alternative sales business.

Canadian others smoking accessories category saw declines during the quarter, we did a discontinuation of low margin third party product line.

Gross margin increased 100 basis points to 56, 5% during the quarter, driven primarily by product mix, including the discontinuation of our low margin policies.

Silke as products net sales increased 18, 6% to 30 $809 in the quarter, the 14, 2% volume.

With four 4% price mix.

MST two or three all delivered strong growth during the quarter.

Net sales for the MST portfolio grew double digits.

<unk> retail assuming pounds were up despite the category down five 6% with share growing 50 basis points year over year to seven 1% during the second quarter. According to MSCI.

Louis Refermina: MST share in store selling was up 40 basis points the other year, to 10.7%, with Stokers now in stores representing 67% of industry volume, still providing a long-run way. We also had strong growth in our international business, and shoe sales were up high through the. Stoker's Chew was the number one chewing brand in the quarter, gaining 220 basis points of share, with 31.0% share, according to MSAI. Overall, TCB loose-leaf retail shipping pounds were up despite the category being down 2.2%.

MST share in stores selling was up 40 basis points year over year to 10, 7%.

Now in stores, representing 67% of industry volumes.

<unk> provides a long runway for growth.

We also had strong growth in our international export business.

<unk> sales were up high single digits from the previous year Stokers Chew was the number one two and brand in the quarter 240 basis points of share with 31.0% share According to MSCI.

Overall, DTE loose-leaf retail shipment pounds were up despite the category being down two 2%.

Louis Refermina: Category performance was driven by a larger decline in premiums, with PPV volumes benefiting from its valued positioning and continuing consumer trade-out. Our free sales more than doubled off a low base and started a broader expansion of the product in 2020. Gross margin increased 380 basis points to 57.6%, primarily due to MSP prices. PDF sales were $14.1 million.

Category performance was driven by a larger decline in premium loosely with PPV volume benefiting from its value positioning.

And consumer trade down.

Our free sales more than doubled off a low base as we start a broader space of the product in 2024.

Gross margin increased 380 basis points to 57, 6%, primarily due to MSP pricing.

CBF sales were $14 1 million.

Louis Refermina: Gross margin was 22.4%. Moving Toward Balance. After generating $61 million of free cash flow during the year, we ended the quarter with $117.9 million of cash on the balance sheet.

Gross margin was 22, 4%.

Moving to our balance sheet.

After generating $51 million of free cash flow during the year, we ended the quarter with $117 9 million of cash on the balance sheet.

Louis Refermina: And as of today, we have sufficient cash to address the maturity of our remaining $118.5 million convertible notes due July 2022. With our projected pre-cash flow generation this year, we will be able to fit within our net and gross leverage target range of two and a half to three and a half times after retiring our converts, while having the flexibility for future capital deployment. We aren't the guys At this point, we expect consolidated adjusted EBITDA of $95 to $100 million. The guidance excludes contributions from our CBS video, which contributed to a little over $2 million of EBITDA in fiscal year 2021. Other projections include an effective income tax rate of 24 to 26 percent.

As of today, we have sufficient cash to address the maturity of our remaining $118 5 million convertible notes due July 2024.

With our projected free cash flow generation. This year, we will be able to stay within our net and gross leverage target range.

And a half to three times after retiring our convert this year, while having the flexibility for future capital deployment.

On the guidance.

At this point, we expect consolidated adjusted EBITDA of $95 million to $100 million.

The guidance excludes contribution from our Cvs business, which contributed a little over $2 million of EBITDA in fiscal year 2023.

Other projections include.

The effective income tax rate of 44% to 46%.

Louis Refermina: We expect CapEx to be approximately $9 to $11 million, compared to $5.7 million the previous year, including $6.5 million of payments related to an automation project that was pushed out from 2023 to 2024. We also expect to spend $6 to $9 million in capitalized software implementation costs related to the ERP and TRM implementation after spending a little over $6 million last. The first stage of the CRM is now live, and we expect the ERP to go live in the first half of 2022. We currently expect to spend approximately $4 million for the full year to supplement our PMTAs related to our modern oil products, which remain under review by the FDA. Now, let me turn it back to Graham.

We expect capex to be approximately $9 million to $11 million this year compared to $5 7 million in the previous years, including $6 5 million of payments related to an automation project that was pushed out from 2023 and 2024.

We also expect to spend $6 million to $9 million and capitalized software implementation costs related to the ERP and CRM implementation after spending a little over $6 million last year.

The first stage of the CRM is now live and we expect the ERP go live in the first half of 2024.

We currently expect to spend approximately 4 million for the full year the supplement our PMT as related to our modern oral products.

Main under review by the FDA.

Now, let me turn it back to Ram.

Overall, we saw impressive momentum for stokers MST, along with the progress in the alternative channel and supported Zig Zag.

We're also very excited about trade.

Graham A. Purdy: Overall, we saw impressive momentum for Stoker's MST, along with the progress in the alternative channel and support for ZigZag. We're also very excited about. Thank you for participating in the call today, and with that, I'd like to open the call for questions. www.turningpointbrands.com. And thank you. If you would like to ask a question at this time, press the star and then the number one on your

Thank you for participating in the call today and with that I'd like to open the call for questions.

And thank you if you would like to ask a question at this time Press Star then the number one on your telephone keypad. If you would like to withdraw your question Press Star One a second time and we will pause for just a moment to compile the Q&A roster.

And we will take our first question from Scott Fortune with Roth MK Ann your.

Operator: If you would like to withdraw your question, press star one a second time. And we will pause for just a moment to compile the Q&A roster. And we'll take our first question from Scott Fortune with Ross MKM. Your line is open.

Your line is open.

Yes, good morning, and thank you for the question congratulations on the continued penetration into their alternatives smoke shop channel.

And the progress continues there.

Summer: Good morning and thank you for the question. Congratulations on the continued penetration into that alternative smoke shop channel, and the progress continues there. Are you, if we look at the channel, are you displacing competitors or looking at it as continued kind of gradual market penetration within that channel? And then is there a promotional activity you have to do to kind of initially enter that channel to gain that share and really just talk about kind of the promotional activity in that channel too as you continue to build that out? Hey, sure. This is summer.

Are you if we look at the churn are you displacing competitors or look at it as continued gradual market penetration within that channel.

Is there is there a promotional activity you have to do to kind of initially entry that channel to gain that share income really just talk about the promotional activity in that channel too as you continue to build that out.

Okay.

Hey, Sharon this is summer thanks for the question.

I heard you first asked about are we displacing competitors and then ask about our promotional strategy has been growing and the all channel.

Summer: Thanks for the question. I heard you first ask about whether we're displacing competitors and then ask about our promotional strategy as we're growing in the alternative channel. Look, our penetration into the alternative channel is something we continue to be encouraged by. primarily, we're focused on expanding distribution and gaining shelf space. So naturally, that comes at the expense of taking space from some competitors.

Look our our penetration into the alternative channel is something we continue to be encouraged by.

Primarily we're focused on expanding distribution and gaining shelf space. So naturally that comes at the expense of taking space out of some competitors, but for US. We're really focused on just gaining shelf space and continuing to grow in that channel Kevin.

Summer: But for us, we're really focused on just gaining shelf space and continuing to grow in that channel given the TAM that we see and the opportunity ahead of us. Unfortunately, because of the strong brand equity that Zigzag has, we are not over-promoting in that space and are quite encouraged by our pricing strategy thus far. I appreciate the color and then kind of following up on that with free, and obviously, you have a differentiated size pouch and nicotine kind of offering from there that continues to expand as you put more sales and support there, but what are you seeing, are you seeing anything from the competitive side moving up kind of into the freeze offering nicotine wise, or how do you see that kind of playing out as we look out in 24 and driving that growth going forward here? Yeah, sure. So, as you noted, one of the things that makes free so fantastic is its differentiated nicotine positioning in the market. And because of the loaded dynamic of the nicotine space, we aren't seeing a ton of competitive activity, although I don't think that's necessarily a forever situation because of where consumers are gravitating.

The Tam that we see any opportunity ahead of us Unfortunately, because of the strong brand equity that Zig Zag has we are not over promotion of <unk> in that space and are quite encouraged by our pricing strategy. Thus far.

I appreciate the color.

And then kind of following up on that.

Three and obviously differentiated sized pouch and nicotine kind of offering from there.

And that continues to expand as you put more sales and support there, but what are you seeing are you seeing anything from the competitive side moving up kind of into into the freeze the offering the kitchen wise or how do you see that kind of playing out as we look out in 'twenty, four and driving that growth going forward here.

Yeah sure. So as you noted one of the things that makes free so fantastic is it's differentiated nicotine positioning in the market and because of the loaded dynamic of the nicotine space.

We aren't seeing a ton of competitive activity, although I don't think thats necessarily forever situation because.

But where consumers are gravitating certainly on competitors will see that but we're excited.

Summer: Certainly, competitors will see that, but we're excited to get into the market and continue to expand and capitalize on our point of differentiation at this point. And the last one, follow-up for there, obviously, you're ramping up the free product and the strong trends there, kind of a similar opportunity as you saw in Stoker's over time as you ramped up that product. But just kind of step us through kind of the steady incremental gains you're seeing and kind of when, kind of timing of the cadence, and when this becomes more meaningful throughout the 24, looking 25 and beyond here for free Yeah, so as I think we noted in the opening remarks, we continue to see that category grow significantly over the past several years.

Get into the market and continue to expand and capitalize on our point of differentiation at this point.

Okay.

Perfect and then last one follow up for there obviously year ramping the free.

Product and the strong trends there kind of a similar opportunity as you saw on stokers overtime.

As you wrapped up that product that just kind of step us through kind of the steady incremental.

Gains youre seeing and kind of when the timing of the cadence and when this becomes more meaningful throughout the 24% looking 25 and beyond here for should we kind of just step us through that cadence.

And the size of opportunity.

Sure.

Yes, so as I think were noted in the opening remarks, we continue to see that category grow significantly over the past several years and we anticipate over the years to come.

Summer: And as we anticipate over the years to come, we see it as an over $2 billion industry now. And so, very similar to our Stoker strategy, even a, you know, high single-digit share in that growing market is really significant to our business. And so we're focused on prudent, steady growth, quarter over quarter. And as we've, you know, sort of rolled out this quarter, that's what we're on track to do, continue to see that steady growth. And that was our success story for Stokers, as you noted. So following that same playbook, I think it will go really well for us.

We see it as over $2 billion industry now and so very similar to our stoker strategy, even a high single digit share and not growing market is really significant to our business and so we're focused on prudent steady growth quarter.

Quarter over quarter, and as we've sort of rolled out this quarter. That's what we're on track to do is continue to see that that steady growth and that was our success story for so great that it.

So following that same playbook I think Paul will go really well for us.

Graham A. Purdy: Thanks, that's helpful. I appreciate the detail. I'll jump back in the queue. Thanks for the question. And we will take our next question from Michael Legg with Benchmark. Your line is open. Thanks. Good morning.

Thanks, that's helpful and I appreciate the detail I'll jump back in the queue.

For the question.

And we will take our next question from Michael Legg with benchmark. Your line is open.

Graham A. Purdy: Great, great quarter. Wanted to dig down a little on the free stuff. What's your pricing strategy there first? Sure, our pricing strategy is pretty straightforward in the sense that we are focused on maintaining a profitable business and not over-promoting that space. Okay, but is it similar to Stoker's where you know there's a premium product and then you have the more cost-effective product, or are you going to compete with Zinn at the premium price point? We will be and are competing at a premium price point. So a different approach than Stokers, given our brand position.

Thanks, Good morning, great great quarter.

Wanted to dig down a little on the free one.

Is your pricing strategy there first.

Yeah.

Sure our pricing strategy is pretty straightforward in the sense that we are focused on maintaining a profitable business and not over promotion of leasing that space.

Okay, but as it is.

Is it similar like Stokers, where there's premium product and then you have more cost effective product or are you going to compete with Zen.

Give me a price point.

It will be and are competing at a premium price point, so a different approach than stokers.

Summer: Okay, and then you mentioned, you know, high single-digit market share opportunities in a $2 billion market, so we're talking, you know, 100 plus million there. Can you talk about what your long-term market share goal is and what your store ramp-up expectations are to get this distributed? Hey Mike, it's Graham.

Given our brand positioning.

And then you mentioned high single digit market share opportunity 2 billion dollar market that we're crossing the 100 plus million there.

Can you talk what your long term market share goal is and what your store ramp up expectations are to get this distributor.

Hey, Mike It's Graham.

Graham A. Purdy: Thanks for the question; I appreciate it. Look, I think we're, number one, we're bullish on the category. Number two, we're incredibly bullish on our product, given the points of differentiation that someone had articulated. I think we're bullish on the success rate that we had with Stokers and following that plan, which has been a very methodical grind up over the last 10 years or so. I think our expectation would be that free software would probably follow a similar path to that over time. Okay, great. And then you didn't mention Clipper.

Thanks for the question appreciate it and look I think we're number one we're bullish on the category number two we're incredibly bullish on our product given the points of differentiation that that some of our had articulated.

I think we're bullish on our success rate that we had with stokers and following that plan has been a very methodical grind up over the last 10 years or so.

Our expectation would be that free would probably follow a similar path so that over time.

Okay great.

And then.

Graham A. Purdy: Can we talk about what you're seeing with Clipper and how that's going? Yeah, we're very encouraged by the results. We're on plan relative to the store games that we're making in the market. Summer's team has done a nice job of expanding out our social footprint and building some really nice marketing campaigns around the Clipper lighters. We're seeing a lot of energy in the alternative channel with the carry with ZigZag and Clipper in the alternative channel.

I mentioned clip or can you talk about what youre seeing with clip on how thats going.

Yes.

We're very encouraged by the results were on plan relative to the store gains that we're making in the market.

And some of his team has done a nice job of expanding our social footprint building, some really nice marketing campaigns around the co providers.

Seeing a lot of energy in the alternative channel with the carry with Zig Zag and Clippers alternative channel.

Louis Refermina: So I'd say generally we're excited about the results thus far, and you know it's a consumer product that competes against a very large and well-organized and well-capitalized player in the market. But again, similar to the free story, we feel like over the long term, we can be very successful with the product. Great, great. And then just the four million legal settlement? What was that?

So I'd say generally were excited about the results thus far.

Consumer product to compete against.

Large and well organized and well capitalized player in the market.

But again similar to the three story, we feel like over the long term, we can be we can be very successful product.

Okay, Great and then just the 4 million legal settlement what was that.

Louis Refermina: We had a chairwoman's sentiment that was disclosed in the Q and O. There's a further disclosure on our table which we'll follow up with today. Okay. Let's take a look then.

We have a shareholder settlement that was disclosed in the Q and those further disclosure on interchangeable.

With me today.

Okay, let's take a look that.

Louis Refermina: And then the automation project, what is that for? Yeah, so we had to close this project before. What we decided to do is do it in stages, so we're taking the first line and optimizing it so we're able to defer some of the payments for the future lines for later this year. Okay, thanks. We have just one last question on the debt.

Then the automation project what is that for.

Yes, so we disclosed the project before we decided to do is do it in stages that we're taking the first line and optimizing until were able to defer some of the payments for the future lies for later this year.

Okay. Thanks, and then just one last question on the debt do you plan on paying that off with your plan on that.

Louis Refermina: Do you plan on paying that off, or do you plan on... www.turningpointbrands.com Yeah, at this point, we've got enough cash to be able to retire that in July, so that is our current plan. Okay, thanks. Great quarter. Congratulations.

Refinancing debt and have been continuing with the same leverage.

Yes.

That should be able to tie that into July so that is our are currently.

Okay, Thanks, great quarter congrats.

Louis Refermina: Thanks, Mike, www.turningpointbrands.com, And we will take our next question from Eric Delaurier with Craig Hallam Capital Group. Your line is open, www.turningpointbrands.com. Great, thank you for taking my questions and I'll offer my congratulations on the quarter as well. So it's great to see momentum in both the alternative channel for ZigZag and with the new free products really kind of gaining momentum here. Within the ZigZag alternative channel, you mentioned you're sort of able to do a bit more brand building through that channel versus traditional C-Store. Could you just expand on that and maybe just give us some examples of sort of some of the ways that you are able to drive brand recognition and brand equity? Is this more shelf space?

Thanks, Mike.

And we will take our next question from Eric <unk> with Craig Hallum Capital Group. Your line is open.

Great. Thank you for taking my questions and offer my congrats on the quarter as well.

So it's great to see momentum both the alternative channel for Zig Zag and.

And with the new free products really kind of gaining momentum here within the Zig Zag alternative channel you mentioned, you're sort of able to do a bit more.

Brand building through that channel versus traditional C store could you just expand on that.

Maybe just give us some examples of sort of.

Some of the ways that you are able to drive brands.

Recognition brand equity is this more shelf space or is this sort of also being able to sell apparel.

Summer: Is this sort of also being able to sell apparel? I just kind of expanded on that. It would be great. Thank you. Yeah, hey Eric, thanks for the question. In terms of the difference in brand building in the alternative space versus the traditional C-store channel, it really is so much more wide open. If you think about walking into the variety of stores that are in the alternative channel, there's a lot more receptivity to the sorts of things that you can hang and position and store, and certainly you touched on apparel. These sorts of retailers are also open to selling different sorts of merchandise, and so it really opens the bag and the type of product expansion that we can capitalize on in those stores in a very different way than what is a more traditional C-store space that has a bit more limited shelf space and opportunity to have those sorts of varieties of products.

Just kind of expand on that would be great. Thank you.

Yeah, Hey, Eric Thanks for the question in terms of the difference in brand building in the alternative space versus the traditional C store channel and really is so much more wide open.

Think about walking into the variety of stores that are in the alternative channel. There is a lot more receptivity to the sorts of things that you can.

Hang in position and store and certainly you touched on apparel.

<unk>.

These sorts of retailers are also open to selling different sorts of merchandise until it really opens the bag and the type of product expansion that we can capitalize on in our stores in a very different way than what is.

Traditional C store space that has been more limited shelf space and opportunity.

Those sorts of variety of products.

Graham A. Purdy: Okay, that's helpful. In terms of the growth that you have been experiencing within Alternative Channel, you know, obviously, you guys have been going after this for some time now. Is there anything specific to call out to this sort of growth that's been building over the past couple quarters here? You know, you mentioned new products. Like, you know, has it been a matter of sort of finding products that this channel is looking for? And that's sort of been able, you know, that's helped you increase your share within that channel? Is it kind of all of the above with apparel and these other things as well?

Okay. That's helpful.

Just in terms of the growth that you have been experiencing within the alternative channel.

Obviously, you guys have been.

Going after this for for some time here.

Is there anything specific to call out.

To this sort of this growth that's been building over the past couple of quarters here.

You mentioned new products like is there has it been.

A matter of sort of finding products that that this channel is looking for and that sort of been able. That's helped you increase your share within that channel is that kind of all of the above with with with apparel and these other things as well just wondering if theres anything to sort of call out.

Graham A. Purdy: Just wondering if there's anything to sort of call out as the driver to sort of, you know, increase this penetration within this channel? I mean, no, no special callouts. And as you mentioned, we've had pretty strong success in this market for a while, and so we expect to continue to change things. A lot of it is just increasing our penetration, as Summer mentioned, within that channel, and our product offering, our continued push, and just the kind of momentum that we're getting is leading to this type of growth that we're seeing. And I don't think there's a lot of further opportunity for us to attack that market.

That's the driver.

<unk> sort of increasing its penetration within this channel.

I mean, no news special call outs on as I mentioned, we've had a pretty strong success.

In this market for a while and so we.

Expected to communicate things a lot of it is just increasing our penetration in our summer mentioned within that channel.

From a product offering our continued push and just kind of the message that we're getting is leading to this.

And we still think there is.

Further opportunity for us.

Sure.

That market.

Graham A. Purdy: Okay, great. And then just a couple more quick ones from me. On Clipper, I know that we've sort of been working through some heightened inventory levels at retail. Can you kind of just give us an update on what you see there? Yeah, look, I think this sort of goes across our business; we feel like the inventory overhang from last year is largely behind us at this point in time, that would include Clipper. Okay, great. And then last one for me. So I understand this automation product, excuse me, project; you've been optimizing this first line here. So a bit of a push out in some of the CapEx, you know, dollar expectations here.

Okay great.

And then just a couple more quick ones from me on Clipper.

We've sort of been working through some.

High inventory levels at retail.

Can you kind of just give us an update on what you're seeing there.

Yes.

I think the.

Just sort of goes across our business, we feel like the.

The inventory overhang from last year are largely behind us at this point in time that would include clipper.

Okay great.

And then last one from me so understood. This automation product excuse me project.

You've been optimizing this first line here, so a bit of a push out in some of the.

Capex dollar expectations here.

Louis Refermina: Could you just help us with the cadence? I think it sounds like some of this might be pushed to maybe Q2, maybe second half. Just any kind of commentary on the cadence would be helpful. Yeah, we expect to be through the majority of the first half of the year and continue to ramp up production through the rest of the year on this project. Okay, awesome. Thanks so much, guys. All right, again. Thanks, Jarvis! www.turningpointbrands.com. And there are no further questions at this time.

Could you just help us with cadence I think.

It sounds like something that would be pushed to maybe Q2, maybe second half just any kind of commentary on cadence would be helpful. Thank you.

We expect to be.

Through the majority of that in the first half of the year and you can see what is the rate of production through the rest of the year on this project.

Okay awesome. Thanks, so much guys congrats again.

Thanks, Eric.

And there are no further questions at this time I will now turn the call back to Mr. Graham Purdy for closing remarks.

Thanks, operator.

Graham A. Purdy: I will now turn the call back to Mr. Graham Purdy for closing remarks. Thanks, operator. Appreciate everybody's time today. We're excited about the quarter and we're excited to communicate with you here in a few months on results today. So thank you so much, www.turningpointbrands.com. And ladies and gentlemen, this concludes today's call. We thank you for your participation. You may now disconnect.

Appreciate everybody's time today, we're excited about the quarter and we're excited to communicate with you here in a few months.

The results today. So thank you so much.

And ladies and gentlemen. This concludes today's call. Thank you for your participation you may now disconnect.

Please wait the conference will begin shortly.

Yes.

Sure.

[music].

Okay.

Yes.

[music].

Yes.

Yes.

Yes.

Yes.

[music].

Yeah.

Sure.

[music].

Operator: Please wait. The conference will begin shortly. Please wait. The conference will begin shortly. Please wait. The conference will begin shortly.