Q4 2024 Turning Point Brands Inc Earnings Call
Thank you for standing by ya. My name is Cass, and I will be your conference operator today.
At this time, I would like to welcome everyone at Turning Point Brands for quarter and fiscal year 2024 conference call. All lines have been placed on mute to prevent any background noise.
After the speaker's remarks, there will be a question and answer session.
If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad.
Speaker Change: If you would like to draw your question, press the star one again. Thank you. And now I would like to turn the call over to Andrew Flynn, CFO Turning Point Brands. Please go ahead.
Andrew Flynn: As you are aware, this release followed an 8K issued February 10th that included some preliminary financial metrics.
Andrew Flynn: During this call, we will discuss our consolidated and segment operating results and provide some perspective in the operating environment and progress against our strategic plans.
Andrew Flynn: As a brief reminder, we deconsolid our CDS segment and is now classified as Discontinued
Andrew Flynn: This change is reflected in our financials and the consolidated results that we will be discussing today.
Andrew Flynn: As is customary, I direct your attention to the discussion of forward looking and cautionary statements in today's press release.
Andrew Flynn: and the risk factors in our piling with the Securities and Exchange Commission.
Andrew Flynn: On the call today, we will reference certain non-GAAP financial measures.
Andrew Flynn: These measures and reconciliations to GAP are in today's earnings release, along with reasons why management believe they provide useful information.
Andrew Flynn: I will now turn the call over to our CEO , Graham Purdy.
Graham Purdy: Thanks, Andrew. Good morning everyone and thank you for joining our call.
Graham Purdy: Our consolidated fourth quarter results were better than expected and demonstrated continued progress against our plan.
Revenue increased 13% to 93.7 million for the quarter.
Adjusted EBITDA increased 5% to 26.2 million for the quarter.
Graham Purdy: Recall that in early January , we announced the divestiture of our CDS business.
Graham Purdy: These results are now classified as discontinued and excluded from our consolidated financials and any guidance going forward.
Graham Purdy: We think the transaction best positions management to focus on the exciting growth opportunities in our core business.
Graham Purdy: Adjust the EBIT after the full year increased 12% to 104.5 million.
Graham Purdy: At the high end of the preliminary range of 103.5 to 104.5 million, provided on February 10th. And above our prior increased range of 101 to 103 million, provided with third quarter results.
Graham Purdy: We are pleased with our results for both Q4 and full year 2024 and we are excited about the momentum we are seeing across the organization.
Graham Purdy: We are initiating 2025 Adjusted EBITDA guidance of 108 to 113 million.
This reflects continued growth of our zigzag and stoker businesses.
Graham Purdy: as well as significant acceleration of growth of our modern oil brands free and out, which we expect to generate 60 to 80 million of combined revenue in 2025.
Graham Purdy: Our EBITDA guidance includes meaningful sales and marketing investments to support our ambitious growth plans.
Graham Purdy: Going forward, we will discuss our modern oral business on a combined basis for financial reporting and guidance purposes.
Graham Purdy: Our Adjusted IBA Dog Guidance reflects our pro-Rod of 50% share of out-secondomics.
Graham Purdy: We expect both Brands to play key roles in achieving our long-term goal of 10% market share of the modern oral category.
During the fourth quarter, Zigzag Revenue was up 2%.
Excluding Clipper, it was up 4% [inaudible]
Graham Purdy: We have a promising lineup of zigzag growth initiatives for 2025 that should help deliver another year of solid segment growth.
Graham Purdy: We remain bullish on the convergence of distribution channels for smoking accessories.
Graham Purdy: which provides an opportunity for us to leverage our diverse skew portfolio to offer customers a one-stop shop for all their needs.
Graham Purdy: It's also worth reiterating the valuable cross selling opportunities across our ecosystem as customers onboard modern oil products alongside this exact portfolio.
Graham Purdy: Nearly 75% of all Americans now live in a legal regulated medical cannabis or adult use state.
Graham Purdy: In over the past year, we've seen another green wave emerge with the adoption of Farm Bill complying hemp, which has significantly expanded the tam.
Graham Purdy: As an illustration, there are estimated to be 7,000 retail outlets in Texas that now sell hemp derived products in a state without a regulated cannabis marketplace.
Graham Purdy: This secular television should continue to benefit picks and shovels businesses with must-cherry brands like Zigzag.
Graham Purdy: And as mentioned, many of these stores don't sell traditional tobacco products like combustible cigarettes or MST, but they do carry modern oil and nicotine pouches.
Graham Purdy: This dynamic should give us a valuable cross-selling advantage in modern oral over time as we continue to build our zigzag distribution and vice versa.
Moving to Stoters
During the quarter, Stoker's revenue increased 26% to 47.8 million.
Reflecting Flat Lose Sleep
Graham Purdy: A 1% decline in MST, and 11.2 million in modern oil revenue.
Graham Purdy: Our modern oral business included a 419 percent increase in free sales off of a low base to approximately 6.3 million for the quarter, which represented both sequential and year-over-year acceleration in sales growth.
Graham Purdy: The balance of the modern oral revenue was from the very successful launch of Alp.
A quick note on MSG.
Graham Purdy: As we called out previously, Dougers MSP had very strong quarters in Q4 2023 and Q2 2024. So we anticipated a flat quarter as we lapped a tough comparable of roughly 20% in Q4 last year.
Graham Purdy: Summer will talk more about our modern oil brand shortly, but it will offer the following high-level commentary.
Graham Purdy: We are very pleased with the launch of Alps Play Company, our joint venture with the Tucker Carlson Network.
Graham Purdy: There has been significant excitement around the brand and strong reason for optimism.
Graham Purdy: We are somewhat limited to what we can disclose due to our confidentiality obligations.
Free sales increase 26% sequentially for the quarter.
Graham Purdy: This progress provides further evidence that Frey is winning in the marketplace.
Graham Purdy: Positive consumer feedback is consistently reinforced the brand's positioning, pouch size, flavor, mouthfeel, and a range of nicotine strides.
Graham Purdy: This feedback and strong sales growth, along with the initial retail acceptance and reorders, have given us increased confidence to further invest in expanding our chain store footprint.
This will likely involve investment in secure competitive placement.
Execute our desired in-store look-and-feel.
and Participate in Loyalty and Promotional Programs.
Graham Purdy: In Q3, we want 6 milligram free on our website to complement our 9, 12 and 15 milligram offerings.
Graham Purdy: In Q4, we began to expand six milligram distribution to retail stores.
Graham Purdy: With that, let me hand the call over to Summer to walk through the progress of some of our go-to-market initiatives.
Summer: Thank you, Graham. As he mentioned, we made exciting progress in the modern oral category throughout 2024 and during Q4 in particular.
Summer: pertaining to free, continued positive consumer feedback, strong trade receptivity from prominent chains, of which we have longstanding and broad reaching retail partnerships, and increasing reorder and repeat purchase rates that wholesale and online give us confidence to invest behind the brand.
Summer: During Q4, we accelerated our investment with chain partners like our regional introduction to 7-11 and began testing expanded sales and marketing initiatives in key markets.
Summer: As previously discussed, we also expanded our SKU assortment to broaden the retail distribution of 6 mg.
Summer: Turning to Stokers, we continue to broaden our distribution across the MST segment and see opportunities to expand the brand and grow with a consumer-based looking for a great value.
Summer: Joker continues to benefit from the value offering of a great dip at a fair price, along with our initiatives to drive consumer awareness and loyalty.
Summer: With regards to Zig Zag, we continue to build upon Zig Zag's 145-year history and celebrated with the launch for vintage paper booklet's line this past quarter. We are continuing to partner with influencers that resonate with our existing and new Gen Z consumers.
Graham Purdy: Further, we will continue to win in the back street with non-traditional customers who are looking to build their zigzag portfolio while also leveraging the opportunity to further O.S.P. growth as Graham mentioned.
Graham Purdy: We continue to see healthy increases in average order sizes while expanding valuable shelf space and merchandising was in these stores.
Graham Purdy: In summary, for Zigzag, we have a long runway in this channel of cannabis and related products become more mainstream and we continue to solidify our position as a trusted high-value partner.
Graham Purdy: Lastly, all of our brands will benefit from our evolving sales organization, which we are scaling to enable enhanced geographical coverage and support growth for the modern world category.
Graham Purdy: In closing, we continue building our brands for long-term, executing against the Omni-Channel plan we've established, and winning new consumers to add to our growing customer base.
Graham Purdy: We will continue to maximize the value of our world-class brands and strengthen our extensive distribution capability.
Andrew Flynn: Let me now turn the call back over to Andrew to go through our financial results.
Andrew Flynn: Thank you, Summer. Sales were up 11% to $360.7 million for the year. For the quarter, revenue was up 13% to $93.7 million.
Andrew Flynn: On a full-year basis, Gross Margin was down 39 basis points year-over-year to 55.9%.
Andrew Flynn: For the quarter, margin was 56% and down 108 basis points year-over-year.
The change in margin is mixed driven.
Andrew Flynn: As reported, SGNA was $122.4 million for the year and $34.5 million for the fourth quarter including adjusted items.
For the year, there was an incremental $11.5 million.
of S.G. and A. Related Adjustments
In quarter, these adjustments were $4.4 million dollars.
Andrew Flynn: The detail of these adjustments can be found on our press release in the net income to a adjusted EBITDA reconciliation.
Andrew Flynn: Adjusted EBITDA was up 12% year-over-year to $104.5 million for the year. For the quarter, Adjusted EBITDA was up 5% to $26.2 million.
Going into segment performance.
The exact sales increased 7% year-to-year to $192.4 million.
Andrew Flynn: and up 2% to $45.9 million for the fourth quarter, despite pressure from the unwind of the Clipper relationship and timing and effects related issues in our Canadian
Andrew Flynn: Gross margin is decreased 60 basis points year-over-year at 55.4% per year and down 240 basis points year-over-year to 54.1% for the fourth quarter.
This was driven primarily by product makers.
Andrew Flynn: Stoker's net sales increased 16% year-a-year to $168.3 million in the year, and increased 26% year-a-year to $47.8 million for the fourth quarter.
Andrew Flynn: Net Sales for the MST portfolio grew 6% year-over-year to $103.3 million in the year and declined 1% year-over-year to $25.9 million for the fourth quarter.
Andrew Flynn: Stoker's MST volume was up 10 basis points, despite category volume down 6.4%, which share a growing by 50 basis points year over year to 7.6% during the year, according to MSAI.
Andrew Flynn: Share of in-store selling was up 50 basis points every year to 11.2 percent. The Stokers now in-stores representing approximately two-thirds of industry volumes, which still provides a long runway for growth.
Andrew Flynn: Soaker's chewing tobacco was a number one chewing brand in the quarter, gaining 180 basis points of share to 32.9% according to MSI.
Andrew Flynn: Overall, TPD Lucie's volume was down 1.8%, beating category volume declines at 4.4%.
Andrew Flynn: Category performance was driven by a larger decline in premium loose leaf, with TPD's volumes benefinied from consumer trade down, as Stokers volumes grew from the previous year.
Andrew Flynn: Our free sales were then quadrupled year-over-year as we continue our national roll out.
Andrew Flynn: Gross margin decrease 20 basis points every year to 56.4% for the year and increase 9 basis points every year to 57.7% for the fourth quarter.
This was driven primarily by product mix.
Moving on to the balance sheet.
Andrew Flynn: We ended the quarter with just over 46 million dollars of cash. Pre-cash flow for the year was 56.3 million dollars.
Andrew Flynn: Last month, we issued $300 million of seven-year senior secured notes due in 2032, and we called $250 million of notes maturing 2026 with no prepayment penalty.
Andrew Flynn: In the quarter, we repurchased $880,000 worth of shares as part of our previously announced share repurchase program.
on to guidance on other light atoms.
Andrew Flynn: As we previously noted, we are guiding to full year 2025 adjusted even of $108 to $213 million.
We anticipate total modern oral sales of $60 to $80 million.
Andrew Flynn: Our projections anticipate mid-single digit growth, excluding our modern oral business despite headwinds from Clipper and Canadian exchange rates.
Andrew Flynn: Our total adjusted EBITDA range reflects increased sales and marketing investments that will somewhat constrain the rate of EBITDA growth in 2025.
Andrew Flynn: From modeling purposes, the effective income tax range is 23 to 26 percent.
Andrew Flynn: CapEx for full year 24 was $4.6 million, budgeted CapEx for full year 2025 is $4 to $5 million, exclusive of any potential projects related to our modern oral business.
Andrew Flynn: We expect to spend $3 to $6 million for the full year depending on the regulatory environment to supplement our modern oral PMTAs, which remain under review by the FDA.
Now, let me turn it back over to Graham.
to conclude.
Speaker Change: We are pleased with our 2024 performance and I'll turn it over to questions now.
Speaker Change: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue.
Speaker Change: If you would like to read our questions, simply press the star one again.
Speaker Change: If you are called upon to ask your question and listening by a loud speaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, please press star one to join the queue.
Speaker Change: Your first question comes from the line of Eric Lauriers, a great talent capital group. Your line is that one thing.
Eric DeLauriers: Great, thank you for taking my questions and congrats on the very strong results.
Eric DeLauriers: In terms of modern oral, could you just talk about the outlook for getting into national sea store chains this year, maybe expectation of number of sea store chains or timing?
Hey Eric, this is Summer. How are you?
Eric DeLauriers: stores, moves a bit slower in terms of their scheduled plan of Graham cycles and that sort of thing. So we are currently in discussions with many of those partners have long standing relationships with them. As you heard in the call, we recently rolled out a regional partnership with 7-11. We're encouraged by those early results and planned to continue that progress throughout the year and are making great traction there.
Speaker Change: All right, great. That's helpful. And then just a follow-up for me. In terms of Stokers, MSP, the one third of stores by volume that sort of remain for you guys.
Speaker Change: Is there an opportunity to sort of expedite the growth and distribution now that you have such a strong modern oral product here and can you just kind of talk about what kind of overlap there might be in terms of...
Speaker Change: That one and third of stores that you're not in and the stores that you're either targeting with modern oral or already in with zigzag. Thank you.
Speaker Change: Yeah, so we think that the portfolio of our oral nicotine products is going to be highly synergistic between MST as well as modern oral.
Speaker Change: And as Summer just mentioned, you know, the chain accounts are really the thrust behind the modern oral category in the early days. I think that presents a great opportunity for us. And from across selling standpoint, as we hit the chains with modern oral to really sort of backstop that with a discussion around MST.
Speaker Change: Great. Thanks for taking my questions. I can grab it again on the strong results.
Thanks, Eric.
Speaker Change: Your next question comes through the line as is the end of the theater of Open Heimers. Your line is then open. Hi, great. Thank you very much. You know, great visibility and guidance on the modern world. Thank you for that.
Speaker Change: Um, maybe help us understand what's driving that, um, that guidance, you know, how do we think about, let's just say free versus Alps, how do we think about, um,
Speaker Change: Three and sixes versus kind of you like your higher nicotine level pouches Maybe more of a general discussion on what's driving that thanks.
Speaker Change: Yeah, look, I think our guides informed by two specific areas. We expect continued growth around free and it based on early reorder rates with our customer and the visibility that we have through.
Speaker Change: Alplonchden, sort of Lake Q4, and so it's really early to sort of project exactly where we think that can be, but at the same time we think the two products are highly synergistic for us and really speak to.
Speaker Change: You know, the entire market from a consumer standpoint and so we're very bullish on sort of our outlook to to cast a wide net and gain consumers.
Speaker Change: Okay, great, and then can you maybe talk about the contribution margin on that revenues and maybe what would be the components to kind of get there and what I mean by that is
Speaker Change: A reason to maybe ensure some of the production doesn't make sense to keep it out of the country. Just giving that kind of a full of environment. Thanks.
Speaker Change: Hi, Ian Andrew here. So, first off, as it relates to modern oral, what we're seeing as gross profit margins in the mid-30s.
Speaker Change: and our plan is to reinvest some of those profits back into the business to help support the sales and marketing team to broaden our reach, not only for the benefit of modern or but also for the other products that we carry.
Speaker Change: In terms of slotting fees and getting into some of these chain convenience, that is something that we are tuned to and we're looking at multiple different opportunities around that.
Speaker Change: and so that's kind of the story on modern oral and as it relates to US manufacturing, we're answering all options.
Speaker Change: in terms of how we grow this business, which includes enhancing our supply chain and also considering U.S. made it factoring.
Speaker Change: Okay. Thank you very much. Good quarter and nice I look. Thanks a lot.
Thanks again.
Speaker Change: Your next question comes from the line of Nick Anderson of Roth Capital Partners. Please
Nick Anderson: Yeah, good morning. Thanks for taking the questions. First one for me, just on the FDA and the potential rule, capping nicotine levels for combustion products. It seems like the regulators are focused on the harm reduction initiative more and more here. How do you view that playing out and what do you think this means in general just for the future in terms of regulatory landscape around nicotine-based products? Thank you.
Speaker Change: with Zen receiving the marketing authorization. And I think it's very interesting to point out that it was a full range of products that were approved to include flavored products. So I think that
Speaker Change: that we're excited about the way that the agency appears to be viewing this particular category.
Speaker Change: We don't have any perspective right now on the nicotine strengths. We maintain that we've done our work with our filings. We continue to be invested behind the wide range of nicotine strengths. So at this point in time, that's not a particular concern of ours.
Speaker Change: Okay, I appreciate the car. Second one for me. 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 pouch category, just from an overall market standpoint, given the strength within the millennial demographic and just their tendency to shop online. How do you view the brick and mortar mix versus online kind of playing out as the category grows here?
Speaker Change: Yeah, to me that's a great question. I think that there's a level of dependency on route-to-market relative to our two brand properties as you can imagine.
Speaker Change: You know, the core of Turning Point Brands is bricks and mortar in our ability to get into convenience stores throughout the country. That's, we've certainly, you know, been on that pert line with free, you know, throughout 2024.
As it relates to the out-of-opportunity,
Speaker Change: For a competent salary purposes, we can't speak too specifically about their route to market, but as you can imagine, given the audience size and in the demographic that you'd mentioned, that we feel very strongly that
Speaker Change: You know, there may be an outsized opportunity from an online perspective, you know, based on sort of some of the underlying dynamics with that brand and how it's being marketed.
Great that's it for me, congrats on the quarter.
Thank you.
Speaker Change: Your next question comes from the line of Aaron Gray of Alliance Global Partners. Please go ahead.
Aaron Gray: Hi, thanks for the question and questions and congrats on the corner there guys. Um, first question from me, just wanted it.
Aaron Gray: maybe implying more brick and mortar for free, so how exactly you're planning for the marking that coincides with that and the investments you're planning to make. Thank you.
Aaron Gray: Yeah, let me just double back really quickly on point you just made. Look, I think that there's going to be a wide opportunity of bricks and mortar across all of our brand properties. It was really referencing sort of the early innings launches of, you know, between the two properties where the strengths of the organization may lie. You know, from our standpoint, it's ultimately, you know, we see a.
Aaron Gray: There will be more new consumers entering the category over the long haul then exist today and we think having those multiple properties give us the best possible option to reach those consumers.
Aaron Gray: Okay, great. Thanks for that commentary. Second question from me, just on zigzag, right? So you talked about some of the drag that you had there from Clippers and Shift away. But as you think about the gross margin profile, it was down a little bit when the quarter you called out Mexican kind of dive a little bit deeper into that in terms of how you think about zigzag for 2025 both in terms of sales you alluded to growth for the brand despite the drag flippers, and then also how you should think about the gross margin profile there. Thank you.
Aaron Gray: Yeah, sure thing. So in terms of growth, our thinking has it really changed. It's mid-single to just growth. And like we said, we will be investing the sales team to broaden kind of our reach across, across all stores.
Aaron Gray: In terms of the margin profile, what we've seen is a mixed shift into some lower margin product categories.
Aaron Gray: and I would anticipate that that we continue as we, and we will also be leveraging our fixed cost basis. So, from an op-income...
Aaron Gray: percent basis we'll see somewhat moderated margin, margin impacts in the next year.
Okay, great. Thanks. I'll jump back into the queue.
Thanks, Sharon.
Aaron Gray: And that concludes our Q&A session. I will now turn the conference back over to Graham Purdy for closing remarks.
Graham Purdy: Thanks operator. Appreciate everybody joining the call today. It's exciting 2024 for us and we look forward to speaking you all on Q1 results here in the next couple of months.
Ladies and gentlemen, that concludes today's call
Thank you all for joining. He'll be now in disconnect Connect.