Q1 2025 Turning Point Brands Inc Earnings Call
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Speaker Change: Good morning and welcome to the Turning Point Brand Q1 2025 conference call. All participants will be in this and only mode. All lines have been placed on mute to prevent any background noise.
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Speaker Change: Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask question. Please note, this event is being recorded. I would now like to turn the conference over to Andrew Flynn, Turning Point CFO .
Andrew Flynn: Good morning everyone. A short while ago we issued a press release covering our Q1 results. This release is located in IR section of our website at www.turningpointbrands.com
Andrew Flynn: During this call, we will discuss or consolidate in segment operating results and provide some perspective in the operating environment and progress against our strategic plan.
Andrew Flynn: As this customer, 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 Securities and Exchange Commission.
Andrew Flynn: On the call today, we will reference certain non-GAAP financial measures. These measures and the reconciliation to gap aren't today's earnings release, along with reasons why management believes it provides useful information. 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.
Andrew Flynn: Our consolidated first quarter results were better than expected and demonstrated continued progress against our plan.
Andrew Flynn: Revenue increased 28% to 106.4 million to the quarter, including 22.3 million in Modern Oral Revenue.
Adjust to the EBITDA increase 12%, to 27.7 million for the quarter.
Andrew Flynn: We reaffirm our previously announced 2025 adjusted EBITDA guidance of 108 to 113 million. We are increasing full year consolidated nicotine pouch sales guidance to a range of 80 to 95 million from 60 to 80 million.
This includes both Frein out.
Andrew Flynn: We are particularly pleased with the growth of our white nicotine pouch brands.
Andrew Flynn: Their long-lasting, vibrant flavor options, comfortable mouthfeel, and flexible nicotine levels have resonated with consumers.
Andrew Flynn: During the quarter, White Pouch sales increased by nearly 10 times year-over-year and two times sequentially following the launch of our out-supply company JV with TCN in Q420-24.
Andrew Flynn: We believe the white nicotine pouch space will ultimately feature four to five widely distributed brands that command most of the market analyst expectations for the size of the category differed but most believe it will exceed five billion manufacturers revenue by the end of the decade.
Andrew Flynn: Our Q1 performance supports our long-term target of double-digit market share in that space.
Andrew Flynn: In order to best position the company to capitalize on this multi-billion dollar opportunity, we are making significant investments in the business and refining our route to market strategy to prioritize free and out while continuing to generate strong cash flow from our heritage brands.
Andrew Flynn: Key initiatives include reallocating sales and marketing resources, increasing the head account of our sales force.
Andrew Flynn: Improving our online presence, ramping up investment in chain accounts, and exploring US manufacturing to improve White Pouch profitability and mitigate supply chain risk.
Andrew Flynn: The rest of the Stoker's segment portfolio also performed well in the quarter. Overall, Stoker's revenue increased 63% to 59.2 million, reflecting a 4% increase in sleep, a 10% increase in MST, and 22.3 million in modern or revenue.
Andrew Flynn: During the first quarter, zigzag revenue was up 1%, excluding Clipper, it was up 3%.
Speaker Change: Thank you, Graham. As you mentioned, we've made exciting progress in the modern oral category so far in 2025.
Andrew Flynn: We continue to receive favorable consumer feedback, strong trade receptivity, including from prominent chain, and increasing reorder and repeat purchase rates in wholesale and online. This strong performance gives us confidence to invest behind the brand.
Andrew Flynn: Key initiatives in this space include first, growing the sides of our sales force to increase the frequency of store visits with a focus on expanding distribution, improving brand of merchandising and minimizing out-of-stocks at retail.
Andrew Flynn: Second, strategic marketing campaigns to accelerate brand awareness and consumer loyalty. For example, we have begun billboard placements along Interstate 95, where we recently started a trial with 7-11, along with initiatives with other large, nationally recognized chains.
Andrew Flynn: With regards to zigzag, we have had some exciting recent initiatives. Most notably, we participated in Rolling Loud and the takeover of Times Square in New York City over the weekend of 420 to celebrate our heritage and promote the launch of our new hemp comes.
Andrew Flynn: Within the zigzag segment, we anticipate headwind from cigars going into Q2 as our expansion plans in this category included investments behind some lower margins to guard products, which we are de-emphasizing in light of potential tariff impacts and our reallocation of time and resources to our nicotine pouch initiative.
Andrew Flynn: In closing, we continue building our brands for the long-term, executing against our Army channel plan and winning new consumers. We will continue to make strategic investments to maximize the value of our world-class brands and further strengths in our extensive distribution capabilities.
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 28% to $106.4 million for the quarter. For the quarter, gross margin was 56%, which was down 220 basis points year over year, but essentially flat sequentially.
Andrew Flynn: The change in margin is mixed rhythm. Report SGNA was $36.4 million for the quarter and up $1.8 million sequentially.
Andrew Flynn: The increase on a sequential basis is driven by the full quarter impact of ALP, as well as higher outbound freight charges.
Andrew Flynn: These costs were partially offset by lower severance costs. Adjusted EBITDA was up 12% year-over-year to $27.7 million for the quarter at a 26% margin.
Going into segment performance.
Andrew Flynn: The exact sales increased 1% year-over-year $47.3 million for the quarter, despite the pressure from the unwind of the Clipper relationship. Gross profit for the quarter decreased 7.2% versus the prior year, but increased 2.9% from Q4.
Andrew Flynn: Copping a multi-year high point from last year, margin decreased 4 to 90 basis points to 54.1% for the quarter and was essentially flat, quenchally.
Andrew Flynn: Stoker's net sales increased 63% year-over-year to $59.2 million for the quarter.
Andrew Flynn: Net sales for the MST portfolio grew 10% year-over-year to $26.3 million in the quarter. Share of in-store selling was up 50 basis points year-over-year to 11.2%.
Andrew Flynn: Stoker's chewing tobacco was a number one chewing brand in the quarter, gaining 160 basis points of share to 32.7% according to MSI.
Andrew Flynn: Category performance was driven by a larger decline in premium loose leaf with TPD's volumes benefiting from consumer trade down as Stoker's volumes grew from the pre- this year.
Andrew Flynn: Our modern oil and nicotine pouch sales, freeing out, we're up almost 10x year over year. Modern oil revenue for the quarter was $22.3 million.
Andrew Flynn: We ended the quarter with $99.6 million of cash. We call that we typically take delivery of tobacco leaf purchases in the first quarter, but do not pay until the second quarter.
Andrew Flynn: Free cash flow for the quarter was $12.4 million, and CapEx was $2.2 million.
on to guidance and other items.
Andrew Flynn: As previously noted, we are reaffirming our full year 2025 adjusted EBITDA of $108 to $114 million.
Andrew Flynn: We are increasing our anticipated total modern oral sales range to 80 to 95 million dollars from the previous range of 60 to 80 million dollars.
Andrew Flynn: This guy and reflects increased investment in our White Pouch business, as well as $5-$7 million, tariff impact on our purchases of imported products, assuming a 10% tariff rate, and FX headwinds in this exact segment from a stronger euro.
Andrew Flynn: For modeling purposes, the effective income tax range is 23 to 26 percent on a go-forward basis.
Andrew Flynn: Budget of CAPEX for 2025 is $4 to $5 million, exclusive of projects related to our modern oral business.
Andrew Flynn: We expect to spend between $3 to $5 million dollars for the full year to supplement our modern oral PMPs.
Now let me turn it back over to Graham.
Graham Purdy: To conclude, we're pleased with our start to 2025, and now I'll turn it over to questions.
Graham Purdy: At the time, I would like to remind everyone in order to ask a question, press start in the number one on your telephone keypad. We will pause for just a moment to compile the Q&A.
Graham Purdy: Your first question comes from the line of Eric DeLury, Craig Helm, Capital Group. Please go ahead.
Graham Purdy: Great, thanks for taking my questions and congrats on the very strong results here.
Graham Purdy: I was wondering if you could comment on the distribution gains in modern oral, in the quarter, any kind of color on door counts or online distribution gains would be helpful, and then just as a kind of related question there, do you have an expectation for when you expect to roll out Alp to brick-and-mortar source? Thank you.
Graham Purdy: Hey, Eric, this is Summer. I'll take the first part of the question and turn it over to Graham for the second part. Look, we continue to make great traction with retailers, including with high-profile retailers. I know we mentioned 7-11 on the call, and we're in active conversations with other top nationally recognized chains.
Graham Purdy: We have some rollouts and enhancements planned for a later this year, nothing that we're quite comfortable sharing publicly yet, but some exciting stuff on the com here.
Speaker Change: There. Thank you for the kind of words that are open to call. I'll be out.
Speaker Change: The out plan is somewhat different than the free plan. As we think about the early days of the out distribution, principally online, direct to consumer and sort of leveraging the marketing apparatus they have, but note, anticipate as we've been around the year that you'll start seeing some of that.
Speaker Change: Okay, great. And then could you comment on what ability or capacity you have to produce nicotine pouches at your current?
Speaker Change: Domestic MST Production Facility. And then just any kind of broader comments on ensuring production of nicotine patches will be helpful. Thank you.
Yeah, Eric.
Speaker Change: Right now we believe that our supply is adequate. We're doing a really good job at producing. So really no issues from a supply chain standpoint. In terms of ensuring we continue to explore that option and we're heading down that path.
Speaker Change: Your next question comes from the line of Aaron Grey with Alliance Group's global partners.
Thank you.
Aaron Gray: Hi, good morning. Thanks for the questions and congrats on the nice quarter here. I would like to pick off a bit with kind of the question that Eric asked. Just wanted to clarify here. Was there a big maybe timing impact?
Aaron Gray: in the quarter, particularly for pouches from shipments of timing, maybe some of the type for a new retailer, and then just on pouches.
Aaron Gray: There's a lot of early indicators showing that there's, you know, good brand awareness for out relative to its pretty minimal market share. So any additional color on how you're looking to capitalize on that opportunity.
Aaron Gray: If there's existing awareness for out, how are you looking to maybe increase the marketing, get the regional fashion and maybe you might have anticipated six months go before the launch. Thank you.
Aaron Gray: Yeah, Eric, I think you've noticed, you know, Albus has, I'm sorry, Aaron. Albus sent out, you know, a number of press releases and you, as you can imagine, you know, we're four months in as of this quarter with the outblanche.
Aaron Gray: You know, the out team is is doing independent marketing relative to their product and they've certainly got a route to market that is a little bit unique compared to to the free brand so
Aaron Gray: Look, I think that the ALP sort of rolled out nationwide. It's really sort of an online focus apparatus and really tapping into the marketing, the support that the brand gets relative to.
It's connection to TCN, so.
Speaker Change: It's just the models that touch different point in time and certainly at TPP, we're focused squarely on knocking down Rick's order distribution for Frein and quite frankly, we're very excited about the results thus far.
Aaron Gray: So, you know, our head down is head down and focused on, you know, sort of attaining that to a double-digit market share that we talked about for a long haul.
Okay, appreciate that color. Thank question from me, just on.
Aaron Gray: Stoker, Segment Gross Margin, and I remained elevated for the past two quarters despite.
Aaron Gray: The Higher Sales of Pouches, which was expected to have a lower market profile. So curious if you could give some color on if pouch margins continue to be higher than expected. You know, back then, but Matt kind of implied this, you know, not too far off from some of the legacy stoker's margins, unless there was a notable uptick there, so there's any. [inaudible]
Speaker Change: If you have any additional questions you can provide on the margin profile that would be helpful. Thanks.
[inaudible]
Speaker Change: Yeah, sure thing, Aaron. So I think you're thinking about it right in terms of the margin profile of that segment. And from White Pouch, we're, we're
We're in...
Speaker Change: We're well within the range of what we've previously discussed in terms of the margin profile for that particular product set.
[inaudible]
Speaker Change: The next question comes from the line of Ian Zaffino with Open Himer. Please go ahead.
Great. Thank you very much. Very good.
Speaker Change: So I'm going to understand now, and I know you kind of commented a little bit on the growth rate of Frey versus Alp but I can give you just a little bit more color on
Speaker Change: You know, what did better this quarter and then as far as the guidance raised is that pretty much even and maybe a broader discussion if it is even why is it even given you know the go to market strategy is very different here. [inaudible]
and maybe any other color there. Thanks.
Hey, and thanks for the question. Well, do you think that...
Speaker Change: We're such in such early innings for the out launch. There's a lot of moving parts relative to both the out brand and how the route to market is somewhat different than the route to market for free.
Speaker Change: So you have things like, you know, different online apparatuses that we fell through with the out brand, you know, the different chains that may be coming on board for the free brand. So there's really just a lot of sort of
Speaker Change: kind of differences between those two products. We haven't specifically split out the difference between free and out, and that's really the constraints that we have with our agreement with TCN in terms of what we can disclose relative to out.
Speaker Change: You know, in terms of the long-term prospects, look from our standpoint, we're in the early innings, we're somewhat agnostic to what's on the can as we, you know, march towards that double-digit market share and really capitalize on what we think is a massive opportunity for the company.
Speaker Change: Okay, thank you. And then I'm just trying to bridge the guidance. I know you included the $5 to $7 million tariff, but how much is the increase in assessment in light patches to support more growth? Thanks.
Speaker Change: Yeah, thanks, Ian, it's Andrew. So, yeah, we disclosed the tariff and there's also some FX headwinds that we're keeping an eye on. So, in terms of the increased investment, we included that in our previous guidance. And as that,
Speaker Change: Segment Rose in White Pouch, we will make incremental investment to support the growth.
Speaker Change: Your next question comes from the line of Nick Anderson with Ross Capital, please go ahead.
Nick Anderson: Yeah, good morning and congrats on the quarter. First one for me, just on modern oral and the advertising opportunity there, with harm reduction being kind of an initiative, wondering if you're seeing maybe more relaxed advertising regulations for nicotine pouches versus other products and just how you're potentially looking to market your offering in this environment. Thank you.
Nick Anderson: Okay, thanks for the question. I would say while we observe there is a bit more flexibility than the historical tobacco industry as it pertains to advertising.
Nick Anderson: There are still certainly restrictions and we want to be really mindful of marketing in a responsible and thoughtful way but we certainly have flexibility in terms of how we think about marketing and advertising across digital platforms and out of home as you saw with our advertisements along I-95 to connect with the 7-Eleven launch.
Nick Anderson: Got it, I appreciate that color. Second from me on the PMTA applications, just with the FDA head count reductions we're seeing.
Speaker Change: Does that change any expectations around timing of getting these applications through just your sense of how the timeline may or may not shift off the back of kind of what's happening with the FDA. Thank you.
Speaker Change: Yeah, I think with the FDA and the PMTA process, I think in terms of timing it is really difficult to say given all the change in government. We continue to sort of monitor and assess, and we hear from our regulatory...
Speaker Change: Folks over at the FDA from time to time, but look, there's really no change in terms of any clarity around timing at this point.
Speaker Change: I will now turn the call back over to Graham Purdy, Turning Point CEO for closing remarks. Please go ahead.
Speaker Change: Thanks, operator. I really appreciate everybody joining the call today and we look forward to speaking with you in a few months.
Speaker Change: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
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