Turning Point Brands Q1 2025 Earnings Call Transcript

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May 7, 2025

There are 8 speakers on the call.

Operator

Good morning, and welcome to the Turning Point Brand Q1 twenty twenty five Conference Call. All participants will be in listen only mode. All lines have been placed on mute to prevent any background noise. Please note this event is being recorded. I would now like to turn the conference over to Andrew Flynn, Turning Point's CFO.

Speaker 1

Good morning, everyone. A short while ago, we issued a press release covering our Q1 results. This release is located in the IR section of our website at www.turningpointbrands.com. During this call, we will discuss our consolidated and segment operating results and provide some perspective on the operating environment and progress against our 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 Securities and Exchange Commission.

Speaker 1

On the call today, we will reference certain non GAAP financial measures. These measures and the reconciliations to GAAP are in today's earnings release, along with reasons why management believes they provide useful information. I will now turn the call over to our CEO, Graham Purdy.

Speaker 2

Thanks, Andrew. Good morning, everyone, and thank you for joining our call. Our consolidated first quarter results were better than expected and demonstrated continued progress against our plan. Revenue increased 28% to $106,400,000 for the quarter, including $22,300,000 in Modern Oral revenue. Adjusted EBITDA increased 12% to $27,700,000 for the quarter.

Speaker 2

We reaffirm our previously announced 2025 adjusted EBITDA guidance of 108,000,000 to $113,000,000 We are increasing full year consolidated nicotine pouch sales guidance to a range of 80,000,000 to $95,000,000 from 60,000,000 to $80,000,000 This includes both free and alp. We are particularly pleased with the growth of our white nicotine pouch brands. Their long lasting, vibrant flavor options, comfortable mouthfeel and flexible nicotine levels have resonated with consumers. 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 Q4 twenty twenty four. We believe the white nicotine pouch space will ultimately feature four to five widely distributed brands that command most of the market.

Speaker 2

Analyst expectations for the size of the category differ, but most believe it will exceed $5,000,000,000 in manufacturers' revenue by the end of the decade. Our Q1 performance supports our long term target of double digit market share in that space. In order to best position the company to capitalize on this multibillion dollar opportunity, we are making significant investments in the business in refining our route to market strategy to prioritize SPREE and ALP while continuing to generate strong cash flow from our heritage brands. Key initiatives include reallocating sales and marketing resources, increasing the headcount of our sales force, improving our online presence, ramping up investment in chain accounts and exploring U. S.

Speaker 2

Manufacturing to improve white pouch profitability and mitigate supply chain risk. The rest of the Stoker segment portfolio also performed well in the quarter. Overall, Stoker's revenue increased 63% to $59,200,000 reflecting a 4% increase in loose leaf, a 10% increase in MST and $22,300,000 in modern oral revenue. During the first quarter, Zig Zag revenue was up 1%. Excluding Clipper, it was up 3%.

Speaker 2

For modeling purposes, people should recall that in Q2, we will face difficult year over year comps due to significant Zig Zag segment load in associated with our reentry into the cigar category and very strong 18.5% Stoker segment growth in Q2 twenty twenty four. With that, I will hand the call over to Summer to walk through the progress of our key go to market initiatives.

Speaker 3

Thank you, Graham. As he mentioned, we've made exciting progress in the modern oral category so far in 2025. We continue to receive favorable consumer feedback, strong trade receptivity, including from prominent chains and increasing reorder and repeat purchase rates in wholesale and online. This strong performance gives us confidence to invest behind the brands. Key initiatives in this space include: first, growing the size of our sales force to increase the frequency of store visits with a focus on expanding distribution, improving brand merchandising and minimizing out of stocks at retail Second, strategic marketing campaigns to accelerate brand awareness and consumer loyalty.

Speaker 3

For example, we have begun billboard placements along Interstate 95, where we recently started a trial with seven Eleven, along with initiatives with other large nationally recognized chains. With regards to Zig Zag, 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 fourtwenty to celebrate our heritage and promote the launch of our new hemp cones. Within the Zig Zag segment, we anticipate headwind from cigars going into Q2 as our expansion plans in this category included investments behind some lower margin cigar products, which we are deemphasizing in light of potential tariff impact and our reallocation of time and resources to our nicotine pouch initiative. In closing, we continue building our brands for the long term, executing against our omnichannel plan and winning new consumers.

Speaker 3

We will continue to make strategic investments to maximize the value of our world class brands and further strengthen our extensive distribution capability. Let me now turn the call back over to Andrew to go through our financial results.

Speaker 1

Thank you, Summer. Sales were up 28% to $106,400,000 for the quarter. For the quarter, gross margin was 56%, which was down two twenty basis points year over year, but essentially flat sequentially. The change in margin is mix driven. Reported SG and A was $36,400,000 for the quarter and up $1,800,000 sequentially.

Speaker 1

The increase on a sequential basis is driven by the full quarter impact of ALP as well as higher outbound freight charges. These costs were partially offset by lower severance costs. Adjusted EBITDA was up 12% year over year to $27,700,000 for the quarter at a 26% margin. Going into segment performance, Zig Zag sales increased 1% year over year to $47,300,000 for the quarter despite 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.

Speaker 1

Comping a multi year high point from last year, margin decreased four ninety basis points to 54.1% for the quarter and was essentially flat sequentially. Stoker's net sales increased 63% year over year to $59,200,000 for the quarter. Net sales for the MST portfolio grew 10% year over year to $26,300,000 in the quarter. Share of in store selling was up 50 basis points year over year to 11.2%. Stoker's chewing tobacco was the number one chewing brand in the quarter gaining 160 basis points of share to 32.7% according to MSAI.

Speaker 1

Category performance was driven by a larger decline in premium loose leaf with TTB's volumes benefiting from consumer trade down as Stoker's volumes grew from the previous year. Our modern oral nicotine pouch sales, Free and Alp, were up almost 10x year over year. Modern oral revenue for the quarter was $22,300,000 We ended the quarter with $99,600,000 of cash. Recall that we typically take delivery of tobacco leaf purchases in the first quarter, but do not pay until the second quarter. Free cash flow for the quarter was $12,400,000 and CapEx was $2,200,000 On to guidance and other items.

Speaker 1

As previously noted, we are reaffirming our full year 2025 adjusted EBITDA of $108,000,000 to $113,000,000 We are increasing our anticipated total Modern Oral sales range to 80,000,000 to $95,000,000 from the previous range of 60,000,000 to $80,000,000 This guidance reflects increased investment in our white pouch business as well as 5,000,000 to $7,000,000 tariff impact on our purchases of imported products assuming a 10% tariff rate and FX headwinds in the Zig Zag segment from a stronger euro. For modeling purposes, effective income tax range is 23 to 26% on a go forward basis. Budgeted CapEx for 2025 is 4,000,000 to $5,000,000 exclusive of projects related to our modern oral business. We expect to spend between 3,000,000 to $5,000,000 for the full year to supplement our modern oral PMTAs. Now let me turn it back over to Graham.

Speaker 2

To conclude, we're pleased with our start to 2025. And now I'll turn it over to questions.

Operator

Your first question comes from the line of Eric DeLury, Craig Hallum Capital Group. Please go ahead.

Speaker 4

Great. Thanks for taking my questions and congrats on the very strong results here. I was wondering if you could comment on the distribution gains in Modern Oral in the quarter. Any kind of color on store 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 stores?

Speaker 4

Thank you.

Speaker 3

Hey, Eric. This is Summer. I'll take the first part of the question and turn it over to Graham for for the second part. Look, we continue to make great traction with retailers, including with high profile retailers. I know we mentioned seven Eleven on the call, and we're in active conversations with other top nationally recognized chains.

Speaker 3

We have some rollouts and and enhancements planned for later this year. Nothing that we're quite comfortable sharing publicly yet, but some exciting stuff on the come here.

Speaker 5

Hey, Eric. Thank you for

Speaker 2

the kind, the kind words there to open the call. The the out plan is, you know, is somewhat different than 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 the marketing apparatus they have. But, you I would anticipate as we've been around the year that you'll start seeing some of that.

Speaker 4

Okay. Great. And then could you comment on what ability or capacity you have to produce nicotine pouches at your current domestic MST production facility? And then just any kind of broader comments on, onshoring production of nicotine pouches, would be helpful. Thank you.

Speaker 1

Yes, Eric. Right now, we believe that our supply is adequate. We're doing a really good job of producing. So really no issues from a supply chain standpoint. In terms of onshoring, we continue to explore that option and we've we're heading down that path.

Operator

Your next question comes from the line of Aaron Grey with Alliance Group Global Partners. Please go ahead.

Speaker 5

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.

Speaker 5

Was there a big maybe timing impact in

Speaker 1

the quarter, particularly for pouches,

Speaker 5

from from shipments of timing, maybe selling the pipe for a new retailer? And then just on pouches, there's other 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? If there's no existing awareness for ALP, how are you looking to maybe increase the marketing, get distribution out faster than maybe you might have anticipated, you know, six months going forward and launched? Thank you.

Speaker 2

Hey, Eric. I think you've noticed, you know, ALP has has I'm sorry, Aaron. ALP has sent out, you know, a number of press releases. And as you can imagine, you know, we're four months in as of this court with the the ALP launch. You know, the ALP team is is doing independent marketing relative to their product, and they've certainly got a route to market that that is a little bit unique compared to to the free brand.

Speaker 2

So look. I think that, you know, the the the out sort of rollout nationwide is really sort of an online focused apparatus and really tapping into the marketing, you know, the the support that the brand gets relative to its connection to TCN. So it's just the model's a touch different point in time. And certainly, at TPB, we're focused squarely on knocking down bricks and mortar distribution for free. And quite frankly, we're very excited about sort of the results thus far.

Speaker 2

So our head down is heads down and focused on sort of attaining that double digit market share that we talked about for the long haul.

Speaker 5

Okay. Appreciate that color. Second question for me, just on the Stoker segment gross margin. It now remained elevated for the past two quarters despite the higher sales mix of pouches, which was expected to have a lower margin profile. So curious if you could give some color on if pouch margins continue to be higher than expected.

Speaker 5

You know, back in the book, 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 if any, you additional color you can provide on the margin profile, that would be helpful. Thanks.

Speaker 1

Yes. 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 well within the range of what we previously discussed in terms of the margin profile for that particular product set.

Operator

Your next question comes from the line of Ian Zaffino with Oppenheimer. Please go ahead.

Speaker 6

Hi, great. Thank you very much. Very good quarter. Trying to understand now and I know you kind of commented a little bit on the growth rates of free versus out, but can you give us a little bit more color on what did better this quarter? And then as far as the guidance raise, is that pretty much even?

Speaker 6

And a broader discussion, if it is even, why is it even given the go to market strategies are very different here? And maybe any other color there.

Speaker 2

Ian, thanks for the question. The look, I think that we're such in such early innings for the ALP launch. There's a lot of moving parts relative to both the ALP brand and how the route to market is somewhat different than the route to market for free. So you have things like, you know, different online apparatuses that that we sell through with with the out brand, you know, the different chains that may be coming on board for for the free brand. So there's really just a lot of sort of kind of, you know, differences between those two products.

Speaker 2

We haven't specifically split out the difference between free and ALP, and that's really the constraints that we have with our agreement with TCN in terms of what we can disclose relative to ALP. 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 march towards that double digit market share and really capitalize on what we think is a massive opportunity for the company.

Speaker 6

Okay. Thank you. And then I'm just trying to bridge the guidance. I know you included the 5,000,000 to $7,000,000 tariff, but how much is the increase in investment in white patches to support more growth? Thanks.

Speaker 1

Yes. Thanks, Ian. It's Andrew. So yes, 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.

Speaker 1

And as that segment grows, in white pouch, we will make incremental investment, to support the growth.

Operator

Your next question comes from the line of Nick Anderson with ROTH Capital. Please go ahead.

Speaker 7

Yes. Good morning and congrats on the quarter. First one for me, just on Modern Oral and the advertising 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.

Speaker 3

Hey. Thanks for the question. You know, I would say while we while we observe there is a bit more flexibility than the historical tobacco industry as it pertains to advertising, there are still certainly restrictions, and we wanna be really mindful of marketing in a 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 to connect with the seven eleven launch.

Speaker 7

Got it. I appreciate that color. Second from me on the PMTA applications. Just with the FDA headcount reductions we're seeing, 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

Speaker 5

back of kind of what's happening with the FDA. Thank you.

Speaker 1

Yeah. I think with with the with the SEA and the TMTA 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, we hear from our regulatory 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.

Operator

I will now turn the call back over to Graham Purdy, TurningPoint's CEO, for closing remarks. Please go ahead.

Speaker 2

Thanks, operator. I really appreciate everybody joining the call today, and we look forward to speaking with you in a few

Operator

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

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Key Takeaways

  • Revenue up 28% to $106.4 million and adjusted EBITDA up 12% to $27.7 million in Q1, with full-year adjusted EBITDA guidance reaffirmed at $108 million to $113 million.
  • Modern Oral revenue reached $22.3 million as nicotine pouch sales grew nearly 10x year-over-year, prompting an increase in full-year pouch sales guidance to $80 million–$95 million.
  • Stoker segment revenue rose 63% to $59.2 million, driven by 10% MST growth, 4% loose leaf gains, and a 1% increase in Zig Zag sales, while Stoker’s chewing tobacco held the #1 market share at 32.7%.
  • The company is making significant investments—expanding its sales force, enhancing marketing and online channels, deepening chain account partnerships, and exploring U.S. manufacturing—to boost white pouch profitability and supply-chain resilience.
  • Full-year planning factors in a $5 million–$7 million tariff impact, FX headwinds, CapEx of $4 million–$5 million plus $3 million–$5 million for PMTA submissions, and a targeted effective tax rate of 23%–26%.
A.I. generated. May contain errors.
Earnings Conference Call
Turning Point Brands Q1 2025
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