Turning Point Brands Q1 2025 Earnings Report

Turning Point Brands EPS Results

• Actual EPS: $0.91
• Consensus EPS: $0.75
• Beat/Miss: Beat by +$0.16
• One Year Ago EPS: $0.63

Turning Point Brands Revenue Results

• Actual Revenue: $106.44 million
• Expected Revenue: $95.75 million
• Beat/Miss: Beat by +$10.68 million
• YoY Revenue Growth: +28.20%

Turning Point Brands Announcement Details

• Quarter: Q1 2025
• Date: 5/7/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, May 7, 2025
• Conference Call Time: 9:30AM ET

Turning Point Brands (NYSE:TPB) is a consumer-products company focused on branded products for the tobacco, smoking-accessory and modern oral categories. Its portfolio includes rolling papers, wraps, smokeless tobacco, nicotine pouches and related products marketed under established brands.

The company’s principal brands include Zig-Zag, which offers rolling papers, cones, wraps and smoking accessories; Stoker’s, known for smokeless tobacco products; and FRE, a brand of nicotine pouches. Turning Point Brands also develops and distributes other alternative and specialty products through its brand portfolio.

Turning Point Brands sells its products primarily through convenience stores, tobacco and vape retailers, specialty retailers, distributors, e-commerce channels and other consumer outlets in the United States, with some products available internationally. The company is headquartered in Louisville, Kentucky, and is led by President and Chief Executive Officer Graham Purdy.

Turning Point Brands Q1 2025 Earnings Call Transcript

Key Takeaways

• Turning Point Brands delivered 28% year-over-year revenue growth to $106.4 M and 12% adjusted EBITDA growth to $27.7 M in Q1, and reaffirmed its full-year adjusted EBITDA guidance of $108 M–$113 M.
• Modern oral nicotine pouch sales nearly 10x increased year-over-year and doubled sequentially, leading to an increase in full-year pouch volume guidance to 80 M–95 M cans from 60 M–80 M.
• The company is expanding its white pouch business by adding sales headcount, enhancing chain-account distribution, launching billboard and digital marketing campaigns, and exploring U.S. manufacturing to improve margins.
• The Zig Zag segment anticipates Q2 headwinds from difficult cigar comparables, tariff impacts of $5 M–$7 M, FX pressures from a stronger euro, and will deemphasize lower-margin cigar products.
• Gross margin dipped 20 bps year-over-year to 56% on mix shifts while SG&A rose sequentially due to the full-quarter impact of the ALP launch and higher freight costs, factors baked into guidance.

Presentation

[Operator]

Good morning and welcome to the Turning Point Brands Q1 2025 conference call. All participants will be in listen-only mode. All lines have been placed on mute to prevent any background noise. Should you need any 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. Please note this event is being recorded. I would now like to turn the conference over to Andrew Flynn, Turning Point's CFO.

[Andrew Flynn, CFO at Turning Point Brands]

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. 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.

[Graham Purdy, CEO at Turning Point Brands]

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 $106.4 million for the quarter, including $22.3 million in modern oral revenue. Adjusted EBITDA increased 12% to $27.7 million for the quarter. We reaffirm our previously announced 2025 adjusted EBITDA guidance of $108 million-$113 million. We are increasing full-year consolidated nicotine pouch sales guidance to a range of $80 milion-$95 million, from $60 million-$80 million. This includes both Free In and Out. 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.

[Graham Purdy, CEO at Turning Point Brands]

During the quarter, white pouch sales increased by nearly 10x year-over-year and 2x sequentially following the launch of our Out supply company JV with TCN in Q4 2024. 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 differ, but most believe it will exceed $5 billion 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 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.

[Graham Purdy, CEO at Turning Point 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. manufacturing to improve white pouch profitability and mitigate supply chain risk. 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 loose leaf, a 10% increase in MST, and $22.3 million in modern oral revenue. During the first quarter, Zig-Zag revenue was up 1%. Excluding Clipper, it was up 3%. 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 re-entry into the cigar category and very strong 18.5% Stoker's segment growth in Q2 2024.

[Graham Purdy, CEO at Turning Point Brands]

With that, I will hand the call over to Summer to walk through the progress of our key go-to-market initiatives.

[Summer Frein, Chief Revenue Officer at Turning Point Brands]

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. For example, we have begun billboard placements along Interstate 95, where we recently started a trial with 7-Eleven, along with initiatives with other large nationally recognized chains. With regards to Zig-Zag, we have had some exciting recent initiatives.

[Summer Frein, Chief Revenue Officer at Turning Point Brands]

Most notably, we participated in Rolling Loud and the takeover of Times Square in New York City over the weekend of 4/20 to celebrate our heritage and promote the launch of our new Hands 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 de-emphasizing in light of potential tariff impacts and our reallocation of time and resources to our nicotine pouch initiative. In closing, we continue building our brand for the long term, executing against our omnichannel plan, and winning new consumers. We will continue to make strategic investments to maximize the value of our world-class brands and further strengthen our extensive distribution capabilities. Let me now turn the call back over to Andrew to go through our financial results.

[Andrew Flynn, CFO at Turning Point Brands]

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. The change in margin is mixed-driven. Reported SG&A was $36.4 million for the quarter and up $1.8 million sequentially. The increase on a sequential basis is driven by the full quarter impact of Out, 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 $27.7 million for the quarter at a 26% margin. Going into segment performance, Zig-Zag sales increased 1% year-over-year to $47.3 million 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.

[Andrew Flynn, CFO at Turning Point Brands]

Comping a multi-year high point from last year, margin decreased 490 basis points to 54.1% for the quarter and was essentially flat sequentially. Stoker's net sales increased 63% year-over-year to $59.2 million for the quarter. 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%. 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. Category performance was driven by a larger decline in premium loose leaf, with TPBs' volumes benefiting from consumer trade down as Stoker's volumes grew from the previous year. Our modern oral nicotine pouch sales, Fre and Out, were up almost 10x year-over-year. Modern oral revenue for the quarter was $22.3 million.

[Andrew Flynn, CFO at Turning Point Brands]

We ended the quarter with $99.6 million 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 $12.4 million, and CapEx was $2.2 million. On to guidance and other items. As previously noted, we are reaffirming our full-year 2025 Adjusted EBITDA of $108 million-$113 million. We are increasing our anticipated total modern oral sales range to $80 million-$95 million from the previous range of $60 million-$80 million. This guidance reflects increased investment in our white pouch business, as well as $5 million-$7 million 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, the effective income tax range is 23%-26% on a go-forward basis.

[Andrew Flynn, CFO at Turning Point Brands]

Budgeted CapEx for 2025 is $4 million-$5 million, exclusive of projects related to our modern oral business. We expect to spend between $3 million-$5 million for the full year to supplement our modern oral PMTAs. Now, let me turn it back over to Graham.

[Graham Purdy, CEO at Turning Point Brands]

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

[Operator]

At this time, I would like to remind everyone, in order to ask a question, press star then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A. Your first question comes from the line of Eric Des Lauriers, Craig-Hallum Capital Group, please go ahead.

[Eric Des Lauriers, Senior Research Analyst at Craig-Hallum Capital Group]

Great. Thank you for taking my question and congrats on the very strong results here. 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. Just as a kind of related question there, do you have an expectation for when you expect to roll out Out to brick-and-mortar stores? Thank you.

[Summer Frein, Chief Revenue Officer at Turning Point Brands]

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-Eleven on the call, and we're in active conversations with other top nationally recognized chains. We have some rollouts and enhancements planned for later this year. Nothing that we're quite comfortable sharing publicly yet, but some exciting stuff on the come here.

[Graham Purdy, CEO at Turning Point Brands]

Eric, thank you for the kind words there to open the call. The Out plan is somewhat different than the Fre 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. I would anticipate, as we bend around the year, that you'll start seeing some of that.

[Eric Des Lauriers, Senior Research Analyst at Craig-Hallum Capital Group]

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

[Andrew Flynn, CFO at Turning Point Brands]

Yeah, 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're heading down that path.

[Operator]

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

[Aaron Grey, Managing Director and Head of Consumer Research at Alliance Global Partners]

Hi, good morning. Thank you for the questions and congrats on the nice quarter here. I would like to pick off a big one, kind of the question that Eric asked. Just wanted to clarify here. Was there a big maybe timing impact in the quarter, particularly for pouches, from shipment of timing, maybe filling the pipe for a new retailer? And then just on pouches, there's other early indicators showing that there's 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 existing awareness for Out, how are you looking to maybe increase the marketing, get distribution out faster than maybe you might have anticipated six months ago before the launch? Thank you.

[Graham Purdy, CEO at Turning Point Brands]

Yeah, Eric, I think you've noticed Out has—I'm sorry, Aaron. Out has sent out a number of press releases.

[Graham Purdy, CEO at Turning Point Brands]

As you can imagine, we're four months in as of this quarter with the Out launch. The Out team 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 the Free brand. I think that the Out sort of rollout nationwide is really sort of an online focus apparatus and really tapping into the marketing that supports that the brand gets relative to its connection to TCN. It just models a touch different point in time. Certainly at TPB, we're focused squarely on knocking down brick-and-mortar distribution for Free. Quite frankly, we're very excited about sort of the results thus far. Our heads down and focused on sort of attaining that double-digit market share that we talked about for the long haul.

[Aaron Grey, Managing Director and Head of Consumer Research at Alliance Global Partners]

Okay. Appreciate that color.

[Aaron Grey, Managing Director and Head of Consumer Research at Alliance Global Partners]

Same question for me. Just on the Stoker's 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. Curious if you could give some color on if pouch margins continue to be higher than expected. Back then, book math kind of implies it's not too far off from some of the legacy Stoker's margins, unless there was a notable uptick there. If there's any additional color you can provide on the margin profile, that would be helpful. Thanks.

[Andrew Flynn, CFO at Turning Point Brands]

Yeah, sure thing, Aaron. I think you're thinking about it right in terms of the margin profile of that segment. From white pouch, we're well within the range of what we've 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.

[Ian Zaffino, Managing Director at Oppenheimer]

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? As far as the guidance raise, is that pretty much even? Maybe a broader discussion, if it is even, why is it even given the go-to-market strategies are very different here? Maybe any other color there. Thanks.

[Graham Purdy, CEO at Turning Point Brands]

Hey, Ian, thanks for the question. Look, I think that we're 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. You have things like different online apparatuses that we sell through with the Out brand, the different chains that may be coming on board for the Free brand. There's really just a lot of sort of kind of differences between those two products. We haven't specifically split out the difference between Free In and Out. That's really the constraints that we have with our agreement with TCN in terms of what we can disclose relative to Out. In terms of the long-term prospects, look, from our standpoint, we're in the early innings.

[Graham Purdy, CEO at Turning Point Brands]

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.

[Ian Zaffino, Managing Director at Oppenheimer]

Okay, thank you. I am just trying to bridge the guidance. I know you included the $5 million-$7 million tariff, but how much is the increase in investment in white pouches to support more growth? Thanks.

[Andrew Flynn, CFO at Turning Point Brands]

Yeah. Thanks, Ian, its Andrew. Yeah, we disclosed the tariff, and there are also some FX headwinds that we're keeping an eye on. In terms of the increased investment, we included that in our previous guidance. 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.

[Nick Anderson, Director and Research Analyst at ROTH Capital]

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.

[Summer Frein, Chief Revenue Officer at Turning Point Brands]

Hey, 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, there are still certainly restrictions, and we want to be really mindful of marketing in a responsible and thoughtful way. 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 Interstate 95 to connect with the 7-Eleven launch.

[Nick Anderson, Director and Research Analyst at ROTH Capital]

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

[Andrew Flynn, CFO at Turning Point Brands]

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 folks over at the FDA from time to time. 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, Turning Point CEO, for closing remarks. Please go ahead.

[Graham Purdy, CEO at Turning Point Brands]

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

[Operator]

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

Participants

Executives

• Summer Frein, Chief Revenue Officer
• Andrew Flynn, CFO

Analysts

• Aaron Grey, Managing Director and Head of Consumer Research at Alliance Global Partners
• Nick Anderson, Director and Research Analyst at ROTH Capital
• Eric Des Lauriers, Senior Research Analyst at Craig-Hallum Capital Group
• Graham Purdy, CEO at Turning Point Brands
• Ian Zaffino, Managing Director at Oppenheimer