TPB - NYSE
Turning Point Brands, Inc.
TPB·NYSE
$86.24
+5.1%Consumer DefensiveTobacco
Turning Point Brands, Inc., together with its subsidiaries, manufactures, markets, and distributes branded consumer products. The company operates through three segments: Zig-Zag Products, Stoker's Products, and NewGen Products. The Zig-Zag Products segment markets and distributes rolling papers, tubes, finished cigars, make-your-own cigar wraps, and related products under the Zig-Zag brand. The Stoker's Products segment manufactures and markets moist snuff tobacco and loose-leaf chewing tobacco products under the Stoker's, Beech-Nut, Durango, Trophy, and Wind River brands. The NewGen Products segment markets and distributes cannabidiol isolate, liquid vapor products, and other products without tobacco and/or nicotine to individual consumers through VaporFi B2C online platform, as well as non-traditional retail through VaporBeast. It sells its products to wholesale distributors and retail merchants in the independent and chain convenience stores, tobacco outlets, food stores, mass merchandising, and drug stores. The company was formerly known as North Atlantic Holding Company, Inc. and changed its name to Turning Point Brands, Inc. in November 2015. Turning Point Brands, Inc. was founded in 1988 and is headquartered in Louisville, Kentucky.
At a Glance
Live SnapshotMarket Cap$1.67B
EPS3.1800
P/E Ratio27.12
Earnings Date08/05/2026
Earnings Call Transcript
TPB • 2023 • Q4
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. All lines have been placed on mute to help prevent any background noise. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Louie Reformina, Chief Financial Officer. Please go ahead.
Louie Reformina
Thank you. Good morning, everyone. This is Louie Reformina, Chief Financial Officer. Joining me are Turning Point Brands, President and CEO, Graham Purdy; and Chief Revenue Officer, Summer Frein. This morning, we issued a news release covering our fourth quarter results. This release is located in the IR section of our website, www.turningpointbrands.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 in 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. These measures and reconciliations to GAAP can be found in today's earnings release, along with reasons why management believes that they provide useful information. I will now turn the call over to our CEO, Graham Purdy.
Graham Purdy
Thanks Louie. 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. Adjusted EBITDA increased 7.5% to $24.8 million for the quarter, and we finished 2023 having generated $61.2 million of free cash flow. During Q4, Stoker's finished the year on a high note, posting extraordinary 18.6% revenue growth for the quarter.
Summer Frein
Thank you, Graham. Throughout Q4, we continue to make progress against our road map of furthering
Louie Reformina
Thank you, Summer. Starting with our consolidated quarterly results. Q4 sales were down 6.1% to $97.1 million. Gross margin was up 410 basis points to 52.0% due to segment and product mix. Adjusted EBITDA was up 7.5% to $24.8 million. Going into segment performance.
Graham Purdy
Overall, we saw impressive momentum for Stoker’s MST along with the progress in the alternative channel in support of
Operator
[Operator Instructions] And we will take our first question from Scott Fortune with Roth MKM. Your line is open.
Scott Fortune
Yes. Good morning and thank you for the question. Congratulations on the continued penetration into that alternative smoke shop channel and the progress continues there. If we look at the channel, are you displacing competitors or look 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 entry that channel to gain that share? Just talk about kind of the promotional activity in that channel too, as you continue to build that out.
Summer Frein
Hey, sure, this is Summer. Thanks for the question. I heard you first ask about are we displacing competitors and then ask about our promotional strategy as we’re growing in the alt 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 of some competitors. 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. Fortunately, because of the strong brand equity that
Scott Fortune
I appreciate the color. And then kind of following-up on that on FRE and obviously you have 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 FRE offering nicotine wise? Or how do you see that kind of playing out as we look out in the 2024 and driving that growth going forward here?
Summer Frein
Yes, sure. So as you noted, one of the things that makes FRE so fantastic is its differentiated nicotine positioning in the market. And because of the moded 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. 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.
Scott Fortune
Perfect. And then last one follow-up for there. Obviously, you’re ramping the FRE product and the strong trends there. Kind of similar opportunity as you saw in Stoker’s over time as you ramped up that product. Just kind of step us through kind of the steady incremental gains you’re seeing and kind of timing of the cadence. And when this becomes more meaningful throughout the 2024, looking 2025 and beyond here for FRE? Kind of just step us through that cadence and the size opportunity as that grows here.
Summer Frein
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 as we anticipate over the years to come. We see it as over $2 billion industry now. And so very similar to our Stoker’s strategy, even a 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 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 Stoker’s as you noted. So following that same playbook, I think will go really well for us.
Scott Fortune
Thanks. That’s helpful. I appreciate the detail. I’ll jump back in the queue.
Summer Frein
Thanks for the questions.
Operator
And we will take our next question from Michael Legg with Benchmark. Your line is open.
Michael Legg
Thanks. Good morning. Great quarter. Wanted to dig down a little on the FRE. What’s your pricing strategy there first?
Summer Frein
Sure. Our pricing strategy is pretty straightforward in the sense that we are focused on maintaining a profitable business and not over promotionalizing that space.
Michael Legg
Okay. But is it similar like Stoker’s where there’s premium product and then you have the more cost effective product? Or are you going to compete with
Summer Frein
We will be and are competing at a premium price point. So a different approach than Stoker’s, given our brand positioning.
Michael Legg
Okay. And then you mentioned high single digit market share opportunity in $2 billion market, so we're talking $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 distributed?
Graham Purdy
Hey Mike, it's Graham. Thanks for the question. 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 our success rate that we had with Stoker's and following that plan, which has been very methodical grind up over the last 10 years or so. I think our expectation would be that FRE would probably follow a similar path to that over time.
Michael Legg
Okay. Great. And then you mentioned CLIPPER, can we talk about what you're seeing with CLIPPER and how that's going?
Graham Purdy
Yes. We're very encouraged by the results. We're on plan relative to the store gains 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
Michael Legg
Okay. Great. And then just the $4 million legal settlement, what was that?
Louie Reformina
We had a shareholder settlement that was disclosed in the [indiscernible].
Michael Legg
Okay. We'll take a look then. And then the automation project, what is that for?
Louie Reformina
Yes. So we disclosed the project before. We decided to do in stages and we're taking the first line and optimizing. So we're able to defer some of the payments for the future lines for later this year.
Michael Legg
Okay. Thanks. And then just one last question on the debt. Do you plan on paying that off? Or do you plan on refinancing debt and continuing with the same leverage?
Louie Reformina
Yes. At this point, we've got enough cash to be able to buyback in July. So that is our current plan.
Michael Legg
Okay, thanks. Great quarter. Congrats.
Graham Purdy
Thanks Mike.
Operator
And we will take our next question from Eric Des Lauriers with Craig-Hallum Capital Group. Your line is open.
Eric Des Lauriers
Thank you for taking my questions. I offer my congrats on the quarter as well. So it's great to see momentum at both the alternative channel for
Summer Frein
Yes. 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 in 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 a bag and the type of product expansion that we can capitalize on in those stores in a very different way than what is more traditional C-store space that has a more limited shelf space and opportunities to have those sorts of varieties of products.
Eric Des Lauriers
Okay. That's helpful. And just in terms of the growth that you have been experiencing within the alternative channel, obviously, you guys have been going after this 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 has there been a matter of sort of finding products that this channel is looking for and that's sort of been able – that's helped you increase your share within that channel? Or is it kind of all of the above with apparel and these other things as well. Just wondering if there's anything to sort of call out as the driver to sort of increasing this penetration within this channel?
Louie Reformina
I mean no special call outs. And as you mentioned, we've had pretty strong success in this market for a while. And so we expect to continue the same 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 kind of momentum that we're getting is leading to this hypercribal we're seeing. And we still think there's a lot of further opportunity for us to attack that market.
Eric Des Lauriers
Okay. Great. And then just a couple more kind of 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're seeing there?
Graham Purdy
Yes. Look, I think the – this sort of goes across our business. We feel like the inventory overhang from last year are largely behind us at this point in time and that would include CLIPPER.
Eric Des Lauriers
Okay. Great. And then last one for me. So I understood this automation product – excuse me, projects, you've been optimizing this first line here. So a bit of a push out in some of the CapEx dollar expectations here. Could you just help us with cadence, I think maybe it sounds like some of this might be pushed to maybe Q2, maybe second half? Just any kind of commentary on cadence would be helpful.
Louie Reformina
Yes, listen, we expect to be through the majority of it in the first half of the year and continuing to ramp the production through the rest of the year on this project.
Eric Des Lauriers
Okay, thank you so much, guys.
Louie Reformina
Thanks Eric.
Operator
There are no further questions at this time. I will now turn the call back to Mr. Graham Purdy for closing remarks.
Graham Purdy
Thanks, operator. I 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.
Transcript from February 28, 2024
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