• Adjusted EBITDA: Increased 11% to $27.2 million for the quarter.
• Revenue: Up 3.8% to $105.6 million; excluding CDS, revenue was up 8.4% year over year.
• Gross Margin: Increased 10 basis points year over year to 50.8%.
• Zig Zag Revenue: Increased 6% to $49.3 million.
• Stoker's Revenue: Increased 12% to $41.4 million.
• Free Sales: Increased 342% to approximately $5 million for the quarter.
• Cash Position: Ended the quarter with over $33 million in cash.
• Free Cash Flow: $12.6 million for the quarter; $45.8 million year-to-date.
• Share Repurchase: $1.1 million worth of shares repurchased in the quarter.
• Full Year 2024 Adjusted EBITDA Guidance: Increased to $101 million to $103 million.
• CapEx Expectation: Revised to under $10 million for the year.

• Warning! GuruFocus has detected 7 Warning Signs with TPB.

Release Date: November 07, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Turning Point Brands Inc (NYSE:TPB) reported better-than-expected consolidated third-quarter results with an 11% increase in adjusted EBITDA to $27.2 million.
• The company raised its full-year 2024 adjusted EBITDA guidance to $101 million to $103 million, up from the previous range of $98 million to $102 million.
• Zigzag brand revenue increased by 6% to $49.3 million, driven by growth across most sub-segments and strong performance in the cigar business.
• Stoker's revenue grew by 12% to $41.4 million, with significant increases in free sales and positive consumer feedback on product features.
• The company successfully expanded its distribution channels, particularly in the alternative market, which experienced low double-digit growth both sequentially and year-to-date.

Negative Points

• The lighter category within Zigzag experienced a decline due to weaker-than-expected performance, prompting a reassessment of the product line's strategy.
• Gross margins for Zigzag decreased by 180 basis points year over year to 55.4%, primarily due to product mix.
• Despite growth in Stoker's MST portfolio, volume was down 3%, reflecting challenges in the category.
• The company faced increased G&A expenses, including nonrecurring items and transaction-related costs, impacting overall financial performance.
• There is uncertainty regarding the potential impact of tariffs on manufacturing, which may necessitate exploring U.S. manufacturing options.

Q & A Highlights

Q: Can you provide insights on the growth outlook for the "Free" brand, particularly in terms of expanded velocity or SKU counts in existing doors versus new door penetration? A: Summer Frein, Chief Revenue Officer, explained that the focus is on national distribution and scaling with new independent retailers. Chains, which account for about 67-70% of the category, take longer to penetrate. However, with existing relationships, they are in active discussions to expand distribution, especially with the introduction of 6 mg and 3 mg products in Q1 2025.

Q: Can you comment on the new ELP brand associated with Tucker Carlson and any potential partnership? A: Graham Purdy, CEO, stated that they are not ready to discuss this topic at the moment but will provide updates in the near future.

Q: What percentage of sales do you expect from the new 3 mg and 6 mg "Free" products compared to higher milligram offerings? A: Summer Frein noted that 3 mg and 6 mg products make up nearly 70% of the category. The success with 9, 12, and 15 mg has been encouraging, and early sales of 6 mg have been positive, indicating strong consumer feedback and incremental business growth.

Q: Regarding the supply chain for "Free," what are the limiting factors for growth? Is it product availability or new account acquisition? A: Graham Purdy mentioned that entering chains is a transactional process with varying planograms and cycle times. They are confident in their manufacturing capacity and are exploring U.S. manufacturing options due to potential tariff changes.

Q: How does the alternative channel compare to traditional distribution in terms of revenue opportunity? A: Summer Frein highlighted that the alternative channel (alt) is as large, if not larger, than the convenience store channel. The convergence of these channels presents significant growth opportunities, and they are focused on tackling these profitably.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.