• Revenue: Increased 13% to $93.7 million for the fourth quarter; up 11% to $360.7 million for the year.
• Adjusted EBITDA: Increased 5% to $26.2 million for the fourth quarter; up 12% to $104.5 million for the full year.
• Gross Margin: 56% for the fourth quarter, down 108 basis points year-over-year; 55.9% for the full year, down 39 basis points year-over-year.
• SG&A Expenses: $34.5 million for the fourth quarter; $122.4 million for the full year, including adjustments.
• Zig-Zag Revenue: Increased 2% to $45.9 million for the fourth quarter; up 7% to $192.4 million for the year.
• Stoker's Revenue: Increased 26% to $47.8 million for the fourth quarter; up 16% to $168.3 million for the year.
• Modern Oral Revenue: FRE sales increased 419% to approximately $6.3 million for the fourth quarter.
• Cash Position: Ended the quarter with over $46 million in cash.
• Free Cash Flow: $56.3 million for the year.
• Share Repurchase: $880,000 worth of shares repurchased in the quarter.
• 2025 Adjusted EBITDA Guidance: $108 million to $113 million.
• 2025 Modern Oral Sales Guidance: $60 million to $80 million.

• Warning! GuruFocus has detected 6 Warning Signs with TPB.

Release Date: March 06, 2025

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 a 13% increase in revenue for Q4, reaching $93.7 million.
• Adjusted EBITDA for the full year increased by 12% to $104.5 million, exceeding prior guidance.
• The company is optimistic about its Zig-Zag and Stoker's businesses, with significant growth expected in modern oral brands FRE and ALP.
• Stoker's revenue increased by 26% in the fourth quarter, driven by strong performance in modern oral products.
• The company has initiated 2025 adjusted EBITDA guidance of $108 million to $113 million, reflecting continued growth and strategic investments.

Negative Points

• Gross margin for the full year decreased by 39 basis points to 55.9%, with a 108 basis point decline in Q4.
• Zig-Zag's gross margins decreased by 240 basis points year-over-year in Q4, primarily due to product mix.
• The company faces headwinds from the unwind of the Clipper relationship and FX-related issues in Canada.
• Modern oral gross profit margins are in the mid-30s, with reinvestment needed to support sales and marketing.
• The company anticipates increased sales and marketing investments, which may constrain EBITDA growth in 2025.

Q & A Highlights

Q: Congrats on the very strong results. In terms of modern oral, could you just talk about the outlook for getting into national C-store chains this year, maybe expectation of number of C-store chains or timing? A: Eric, this is Summer. About 70% of the category is sold through chain convenience stores, which move slower due to their scheduled planogram cycles. We are in discussions with many partners and recently rolled out a regional partnership with 7-Eleven. We are encouraged by early results and plan to continue progress throughout the year.

Q: In terms of Stoker's MST, the one-third of stores by volume that remain for you guys, is there an opportunity to expedite the growth in distribution now that you have such a strong modern oral product here? A: Graham Purdy, CEO: We believe our oral nicotine products, including MST and modern oral, are highly synergistic. Chain accounts are crucial for the modern oral category, presenting a great opportunity for cross-selling MST as we expand modern oral distribution.

Q: Great visibility and guidance on the modern oral. Maybe help us understand what's driving that guidance? How do we think about FRE versus ALP's? A: Graham Purdy, CEO: Our guidance is informed by expected growth around FRE and early reorder rates. ALP launched in late Q4, and while it's early, we believe both products are synergistic and will help us gain consumers across the market.

Q: Can you maybe talk about the contribution margin on that revenue? And what would be the components to get there? A: Andrew Flynn, CFO: Modern oral gross profit margins are in the mid-30s. We plan to reinvest profits into sales and marketing to broaden our reach. We are considering multiple opportunities, including US manufacturing, to enhance our supply chain.

Q: On the FDA and the potential rule capping nicotine levels for combustion products, how do you view that playing out? A: Graham Purdy, CEO: The FDA's stance on product categories, like ZYN's marketing authorization, is a bullish sign. We are excited about the agency's view on this category and remain invested in a wide range of nicotine strengths.

Q: Could you provide your sense of the direct-to-consumer opportunity within the nicotine patch category? A: Graham Purdy, CEO: There's a dependency on route to market relative to our brand properties. While bricks and mortar are core to us, we see an outsized online opportunity for ALP, given its audience and demographic.

Q: On modern oral, how are you looking to market between FRE and ALP? A: Graham Purdy, CEO: We see opportunities in bricks and mortar for all brands. Our multiple brand properties allow us to cast a wide net and reach new consumers entering the modern oral category.

Q: On Zig-Zag, you mentioned some drag from Clippers. How should we think about the gross margin profile for 2025? A: Graham Purdy, CEO: We anticipate mid-single-digit growth for Zig-Zag. The margin profile is affected by a mix shift into lower-margin product categories, and we expect this trend to continue.

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