Turning Point Brands Announces Fourth Quarter and Full Year 2023 Results

-Net Sales for Q4 2023 Zig-Zag and Stoker's Products Increased 5.9 Percent Year-Over-Year

-Adjusted EBITDA for Q4 2023 of $24.8 Million Increased 7.5 Percent Year-Over-Year

-FY 2023 Free Cash Flow of $61.2 Million

Turning Point Brands, Inc. ("TPB" or "the Company") (NYSE:TPB), a manufacturer, marketer and distributor of branded consumer products, including alternative smoking accessories and consumables with active ingredients, announced today financial results for the fourth quarter and full year ended December 31, 2023.

Q4 2023 vs. Q4 2022

• Total consolidated net sales decreased 6.1% to $97.1 million
  • Zig-Zag Products net sales decreased by 2.9%
  • Stoker's Products net sales increased by 18.6%
  • Creative Distribution Solutions net sales decreased by 43.7%
• Gross profit increased 1.9% to $50.5 million
• Net income increased $26.4 million to $10.1 million
• Adjusted net income increased 15.9% to $15.3 million (see Schedule B for a reconciliation to net income)
• Adjusted EBITDA increased 7.5% to $24.8 million (see Schedule A for a reconciliation to net income)
• Diluted EPS of $0.53 and Adjusted Diluted EPS of $0.79 compared to $(0.93) and $0.69 in the same period one year ago, respectively (see Schedule B for a reconciliation to Diluted EPS)

FY 2023 vs. FY 2022

• Total consolidated net sales decreased 2.3% to $405.4 million
  • Zig-Zag Products net sales decreased by 5.2%
  • Stoker's Products net sales increased by 10.5%
  • Creative Distribution Solutions net sales decreased by 14.3%
• Gross profit decreased 1.1% to $203.2 million
• Net income increased 230.4% to $38.5 million
• Adjusted net income increased 1.1% to $56.8 million (see Schedule B for a reconciliation to net income)
• Adjusted EBITDA decreased 2.4% to $95.3 million (see Schedule A for a reconciliation to net income)
• Diluted EPS of $2.01 and Adjusted Diluted EPS of $2.91 compared to $0.64 and $2.83 in the same period one year ago, respectively (see Schedule B for a reconciliation to Diluted EPS)

Graham Purdy, President and CEO, commented: "Our fourth quarter results were at the high-end of our expectations. The Zig-Zag segment was stable from the previous year excluding the impact of a discontinued product line and is well positioned to return to growth in 2024. Stoker's had an outstanding quarter posting its highest growth rate in over four years led by double-digit growth year-over-year in Stoker's MST. We also had strong free cash flow generation during the year allowing us to build a cash balance to address the remaining principal amount of our convertible notes at maturity in July. Our outlook for 2024 is positive as we expect solid growth in our Zig-Zag and Stoker's Products businesses."

Zig-Zag Products Segment (46% of total net sales in the quarter)

For the fourth quarter, Zig-Zag Products net sales decreased 2.9% to $45.1 million due to the discontinuation of an unprofitable product line in Canada that impacted sales by $1.4 million.

For the quarter, the Zig-Zag Products segment gross profit decreased 1.0% to $25.5 million. Gross margin increased 100 basis points to 56.5% driven by product mix.

For the full year, net sales of Zig-Zag Products decreased 5.2% to $180.5 million due to the reduction of trade inventory earlier in the year and the discontinuation of an unprofitable product line in Canada that impacted sales by $4.9 million.

For the full year, Zig-Zag Products segment gross profit decreased 5.2% to $101.1 million. Gross margin was steady at 56.0%.

"Our US Zig-Zag papers and alternative channel business posted a strong quarter with double-digit growth to close the year," said Purdy. "With the reduction of trade inventory through the year, Zig-Zag is now positioned to return to growth aided by industry secular growth trends and internal growth initiatives."

Stoker's Products Segment (39% of total net sales in the quarter)

For the fourth quarter, Stoker's Products net sales increased 18.6% to $38.0 million on double-digit growth of MST and high-single-digit growth of loose-leaf. For the fourth quarter, total Stoker's Products segment volume increased 14.2%, while price / mix increased 4.4%.

For the quarter, the Stoker's Products segment gross profit increased 27.2% to $21.9 million. Gross margin expanded 380 basis points to 57.6% due to MST pricing gains and operating leverage.

For the full year, net sales of Stoker's Products increased 10.5% to $144.6 million on double-digit growth of MST and low-single-digit growth of loose-leaf. For the full year, total Stoker's Products segment volume increased 4.2%, while price / mix increased 6.3%.

For the full year, the Stoker's Products segment gross profit increased 14.9% to $81.9 million. Gross margin increased 210 basis points to 56.6% due to MST pricing gains.

"Stoker's had an exceptional quarter with strong market share gains in both the MST and loose-leaf categories as its value proposition continues to resonate with consumers," continued Purdy. "We are excited about the planned expansion of our FRĒ white nicotine pouch product throughout the year."

Performance Measures in the Fourth Quarter

Fourth quarter consolidated selling, general and administrative ("SG&A") expenses were $30.9 million compared to $31.2 million in the fourth quarter of 2022.

Fourth quarter SG&A included the following notable items:

• $1.9 million of stock options, restricted stock and incentive expense compared to $1.2 million in the year-ago period
• $1.0 million of FDA PMTA-related expenses for modern oral products compared to $0.3 million in the year-ago period
• $0.2 million of restructuring costs compared to $1.8 million in the year-ago period
• $0.1 million of ERP / CRM duplicative system costs compared to $0.3 million of ERP / CRM scoping expenses in the year-ago period

Total gross debt as of December 31, 2023 was $368.5 million. Net debt (total gross debt less unrestricted cash) at December 31, 2023 was $250.7 million. The Company ended the quarter with total liquidity of $177.9 million, comprised of $117.9 million in cash and $60.0 million of revolving credit facility capacity.

During the quarter, the Company received a net federal excise tax refund of $4.3 million, which is included in other operating income and $0.8 million of interest income related to the refund, which is included in net interest expense. The Company also recorded $4.0 million in other income related to a legal settlement receivable and a $1.0 million impairment of a minority investment in a development stage venture.

2024 Outlook

Management expects full-year 2024 adjusted EBITDA to be $95 to $100 million. This excludes any contribution from our CDS business which contributed a little over $2 million of EBITDA in FY 2023.

Creative Distribution Solutions ("CDS") (15% of total net sales in the quarter)

For the fourth quarter, CDS net sales were $14.1 million, gross profit was $3.1 million, and gross margin was 22.4%.

Earnings Conference Call

As previously disclosed, a conference call with the investment community to review TPB's financial results has been scheduled for 10:00 a.m. Eastern on Wednesday, February 28, 2024. Investment community participants should dial in 10 minutes ahead of time using the toll-free number 888-330-2502 (international participants should call 240-789-2713), and follow the audio prompts after typing in the event ID: 6640134. A live listen-only webcast of the call will be available on the Events and Presentations section of the investor relations portion of the Company website (www.turningpointbrands.com). A replay of the webcast will be available on the site two hours following the call.

Non-GAAP Financial Measures

In addition to financial measures prepared in accordance with generally accepted accounting principles in the United States (GAAP), this press release includes certain non-GAAP financial measures including EBITDA, Adjusted EBITDA, Adjusted Net Income, Adjusted Diluted EPS, Adjusted Operating Income (Loss) and Free Cash Flow. A reconciliation of these non-GAAP financial measures accompanies this release.

About Turning Point Brands, Inc.

Turning Point Brands (NYSE:TPB) is a manufacturer, marketer and distributor of branded consumer products including alternative smoking accessories and consumables with active ingredients through its iconic Zig-Zag® and Stoker's® brands. TPB's products are available in more than 215,000 retail outlets in North America, and on sites such as www.zigzag.com. For the latest news and information about TPB and its brands, please visit www.turningpointbrands.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements may generally be identified by the use of words such as "anticipate," "believe," "expect," "intend," "plan" and "will" or, in each case, their negative, or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. As a result, these statements are not guarantees of future performance and actual events may differ materially from those expressed in or suggested by the forward-looking statements. Any forward-looking statement made by TPB in this press release, its reports filed with the Securities and Exchange Commission (the "SEC") and other public statements made from time-to-time speak only as of the date made. New risks and uncertainties come up from time to time, and it is impossible for TPB to predict or identify all such events or how they may affect it. TPB has no obligation, and does not intend, to update any forward-looking statements after the date hereof, except as required by federal securities laws. Factors that could cause these differences include, but are not limited to those included it the Company's Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and other reports filed by the Company with the SEC. These statements constitute the Company's cautionary statements under the Private Securities Litigation Reform Act of 1995.

Financial Statements Follow:

Non-GAAP Financial Measures

To supplement our financial information presented in accordance with generally accepted accounting principles in the United States, or U.S. GAAP, we use non-U.S. GAAP financial measures, including EBITDA, Adjusted EBITDA, Adjusted Net Income, Adjusted Diluted EPS, Adjusted Gross Profit and Adjusted Operating Income (Loss). We believe Adjusted EBITDA provides useful information to management and investors regarding certain financial and business trends relating to our financial condition and results of operations. Adjusted EBITDA, Adjusted Net Income, Adjusted Diluted EPS, Adjusted Gross Profit and Adjusted Operating Income (Loss) are used by management to compare our performance to that of prior periods for trend analyses and planning purposes and are presented to our board of directors. We believe that EBITDA, Adjusted EBITDA, Adjusted Net Income, Adjusted Diluted EPS, Adjusted Gross Profit and Adjusted Operating Income (Loss) are appropriate measures of operating performance because they eliminate the impact of expenses that do not relate to business performance.

We define "EBITDA" as net income (loss) before interest expense, gain (loss) on extinguishment of debt, provision for (benefit from) income taxes, depreciation and amortization. We define "Adjusted EBITDA" as net income before interest expense, gain (loss) on extinguishment of debt, provision for (benefit from) income taxes, depreciation, amortization, other non-cash items and other items that we do not consider ordinary course in our evaluation of ongoing operating performance. We define "Adjusted Net Income" as net income excluding items that we do not consider ordinary course in our evaluation of ongoing operating performance. We define "Adjusted Diluted EPS" as diluted earnings per share excluding items that we do not consider ordinary course in our evaluation of ongoing operating performance. We define "Adjusted Gross Profit: as gross profit excluding other non-cash items and other items that we do not consider ordinary course in our evaluation of ongoing operating performance. We define "Adjusted Operating Income (Loss)" as operating income excluding other non-cash items and other items that we do not consider ordinary course in our evaluation of ongoing operating performance. We define "Free Cash Flow" as "Net Cash provided by operating activities" less Capital expenditures.

Non-U.S. GAAP measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with U.S. GAAP. EBITDA, Adjusted Net Income, Adjusted EBITDA Adjusted Diluted EPS, Adjusted Gross Profit and Adjusted Operating Income (Loss) exclude significant expenses that are required by U.S. GAAP to be recorded in our financial statements and are subject to inherent limitations. In addition, other companies in our industry may calculate these non-U.S. GAAP measure differently than we do or may not calculate it at all, limiting their usefulness as comparative measures.

In accordance with SEC rules, we have provided, in the supplemental information attached, a reconciliation of the non-GAAP measures to the next directly comparable GAAP measures.

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