Release Date: May 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Adjusted EBITDA increased by 21.6% to $25.3 million in Q1, demonstrating strong financial performance.
- Zig-Zag segment revenue grew by 11.5% to $46.7 million, driven by robust growth in papers and alternative channel businesses.
- Stoker's segment revenue increased by 8% to $36.4 million, with market share gains and favorable pricing dynamics.
- The alternative B2B business saw a significant growth of over 60% in Q1, indicating successful expansion in this channel.
- Turning Point Brands Inc reaffirmed its guidance for 2024 adjusted EBITDA in the range of $95 million to $100 million, reflecting confidence in continued strong performance.
Negative Points
- Q1 sales overall were down by 3.9% to $97.1 million, indicating some challenges in revenue generation.
- There was a 4.6% decline in loose leaf volume in the Stoker's segment, suggesting some softness in this product category.
- The Canadian business faced an $800,000 headwind due to the discontinuation of a low-margin third-party product line.
- Gross margin in the Stoker's segment declined by 60 basis points to 57.2%, primarily due to product mix changes.
- The CDS segment, while stable, poses uncertainty regarding its sustainability and future within the company's portfolio.
Q & A Highlights
Q: Congrats on strong results. First one, just a clarifying question for me. So you highlighted B2B growth of 60% within Zig-Zag. And I just wanted to clarify, is that all the alternative channel. Or is there some other B2B business in the traditional channel?
A: (Summer Frein - Chief Revenue Officer) Yes, that's all the alternative channel.
Q: Within the alternative channel, just sticking with Zig-Zag here. So it seems like you've obviously made great progress over the past few years, getting into these new doors, and you've commented a bit on some of the competitive dynamics in terms of gaining shelf space. I'm just wondering if you could expand on those a bit, talk about how your products or your offerings stack up against the evolving competitive set here?
A: (Summer Frein - Chief Revenue Officer) Yes. Sure. Thanks, Eric, for your question. I think it's important to know from a year-over-year perspective, you might remember that we're benefiting from a comp perspective just to level set from some trade dynamics from last year, but still the projections for Zig-Zag are in line with our expectations, if you take that out of it. In terms of the portfolio, as you know, we continue to monitor what consumers are interested in as the category is evolving and staying ahead of those consumer expectations and really balancing that against the profitability of introducing new products into the market, so we can continue to generate new news for Zig-Zag. We introduced some products earlier this year and have a number on the horizon, but it's something we're continuing to really make sure that we're in line with the consumer and where they're going.
Q: Can you talk a little bit about the margin impact in the Zig-Zag segment from the CLIPPER stocking last year, where we are today? And how much of the margin improvement is from the elimination of the CLIPPER stocking versus margin improvement overall?
A: (Graham Purdy - President, Chief Executive Officer, Director) Yes. Look, Mike, the -- I think it's challenging from a year-over-year perspective given that the majority of what happened in Q1 last year was impact around our high-margin items in our traditional convenience store channel. And so this year, obviously, we didn't have that same headwind from a marginal perspective. So it's really just a catch-up on the year-over-year comp with more paper sales, more wrap sales versus year over year.
Q: Okay. Great. And so do you think it's sustainable at these levels?
A: (Graham Purdy - President, Chief Executive Officer, Director) I think our expectation is that where the margins sit with Zig-Zag for our core portfolio, we feel pretty good about.
Q: And then I want to talk a little bit about the alt channel penetration. How much of that is in existing dispensaries alt channels versus new ones that are opening up? Where is the growth coming from?
A: (Summer Frein - Chief Revenue Officer) Yes. I would highlight that the growth from the quarter is coming from a bit of both. I think the primary benefit that we saw in the quarter was really the alternative customers expanding their portfolio, getting more SKUs on shelf. But certainly, a portion of that was also driven by entering into new customer stores as well.
Q: I know you're not giving that much data on FRE. And I think I heard it tripled from a low base this quarter. But can you just talk about what you may have seen in focus groups with the product? I know your product has a higher dose that has more packs for a container. Can you just talk about what you're hearing from the consumer when you do focus groups on that?
A: (Graham Purdy - President, Chief Executive Officer, Director) Yes. I think that as we've pointed out earlier that our point of differentiation in entering the market was more satisfaction, if you will. I think what we're starting to hear from consumers is that they're pleased with the mouthfeel of the product as well. It's designed to touch differently than the analog products that are on the market. We continue to get great feedback from our consumers. We've got a really nice window win with our direct-to-consumer website on frepouch.com. Consumers are pretty active in terms of providing us feedback. And as you'll note, with online platforms, generally, consumers are quick to complain, but not as quick to provide positive feedback, and we're seeing a lot of positive feedback relative to the product. I think interestingly, the trade situation that we're in right now is very receptive to new products on shelf, and we're excited about the ramp in our traditional convenience stores.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
