-Revised Annual Adjusted EBITDA Guidance to $92 to $95 million from $90 to $95 million

-Repurchased Another $15 million of Outstanding Convertible Bonds

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 third quarter ended September 30, 2023.

Q3 2023 vs. Q3 2022

• Total consolidated net sales decreased 5.6% to $101.7 million
  • Zig-Zag Products net sales decreased by 10.2% but stable sequentially
  • Stoker’s Products net sales increased by 10.1%
  • Creative Distribution Solutions net sales decreased by 18.7%
• Gross profit decreased 2.1% to $51.6 million
• Net income decreased 6.1% to $10.8 million
• Adjusted net income increased 1.6% to $14.5 million (see Schedule B for a reconciliation to net income)
• Adjusted EBITDA decreased 0.4% to $24.4 million (see Schedule A for a reconciliation to net income)
• Diluted EPS of $0.58 and Adjusted Diluted EPS of $0.76 compared to $0.60 and $0.72 in the same period one year ago, respectively (see Schedule B for a reconciliation to Diluted EPS)

Graham Purdy, President and CEO, commented: “Our third quarter results were consistent with our expectations. The Zig-Zag segment was stable sequentially from the second quarter and notwithstanding some transitory headwinds posted its third-highest revenue quarter. Stoker’s had another solid quarter of performance led by double-digit growth year-over-year in Stoker’s MST. We further de-levered the balance sheet with an opportunistic purchase of $15 million in aggregate principal amount of our convertible notes during the third quarter. With a new $75 million ABL revolving credit facility, our strong cash balance, and our free cash flow generation, we now have more than ample liquidity to address the remaining balance of convertible notes maturing next year.”

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

For the third quarter, Zig-Zag Products net sales were consistent with the previous quarter but decreased 10.2% to $46.8 million as the previous year’s third quarter benefitted from the initial load-in of CLIPPER lighters and approximately $5 million of sales from promotional activities and timing of Canadian deliveries. Additionally, a discontinuation of an unprofitable product line impacted Canadian sales by $1.8 million.

For the quarter, the Zig-Zag Products segment gross profit decreased 4.6% to $26.7 million. Gross margin increased 330 basis points to 57.2% driven primarily by product mix.

“Our alternative channel business had another quarter of strong double-digit growth as we continue to expand penetration in the growing market,” said Purdy. “We remain encouraged by our prospects with secular cannabis consumption growth trends driving demand for our products.”

Stoker’s Products Segment (36% of total net sales in the quarter)

For the third quarter, Stoker’s Products net sales increased 10.1% to $36.9 million on double-digit growth of MST and low-single-digit growth of loose-leaf chewing tobacco. For the third quarter, total Stoker’s Products segment volume increased 2.2%, while price / mix increased 7.9%.

For the quarter, the Stoker’s Products segment gross profit increased 12.5% to $20.6 million. Gross margin expanded 120 basis points to 55.7% due to MST pricing gains.

“Stoker’s strong market share gains in both the MST and loose-leaf chewing tobacco categories continued as its value proposition continues to resonate with consumers,” continued Purdy.

Recent Events

ABL Facility

On November 7, 2023, a subsidiary of the Company closed on a new asset-based revolving credit facility with committed borrowing capacity of $75 million. The new facility replaces a $25 million senior secured revolving credit facility which was scheduled to mature in August 2025. The new facility is scheduled to mature in November 2027. The Company currently has no borrowings outstanding under the new facility.

Performance Measures in the Third Quarter

Third quarter consolidated selling, general and administrative (“SG&A”) expenses were $31.4 million compared to $32.9 million in the third quarter of 2022.

The third quarter SG&A included the following notable items:

• $1.8 million of stock options, restricted stock and incentive expense compared to $1.4 million in the year-ago period
• $0.3 million of FDA PMTA-related expenses for modern oral products compared to $1.2 million in the year-ago period
• $0.2 million of restructuring costs related to CDS as compared to $0.0 million in the year-ago period
• $0.1 million of transaction expenses compared to $0.0 million in the year-ago period
• $0.1 million of ERP / CRM duplicative system costs compared to $0.4 million of ERP / CRM scoping expenses in the previous year

Total gross debt as of September 30, 2023 was $368.5 million. Net debt (total gross debt less unrestricted cash) at September 30, 2023 was $272.5 million. The Company ended the quarter with total liquidity of $119.7 million, comprised of $96.1 million in cash and $23.6 million of revolving credit facility capacity.

During the quarter, the Company repurchased $15.0 million in aggregate principal amount of its 2.50% Convertible Senior Notes due July 2024.

The Company recorded an impairment charge of $2.2 million during the quarter related to historical minority investments in development stage ventures.

2023 Outlook

At this time, the Company expects full-year 2023 adjusted EBITDA to be $92 to $95 million (compared to previous outlook of $90 to $95 million).

Creative Distribution Solutions (“CDS”) (18% of total net sales in the quarter)

The CDS business was restructured during the quarter to eliminate certain unprofitable businesses and focus on a narrower set of products to better position it as a standalone business.

For the third quarter, CDS net sales were $18.1 million, gross profit was $4.3 million, and gross margin was 23.8%.

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, November 8, 2023. 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 and Adjusted Operating Income (Loss). 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 before interest expense, gain (loss) on extinguishment of debt, provision for income taxes, depreciation and amortization. We define “Adjusted EBITDA” as net income before interest expense, loss on extinguishment of debt, provision for 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.

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 is subject to inherent limitations. In addition, other companies in our industry may calculate this non-U.S. GAAP measure differently than we do or may not calculate it at all, limiting its usefulness as a comparative measure.

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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