Thank you for standing by. My name is Kathleen, and I will be your conference operator today. At this time, I would like to welcome everyone to the Turning Point Brands, Inc. fourth quarter and fiscal year 2024 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw a question, press the star one again. Thank you. And now I would like to turn the call over to Andrew Key, CFO, Turning Point Brands, Inc. Please go ahead.

Good morning, everyone. A short while ago, we issued a press release covering our Q4 results. This release is located in the IR section of our website, www.turningpointbrands.com. As you are aware, this release followed an 8-K issued February 10th that included some preliminary financial metrics. During this call, we will discuss our consolidated and segment operating results and provide some perspective on the operating environment and progress against our strategic plan. As a brief reminder, we deconsolidated our CDS segment and it is now classified as discontinued operations. This change is reflected in our financials, the consolidated results that we will be discussing today. As is customary, I direct your attention to the discussion of forward-looking and cautionary statements in today's press release and the risk factors in our filings with the Securities and Exchange Commission. On the call today, we will reference certain non-GAAP financial measures. These measures and reconciliations to GAAP are in today's earnings release, along with reasons why management believes they provide useful information. I will now turn the call over to our CEO, Graham Purdy.

Thanks, Andrew. Good morning, everyone, and thank you for joining our call. Our consolidated fourth quarter results were better than expected and demonstrated continued progress against our plan. Revenue increased 13% to $93.7 million for the quarter. Adjusted EBITDA increased 5% to $26.2 million for the quarter. Recall that in early January, we announced the divestiture of our CDS business. These results are now classified as discontinued and excluded from our consolidated financials and any guidance going forward. We think the transaction best positions management to focus on the exciting growth opportunities in our core business. Adjusted EBITDA for the full year increased 12% to $104.5 million, at the high end of the preliminary range of $103.5 to $104.5 million provided on February 10th, and above our prior increased range of $101 to $103 million provided with third quarter results. We are pleased with our results for both Q4 and full year 2024, and we are excited about the momentum we are seeing across the organization. We are initiating 2025 adjusted EBITDA guidance of $108 million to $113 million. This reflects continued growth of our Zig Zag and Stoker businesses as well as significant acceleration of growth of our modern oral brands Free and Out, which we expect to generate $60 million to $80 million of combined revenue in 2025. Our EBITDA guidance includes meaningful sales and marketing investments to support our ambitious growth plans. Going forward, we will discuss our modern oral business on a combined basis for financial reporting and guidance purposes. Our adjusted EBITDA guidance reflects our pro rata 50% share of Alts economics. We expect both brands to play key roles in achieving our long-term goal of 10% market share of the modern oral category. During the fourth quarter, Zig Zag revenue was up 2%. Excluding…

Thank you, Graham. As he mentioned, we made exciting progress in the modern oral category throughout 2024 and during Q4 in particular. Pertaining to Free, continued positive consumer feedback, strong trade receptivity from prominent chains, of which we have longstanding and broad-reaching retail partnerships, and increasing reorder and repeat purchase rates at wholesale and online give us confidence to invest behind the brand. During Q4, we accelerated our investment with chain partners, like our regional introduction to 7-Eleven, and began testing expanded sales and marketing initiatives in key markets. As previously discussed, we also expanded our SKU assortment to broaden retail distribution of six milligrams. We look forward to sharing the ongoing progress throughout this year and beyond. Turning to Stoker's, we continue to broaden our distribution across the MST segment and see opportunities to expand the brand and grow with a consumer base looking for a great value. Stoker's continues to benefit from the value offering of a great dip at a fair price. Along with our initiatives to drive consumer awareness and loyalty. With regards to Zig Zag, we continue to build upon Zig Zag's 145-year history and celebrated with the launch of a vintage paper book with line this past quarter. We are continuing to partner with influencers that resonate with our existing and new Gen Z consumer. Further, we will continue to win in the backstreet with nontraditional customers who are looking to build their Zig Zag portfolio, while also leveraging the opportunity to further OXT growth as Graham mentioned. We continue to see healthy increases in average order sizes while expanding valuable shelf space and merchandising within these stores. In summary, for Zig Zag, we have a long runway in this channel as cannabis and related products become more mainstream, and we continue to solidify our position as a trusted high-value partner. Lastly, all of our brands will benefit from our evolving sales which we are scaling to enable enhanced geographical coverage and to support growth for the modern oral category. In closing, we continue building our brands for long term, executing against the omnichannel plan we've established, and winning new consumers to add to our growing customer base. We will continue to maximize the value of our world-class brands and strengthen our extensive distribution capability. Let me now turn the call back over to Andrew to go through our financial results.

Thank you, Summer. Sales were up 11% to $360.7 million for the year. For the quarter, revenue was up 13% to $93.7 million. On a full-year basis, gross margin was down 39 basis points year over year to 55.9%. For the quarter, margin was 56% and down 108 basis points year over year. The change in margin is mix-driven. As reported, SG&A was $122.4 million for the year, and $34.5 million for the fourth quarter. Including adjusted items. For the year, there was an incremental $11.5 million of SG&A related adjustments. In the quarter, these adjustments were $4.4 million. The detail of these adjustments can be found in our press release in the net income to adjusted EBITDA reconciliation. Adjusted EBITDA was up 12% year over year to $104.5 million for the year. For the quarter, adjusted EBITDA was up 5% to $26.2 million. Going into segment performance, Zig Zag sales increased 7% year over year to $192.4 million and up 2% to $45.9 million for the fourth quarter. Despite pressure from the unwind of the Clipper relationship and timing and FX-related issues in our Canadian business, gross margins decreased 60 basis points year over year to 55.4% for the year and down 240 basis points year over year to 54.1% for the fourth quarter. This was driven primarily by product mix. Stoker's net sales increased 16% year over year to $168.3 million in the year and increased 26% year over year to $47.8 million for the fourth quarter. Net sales for the MST portfolio grew 6% year over year to $103.3 million in the year and declined 1% year over year to $25.9 million for the fourth quarter. Stoker's MST volume was up 10 basis points despite category volume down 6.4% with share growing by 50 basis points year…

To conclude, we are pleased with our 2024 performance and I'll turn it over to questions now.

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press the star one again. If you are called upon to ask your question and listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, please press star one to join the queue. Your first question comes from the line of Eric Des Lauriers of Great Hall and Capital Group. Your line is now open.

Great. Thank you for taking my question. 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? You know, maybe expectation of number of c-store chains or timing?

Hey, Eric. This is Summer. How are you? Great. So I'm good. As you know, about 70% or so of the category is sold through chain convenience. And that's where the majority of the business is done. And as you know, that particular set of stores moves a bit slower in terms of their scheduled planogram cycles and that sort of thing. So we are currently in discussion with many of those partners and have longstanding relationships with them. As you heard in the call, we recently rolled out a regional partnership with 7-Eleven. We're encouraged by those early results and plan to continue that progress throughout the year and are making great traction there.

Alright. Great. That's helpful. And then just a follow-up for me. In terms of Stoker's MST, the one-third of stores by volume that sort of remain for you guys, is there an opportunity to sort of expedite the growth and distribution now that you have such a strong modern oral product here? And can you just kinda talk about what kind of overlap there might be in terms of that one-third of stores that you're not in and the stores that you're either targeting with Modern Oral or already in with Zig Zag? Thank you.

Yeah. So we think that the portfolio of our oral nicotine products is gonna be highly synergistic between MST as well as modern oral. As Summer just mentioned, the chain accounts are really the thrust behind the modern oral category in the early days. I think that presents a great opportunity for us. And from a cross-selling standpoint, as we hit the chains with modern oral to really sort of backstop that with a discussion around MST.

Great. Thanks for taking my questions and congrats again on the strong results.

Thanks, Eric. Your next question comes from the line of Zien Tsafedra of Oppenheimer. Your line is now open.

Hi. Great. Thank you very much. Yep. Great visibility and guidance on the modern oral, so thank you for that. Maybe help us understand what's driving that guidance, you know, how do we think about let's just say, Free versus Out? How do we think about threes and sixes versus kinda, like, your higher nicotine level pouches? Maybe more of a kind of a general discussion on what's driving that. Thanks.

Look. I think our guide's informed by two specific areas. You know, we expect continued growth around Free and based on early reorder rates with our customer and the visibility that we have through in our online B2B or B2C businesses. So I think we've taken the experience that we've learned from Free and we're thinking through Out in terms of their route to market. And it's just early innings at this point in time. You know, obviously, we launched Out in sort of late Q4, and so it's really early to sort of project exactly where we think that can be. But at the same time, we think the two products are highly synergistic for us and really speak to the entire market from a consumer standpoint. And so we're very bullish on our outlook to cast a wide net and gain consumers.

Okay. Great. And then can you maybe talk about the contribution margin on that revenue and maybe what would be the components to kind of get there? And what I mean by that is, you know, are there slotting fees that you're gonna pay? You know, I know there's obviously scale as the business starts scaling up. The contribution margin gets higher. But how do we think about that in general? And then when we think about your manufacturing footprint, you know, is there a reason to maybe onshore some of the production? Does it make sense if you keep it out of the country? Just give me, like, kind of a photo environment. Thanks.

Yeah. Hi, Ian. Andrew here. So first off, as it relates to modern oral, what we're seeing is gross profit margins in the mid-thirties. And our plan is to reinvest some of those profits back into the business to help support the sales and marketing team to broaden our reach not only for the benefit of modern oral but also for the other products that we carry. In terms of slotting fees getting into some of these chain convenience, that is something that we are attuned to, and we're looking at multiple different opportunities around that. And so that's kind of the story on modern oral. And as it relates to US manufacturing, we're considering all options in terms of how we grow this business, which includes enhancing our supply chain and also considering US manufacturing.

Okay. Thank you very much. Good quarter and nice outlook. Thanks a lot.

Thanks, Ian.

Your next question comes from the line of Nick Anderson of Roth Capital Partners. Please go ahead.

Yeah. Good morning. Thanks for taking the questions. First one for me, just on the FDA and the potential rule capping nicotine levels for combustion products, seems like the regulators are focused on the harm reduction initiative more and more. How do you view that playing out? And what do you think this means in general just for the future in terms of regulatory around nicotine-based products?

Thank you. Yeah. Look, I think the only certainty that we have at this moment in time is that the agency has taken a stance on a product category. We see that as a very bullish sign, frankly, with ZYN receiving the marketing authorization. I think it's very interesting to point out that it was a full range of products that were approved to include flavored products. So I think that we're excited about the way that the agency appears to be doing this particular category. Don't have any perspective right now on the nicotine strengths. We maintain that we've done our work with our filings. We continue to be invested behind the wide range of nicotine strengths. So at this point in time, that's not a particular concern of ours.

Okay. Appreciate the color. Second one for me, just wanted to follow-up on Modern Oral. Wondering if you could provide your sense just for the direct-to-consumer opportunity within the nicotine patch category. Just from an overall market standpoint. Given the strength within the millennial demographic and their tendency to shop online, how do you view the brick and mortar mix versus online? Kinda playing out as the category grows here?

Yeah. To me, that's a great question. I think that there's a level of dependency on route to market relative to our two brand properties. As you can imagine, the core of Turning Point Brands, Inc. is bricks and mortar and our ability to get into convenience stores throughout the country. We've certainly been on that hurt line with Free throughout 2024. As it relates to the Out opportunity, for confidentiality purposes, we can't speak too specifically about their route to market, but as you can imagine, given the audience size and the demographic that you'd mentioned, we feel very strongly that there may be an outsized opportunity from an online perspective based on some of the underlying dynamics with that brand and how it's being marketed.

Great. That's it for me. Congrats on the quarter. Thank you.

Your next question comes from the line of Aaron Gray of Alliance Global Partners.

Hi. Thanks for the questions and congrats on the quarter there, guys. First question for me, just wanted to of course, just wanna double back on modern oral and set on distribution, more so on the marketing between the two brands, Free and Out. Just any color you could provide in terms of how you're looking to market between the two? You know, you just kinda referenced now between maybe more of a focus for online for Out maybe implying more brick and mortar for Free. So how exactly you're planning for the marketing that coincides with that and the investments you're planning to make? Thank you.

Yeah. Let me just double back really quickly on the point you just made. Look, I think that there's gonna be a wide opportunity in bricks and mortar across all of our brand properties. It was really referencing sort of the early innings launches of, you know, between the two properties where the strengths of the organization may lie. You know, from our standpoint, ultimately, we see multiple brands underneath our portfolio of products as an opportunity to cast the widest net possible to speak to all consumers across modern oral. And if you think about the projected category growth over time, there will be more new consumers entering the category over the long haul than exist today. And we think having those multiple properties gives us the best possible option to reach those consumers.

Okay. Great. Thanks for that commentary. Second question for me, just on Zig Zag, right? So you talked about some of the drag that you had there from 10% shipped away. But as you think about the gross margin profile, it was down a little bit in the quarter. You called out mix. Trying to dive a little bit deeper into that in terms of how you're thinking about Zig Zag for 2025, both in terms of sales. You alluded to growth for the brand despite the drag from Clipper, and then also how you should think about the gross margin profile there. Thank you.

Yeah. Sure thing. So in terms of growth, our thinking hasn't really changed. It's single digits growth. And like we said, we will be investing in the sales team to broaden our reach across all stores. In terms of the margin profile, what we've seen is a mix shift into some lower margin product categories, and I would anticipate that continuing as we will also be leveraging our fixed costs basis. So from an op income percent basis, we'll see somewhat moderated growth or margin impact in the next year.

Okay. Great. Thanks. I'll jump back into the queue.

Thanks, Aaron.

And that concludes our Q&A session. I will now turn the conference back over to Graham Purdy for closing remarks.

Thanks, operator. I appreciate everybody joining the call today. It's been an exciting 2024 for us, and we look forward to speaking to you all on Q1 results here in the next couple of months.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.