Turning Point Brands Announces First Quarter 2022 Results

-Net Sales for Q1 2022 Zig-Zag and Stoker’s Products Increased 10.1 Percent Year-Over-Year

Q1 2022 vs. Q1 2021

“Our first quarter results were in-line with our expectations as we continued to grow our market share for both Zig-Zag and Stoker’s while navigating a difficult consumer and regulatory environment to drive profitability in each of our segments, including NewGen. Sales decreased 6 percent from the previous year driven by a 37 percent decline in NewGen sales but showed double-digit growth excluding NewGen,” said Yavor Efremov, President and CEO, Turning Point Brands. “Zig-Zag delivered another strong growth quarter led by our U.S. Papers business which built on its market leading share during the quarter. At the same time, Stoker’s maintained its growth trajectory driven by double-digit growth in the Moist Snuff Tobacco (MST) business which benefited from consumer trade-down as a leading value brand. Despite the expected sales decline, NewGen maintained positive profitability during the quarter while improving the distribution reach for its regulated products.”

Continued Mr. Efremov, “We continue to monitor FDA developments. While added regulation may cause short-term disruption, this is a necessary step to fully regulate the industry, create a level playing field, and provide consumers with additional reduced-risk alternatives to cigarettes.”

Mr. Efremov concluded, “We maintain a strong balance sheet that is allowing us to deploy a substantial amount of our free cash flow towards share repurchases which continued during the quarter. While inflationary pressures, including a spike in gas prices, are impacting the consumer wallet, we remain favorably positioned as we continue to execute and outpace the overall industry. In addition to solid execution on the business side, we have completed both the ERP and CRM scopes we discussed on our last earnings call. I am particularly proud of the fact that the organization undertook a detailed review of the business with heavy involvement from every level of the Company while delivering a solid quarter.”

For the first quarter, Zig-Zag Products net sales increased 11.4 percent to $45.7 million. TPB’s U.S. rolling papers and e-commerce business grew double-digits, aided by approximately $2 million in sales from an inventory load with certain customers. A low-single-digit decline in the cigar wraps business and double-digit decline in the Canadian business partially offset this growth. The decline in the cigar wraps business was partially due to a trade inventory adjustment compared to the prior year period. Order timing that benefitted the prior year period contributed to the decline in the Canadian business. Wild Hemp sales moved into the Zig-Zag Products segment during the current quarter which contributed $0.2 million, or 0.6 percent to the segment growth. For the first quarter, total Zig-Zag Products segment volume increased 7.1 percent, while price / mix increased 4.3 percent.

For the quarter, the Zig-Zag Products segment gross profit increased 5.8 percent to $26.3 million. The segment’s gross margin contracted 300 basis points to 57.7 percent driven primarily by growth in lower gross margin products and lower margin contribution from the inclusion of the DVW acquisition in the current period.

“Paper cones and Zig-Zag’s e-commerce business continued to drive the growth within our U.S. papers business,” said Graham Purdy, Chief Operating Officer, Turning Point Brands. “We introduced a new line of Zig-Zag rough cut natural leaf cigars and ramped up Zig-Zag hemp wraps and natural leaf tobacco wraps distribution during the quarter. Meanwhile, our marketing team continues to launch exciting programs to strengthen the Zig-Zag brand including its recent partnership with luxury fashion line AMIRI for its Spring 2022 collection. We are also eager to launch CLIPPER lighters distribution in the second half of the year which has the potential to be a meaningful contributor to the segment’s long-term growth.”

For the first quarter, Stoker’s Products net sales increased 8.4 percent to $31.7 million on double-digit growth of MST. This was partially offset by a mid-single-digit decline of loose-leaf chewing tobacco. MST represented 65 percent of Stoker’s Products revenues in the quarter, up from 63 percent a year earlier. FRE nicotine pouch products’ sales moved into the Stoker’s Products segment during the current quarter and contributed $0.7 million or 2.5 percent to segment growth. For the first quarter, total Stoker’s Products segment volume increased 0.3 percent, while price / mix increased 8.1 percent.

For the quarter, the Stoker’s Products segment gross profit increased 11.3 percent to $17.7 million. The segment’s gross margin expanded 150 basis points to 55.8 percent.

“Stoker’s delivered solid growth during the quarter led by continued market share gains in MST,” continued Purdy. “As mentioned above, with the backdrop of inflationary pressures impacting the consumer, Stoker’s is well positioned within its categories as a leading value brand.”

NewGen Products Segment (23 percent of total net sales in the quarter)

For the quarter, the NewGen Products segment gross profit decreased 37.7 percent to $7.8 million. The segment gross margin contracted 40 basis points from the previous year to 33.0 percent.

“Our vape business remained profitable even with the expected weakness during the quarter as it continues to navigate challenges presented by the regulatory environment,” concluded Purdy. “Encouragingly, we continued to ramp our last mile logistics and distribution capabilities through the quarter. We will continue to adapt to the market environment as it goes through another transition period with the FDA expanding regulation of nicotine products. TPB’s applications for our vapor products remain under review.”

Recent Events

To give better visibility on our vape business, certain non-vape products’ sales along with the associated and other costs have been moved from the NewGen Products segment into our other TPB reporting segments. Specifically, Wild Hemp sales have been moved to the Zig-Zag Products segment where TPB’s other smoking products sales are recognized. Additionally, the Company’s FRE nicotine pouch products’ sales moved to the Stoker’s Products segment where TPB’s other smokeless products sales are recognized. Both were marginal contributors to the Company’s overall performance. In addition, certain personnel and other non-vape related costs previously allocated to the Nu-X subsegment related to marketing, new product development, product sourcing and other corporate functions moved from the NewGen Products segment primarily into the Corporate segment for reporting purposes. In effect, Nu-X operations are being absorbed by other TPB reporting segments and the NewGen Products segment now primarily represents operations related to our proprietary vape products and vape distribution business.

Performance Measures in the First Quarter

First quarter consolidated selling, general and administrative (“SG&A”) expenses were $32.6 million compared to $28.9 million in the first quarter of 2021.

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

During the quarter, the Company spent $10.6 million to repurchase 310,224 shares at an average price of $34.24 per share.

2022 Outlook

TPB is maintaining the guidance provided on February 22, 2022.

Earnings Conference 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 diluted EPS and Adjusted Operating Income. A reconciliation of these non-GAAP financial measures accompanies this release.

About Turning Point Brands, Inc.

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.

Media Contacts

Turning Point Brands, Inc.:

Raquel Cona

KCSA Strategic Communications

212.896.1204

Investor Contacts

Turning Point Brands, Inc.:

Louie Reformina, Senior Vice President, CFO

Turning Point Brands, Inc.

502.774.9238

Financial Statements Follow:

Turning Point Brands, Inc.

Consolidated Statements of Income

(dollars in thousands except share data)

(unaudited)

Turning Point Brands, Inc.

Consolidated Balance Sheets

(dollars in thousands except share data)

(unaudited)

Turning Point Brands, Inc.

Consolidated Statements of Cash Flows

(dollars in thousands)

(unaudited)

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 diluted EPS, and Adjusted Operating Income. 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 diluted EPS, and Adjusted Operating Income 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 diluted EPS and Adjusted Operating Income 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, 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 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 Operating Income” 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 EBITDA Adjusted diluted EPS and Adjusted Operating Income 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.

Turning Point Brands, Inc.

Reconciliation of GAAP Net Income to Adjusted EBITDA

(dollars in thousands)

(unaudited)

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Schedule B

Turning Point Brands

Reconciliation of GAAP diluted EPS to Adjusted diluted EPS

(dollars in thousands except share data)

(unaudited)

Schedule C

Turning Point Brands, Inc.

Reconciliation of GAAP Operating Income to Adjusted Operating Income

(dollars in thousands)

(unaudited)

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