Zig-Zag Rolling Paper Will Benefit From Weed Consumption Trends, CEO Says Post Q3 Earnings

Turning Point Brands, Inc. TPB reported its third quarter financial results on Wednesday for the three months ended Sept. 30, 2023, revealing a 10.2%  year-over-year decrease in Zig-Zag products net sales to $46.8 million.

Graham Purdy, president and CEO of the Louisville, Kentucky company behind the rolling paper brand said Zig-Zag net sales were stable sequentially.

“The Zig-Zag segment was stable sequentially from the second quarter and notwithstanding some transitory headwinds posted its third-highest revenue quarter,” Purdy explained. 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.”

As a testament to that, the company teamed up with Petalfast Inc., a full-spectrum marketing and sales agency for the cannabis industry last year, to drive the distribution expansion of Zig-Zag rolling paper.

Q3 2023 Financial Highlights

• Total consolidated net sales decreased 5.6% year-over-year to $101.7 million.
• 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.
• Gross profit decreased totaled $51.6 million, representing a 2.1% year-over-year decrease.
• Net income decreased 6.1% from the third quarter of 2022 to $10.8 million.
• Adjusted net income totaled $14.5 million, representing a 1.6% year-over-year increase.
• Adjusted EBITDA decreased 0.4% year-over-year to $24.4 million.
• Consolidated selling, general and administrative expenses were $31.4 million compared to $32.9 million in the third quarter of 2022.
• 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.

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

“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,” Purdy added. “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.”

2023 Outlook

The company expects full-year 2023 adjusted EBITDA to be $92 million to $95 million as compared to the previous outlook of $90 to $95 million.

TPB Price Action

Turning Point Brands’ shares traded 6.42% higher at $22.71 per share at the time of writing on Wednesday morning.

Related News

• Turning Point Brands Q4 2022 Net Sales Drop Slightly, What About Adjusted EBITDA?
• Zig-Zag Maker Turning Point Brands' Stock Plunges As It Misses On Q3 2021 Revenue, Lowers Its 2021 Outlook
• Turning Point Brands Appoints Graham Purdy As CEO; Cuts FY22 Guidance
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