(Updated March 5, 2019 7:35 AM EST - Included 1Q Revenue Guidance and Updated Headline)

Turning Point Brands, Inc. (NYSE: TPB) reported Q4 EPS of $0.49, in-line with the analyst estimate of $0.49. Revenue for the quarter came in at $94.2 million versus the consensus estimate of $91.7 million.

• Net sales increased 28.2% to a record $94.3 million;
• Gross profit increased 20.1% to a record $38.7 million;
• Net income increased 41.6% to $5.0 million;
• Adjusted EBITDA increased 16.6% to $17.2 million (see Schedule A for a reconciliation to net income);
• Diluted EPS of $0.25 and Adjusted Diluted EPS of $0.49 as compared to $0.18 and $0.39 in the year-ago period, respectively (see Schedule C for a reconciliation to Diluted EPS); and
• Other highlights from the fourth quarter:
  • Stoker’s MST retail distribution expansion continues to fuel double-digit volume gains;
  • Zig-Zag’s leadership position in wraps and papers endures with novel new product launches on track for first quarter 2019 and beyond; and
  • NewGen net sales growth of 86.2% with record sales at VaporBeast and the inclusion of the September 2018 acquisition of International Vapor Group (“IVG”) and its strong B2C marketing platform

“2018 was a solid year of achievement for team TPB. Not only did we produce record net sales and gross profit, but we also rounded out our non-traditional distribution infrastructure with two vaping acquisitions, made our first investment in the hemp and CBD space and established the foundation for the successful launch of our Nu-X division, while continuing to grow our focus brands,” said President and Chief Executive Officer, Larry Wexler. “2019 will be a transformative year for Turning Point Brands as we begin to integrate the e-commerce strengths of our vaping infrastructure with the breadth of our core tobacco bricks and mortar salesforce.”

“Total TPB net sales continue to grow robustly on the strength and success of our focus brands,” said Larry Wexler, President and CEO. “Stoker’s MST achieved another record share in the quarter. Zig Zag organic hemp rolling paper products continue to expand retail distribution and the new product pipeline for 2019 is full of exciting new novel introductions. VaporBeast delivered yet another record in quarterly net sales and gross profit and was complemented by a full quarter of B2C powered sales at IVG.”

GUIDANCE:

Turning Point Brands, Inc. sees FY2019 revenue of $380-405 million, versus the consensus of $382.55 million.

Absent any acquisitions, the company projects 2019 base business net sales to be $370 to $385 million. Additionally, the company anticipates that the Nu-X division will deliver an additional $10 to $20 million in net sales, bringing total TPB 2019 net sales to $380 to $405 million. The company intends to fully reinvest Nu-X gross profit to maximize sales and market achievement. We expect to update our Nu-X guidance on a quarterly basis.

The company anticipates continued volatility in Canadian paper sales until such time as the Canadian packaging guidelines are finalized, including certain transition timelines. Once finalized, we expect inventories to replenish to standard operating norms.

In our evolution out of the low margin cigars category, we anticipate year-over-year net sales erosion of approximately $1.5 million. Net sales of cigars products for the years 2016, 2017 and 2018 were $12.7 million, $8.5 million and $5.5 million, respectively.

The company anticipates certain SG&A expenses in 2019, including:

• $1.6 million to support the Nu-X infrastructure, which will be heavily weighted towards the first half of 2019
• $1.5 million in preparation for the FDA’s PMTA pathway; and
• $1.2 million in transaction expenses resulting from the September 2018 acquisition of IVG, primarily due to accounting requirements of earnout payments.

Excluding the SG&A expenses described above and Nu-X operating performance, we project 2019 Adjusted EBITDA of $70 to $75 million.

Stock compensation expense in 2019 is projected to be $4.0 million versus $1.4 million in 2018. The increase is attributable to the higher stock price and realigning incentives for both executive management and deep in the organization to the stock price.

The company expects the 2019 effective income tax rate to be 21-23%.

Capital expenditures for 2018 are expected to be approximately $3.0-$4.0 million, including certain investments in our MST operations with an anticipated one-year payback.

Moving forward, we will begin providing quarterly net sales guidance. Net Sales for the first quarter 2019, including the estimated impact associated with the Canadian packaging regulations, is expected to be $89 million to $93 million.

For earnings history and earnings-related data on Turning Point Brands, Inc. (TPB) click here.