Quarterly Report for Quarter Ending June 30, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion of the historical financial conditions and results of operations in conjunction with our consolidated financial statements and accompanying notes, which are included elsewhere in this Quarterly Report on Form 10-Q. In addition, this discussion includes forward-looking statements which are subject to risks and uncertainties that may result in actual results differing from statements we make. See "Cautionary Note Regarding Forward-Looking Statements." Factors that could cause actual results to differ include those risks and uncertainties discussed in "Risk Factors" contained in the Annual Report on Form 10-K for the fiscal year ended December 31, 2024.

The following Management's Discussion and Analysis ("MD&A") relates to the unaudited financial statements of Turning Point Brands, Inc., included elsewhere in this Quarterly Report on Form 10-Q. The MD&A is intended to enable the reader to understand the Company's financial condition and results of operations, including any material changes in the Company's financial condition and results of operations since December 31, 2024, and as compared with the three and six months ended June 30, 2024. The MD&A is provided as a supplement to and should be read in conjunction with the unaudited consolidated financial statements and notes thereto included in this Quarterly report on Form 10-Q, as well as "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the Annual Report on Form 10-K for the fiscal year ended December 31, 2024 (the "2024 Annual Report").

In this MD&A, unless the context requires otherwise, references to "our Company" "we," "our," or "us" refer to Turning Point Brands, Inc., and its consolidated subsidiaries. References to "TPB" refer to Turning Point Brands, Inc., without any of its subsidiaries. Many of the amounts and percentages in this discussion have been rounded for convenience of presentation.

Overview

Turning Point Brands, Inc. is a leading manufacturer, marketer and distributor of branded consumer products. We sell a wide range of products to adult consumers consisting of staple products with our iconic brands Zig-Zag® and Stoker's® to fulfill evolving consumer preferences. Among other markets, we compete in the alternative smoking accessories and Other Tobacco Products ("OTP") industries. The alternative smoking accessories market is a dynamic market experiencing robust secular growth driven by cannabinoid legalization in the U.S. and Canada, and positively evolving consumer perception and acceptance in North America. The OTP industry, which consists of non-cigarette tobacco products, exhibited low-single-digit consumer unit annualized declines during the year ended December 31, 2024, as reported by Management Science Associates, Inc. ("MSAi") a third-party analytics and information company. Our segments are led by our core proprietary and iconic brands: Zig-Zag® in the Zig-Zag products segment, and Stoker's® along with FRE®, Beech-Nut® and Trophy® in the Stoker's products segment. Our businesses generate solid cash flow which we use to invest in our business, finance acquisitions, increase brand support, expand our distribution infrastructure, and strengthen our capital position. We currently ship to approximately 900 distributors with an additional 600 secondary, indirect wholesalers in the U.S. that carry and sell our products. Under the leadership of a senior management team with extensive experience in the consumer products, alternative smoking accessories and tobacco industries, we have grown and diversified our business through new product launches, category expansions, and acquisitions while concurrently improving operational efficiency.

We believe there are meaningful opportunities to grow through investing in organic growth, acquisitions and joint ventures across all product categories. Our products are available in approximately 200,000 U.S. retail locations which, with the addition of retail stores in Canada, brings our total North American retail presence to an estimated 220,000 points of distribution. Our sales team targets widespread distribution to all traditional retail channels, including convenience stores, and we have a growing e-commerce business.

Discontinued Operations

On January 2, 2025, the Company contributed 100% of its interest in South Beach Brands LLC ("SBB"), the subsidiary that owned and operated the Company's former Creative Distribution Solutions ("CDS") reportable segment, to General Wireless Operations, Inc. ("GWO") in exchange for 49% of the issued and outstanding GWO common stock. GWO is a joint venture between the Company and Standard General, LP entered into in December 2018. CDS marketed and distributed liquid nicotine and ancillary products without tobacco and/or nicotine primarily through non-traditional retail and B2C online platforms, and included widely recognized names such as Vapor Beast® and VaporFi®.

Refer to Note 3 and Note 9 of the Notes to Consolidated Financial Statements included in Item 1 of Part 1 in this Quarterly Report on Form 10-Q for further details regarding the CDS divestiture.

Products

We operate in two segments: Zig-Zag products and Stoker's products segments. In our Zig-Zag products segment, we principally market and distribute (i) rolling papers, tubes and related products; (ii) finished cigars and make-your-own ("MYO") cigar wraps; and (iii) lighters and other accessories. In addition, we have a majority stake in Turning Point Brands Canada which is a specialty marketing and distribution firm focused on building brands in the Canadian cannabis accessories, tobacco and alternative products categories. In our Stoker's products segment, we (i) manufacture and market moist snuff tobacco ("MST"); (ii) contract for and market modern oral products; and (iii) contract for and market loose-leaf chewing tobacco products.

Operations

Our Zig-Zag products and Stoker's products segments primarily generate revenues from the sale of our products to wholesale distributors who, in turn, resell the products to retail operations. Our net sales, which include federal excise taxes, consist of gross sales net of cash discounts, returns, and selling and marketing allowances.

We rely on long-standing relationships with high-quality, established manufacturers to provide the majority of our produced products. Approximately 70% of our production, as measured by net sales, is outsourced to suppliers. The remaining production consists primarily of our moist snuff tobacco operations located in Dresden, Tennessee and Louisville, Kentucky. Our principal operating expenses include the cost of raw materials used to manufacture the limited number of our products which we produce in-house; the cost of finished products, which are generally purchased goods; federal excise taxes; legal expenses; and compensation expenses, including benefits and costs of salaried personnel.

Key Factors Affecting Our Results of Operations

We consider the following to be the key factors affecting our results of operations:

●

Our ability to further penetrate markets with our existing products;

●

Our ability to introduce new products and product lines that complement our core business;

●

Decreasing interest in some tobacco products among consumers;

●

Price sensitivity in our end-markets;

●

Marketing and promotional initiatives, which cause variability in our results;

●

Cost related to increasing regulation of promotional and advertising activities;

●

General economic conditions, including consumer access to disposable income and other conditions affecting purchasing power such as inflation and the interest rate environment;

●

Labor and production costs;

●

Cost of complying with regulation, including the "deeming regulation", as well as the unpredictable nature of the regulatory regimes;

●

Changes to U.S. trade policies, including tariffs;

●

Counterfeit and other illegal products in our end-markets;

●

Currency fluctuations;

●

Our ability to identify attractive acquisition opportunities; and

●

Our ability to successfully integrate acquisitions.

Critical Accounting Policies and Uses of Estimates

There have been no material changes to our critical accounting policies and estimates from the information provided in "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our 2024 Annual Report on Form 10-K.

Recent Accounting Pronouncements

See Item 1 of Part I, "Notes to Consolidated Financial Statements - Note 2 - Summary of Significant Accounting Policies - Recent Accounting Pronouncements."

Results of Operations

Summary

The table and discussion set forth below relates to our consolidated results of continuing operations:

(in thousands)			Three Months Ended June 30,
		2025				2024				% Change
Consolidated Results of Operations Data:
Net sales
Zig-Zag products		$	47,018			$	50,482				-6.9	%
Stoker's products			69,616				42,743				62.9	%
Total net sales			116,634				93,225				25.1	%
Cost of sales			50,011				42,827				16.8	%
Gross profit
Zig-Zag products			23,099				26,873				-14.0	%
Stoker's products			43,524				23,525				85.0	%
Total gross profit			66,623				50,398				32.2	%
Selling, general, and administrative expenses			40,296				29,200				38.0	%
Other operating income			-				(1,674	)			NM
Operating income
Zig-Zag products			14,741				18,260				-19.3	%
Stoker's products			30,079				17,862				68.4	%
Total segment operating income			44,820				36,122				24.1	%
Corporate unallocated			(18,493	)			(13,250	)			39.6	%
Total operating income			26,327				22,872				15.1	%
Interest expense, net			5,140				3,042				69.0	%
Investment (gain) loss			(17	)			2,439				-100.7	%
Income from continuing operations before income taxes			21,204				17,391				21.9	%
Income tax expense			4,244				4,430				-4.2	%
Consolidated net income from continuing operations			16,960				12,961				30.9	%
Net income (loss) attributable to non-controlling interest			2,480				(87	)			-2950.6	%
Net income from continuing operations attributable to Turning Point Brands, Inc.		$	14,480			$	13,048				11.0	%

Comparison of the Three Months Ended June 30, 2025, to the Three Months Ended June 30, 2024

Net Sales: For the three months ended June 30, 2025, consolidated net sales increased $23.4 million, or 25.1% compared to the prior year period, driven primarily by an increase in the Stoker's products segment.

For the three months ended June 30, 2025, net sales in the Zig-Zag products segment decreased $3.5 million, or 6.9% compared to the prior year period. The decrease in net sales was driven primarily by declines of $3.6 million in our cigar products, $2.7 million in U.S. papers and wraps, and $1.4 million in our Canadian products, partially offset by a $4.3 million increase in the Clipper lighter business. Clipper has not been a focus area for the Company over the past several quarters and the Company was able to sell the majority of its inventory at a discounted rate with extended payment terms. We do not expect meaningful additional revenue from Clipper in future periods.

For the three months ended June 30, 2025, net sales in the Stoker's products segment increased $26.9 million, or 62.9% compared to the prior year period. For the three months ended June 30, 2025, sales volume of Stoker's products increased 48.3% compared to the prior year period, which contributed $20.7 million to the increase, and price/product mix increased 14.5% compared to the prior year period, which contributed $6.2 million to the increase. The increase in net sales was primarily driven by $26.1 million of growth in modern oral products and $1.1 million of growth of Stoker's® MST.

Gross Profit: For the three months ended June 30, 2025, consolidated gross profit increased $16.2 million, or 32.2% compared to the prior year period. Gross profit as a percentage of net sales increased to 57.1% for the three months ended June 30, 2025, compared to 54.1% for the three months ended June 30, 2024. The overall increase in gross profit was driven by increases in net sales in the Stoker's products segment.

For the three months ended June 30, 2025, gross profit in the Zig-Zag products segment decreased $3.8 million, or 14.0% compared to the prior year period. Gross profit as a percentage of net sales decreased to 49.1% of net sales for the three months ended June 30, 2025, from 53.2% of net sales for the three months ended June 30, 2024, driven primarily by sales of Clipper lighters at a discounted rate.

For the three months ended June 30, 2025, gross profit in the Stoker's products segment increased $20.0 million, or 85.0% compared to the prior year period. Gross profit as a percentage of net sales increased to 62.5% of net sales for the three months ended June 30, 2025, from 55.0% of net sales for the three months ended June 30, 2024, primarily driven by improved margin contribution from modern oral products.

Selling, General, and Administrative Expenses: For the three months ended June 30, 2025, selling, general, and administrative expenses increased $11.1 million, or 38.0% compared to the prior year period, primarily due to increased shipping and selling costs related to the increase in modern oral sales in the quarter compared to the prior year period. Selling, general and administrative expenses in the three months ended June 30, 2025, included $1.7 million of expense related to PMTA, $1.6 million of stock options, restricted stock and incentives expense, $0.8 million of elevated non-recurring outbound freight costs due to the ERP transition, $0.5 million of legal expenses incurred in connection with litigation related to an insurance claim and $0.6 million of transaction costs. Selling, general and administrative expenses in the three months ended June 30, 2024, included $1.9 million of stock options, restricted stock and incentives expense, $1.0 million of expense related to PMTA, $0.5 million of expense related to the implementation of the new ERP and CRM systems, $0.3 million of expense related to corporate restructuring and $0.1 million of transaction costs.

Other Operating Income: For the three months ended June 30, 2025, other operating income decreased $1.7 million compared to the prior year period due to a federal excise tax refund received in the prior year period that did not repeat in the current year period.

Operating Income: For the three months ended June 30, 2025, consolidated operating income increased $3.5 million, or 15.1% compared to the prior year period. Operating income as a percentage of net sales decreased to 22.6% of net sales for the three months ended June 30, 2025 from 24.5% of net sales for the three months ended June 30, 2024, primarily driven by increased selling, general and administrative costs.

For the three months ended June 30, 2025, operating income in the Zig-Zag products segment decreased $3.5 million, or 19.3% compared to the prior year period. Operating income as a percentage of net sales decreased to 31.4% of net sales for the three months ended June 30, 2025 from 36.2% of net sales for the three months ended June 30, 2024, primarily driven by sales of Clipper lighters at a discounted rate.

For the three months ended June 30, 2025, operating income in the Stoker's products segment increased $12.2 million, or 68.4% compared to the prior year period. Operating income as a percentage of net sales increased to 43.2% of net sales for the three months ended June 30, 2025 from 41.8% of net sales for the three months ended June 30, 2024, primarily driven by higher margin contribution of modern oral products.

Included in consolidated operating income are costs of the Company which are not assigned to one of the two reportable segments and include: (i) corporate overhead expense, including executive management, finance, legal and information technology salaries, and professional services, such as audit, external legal costs and information technology services, as well as (ii) costs related to the FDA premarket tobacco product application. For the three months ended June 30, 2025, unallocated costs were $18.5 million compared to $13.3 million in the prior year period, an increase of $5.2 million or 39.6%, primarily driven by joint venture related expenses.

Interest Expense, net: For the three months ended June 30, 2025, interest expense, net increased $2.1 million compared to the prior year period as a result of the issuance of the 2032 Notes in February 2025 which bear interest at a higher rate and have a higher outstanding principal amount than the 2026 Notes which were repaid with proceeds from the issuance of the 2032 Notes.

Investment Gain (Loss): For the three months ended June 30, 2025, investment loss decreased $2.5 million compared the prior year period. The investment gain for the three months ended June 30, 2025 is approximately zero, primarily due to gains on marketable securities of $0.7 million, offset by a $0.9 million impairment charge related to our investment in Old Pal. In the prior year period, we recognized $2.5 million of impairment charges on our investments in Old Pal and Bomani.

Income Tax Expense: Our income tax expense of $4.2 million was 20.0% of income before income taxes for the three months ended June 30, 2025. Our effective income tax rate was 25.5% for the three months ended June 30, 2024. The decrease in tax rate compared to the prior year period is due to the inclusion of permanent tax differences related to stock options that were exercised in the second quarter 2025.

Net Income (Loss) Attributable to Non-Controlling Interest: Net income (loss) attributable to non-controlling interest was $2.5 million and $(0.1) million, respectively, for the three months ended June 30, 2025 and 2024. The increase in non-controlling interest compared to the prior year period is due to the consolidation of a joint venture starting in December 2024.

Net Income Attributable to Turning Point Brands, Inc.: Due to the factors described above, net income attributable to Turning Point Brands, Inc. for the three months ended June 30, 2025 and 2024, was $14.5 million and $13.1 million, respectively.

Summary

The table and discussion set forth below relates to our consolidated results of continuing operations:

		Six Months Ended June 30,
		2025				2024				% Change
Consolidated Results of Operations Data:
Net sales
Zig-Zag products		$	94,283			$	97,178				-3.0	%
Stoker's products			128,787				79,111				62.8	%
Total net sales			223,070				176,289				26.5	%
Cost of sales			96,837				77,537				24.9	%
Gross profit
Zig-Zag products			48,665				54,411				-10.6	%
Stoker's products			77,568				44,341				74.9	%
Total gross profit			126,233				98,752				27.8	%
Selling, general, and administrative expenses			76,717				58,284				31.6	%
Other operating income			-				(1,674	)			NM
Operating income
Zig-Zag products			31,672				36,259				-12.7	%
Stoker's products			54,212				33,258				63.0	%
Total segment operating income			85,884				69,517				23.5	%
Corporate unallocated			(36,368	)			(27,375	)			32.9	%
Total operating income			49,516				42,142				17.5	%
Interest expense, net			9,554				6,521				46.5	%
Investment (gain) loss			(308	)			2,320				-113.3	%
Loss on extinguishment of debt			1,235				-				NM
Income from continuing operations before income taxes			39,035				33,301				17.2	%
Income tax expense			6,284				8,159				-23.0	%
Consolidated net income from continuing operations			32,751				25,142				30.3	%
Net income attributable to non-controlling interest			3,876				82				4626.8	%
Net income from continuing operations attributable to Turning Point Brands, Inc.		$	28,875			$	25,060				15.2	%

Comparison of the Six Months Ended June 30, 2025, to the Six Months Ended June 30, 2024

Net Sales: For the six months ended June 30, 2025, consolidated net sales increased $46.8 million, or 26.5% compared to the prior year period, driven primarily by an increase in the Stoker's products segment.

For the six months ended June 30, 2025, net sales in the Zig-Zag products segment decreased $2.9 million, or 3.0% compared to the prior year period. The decrease in net sales was driven primarily by declines of $3.5 million in U.S. papers and wraps, $2.1 million in our cigar products and $0.8 million in our Canadian products, partially offset by a $3.8 million increase in the Clipper lighter business. Clipper has not been a focus area for the Company over the past several quarters and the Company was able to sell the majority of its inventory at a discounted rate with extended payment terms.

For the six months ended June 30, 2025, net sales in the Stoker's products segment increased $49.7 million, or 62.8% compared to the prior year period. For the six months ended June 30, 2025, sales volume of Stoker's products increased 59.8% compared to the prior year period, which contributed $47.3 million to the increase, and price/product mix increased 3.0% compared to the prior year period, which contributed $2.4 million to the increase. The increase in net sales was primarily driven by $46.1 million of sales in modern oral products and $3.5 million of growth of Stoker's® MST.

Gross Profit: For the six months ended June 30, 2025, consolidated gross profit increased $27.5 million, or 27.8% compared to the prior year period. Gross profit as a percentage of net sales increased slightly to 56.6% for the six months ended June 30, 2025, compared to 56.0% for the six months ended June 30, 2024. The overall increase in gross profit was driven by increases in net sales in the Stoker's products segment.

For the six months ended June 30, 2025, gross profit in the Zig-Zag products segment decreased $5.7 million, or 10.6% compared to the prior year period. Gross profit as a percentage of net sales decreased to 51.6% of net sales for the six months ended June 30, 2025, from 56.0% of net sales for the six months ended June 30, 2024, driven primarily by sales of Clipper lighters at a discounted rate.

For the six months ended June 30, 2025, gross profit in the Stoker's products segment increased $33.2 million, or 74.9% compared to the prior year period. Gross profit as a percentage of net sales increased to 60.2% of net sales for the six months ended June 30, 2025, from 56.0% of net sales for the six months ended June 30, 2024, primarily driven by improved contribution margin from modern oral products.

Selling, General, and Administrative Expenses: For the six months ended June 30, 2025, selling, general, and administrative expenses increased $18.4 million, or 31.6% compared to the prior year period, primarily due to increased shipping and selling costs related to the increase in modern oral sales in the period compared to the prior year period. Selling, general and administrative expenses in the six months ended June 30, 2025, included $3.3 million of stock options, restricted stock and incentives expense, $3.2 million of expense related to PMTA, $0.8 million of elevated non-recurring outbound freight costs due to the ERP transition, $0.7 million of transaction costs, $0.5 million of legal expenses incurred in connection with litigation related to an insurance claim and $0.2 million of expense related to the implementation of the new ERP and CRM systems. Selling, general and administrative expenses in the six months ended June 30, 2024, included $4.0 million of stock options, restricted stock and incentives expense, $1.9 million of expense related to PMTA, $1.5 million of expense related to corporate restructuring, $0.7 million of expense related to the implementation of the new ERP and CRM systems and $0.1 million related to transaction costs.

Other Operating Income: For the six months ended June 30, 2025, other operating income decreased $1.7 million compared to the prior year period due to a federal excise tax refund received in the prior year period that did not repeat in the current year period.

Operating Income: For the six months ended June 30, 2025, consolidated operating income increased $7.4 million, or 17.5% compared to the prior year period. Operating income as a percentage of net sales decreased to 22.2% of net sales for the six months ended June 30, 2025 from 23.9% of net sales for the six months ended June 30, 2024, primarily driven by increased selling, general and administrative costs.

For the six months ended June 30, 2025, operating income in the Zig-Zag products segment decreased $4.6 million, or 12.7% compared to the prior year period. Operating income as a percentage of net sales decreased to 33.6% of net sales for the six months ended June 30, 2025 from 37.3% of net sales for the six months ended June 30, 2024, primarily driven by sales of Clipper lighters at a discounted rate.

For the six months ended June 30, 2025, operating income in the Stoker's products segment increased $21.0 million, or 63.0% compared to the prior year period. Operating income as a percentage of net sales increased slightly to 42.1% of net sales for the six months ended June 30, 2025 from 42.0% of net sales for the six months ended June 30, 2024, primarily driven by higher margin contribution of modern oral products.

Included in consolidated operating income are costs of the Company which are not assigned to one of the two reportable segments and include: (i) corporate overhead expense, including executive management, finance, legal and information technology salaries, and professional services, such as audit, external legal costs and information technology services, as well as (ii) costs related to the FDA premarket tobacco product application. For the six months ended June 30, 2025, unallocated costs were $36.4 million compared to $27.4 million in the prior year period, an increase of $9.0 million, or 32.9%, primarily driven by joint venture related expenses.

Interest Expense, net: For the six months ended June 30, 2025, interest expense, net increased $3.0 million compared to the prior year period as a result of the issuance of the 2032 Notes in February 2025 which bear interest at a higher rate and have a higher outstanding principal amount than the 2026 Notes which were repaid with proceeds from the issuance of the 2032 Notes.

Investment Gain (Loss): For the six months ended June 30, 2025, investment gain was $0.3 million compared to a loss of $2.3 million in the prior year period. The $0.3 million investment gain for the six months ended June 30, 2025 is primarily due to gains on marketable securities of $0.7 million, offset by a $0.9 million impairment charge related to our investment in Old Pal. In the prior year period, we recognized $2.5 million of impairment charges on our investments in Old Pal and Bomani.

Loss on Extinguishment of Debt: Loss on extinguishment of debt for the six months ended June 30, 2025 increased $1.2 million compared to the prior year period as a result of the redemption of the 2026 Notes in February 2025.

Income Tax Expense: Our income tax expense of $6.3 million was 16.1% of income before income taxes for the six months ended June 30, 2025. Our effective income tax rate was 24.5% for the six months ended June 30, 2024. The decrease in tax rate compared to the prior year period is due to the inclusion of permanent tax differences related to the Company's restricted stock units that were issued and stock options that were exercised in the six months ended June 30, 2025.

Net Income Attributable to Non-Controlling Interest: Net income attributable to non-controlling interest was $3.9 million and $0.1 million, respectively, for the six months ended June 30, 2025 and 2024. The increase in non-controlling interest compared to the prior year period is due to the consolidation of a joint venture starting in December 2024.

Net Income Attributable to Turning Point Brands, Inc.: Due to the factors described above, net income attributable to Turning Point Brands, Inc. for the six months ended June 30, 2025 and 2024, was $28.9 million and $25.1 million, respectively.

EBITDA and Adjusted EBITDA

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 and Adjusted EBITDA. 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 is used by management to compare our performance to that of prior periods for trend analyses and planning purposes and is presented to our Board of Directors. We believe that EBITDA and Adjusted EBITDA are appropriate measures of operating performance because they eliminate the impact of expenses that do not relate to operating performance. In addition, our debt instruments contain covenants which use Adjusted EBITDA calculations.

We define "EBITDA" as net income attributable to Turning Point Brands, Inc. before interest expense, gain (loss) on extinguishment of debt, income tax expense, depreciation and amortization. We define "Adjusted EBITDA" as net income before interest expense, gain (loss) on extinguishment of debt, income tax expense, depreciation, amortization, other non-cash items and other items we do not consider the ordinary course in our evaluation of ongoing operating performance noted in the reconciliation below. Among other items that we adjust Adjusted EBITDA for is FDA PMTA expense. The Company believes it is appropriate to adjust for this spend as the costs are incurred in connection with what we view as a non-traditional regulatory process that requires applications be submitted for covered products that are already on the market. As a result, Company's management believes it is most appropriate to assess the performance of the Company's business - the sale of our various products - without regard to these costs and believes that adjusting for these costs provides investors and the public markets with the most meaningful metrics to assess performance of the business. The Company reconciles its EBITDA metrics to Net income attributable to Turning Point Brands, Inc. because that measure reflects the Company's portion of the profitability from consolidated joint ventures after removing results attributable to our partners in such joint ventures.

Non-U.S. GAAP measures should not be considered a substitute for, or superior to, financial measures calculated in accordance with U.S. GAAP. Adjusted EBITDA excludes significant expenses required to be recorded in our financial statements by U.S. GAAP and is subject to inherent limitations. 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. The tables below provide reconciliations between net income and Adjusted EBITDA.

		Three Months Ended								Six Months Ended
(in thousands)		June 30,								June 30,
		2025				2024				2025				2024
Net income attributable to Turning Point Brands, Inc.		$	14,480			$	13,007			$	28,875			$	25,017
Add:
Interest expense, net			5,140				3,042				9,541				6,521
Loss on extinguishment of debt			-				-				1,235				-
Income tax expense			4,244				4,430				6,284				8,159
Depreciation expense			842				814				1,670				1,485
Amortization expense			1,048				456				1,870				868
EBITDA		$	25,754			$	21,749			$	49,475			$	42,050
Components of Adjusted EBITDA
Corporate restructuring (a)			-				283				-				1,544
ERP/CRM (b)			-				489				211				627
Stock based compensation (c)			1,628				1,889				3,292				3,951
Transactional expenses and strategic initiatives (d)			569				97				746				127
Non-recurring freight (e)			837				-				837				-
Non-recurring legal (f)			504				-				504				-
FDA PMTA (g)			1,651				997				3,242				1,838
Mark-to-market gain on Canadian inter-company note (h)			(665	)			-				(350	)			-
Non-cash asset impairment (i)			908				2,722				908				2,722
Gain on investment (j)			(714	)			-				(714	)			-
FET refund (k)			-				(1,674	)			-				(1,674	)
Adjusted EBITDA		$	30,472			$	26,552			$	58,151			$	51,185

(a)	Represents costs associated with corporate restructuring, including severance and early retirement.

(b)	Represents cost associated with scoping and mobilization of new ERP and CRM systems and cost of duplicative ERP licenses.

(c)	Represents non-cash stock options, restricted stock, PRSUs, etc.

(d)	Represents the fees incurred for transaction expenses.
(e)	Represents elevated non-recurring outbound freight costs due to ERP transition.
(f)	Represents legal expenses incurred in connection with litigation related to an insurance claim.

(g)	Represents costs associated with applications related to FDA premarket tobacco product application ("PMTA"). The PMTA regime requires the Company to submit an application to the FDA to receive marketing authorization to continue to sell certain of its product lines with continued sales permitted during the pendency of the applications. The application is a onetime resource-intensive process for each covered product line; however, due to the nature of the implementation process for those product lines already in the market, applications can take multiple years to complete rather than the typical one-time submission. The Company has only two product lines currently subject to the PMTA process, having utilized other regulatory pathway options available for our other product lines. The Company does not expect to submit additional PMTA applications for any new product lines after the submission for the remaining two are complete.
(h)	Represents a mark-to-market gain attributable to foreign exchange fluctuation.
(i)	Represents impairment of investment assets.
(j)	Represents gain on investments.
(k)	Represents a federal excise tax refund included in other operating income.

Liquidity and Capital Resources

As of June 30, 2025, we have $109.9 million of cash on hand and $66.5 million of availability under the 2023 ABL Facility. We have no borrowings outstanding under our 2023 ABL Facility as of June 30, 2025. Our principal uses for cash are working capital, debt service, and capital expenditures.

Our adjusted working capital, which we define as current assets less cash and current liabilities, increased $0.6 million compared to the prior year end. Excluding assets and liabilities held for sale at December 31, 2024, our adjusted working capital increased $10.0 million for the quarter ended June 30, 2025. The increase in working capital is primarily the result of a $20.4 million increase in accounts receivable, an $8.8 million increase in inventory and a $5.5 million increase in other current assets, partially offset by an increase of $14.5 million in accounts payable and a $10.2 million increase in accrued liabilities. With our strong cash balance, free cash flow generation and borrowing availability under the 2023 ABL Facility, we expect to have ample liquidity to satisfy our operating cash requirements for the foreseeable future.

		June 30,				December 31,
(in thousands)		2025				2024
Current assets		$	175,292			$	152,047
Current liabilities			67,509				44,820
Adjusted working capital		$	107,783			$	107,227

Cash Flows from Continuing Operations

Our cash flows from continuing operations as reflected in the Consolidated Statements of Cash Flows are summarized as follows:

(in thousands)		Six Months Ended
		June 30,
Cash provided by (used in):		2025				2024
Operating activities		$	29,230			$	31,074
Investing activities		$	(8,626	)		$	(7,972	)
Financing activities		$	40,312			$	(6,747	)

Cash Flows from Operating Activities

For the six months ended June 30, 2025, net cash provided by operating activities was $29.2 million, a decrease of $1.8 million compared to the prior year period. The decrease is primarily due to unfavorable changes of $6.0 million in working capital and $3.8 million in other assets, partially offset by an increase in net income, net of non-cash items of $8.0 million. The primary drivers of non-cash items were a $2.4 million increase in deferred tax expense, a $1.2 million increase in depreciation and amortization and a $1.2 million increase in loss on extinguishment of debt compared to the prior year period. The decrease in cash from working capital compared to the prior year period was primarily driven by the timing of payments.

Cash Flows from Investing Activities

For the six months ended June 30, 2025, net cash used in investing activities was $8.6 million, an increase of $0.7 million compared to the prior year period, primarily due to an increase in capital expenditures of $3.3 million, partially offset by net decreases in payments for equity investments of $2.2 million.

Cash Flows from Financing Activities

For the six months ended June 30, 2025, net cash provided by financing activities was $40.3 million, an increase of $47.1 million compared to the prior year period, primarily due to a net increase in cash of $42.9 million related to the February 2025 issuance of the 2032 Notes and of $1.5 million related to stock compensation activity, as well as $3.1 million of common stock repurchases in the prior year period that did not repeat in 2025.

Dividends and Share Repurchase

A dividend of $0.075 per common share was paid on July 11, 2025, to shareholders of record at the close of business on June 20, 2025.

On February 25, 2020, our Board of Directors approved a $50.0 million share repurchase program, which is intended for opportunistic execution based upon a variety of factors including market dynamics. The program is subject to the ongoing discretion of the Board of Directors. On October 25, 2021, the Board of Directors increased the approved share repurchase program by $30.7 million, and by $24.6 million on February 24, 2022. On November 6, 2024, the Company's Board of Directors increased the Company's share repurchase authorization by $77.9 million to an aggregate amount of $100.0 million. In the six months ended June 30, 2025, there were no repurchases under the share repurchase program. As of June 30, 2025, there was $100.0 million in remaining repurchase authority under the plan.

Long-Term Debt

Notes payable and long-term debt consisted of the following at June 30, 2025 and December 31, 2024, in order of preference:

		June 30,				December 31,
		2025				2024
2032 Notes		$	300,000			$	-
2026 Notes			-				250,000
Gross notes payable and long-term debt			300,000				250,000
Less deferred finance charges			(6,862	)			(1,396	)
Notes payable and long-term debt		$	293,138			$	248,604

2032 Notes

In February 2025, we closed a private offering of $300.0 million aggregate principal amount of 7.625% senior secured notes due to mature on March 15, 2032 (the "2032 Notes"). Interest on the 2032 Notes is payable semi-annually on March 15 and September 15 of each year, commencing on September 15, 2025. We used the proceeds from the offering (i) to repay all obligations under and terminate the 2026 Notes (as defined below), (ii) to pay related fees, costs and expenses and (iii) for general corporate purposes. The 2032 Notes are fully and unconditionally guaranteed on a senior secured basis, jointly and severally, by each current and future wholly-owned domestic restricted subsidiary of the Company that guaranteed the 2026 Notes (collectively, the "Guarantors" as defined in the indenture governing the 2032 Notes or the "2032 Notes Indenture"). The 2032 Notes and the related guarantees are secured by first-priority liens on substantially all of the assets of the Company and the Guarantors, subject to certain exceptions. Proceeds from the offering were approximately $293.0 million.

The 2032 Notes Indenture contains covenants that, among other things, restrict the ability of the Company and its restricted subsidiaries to: (i) grant or incur liens; (ii) incur, assume or guarantee additional indebtedness; (iii) sell or otherwise dispose of assets, including capital stock of subsidiaries; (iv) make certain investments; (v) pay dividends, make distributions or redeem or repurchase capital stock; (vi) engage in certain transactions with affiliates; and (vii) consolidate or merge with or into, or sell substantially all of our assets to another entity. These covenants are subject to several limitations and exceptions set forth in the 2032 Notes Indenture. For instance, the Company is generally permitted to make restricted payments, including the payment of dividends to shareholders, provided that, at the time of payment, or as a result of payment, the Company is not in default on its debt covenants; however, there are earnings and market capitalization requirements that if not met could limit the aggregate amount of quarterly dividends payable during a fiscal year. The 2032 Notes Indenture provides for customary events of default.

We incurred debt issuance costs attributable to the 2032 Notes of $7.1 million which are amortized to interest expense using the straight-line method over the expected life of the 2032 Notes.

2026 Notes

On February 11, 2021, we closed a private offering of $250.0 million aggregate principal amount of our 5.625% senior secured notes due 2026 (the "2026 Notes"). The 2026 Notes incurred interest at a rate of 5.625%. Interest on the 2026 Notes is payable semi-annually in arrears on February 15 and August 15 of each year, commencing on August 15, 2021.We used the proceeds from the offering (i) to repay all obligations under and terminate the 2018 First Lien Credit Facility, (ii) to pay related fees, costs and expenses and (iii) for general corporate purposes. In February 2025, we redeemed the 2026 Notes with the proceeds from the offering of the 2032 Notes.

Obligations under the 2026 Notes were guaranteed by the Company's existing and future wholly-owned domestic subsidiaries (the "Guarantors") that guarantee any credit facility (as defined in the indenture governing the 2026 Notes) or capital markets debt securities of the Company or Guarantors in excess of $15.0 million. The 2026 Notes and the related guarantees were secured by first-priority liens on substantially all of the assets of the Company and the Guarantors, subject to certain exceptions. We were in compliance with all covenants under the 2026 Notes as of December 31, 2024.

We incurred debt issuance costs attributable to the issuance of the 2026 Notes of $6.4 million, with the remaining $1.2 million written off to loss on debt extinguishment upon redemption.

2023 ABL Facility

On November 7, 2023, TPB Specialty Finance, LLC, a wholly-owned subsidiary of the Company (the "ABL Borrower"), entered into a new $75.0 million asset-backed revolving credit facility (the "2023 ABL Facility"), with the several lenders thereunder, and Barclays Bank Plc, as administrative agent (the "Administrative Agent") and as collateral agent and First-Citizens Bank & Trust Company as additional collateral agent (the "Additional Collateral Agent"). Under the 2023 ABL Facility, the ABL Borrower may draw up to $75.0 million under Revolving Credit Loans and Last In Last Out ("LILO") Loans. The 2023 ABL Facility includes a $40.0 million accordion feature. In connection with the 2023 ABL Facility, Turning Point Brands contributed certain existing inventory to the ABL Borrower. The 2023 ABL Facility is secured on a first priority basis (subject to customary exceptions) by all assets of the ABL Borrower.

The 2023 ABL Facility contains customary borrowing conditions including a borrowing base equal to the sum of (a) the lesser of (1) 85% of the lower of (A) the market value (on a first in first out basis) of the sum of eligible inventory, plus eligible in-transit inventory of the ABL Borrower and (B) 85% of the cost of the sum of eligible inventory, plus eligible in-transit inventory of the ABL Borrower and (2) 85% of the net orderly liquidation value ("NOLV") percentage of the lower of (1)(A) or (1)(B); plus (b) 85% of the face value of all eligible accounts of the ABL Borrower minus (c) the amount of all eligible reserves. The 2023 ABL Facility also includes a LILO borrowing base equal to the sum of (a) the lesser of: (1) 10% of the lower of (A) the market value (on a first in first out basis) of the sum of eligible inventory, plus eligible in-transit inventory of the ABL Borrower and (B) the cost of the sum of eligible inventory, plus eligible in-transit inventory and (2) 10% of the NOLV percentage of the lower of (1)(A) or (1)(B); plus (b) 10% of the face amount of eligible account; minus (c) the amount of all eligible reserves.

Amounts borrowed under the 2023 ABL Facility are subject to an interest rate margin per annum equal to (a) from and after the closing date until the last day of the first full fiscal quarter ended after the closing date, (i) 1.25% per annum, in the case base rate loans, and (ii) 2.25% per annum, in the case of revolving credit loans that are secured overnight financing rate ("SOFR") loans, (b)(i) 2.25% per annum, in the case of LILO loans that are base rate loans, and (ii) 3.25% per annum, in the case of LILO loans that are SOFR loans, (c) on the first day of each fiscal quarter, the applicable interest rate margins will be determined from the pricing grid below based upon the historical excess availability for the most recent fiscal quarter ended immediately prior to the relevant date, as calculated by the Administrative Agent.

			Applicable Margin			Applicable Margin
Level	Historical Excess Availability		for SOFR Loans			for Base Rate Loans
I	Greater than or equal to 66.66%		1.75%			0.75%
II	Less than 66.66%, but greater than or equal to 33.33%		2.00%			1.00%
III	Less than 33.33%		2.25%			1.25%

The 2023 ABL Facility also requires the Company and its restricted subsidiaries to maintain a fixed charge coverage ratio of at least 1.00 to 1.00 as of the end of any four consecutive fiscal quarters if excess availability is less than the greater of (a) 12.5% of the line cap and (b) $9.4 million, at any time and continuing until excess availability is equal to or exceeds the greater of (i) 12.5% of the line and (ii) $9.4 million for thirty (30) consecutive calendar days with the $9.4 million level automatically increased in proportion to the amount of any increase in the aggregate revolving credit commitments thereunder in connection with any incremental facility.

The 2023 ABL Facility will mature on the earlier of (x) November 7, 2027 and (y) the date that is 91 days prior to the maturity date of any material debt of the ABL Borrower or the Company or any of its restricted subsidiaries (subject to customary extensions agreed by the lenders thereunder); provided that clause (y) will not apply to the extent that on any applicable date of determination (on any date prior to the date set forth in clause (y)), (A) the sum of (x) cash that is held in escrow for the repayment of such material debt pursuant to arrangements satisfactory to the Administrative Agent, (y) cash that is held in accounts with the Administrative Agent and/or the Additional Collateral Agent, plus (z) excess availability, is sufficient to repay such material debt and (B) the ABL Borrower has excess availability of at least $15.0 million after giving effect to such repayment of material debt, including any borrowings under the commitments in connection therewith.

The Company has not drawn any borrowings under the 2023 ABL Facility but has letters of credit of approximately $2.3 million outstanding under the facility and has an available balance of $66.5 million based on the borrowing base as of June 30, 2025.

The Company incurred debt issuance costs attributable to the 2023 ABL Facility of $2.6 million which are amortized to interest expense using the straight-line method over the expected life of the 2023 ABL Facility.

Convertible Senior Notes

The Company's 2.5% convertible senior notes matured and were retired with cash on July 1, 2024. No principal amounts remained outstanding as of December 31, 2024.

Additional Information with Respect to Unrestricted Subsidiaries

Under the terms of the 2032 Notes, and the 2026 Notes that were recently redeemed with proceeds from the February 2025 issuance of the 2032 Notes, the Company designated certain of its subsidiaries as "Unrestricted Subsidiaries" as of December 31, 2024, including Interchange Partners LLC and Intrepid Brands, LLC. The Company is required under the terms of the indentures governing the Notes to present additional information that reflects the financial condition and results of operations of the Company and its Restricted Subsidiaries separate from the financial condition and results of operations of the Company's Unrestricted Subsidiaries as of and for the periods presented. This additional information is presented below.

Income Statements for the three and six months ended June 30, 2025 and 2024 (unaudited):

		Three Months Ended June 30,
		2025												2024
		Company and												Company and
		Restricted				Unrestricted								Restricted				Unrestricted
		Subsidiaries				Subsidiaries				Consolidated				Subsidiaries				Subsidiaries				Consolidated
Net sales		$	99,905			$	16,729			$	116,634			$	93,228			$	(3	)		$	93,225
Cost of sales			43,468				6,543				50,011				42,827				-				42,827
Gross profit (loss)			56,437				10,186				66,623				50,401				(3	)			50,398
Selling, general, and administrative expenses			35,236				5,060				40,296				29,357				(157	)			29,200
Other operating income			-				-				-				(1,674	)			-				(1,674	)
Operating income			21,201				5,126				26,327				22,718				154				22,872
Interest expense (income), net			5,493				(353	)			5,140				3,042				-				3,042
Investment (gain) loss			(44	)			27				(17	)			2,596				(157	)			2,439
Income before income taxes			15,752				5,452				21,204				17,080				311				17,391
Income tax expense			3,153				1,091				4,244				4,351				79				4,430
Consolidated net income			12,599				4,361				16,960				12,729				232				12,961
Net income (loss) attributable to non-controlling interest			64				2,416				2,480				(87	)			-				(87	)
Net income attributable to Turning Point Brands, Inc.		$	12,535			$	1,945			$	14,480			$	12,816			$	232			$	13,048

		Six Months Ended June 30,
		2025												2024
		Company and												Company and
		Restricted				Unrestricted								Restricted				Unrestricted
		Subsidiaries				Subsidiaries				Consolidated				Subsidiaries				Subsidiaries				Consolidated
Net sales		$	192,231			$	30,839			$	223,070			$	176,299			$	(10	)		$	176,289
Cost of sales			84,309				12,528				96,837				77,540				(3	)			77,537
Gross profit (loss)			107,922				18,311				126,233				98,759				(7	)			98,752
Selling, general, and administrative expenses			67,270				9,447				76,717				58,601				(317	)			58,284
Other operating income			-				-				-				(1,674	)			-				(1,674	)
Operating income			40,652				8,864				49,516				41,832				310				42,142
Interest expense (income), net			10,096				(542	)			9,554				6,521				-				6,521
Investment (gain) loss			(345	)			37				(308	)			2,477				(157	)			2,320
Gain on extinguishment of debt			1,235				-				1,235				-				-				-
Income before income taxes			29,666				9,369				39,035				32,834				467				33,301
Income tax expense			4,776				1,508				6,284				8,045				114				8,159
Consolidated net income			24,890				7,861				32,751				24,789				353				25,142
Net (loss) income attributable to non-controlling interest			(257	)			4,133				3,876				82				-				82
Net income attributable to Turning Point Brands, Inc.		$	25,147			$	3,728			$	28,875			$	24,707			$	353			$	25,060

Balance Sheet as of June 30, 2025 (unaudited):

		Company and
		Restricted				Unrestricted
		Subsidiaries				Subsidiaries				Eliminations				Consolidated
ASSETS
Current assets:
Cash		$	92,833			$	17,092			$	-			$	109,925
Accounts receivable, net			29,374				682				-				30,056
Inventories			101,497				3,512				-				105,009
Other current assets			37,853				2,374				-				40,227
Total current assets			261,557				23,660				-				285,217
Property, plant, and equipment, net			30,982				-				-				30,982
Right of use assets			10,577				-				-				10,577
Deferred financing costs, net			1,501				-				-				1,501
Goodwill			136,104				-				-				136,104
Other intangible assets, net			64,650				-				-				64,650
Master Settlement Agreement (MSA) escrow deposits			29,574				-				-				29,574
Other assets			30,456				6,727				-				37,183
Investment in unrestricted subsidiaries			-				750				(750	)			-
Total assets		$	565,401			$	31,137			$	(750	)		$	595,788
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable		$	23,470			$	2,699			$	-			$	26,169
Accrued liabilities			34,741				5,091				1,508				41,340
Total current liabilities			58,211				7,790				1,508				67,509
Deferred tax liabilities, net			1,974				-				-				1,974
Notes payable and long-term debt			293,138				-				-				293,138
Lease liabilities			8,344				-				-				8,344
Total liabilities			361,667				7,790				1,508				370,965
Commitments and contingencies
Stockholders' equity:
Total Turning Point Brands, Inc. Stockholders' Equity/Net parent investment in unrestricted subsidiaries			203,461				17,373				(2,258	)			218,576
Non-controlling interest			273				5,974				-				6,247
Total stockholders' equity			203,734				23,347				(2,258	)			224,823
Total liabilities and stockholders' equity		$	565,401			$	31,137			$	(750	)		$	595,788

Balance Sheet as of December 31, 2024:

		Company and
		Restricted				Unrestricted
		Subsidiaries				Subsidiaries				Eliminations				Consolidated
ASSETS
Current assets:
Cash		$	37,279			$	8,879			$	-			$	46,158
Accounts receivable, net			9,624				-				-				9,624
Inventories, net			95,378				875				-				96,253
Current assets held for sale			11,470				-				-				11,470
Other current assets			33,599				1,101				-				34,700
Total current assets			187,350				10,855				-				198,205
Property, plant, and equipment, net			26,337				-				-				26,337
Deferred tax assets			995				-				-				995
Right of use assets			11,610				-				-				11,610
Deferred financing costs, net			1,823				-				-				1,823
Goodwill			135,932				-				-				135,932
Other intangible assets, net			65,254				-				-				65,254
Master Settlement Agreement (MSA) escrow deposits			28,676				-				-				28,676
Noncurrent assets held for sale			3,859				-								3,859
Other assets			14,365				6,297				-				20,662
Investment in unrestricted subsidiaries			-				750				(750	)			-
Total assets		$	476,201			$	17,902			$	(750	)		$	493,353
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable		$	8,420			$	3,255			$	-			$	11,675
Accrued liabilities			29,540				719				837				31,096
Current liabilities held for sale			2,049				-				-				2,049
Total current liabilities			40,009				3,974				837				44,820
Notes payable and long-term debt			248,604				-				-				248,604
Lease liabilities			9,549				-				-				9,549
Total liabilities			298,162				3,974				837				302,973
Commitments and contingencies
Stockholders' equity:
Total Turning Point Brands, Inc. Stockholders' Equity/Net parent investment in unrestricted subsidiaries			177,481				12,087				(1,587	)			187,981
Non-controlling interest			558				1,841				-				2,399
Total stockholders' equity			178,039				13,928				(1,587	)			190,380
Total liabilities and stockholders' equity		$	476,201			$	17,902			$	(750	)		$	493,353

Off-balance Sheet Arrangements

At June 30, 2025, we had no foreign currency contracts outstanding. During 2024, we executed various foreign exchange contracts for the purchase and sale of €3.6 million. At December 31, 2024, we had foreign currency contracts outstanding for the purchase and sale of €2.1 million. The fair value of the foreign currency contracts were based on quoted market prices and resulted in an asset of $0.0 million included in Other current assets and a liability of $0.1 million included in Accrued liabilities at December 31, 2024.

Inflation

Inflation has a substantial negative effect on the purchasing power of consumers. While historically, we have been able to increase prices at a rate equal to or greater than that of inflation, doing so could be difficult in an inflationary environment. However, we have implemented price increases in areas where doing so has been feasible. In addition, we have been able to maintain a relatively stable variable cost structure for our products due, in part, to our existing contractual agreements for the purchases of tobacco and our premium cigarette rolling papers.