Turning Point Brands, Inc. (TPB)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion is intended to help the reader understand the results of operations and financial condition of the Company. The discussion is provided as a supplement to, and should be read in conjunction with our historical consolidated financial statements and accompanying notes, which are included elsewhere in this Annual Report on Form 10-K and incorporated herein by reference. In addition, this discussion includes forward-looking statements 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 Item 1A “Risk Factors.”

The following discussion relates to the audited financial statements of Turning Point Brands, Inc., included elsewhere in this Annual Report on Form 10-K. In this discussion, unless the context requires otherwise, references to “the 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. We were incorporated in 2004 under the name North Atlantic Holding Company, Inc. On November 4, 2015, we changed our name to Turning Point Brands, Inc. 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® and our next-generation products 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 growth over the four-year period ended 2024 as reported by Management Science Associates, Inc. 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 expand through investing in organic growth via acquisitions and joint ventures across all product categories. Our products are currently available in approximately 200,000 U.S. retail locations, which, with the addition of retail stores in Canada, bring 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.

Recent Developments

Contribution of Creative Distribution Solutions

On January 2, 2025, the Company contributed 100% of its interest in South Beach Brands LLC (“SBB”), the subsidiary that owns and operates the Company’s former Creative Distribution Solutions (“CDS”) reportable segment, to General Wireless Operations, Inc. (“GWO”). GWO is a joint venture between the Company and Standard General, LP entered into in December 2018, the primary operations of which will be related to the CDS business. The divestiture of the CDS business represents a strategic shift of operations and allows the Company to focus resources on its Zig-Zag and Stoker's product segments. The assets and liabilities associated with the CDS business have been classified as held for sale as of December 31, 2024, and the CDS operations have been classified as discontinued operations and reported separately for all periods presented in this annual report of Form 10-K.

The Company holds a 49% minority interest in GWO and will account for its investment in GWO under the equity method. Refer to Note 3, "Assets and Liabilities Held for Sale and Discontinued Operations" and Note 24, "Subsequent Events" in Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further discussion regarding the divestiture.

Senior Secured Notes Offering

In February 2025, we issued $300.0 million in aggregate principal amount of our 7.625% senior secured notes due 2032 (the “2032 Notes”) at a price of 100%, the proceeds of which were used to repay in full the $250 million in aggregate principal amount outstanding of 5.625% senior secured notes due 2026 (the “2026 Notes”).  The 2026 Notes were originally issued in 2021. The 2032 Notes are guaranteed by certain of the Company’s wholly-owned domestic subsidiaries but not the borrower under the Company’s ABL facility.  The 2023 Notes are senior secured obligations of the Company and guarantors secured on a first lien basis by all assets of the Company and guarantors, subject to customary exclusions.

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”) and (ii) contract for and market FRE®, our modern oral product; and (iii) contract for and market loose-leaf chewing tobacco products.

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Our portfolio of brands includes some of the most widely recognized names in the alternative smoking accessories and OTP industries such as Zig-Zag® and Stoker’s®. The following table sets forth the market share and category rank of our core products and demonstrates their industry positions within measured distribution channels:

We subscribe to a sales tracking system from MSAi that records all OTP product shipments (ours as well as those of our competitors) from approximately 600 wholesalers to over 265,000 traditional retail stores in the U.S. This system enables us to understand individual product share and volume trends across multiple categories down to the individual retail store level, allowing us to allocate field salesforce coverage to the highest opportunity stores. Our sales and marketing group of approximately 200 professionals utilize the MSAi system to efficiently target markets and sales channels with the highest sales potential.

Our core 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:

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Results of Operations

Summary

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

Comparison of Year Ended December 31, 2024, to Year Ended December 31, 2023

Net Sales: For the year ended December 31, 2024, consolidated net sales increased $35.6 million, or 11.0%, compared to the prior year period, driven by increases in net sales across both segments.

For the year ended December 31, 2024, net sales in the Zig-Zag products segment increased $11.9 million, or 6.6%, compared to the prior year period. The increase in net sales was driven primarily by $11.5 million of growth in papers, wraps and accessories, as well as $5.6 million of growth in cigars. This growth was partially offset by declines of $5.0 million in our Clipper lighter business.

For the year ended December 31, 2024, net sales in the Stoker’s products segment increased $23.7 million, or 16.4%, compared to the prior year period. For the year ended December 31, 2024, sales volume of Stoker’s products increased 6.8% as compared with the prior year period contributing $9.9 million to the increase, and price/product mix increased 9.6% which contributed $13.8 million to the increase. The increase in net sales was driven primarily by $19.0 million of growth in modern oral products while the remaining growth is attributable to MST and loose-leaf chewing tobacco.

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Gross Profit: For the year ended December 31, 2024, consolidated gross profit increased $18.6 million, or 10.2%, compared to the prior year period. Gross profit as a percentage of net sales decreased to 55.9% of net sales for the year ended December 31, 2024, from 56.3% of net sales for the year ended December 31, 2023. The overall decrease in gross profit margin was driven primarily by increased sales in modern oral in the Stoker’s products segment and cigars in the Zig-Zag products segment which generates lower margins than other product categories.

For the year ended December 31, 2024, gross profit in the Zig-Zag products segment increased $5.5 million, or 5.5%, compared to the prior year period. Gross profit as a percentage of net sales decreased to 55.4% of net sales for the year ended December 31, 2024, from 56.0% of net sales for the year ended December 31, 2023, driven primarily by growth in net sales of cigar products which generate lower margins than other products in the segment.

For the year ended December 31, 2024, gross profit in the Stoker’s products segment increased $13.1 million, or 16.0%, compared to the prior year period. Gross profit as a percentage of net sales decreased to 56.4% of net sales for the year ended December 31, 2024 from 56.6% of net sales for the year ended December 31, 2023, driven primarily by the growth in net sales of modern oral products which generate lower margins than other products in the segment.

Selling, General and Administrative Expenses: For the year ended December 31, 2024, selling, general and administrative expenses increased $18.1 million, or 17.3%, compared to the prior year period. Selling, general and administrative expenses for the year ended December 31, 2024, included $7.2 million of stock options, restricted stock and incentives expense, $4.6 million of expense related to corporate restructuring, $3.6 million of expense related to PMTA, $2.1 million related to transaction costs and $0.9 million of expense related to the implementation of the new ERP and CRM systems. Corporate restructuring expense increased in 2024 compared to the prior year period primarily due to a voluntary early retirement program offered to employees in October 2024. This program offered early retirement benefits to employees meeting certain criteria. Agreements with employees were finalized in the fourth quarter of 2024 and the Company booked a $2.7 million reserve for estimated future payments. Selling, general and administrative expenses for the year ended December 31, 2023, included $6.6 million of stock options, restricted stock and incentives expense, $2.1 million of expense related to PMTA, $0.6 million of expense related to the implementation of the new ERP and CRM systems, $0.2 million of expense related to corporate restructuring and $0.2 million related to transaction costs.

Other Operating Income:  For the year ended December 31, 2024, other operating income decreased $2.7 million compared to the prior year period due to a federal excise tax refund of $1.7 million received in 2024 compared to a $4.3 million federal excise tax refund received in 2023.

Operating Income: For the year ended December 31, 2024, consolidated operating income decreased $2.1 million, or 2.6%, compared to the prior year period. Operating income as a percentage of net sales decreased to 22.4% of net sales for the year ended December 31, 2024 from 25.5% of net sales for the year ended December 31, 2023, primarily due to an increase in unallocated corporate expenses, as discussed below, driven by increases in restructuring costs related to a voluntary early retirement program, stock compensation and transaction costs.

For the year ended December 31, 2024, operating income in the Zig-Zag products segment decreased $1.6 million, or 2.3%, compared to the prior year period. Operating income as a percentage of net sales decreased to 34.7% of net sales for the year ended December 31, 2024 from 37.8% of net sales for the year ended December 31, 2023, primarily due to a federal excise tax refund of $1.7 million received in 2024 which increased operating income, compared to a $4.3 million federal excise tax refund received in 2023, along with increased selling and marketing costs in 2024.

For the year ended December 31, 2024, operating income in the Stoker’s products segment increased $6.1 million, or 9.7%, compared to the prior year period. Operating income as a percentage of net sales decreased to 40.6% of net sales for the year December 31, 2024 from 43.0% of net sales for the year ended December 31, 2023, primarily due to increased sales and marketing costs to support the sales growth in modern oral.

Included in consolidated operating income are costs of the Company which are not assigned to one of the two reportable segments and includes: (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 year ended December 31, 2024, unallocated costs were $54.1 million compared to $47.5 million in the prior year period, an increase of $6.6 million or 13.9%, primarily driven by increases of $4.4 million in restructuring expense, $1.9 million in transaction costs, $1.5 million related to PMTA and $0.7 million in stock compensation expense.

Interest Expense, net: For the year ended December 31, 2024, interest expense, net decreased $0.7 million compared to the prior year period as a result of the maturity of the Convertible Senior Notes in 2024 and increased interest income on cash as a result of higher interest rates on cash deposits.

Investment Loss: For the year ended December 31, 2024, investment loss decreased to $1.9 million compared to $11.9 million for the year ended December 31, 2023. The change is primarily the result of impairment charges recognized on our investments in Bomani for $1.8 million and Old Pal for $0.8 million for the year ended December 31, 2024, compared to impairment charges recognized on our investments in Docklight for $8.7 million, Wild Hempettes for $2.2 million and Old Pal for $1.3 million for the year ended December 31, 2023.

Other Income: For the year ended December 31, 2024, other income was zero compared to $4.0 million in the prior year as a result of a $4.0 million gain related to a legal settlement.

Gain on Extinguishment of Debt: For the year ended December 31, 2024, gain on extinguishment of debt was zero compared to $1.7 million for the year ended December 31, 2023, as a result of the repurchase of $44.0 million in aggregate principal amount of our Convertible Senior Notes at a discount in 2023.

Income Tax Expense: The Company’s income tax expense was $16.9 million, or 26.1% of income from continuing operations before income taxes for the year ended December 31, 2024. The Company's income tax expense was $24.0 million, or 38.7% of income from continuing operations before income taxes for the year ended December 31, 2023 and included $6.4 million of valuation allowance for the deferred tax asset related to unrealized loss on investments and $1.7 million valuation allowance for foreign net operating losses.

Net Income (Loss) Attributable to Non-Controlling Interest: Net income attributable to non-controlling interest was $0.7 million for the year ended December 31, 2024, compared to a net loss of $0.7 million for the year ended December 31, 2023.

Net Income from Continuing Operations Attributable to Turning Point Brands, Inc.: Due to the factors described above, net income from continuing operations attributable to Turning Point Brands, Inc. for the years ended December 31, 2024 and 2023, was $47.3 million and $38.7 million, respectively.

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Comparison of Year Ended December 31, 2023, to Year Ended December 31, 2022

Net Sales: For the year ended December 31, 2023, consolidated net sales increased $3.8 million, or 1.2%, compared to the prior year period, driven by an increase in the Stoker’s products segment.

For the year ended December 31, 2023, net sales in the Zig-Zag products segment decreased $9.9 million, or 5.2%, compared to the prior year period. The decrease in net sales was driven by declines in the U.S. rolling papers and wraps businesses which were impacted by a reduction of trade inventory, partially offset by growth in our Clipper products. Additionally, the discontinuation of an unprofitable product line negatively impacted Canadian sales by $4.9 million against the previous year.

For the year ended December 31, 2023, net sales in the Stoker’s products segment increased $13.8 million, or 10.5%, compared to the prior year period. For the year ended December 31, 2023, Stoker’s products volume increased 4.2% and price/mix increased 6.3%. The increase in net sales was driven primarily by double-digit growth of Stoker’s® MST. MST represented 68% of Stoker’s products revenue in 2023, up from 66% for the same period in 2022.

Gross Profit: For the year ended December 31, 2023, consolidated gross profit increased $5.1 million, or 2.9%, compared to the prior year period. Gross profit as a percentage of net sales increased to 56.3% of net sales for the year ended December 31, 2023, from 55.4% of net sales for the year ended December 31, 2022. The overall increase in gross profit margin was driven primarily by increased margins in the Stoker’s products segment.

For the year ended December 31, 2023, gross profit in the Zig-Zag products segment decreased $5.5 million, or 5.2%, compared to the prior year period. Gross profit as a percentage of net sales remained unchanged at 56.0% of net sales for the years ended December 31, 2024 and 2023, respectively.

For the year ended December 31, 2023, gross profit in the Stoker’s products segment increased $10.6 million, or 14.9%, compared to the prior year period. Gross profit as a percentage of net sales increased to 56.6% of net sales for the year ended December 31, 2023, from 54.5% of net sales for the year ended December 31, 2022, as a result of strong incremental margin contribution of MST.

Selling, General and Administrative Expenses: For the year ended December 31, 2023, selling, general, and administrative expenses increased $0.5 million, or 0.5% compared to the prior year period. Selling, general and administrative expenses for the year ended December 31, 2023, included $6.6 million of stock options, restricted stock and incentives expense, $2.1 million of expense related to PMTA, $0.6 million of expense related to the implementation of the new ERP and CRM systems, $0.2 million of expense related to corporate restructuring and $0.2 million related to transaction costs. Selling, general and administrative expenses for the year ended December 31, 2022, included $5.3 million of stock options, restricted stock and incentives expense, $4.6 million of expense related to PMTA, $3.3 million of expense related to corporate restructuring, $2.0 million of expense related to the implementation of the new ERP and CRM systems and $0.8 million related to transaction costs.

Other Operating Income:  For the year ended December 31, 2023, other operating income was $4.3 million, resulting from a federal excise tax refund and a $15.2 million gain related to insurance, partially offset by a $15.2 million reduction in inventory due to storm damage. For the year ended December 31, 2022, there was no other operating (income) expense.

Operating Income: For the year ended December 31, 2023, consolidated operating income increased $9.0 million, or 12.1%, compared to the prior year period. Operating income as a percentage of net sales increased to 25.5% of net sales for the year ended December 31, 2023, from 23.0% of net sales for the year ended December 31, 2022, primarily due to increased margins in the Stokers products segment partially offset by decreases in unallocated corporate expenses.

For the year ended December 31, 2023, operating income in the Zig-Zag products segment decreased $5.1 million, or 6.9%, compared to the prior year period. Operating income as a percentage of net sales decreased to 37.8% of net sales for the year ended December 31, 2023, from 38.5% of net sales for the year ended December 31, 2022, primarily driven by decreased gross profits in U.S. papers and wraps.

For the year ended December 31, 2023, operating income in the Stoker’s products segment increased $8.9 million, or 16.6%, compared to the prior year period. Operating income as a percentage of net sales increased to 43.0% of net sales for the year December 31, 2023, from 40.8% of net sales for the year ended December 31, 2022, primarily driven by higher net sales of MST.

Included in consolidated operating income are costs of the Company which are not assigned to one of the two reportable segments and includes: (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 year ended December 31, 2023, unallocated costs were $47.5 million compared to $52.7 million in the prior year period, a decrease of $5.1 million or 9.8%, primarily driven by decreases of $3.1 million of restructuring expense and $2.5 million of expense related to PMTA.

Interest Expense, net: For the year ended December 31, 2023, interest expense, net decreased $4.9 million compared to the prior year period primarily as a result of the repurchases of $44.0 million and $10.0 million in aggregate principal amount of Convertible Senior Notes in 2023 and 2022, respectively, and increased interest income on cash as a result of rising interest rates.

Investment Loss: For the year ended December 31, 2023, investment loss decreased to $11.9 million compared to $13.3 million for the year ended December 31, 2022. The change is primarily a result of the 2023 impairment charges recognized on our investments in Docklight, Wild Hempettes and Old Pal of $8.7 million, $2.3 million and $1.3 million, respectively, in 2023, compared to impairment charges of $7.9 million, $4.3 million and $1.4 million in 2022 related to our investments in Dosist, Real Brands and Old Pal, respectively.

Other Income: For the year ended December 31, 2023, other income was $4.0 million compared to zero in the prior year period as a result of a $4.0 million gain related to a legal settlement.

Gain on Extinguishment of Debt: For the year ended December 31, 2023, gain on extinguishment of debt was $1.7 million compared to $0.9 million for the year ended December 31, 2022, as a result of the repurchase of $44.0 million in aggregate principal amount of our Convertible Senior Notes at a discount. For the year ended December 31, 2022, gain on extinguishment of debt resulted from the repurchase of $10.0 million in aggregate principal of our Convertible Senior Notes at a discount.

Income Tax Expense: The Company’s income tax expense was $24.0 million, or 38.7% of income before income taxes for the year ended December 31, 2023, and included $6.4 million of valuation allowance for the deferred tax asset related to unrealized loss on investments and $1.7 million valuation allowance for foreign net operating losses. The Company's income tax expense was $11.0 million, or 26.1% of income before income taxes for the year ended December 31, 2022.

Net Income (Loss) Attributable to Non-Controlling Interest: Net loss attributable to non-controlling interest was $0.7 million for the year ended December 31, 2023, compared to a $0.5 million loss for the year ended December 31, 2022.

Net Income from Continuing Operations Attributable to Turning Point Brands, Inc.: Due to the factors described above, net income attributable to Turning Point Brands, Inc. for the years ended December 31, 2023 and 2022, was $38.7 million and $31.6 million, respectively.

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Loss from Discontinued Operations, net of tax

On January 2, 2025, the Company contributed 100% of its interest in SBB, the subsidiary that owns and operates the Company’s CDS segment, to GWO in exchange for 49% of the issued and outstanding GWO common stock on a fully-diluted basis. GWO is a joint venture between the Company and Standard General, LP entered into in December 2018.  The assets and liabilities associated with the CDS business have been classified as held for sale as of December 31, 2024, and its financial results are classified as discontinued operations and reported separately for all periods presented herein. Upon meeting the criteria for held for sale classification, the Company recorded a non-cash charge of $8.8 million with an equivalent valuation allowance against net assets held for sale to reduce the carrying value of the disposal group to fair value.

As of December 2024, total assets and liabilities associated with the CDS segment classified as held for sale were $15.3 million and $2.0 million, respectively. As of December 2023, total assets and liabilities associated with the CDS segment classified as held for sale were $27.0 million and $2.2 million, respectively.

Loss from discontinued operations, net of tax for the years ended December 31 are as follows:

Comparison of Year Ended December 31, 2024, to Year Ended December 31, 2023

For the year ended December 31, 2024, net loss from discontinued operations, net of tax, increased $7.2 million compared to the prior year period. The loss is primarily due to lower net sales of $21.3 million for the year ended December 31, 2024 compared to prior year and a $8.8 million non-cash charge recognized in discontinued operations in 2024 to reduce the carrying value of the disposal group to its fair value.

Comparison of Year Ended December 31, 2023, to Year Ended December 31, 2022

For the year ended December 31, 2023, net loss from discontinued operations, net of tax, decreased $19.6 million compared to the prior year period. The decreased in loss for the year ended December 31, 2023 is primarily due to a goodwill impairment charge of $27.6 million recognized for the year ended December 31, 2022 to reduce the carrying value of the CDS segment goodwill balance to zero.

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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 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.

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.

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Liquidity and Capital Resources

Our principal uses for cash are working capital, debt service and capital expenditures. As of December 31, 2024, we had $46.2 million cash on hand, excluding CDS segment cash of $2.8 million, ($116.7 million, excluding CDS segment cash of $1.2 million, as of December 31, 2023) and have up to $57.4 million of availability under the 2023 ABL Facility. After giving effect to the issuance of the 2032 Notes and redemption of the 2026 Notes in February 2025, our cash on hand would have been $90.2 million as of December 31, 2024 and borrowing availability under the ABL would have remained the same. We have no borrowings outstanding under our ABL as of December 31, 2024. Our Convertible Senior Notes matured on July 15, 2024 and were retired with cash.

Our adjusted working capital, excluding CDS segment assets and liabilities held for sale, which we define as current assets less cash and current liabilities, increased $57.3 million compared to the prior year end. The increase in working capital was primarily a result of a $58.3 million decrease in current liabilities due to the July 15, 2024 maturity of our Convertible Senior Notes which were retired with cash on that date. 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.

For the years ended December 31, 2024 and 2023, we invested $4.6 million and $5.7 million, respectively, in capital expenditures. We had restricted assets of $30.7 million and $33.6 million as of December 31, 2024 and 2023, respectively. Restricted assets consist of escrow deposits under the MSA and insurance deposits. On the 25th anniversary of each annual deposit, we are entitled to receive reimbursement of the principal amount of escrow remaining for that year. See “Master Settlement Agreement” below for details.

Cash Flows from Continuing Operations

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

Cash Flows from Operating Activities

For the year ended December 31, 2024, net cash provided by operating activities was $61.0 million, an increase of $4.7 million compared to the prior year period, primarily due to an increase in net income, net of non-cash items of $12.6 million and a favorable change in other assets of $3.1 million, partially offset by a $11.0 million unfavorable change in working capital. The primary drivers of non-cash items were a $9.5 million decrease in loss on investments compared to the prior year period and a $6.5 million decrease in deferred tax expense, partially offset by increases of $1.6 million in depreciation and other amortization expense and a $1.7 million decrease in gains on extinguishment of debt compared to the prior year period.

For the year ended December 31, 2023, net cash provided by operating activities was $56.2 million, an increase of $34.9 million compared to the prior year period, primarily due to an increase in the change in working capital of $35.2 million (net of inventory reserve), partially offset by a decrease in the change in other assets of $5.3 million. The increase in working capital was primarily driven by an increase in the change in inventories of $40.0 million related to the timing of changes in inventory.

Cash Flows from Investing Activities

For the year ended December 31, 2024, net cash used in investing activities was $10.5 million, an increase of $4.6 million compared to the prior year period, primarily due to the net purchase of an additional $5.4 million in investments by our captive insurance subsidiary.

For the year ended December 31, 2023, net cash used in investing activities was $5.9 million, a decrease of $13.1 million compared to the prior year period, primarily due to a $10.2 million decrease in purchases of investments in our MSA escrow account.

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Cash Flows from Financing Activities

For the year ended December 31, 2024, net cash used in financing activities was $128.3 million, an increase of $78.8 million compared to the prior year period, primarily due to a $118.5 million cash payment for retirement of the Convertible Senior Notes and $5.1 million of cash used for the repurchase of common stock during the period in 2024, partially offset by $41.8 million in repurchases of Convertible Senior Notes that occurred during the same period in 2023.

For the year ended December 31, 2023, net cash used in financing activities was $49.5 million, an increase of $6.2 million compared to the prior year period, primarily due to $41.8 million in repurchases of Convertible Senior Notes during the period, partially offset by a decrease in repurchases of common stock of $29.2 million during 2023.

Cash Flows from Discontinued Operations

The cash flows of the discontinued operations are reflected in the Consolidated Statements of Cash Flows and are summarized below.

Cash Flows from Operating Activities

For the year ended December 31, 2024, net cash provided by operating activities was $6.1 million, a decrease of $4.5 million compared to the prior year period, primarily due to an unfavorable $5.8 million change in working capital.

For the year ended December 31, 2023, net cash provided by operating activities was $10.6 million, an increase of $1.7 million compared to the prior year period, primarily due to a $9.2 million favorable change in working capital, reduced by a $7.5 million decrease in net loss, net of non-cash items.

Long-Term Debt

Notes payable and long-term debt consisted of the following at December 31, 2024 and 2023, in order of preference:

Senior Secured 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.

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 the “2026 Notes Indenture”) or capital markets debt securities of the Company or Guarantors in excess of $15.0 million. The 2026 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. We were in compliance with all covenants under the 2026 Notes as of December 31, 2024.

In February 2025, we redeemed the 2026 Notes with the proceeds from the offering of the 2032 Notes.

We incurred debt issuance costs attributable to the issuance of the 2026 Notes of $6.4 million which are amortized to interest expense using the straight-line method over the expected life of the 2026 Notes.

2032 Notes

In February 2025, the Company 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. The Company used the proceeds from the offering (i) to repay all obligations under and terminate the 2026 Notes, (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 wholly-owned domestic restricted subsidiary of the Company that guaranteed the 2026 Notes. 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 $294.0 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 a number of 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.

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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 (the “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, certain existing inventory was contributed 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 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.

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.

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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 $57.4 million based on the borrowing base as of December 31, 2024.

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 remain outstanding as of December 31, 2024.

Additional Information with Respect to our Unrestricted Subsidiaries

Under the terms of 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 for 2024 is presented below. With the classification of the Company's CDS products business to discontinued operations in December 2024, there are no meaningful results for Unrestricted Subsidiaries to present for 2023 or 2022.

Income Statement for the year ended December 31, 2024:

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Balance Sheet as of December 31, 2024:

Distribution Agreements

For a description of our material distribution agreements, see Item 1. “Business - Distribution and Supply Agreements.”

Master Settlement Agreement

On November 23, 1998, the major U.S. cigarette manufacturers, Philip Morris USA, Inc., Brown & Williamson Tobacco Corporation, Lorillard Tobacco Company and R.J. Reynolds Tobacco Company, entered into the MSA with attorneys general representing states that agreed to settle certain recovery actions (the “Settling States”). In order to be in compliance with the MSA and subsequent states’ statutes, we were required to fund an escrow account with each of the Settling States based on the number of cigarettes or cigarette equivalents (which is measured by pounds of MYO cigarette smoking tobacco) sold in such state. We discontinued our generic category of MYO in 2019 and our Zig-Zag branded MYO cigarette smoking tobacco in 2017. Pending a change in MSA legislation, we have no remaining product lines covered by the MSA and will not be required to make future escrow deposits and, therefore, do not expect to accrue any loss contingencies subject to the MSA in the future.

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The following table summarizes our escrow deposit balances (in thousands) by sales year as of:

Off-Balance Sheet Arrangements

During 2024, we executed various foreign exchange contracts for the purchase of €3.6 million and sale of €3.6 million with maturity dates ranging from October 2024 to June 2025. At December 31, 2024, we had foreign currency contracts outstanding for the purchase of €2.1 million and sale of €2.1 million. The fair value of the foreign currency contracts was 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. We had no interest rate swap contracts at December 31, 2024 and 2023.

During 2023, we executed various foreign exchange contracts for the purchase of €20.1 million and sale of €15.2 million with maturity dates ranging from July 2023 to September 2024. At December 31, 2023, we had foreign currency contracts outstanding for the purchase of €15.2 million and sale of €15.2 million. The fair value of the foreign currency contracts was based on quoted market prices and resulted in an asset of $0.3 million included in Other current assets and a liability of $0.1 million included in Accrued liabilities at December 31, 2023.

Future Cash Requirements

The Company’s primary future cash requirements will be to fund operations, lease payments, debt service and capital expenditures. The Company’s contractual obligations primarily include long-term debt and lease obligations. For information regarding our long-term debt obligations and cash payment obligations thereunder, please see Note 14, “Notes Payable and Long-Term Debt” in Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K. For information regarding our lease obligations and cash payment obligations thereunder, please see Note 17, “Lease Commitments” in the Notes to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.

In 2024, we repurchased 154,945 shares of our common stock for a total cost of $5.1 million at an average price per share of $32.60, and have $100 million of authorization remaining under our Board approved repurchase program at December 31, 2024. In 2023, we made no repurchases of our common stock.

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Regulation and Legislation

While we are subject to several regulatory regimes and requirements, the following may meaningfully impact operations or resources:

Federal Regulation

Certain tobacco and nicotine products, cigarette papers, and cigarette tubes are subject to federal excise taxes. Any future increases in federal excise taxes on the Company’s products could have a material adverse effect on the results of operations or financial condition of the Company. The Company is unable to predict the likelihood of passage of future increases in federal excise taxes. As of December 31, 2024, federal excise taxes are not assessed on certain novel nicotine products, including nicotine pouches, e-cigarettes and related products.

State and Local Regulation

As of December 31, 2024, the states require excise tax payments on most of our products. These required taxes may increase over time or be expanded to cover additional product categories and may in some cases impact the consumer demand of the products. In addition, there are several local taxing jurisdictions requiring taxes and/or licensing. Several states have also implemented or are considering implementing additional regulations on our products, including sales restrictions. These requirements may impact which products we are allowed to offer for sale or may influence retailers’ likelihood of carrying regulated products more generally.

FDA Regulation

On June 22, 2009, the Family Smoking Prevention and Tobacco Control Act (“FSPTCA”) authorized the FDA to immediately regulate the manufacture, sale, and marketing of four categories of tobacco products – cigarettes, cigarette tobacco, roll-your-own tobacco, and smokeless tobacco. On August 8, 2016, the FDA deeming regulation became effective. The deeming regulation gave the FDA the authority to also regulate all products made or derived from tobacco intended for human consumption, but excluding accessories of tobacco products (such as lighters). Accordingly, the FDA has since regulated our cigar and cigar wrap products.  Subsequently, on April 14, 2022, the FDA Center for Tobacco Products also obtained jurisdiction over non-tobacco nicotine products (“NTN Products”), including synthetic nicotine. That law subjects NTN Products to the same requirements as tobacco-derived products.

The FDA currently assesses tobacco product user fees on six classes of regulated tobacco products and computes user fees using a methodology similar to the methodology used by the U.S Department of Agriculture to compute the Tobacco Transition Payment Program (“TTPP,” also known as the “Tobacco Buyout”) assessment. First, the total, annual, congressionally established user fee assessment is allocated among the various classes of tobacco products using the federal excise tax weighted market share of tobacco products subject to regulation. Then, the assessment for each class of tobacco products is divided among individual manufacturers and importers.

Tobacco products regulated by FDA are subject to premarket filing requirements, most significantly Premarket Tobacco Product Applications (“PMTAs”) or Substantial Equivalence Reports (“SEs”).

A successful PMTA must demonstrate that the subject product is “appropriate for the protection of public health,” taking into account the effect of the marketing of the product on all sub-populations while a Substantial Equivalence Report must demonstrate that a new product either has the same characteristics as its predicate product or different characteristics but does not raise different questions of public health. We submitted premarket filings for certain of our regulated products in order to continue selling these products while they remain under review. We have continued to supplement these applications with additional information and have responded to information requests from the FDA; however, there can be no guarantee that the FDA will accept such amendments and responses or that the applications will meet the standard of “appropriate for the protection of public health” or “substantially equivalent,” as appropriate. FDA’s interpretation and implementation of these standards likewise may change over time, which may negatively impact our existing or future premarket filings. Currently, the FDA has indicated its enforcement priority is those applicants who have received negative action on their application, such as a Marketing Denial Order or Refuse to File notification and who continue to illegally sell those unauthorized products, as well as products for which manufacturers failed to submit a premarket filing. Despite these stated enforcement priorities, given the FDA’s limited resources we expect that for a period of time there may be a lack of enforcement, which may adversely impact our ability to compete in the marketplace against those who continue to sell unauthorized products. This issue could grow worse should the federal government decrease the size of certain agencies or resources, including the U.S. Department of Justice or U.S. Customs and Border Protection.

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On May 4, 2022, the FDA proposed two tobacco product standards related to combusted tobacco products: (1) a ban on menthol as a characterizing flavor in cigarettes; and (2) a ban on all characterizing flavors (including menthol) in cigars. On June 21, 2022, the FDA also issued a proposed product standard related to restricting the level of nicotine in traditional cigarettes. On March 8, 2023, the FDA proposed requirements for tobacco product manufacturing practice (“TPMPs”). Once finalized, TPMPs would establish requirements for tobacco product manufacturers regarding the manufacture, design, packing and storage of finished and bulk tobacco products. These regulations are required to go through the formal rulemaking process where we have had the opportunity to provide comments with regard to the impact such standards would have on our products. As of January 2025, these proposed rules were withdrawn or otherwise delayed. The FDA’s policy on these and other regulated products may change or expand over time in ways not yet known and may significantly impact our products or our premarket filings.

Inflation

Inflation in general and the continued increases in costs of goods and services, such as food and gas prices, have had a substantial negative effect on the purchasing power of consumers. While historically, we have been able to pass on most cost increases to our consumers, no assurance can be given that we will continue to be able to do so. In addition, we have been able to maintain a relatively stable variable cost structure for our products due, in part, to our successful procurement with regard to our tobacco products and, in part, to our existing contractual agreement for the purchase of our premium cigarette papers.

Recent Accounting Pronouncements

See Item 8 of Part II, “Financial Statements and Supplementary Data - Note 2 - Summary of Significant Accounting Policies - Recent Accounting Pronouncements”.

Critical Accounting Estimates

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the U.S. When more than one accounting principle, or the method of its application, is generally accepted, we select the principle or method that is appropriate in the specific circumstances. Application of these accounting principles requires us to make estimates about the future resolution of existing uncertainties. Actual results could differ from these estimates. We evaluate our estimates, including those related to intangibles, investments in debt security and the fair value of the Creative Distribution Solutions segment on an ongoing basis. We base these estimates on our historical experience and other assumptions we believe are appropriate under the circumstances. In preparing these consolidated financial statements, we have made our best estimates and judgments of the amounts and disclosures included in the consolidated financial statements. Our significant accounting policies are discussed in Note 2 of the Notes to Consolidated Financial Statements in Item 8 of Part II of this Annual Report on Form 10-K.

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Indefinite-lived Intangible Assets

We follow the provisions of ASC 350, Intangibles – Goodwill and Other in accounting for indefinite-lived intangible assets. Indefinite-lived intangible assets are tested for impairment annually on December 31, or more frequently if certain indicators are present, in accordance with ASC 350-20-35 and ASC 350-30-35, respectively. Examples of such indicators could include but are not limited to a significant loss of market share, significant decline in operating results, change in management strategy or operations, economic decline, and other significant disruptions to the business.

We estimate the fair value of our indefinite-lived assets using the relief from royalty valuation methodology. This methodology is based on what the Company would be willing to pay as a royalty in order to exploit the related benefits of the asset. The value of the asset is determined by discounting the inherent after-tax royalty savings associated with ownership or possession of the asset over the expected useful life. In 2024, based on quantitative assessments, the fair values of our Zig-Zag and Stokers’ indefinite-lived intangible assets exceeded their carrying values by a significant amount. We identified the estimate of the fair value of the Company’s indefinite lived assets as a critical estimate because of the significant assumptions used in these analyses including, but are not limited to, projected revenue, the weighted average cost of capital and royalty rate. We used modest growth rates in projecting the revenue related to these indefinite-lived intangible assets. As we do for each impairment assessment, for our future impairment assessments we will evaluate the reasonableness and relevance of our previous performance assumptions, considering both internal and external factors existing at the impairment test date, to determine if changes to those performance assumptions are warranted.

If actual results are not consistent with the Company’s estimates and/or other assumptions change, the Company may be exposed to future impairment charges that could materially and adversely impact its financial position and results of operations.

Investments in Debt Security

We have classified our debt security investment as available-for-sale and, as a result, this security is recorded at fair value. We estimate the fair value of the debt security investment using a Monte Carlo simulation, which utilizes unobservable inputs that are classified as Level 3 inputs under the fair value hierarchy. We identified the estimate of the fair value of the Company’s debt security investment as a critical estimate because of the complexity of the Monte Carlo simulation valuation methodology and the significant assumptions used in estimating the fair value, including the enterprise valuation of the investee, enterprise value to revenue market multiples applied to the financial results of the investee to estimate an enterprise valuation of the investee, and investment hold period scenarios used in the weighting of Monte Carlo simulation valuation results.

If actual results are not consistent with the Company’s estimates and/or other assumptions change, the Company may be exposed to future allowance for credit losses that could materially and adversely impact its financial position and results of operations.

Fair Value of the Creative Distribution Solution Segment

Our CDS segment met the criteria to be classified as held-for-sale as of December 31, 2024.  As a result, we are required to carry the net assets of the CDS segment at fair value less costs to sell. We determined the fair value of the CDS segment using a weighted average of three valuation methodologies that consisted of the discounted cash flow method, the guideline public company method and the similar transaction method. We identified the estimate of the fair value of the CDS segment as a critical accounting estimate because of the significant estimates and assumptions used by management in the discounted cash flow method, including forecasts of expected revenue growth rates, estimated terminal value and the selection of the discount rate.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion is intended to help the reader understand the results of operations and financial condition of the Company. The discussion is provided as a
supplement to, and should be read in conjunction with our historical consolidated financial statements and accompanying notes, which are included elsewhere in this Annual Report on Form 10-K and incorporated herein by reference. In addition, this
discussion includes forward-looking statements 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 Item 1A “Risk Factors.”

The following discussion relates to the audited financial statements of Turning Point Brands, Inc., included elsewhere in this Annual Report on Form 10-K. In this
discussion, unless the context requires otherwise, references to “the 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. We were incorporated in 2004 under the name North Atlantic Holding Company, Inc. On November 4, 2015, we changed our name to Turning Point Brands, Inc. 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® and our next generation products 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 growth over the four-year period ended 2023 as reported by Management
Science Associates, Inc., a third-party analytics and information company. Our segments are led by our core, proprietary brands: Zig-Zag® and CLIPPER® in the Zig-Zag Products segment and Stoker’s® along with Beech-Nut® and Trophy® in the Stoker’s Products segment. Our businesses generate
solid cash flows 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 820 distributors with an
additional 650 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 acquisitions and joint ventures across all product categories. Our products are currently available in approximately 197,000 U.S.
retail locations which, with the addition of retail stores in Canada, brings our total North American retail presence to an estimated 217,000 points of distribution. Our sales team targets widespread distribution to all traditional retail
channels, including convenience stores. We also have a growing e-commerce business.

In the fourth quarter of 2022, we contributed our NewGen Products business to South Beach Holdings LLC doing business as Creative Distribution Solutions (“CDS”), a newly-formed wholly-owned
subsidiary. CDS is separately operated and reports to its own Board of Directors. During the first quarter of 2023, the business was designated an unrestricted subsidiary under the Senior Secured Notes (the “Notes”) and concurrently we renamed
what we previously referred to as our NewGen Products segment as our Creative Distribution Solutions segment as we believe this name better aligns with the goals and strategies of the segment. During the third quarter of 2023, the CDS business
was restructured to eliminate certain unprofitable brands and focus on a narrower set of products to better position it as a standalone business.

Products

We operate in three segments: Zig-Zag Products, Stoker’s Products and Creative Distribution Solutions. 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 markets and distributes cannabis
accessories and tobacco products throughout Canada. In our Stoker’s Products segment, we (i) manufacture and market moist snuff tobacco (“MST”) and (ii) contract for and market loose leaf chewing tobacco products. In our Creative Distribution
Solutions segment, we (i) market and distribute liquid nicotine products and certain other products without tobacco and/or nicotine; (ii) distribute a wide assortment of products to non-traditional retail via VaporBeast; and (iii) market and
distribute a wide assortment of products to individual consumers via the VaporFi B2C online platform.

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Our portfolio of brands includes some of the most widely recognized names in the alternative smoking accessories and OTP industries, such as Zig-Zag®, Stoker’s®, Vapor Beast® and VaporFi®. The following table sets forth the market share and category rank of our core products and demonstrates their industry positions within measured distribution channels:

We subscribe to a sales tracking system from MSAi that records all OTP product shipments (ours as well as those of our competitors) from approximately 600 wholesalers to over 250,000
traditional retail stores in the U.S. This system enables us to understand individual product share and volume trends across multiple categories down to the individual retail store level, allowing us to allocate field salesforce coverage to the
highest opportunity stores. Our sales and marketing group of approximately 180 professionals utilize the MSAi system to efficiently target markets and sales channels with the highest sales potential.

Our core 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 acquisition of Vapor Beast in 2016 expanded our revenue streams as we began selling directly to non-traditional retail outlets. Our acquisition of IVG in 2018 enhanced our B2C revenue stream with the addition of the Vapor-Fi
online platform. 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 75% 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. Our other principal expenses include interest expense and other expenses.

Key Factors Affecting Our Results of Operations

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

Recent Developments

ABL Facility

In November 2023, a wholly-owned subsidiary of the Company entered into a new asset-based revolving credit facility with committed borrowing capacity of up to $75.0 million. The facility is
secured solely by the assets of the subsidiary, which consists of certain inventory lines and cash. Neither the Company or any of its other subsidiaries guarantees or provides other credit support for the new facility. The new facility is
scheduled to mature in November 2027, and replaces a $25.0 million senior secured revolving credit facility which was scheduled to mature in August 2025. The Company currently has no borrowings outstanding under the new asset-based revolving
credit facility.

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Warehouse Damage

In December 2023, a third-party warehouse in Tennessee used to store some of the Company’s leaf tobacco incurred significant tornado damage resulting in damage to the leaf tobacco. As a result,
the Company recorded a $15.2 million inventory reserve related to its leaf tobacco inventory which is included in other operating income, net. The leaf tobacco inventory is covered by the Company’s stock throughput insurance policy and the
Company believes the inventory loss is probable of being fully recovered under the policy. As a result, the Company recorded a $15.2 million insurance recovery receivable which is included in other operating income, net. The Company does not
expect to incur any delays in customer deliveries as a result of the damage.

Captive Insurer

In December 2023, the Company formed a captive insurance company, Interchange IC, incorporated in the District of Columbia, to write a portion of our general product, and officer and director
liability coverages under deductible reinsurance policies. Interchange IC is a fully licensed captive insurance company holding a certificate of authority from the District of Columbia Department of Insurance, Securities and Banking. Interchange
IC is a wholly-owned subsidiary of Turning Point Brands and will be consolidated in the Company’s financial statements. As of December 31, 2023 Interchange IC had not been funded and had no activity.

Critical Accounting Policies and Uses of Estimates

The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the U.S. When more than one accounting principle, or the
method of its application, is generally accepted, we select the principle or method that is appropriate in the specific circumstances. Application of these accounting principles requires us to make estimates about the future resolution of
existing uncertainties. Actual results could differ from these estimates. We evaluate our estimates, including those related to revenue recognition, inventory valuation and obsolescence, goodwill, intangibles, fair value, income taxes,
stock-based compensation, litigation, and contingencies on an ongoing basis. We base these estimates on our historical experience and other assumptions we believe are appropriate under the circumstances. In preparing these consolidated financial
statements, we have made our best estimates and judgments of the amounts and disclosures included in the consolidated financial statements.

Revenue Recognition

We recognize revenues in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (Topic 606), which include excise taxes and shipping and handling
charges billed to customers, net of cash discounts for prompt payment, sales returns and sales incentives, upon delivery of goods to the customer—at which time our performance obligation is satisfied—at an amount that we expect to be entitled to
in exchange for those goods in accordance with the five-step analysis outlined in Topic 606: (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv)
allocate the transaction price to the performance obligations, and (v) recognize revenue when (or as) performance obligations are satisfied. We exclude from the transaction price, sales taxes and value-added taxes imposed at the time of sale
(which do not include excise taxes on smokeless tobacco, cigars or vaping products billed to customers).

We record an allowance for sales returns, based principally on historical volume and return rates, which is included in accrued liabilities on the consolidated balance sheets. We record sales
incentives, which consist of consumer incentives and trade promotion activities, as a reduction in revenues (a portion of which is based on amounts estimated as being due to wholesalers, retailers and consumers at the end of the period) based
principally on historical volume and utilization rates. Expected payments for sales incentives are included in accrued liabilities on the consolidated balance sheets.

Goodwill and Other Intangible Assets

We follow the provisions of ASC 350, Intangibles – Goodwill and Other in accounting for goodwill and other intangible assets. Goodwill is tested for impairment annually on December 31, or more
frequently if certain indicators are present, in accordance with ASC 350-20-35 and ASC 350-30-35, respectively.

When testing goodwill for impairment, we have the option to first perform qualitative testing to determine whether it is more likely than not that the fair value of a reporting unit is less
than its carrying value. If we choose not to complete a qualitative assessment for a given reporting unit or if the initial assessment indicates that it is more likely than not that the carrying value of a reporting unit exceeds its estimated
fair value, additional quantitative testing is required. If the carrying value of a reporting unit exceeds its fair value, an impairment loss is recognized in the amount by which the carrying value of the reporting unit exceeds its fair value,
limited to the amount of goodwill at the reporting unit. We determine fair values for each of the reporting units using a combination of the income approach and/or market approach. Under the income approach, fair value is determined based on the
present value of estimated future cash flows, discounted at an appropriate risk-adjusted rate. Under the market approach, we select peer sets based on close competitors and review the revenue and EBITDA multiples to determine the fair value. See
Note 10, “Goodwill and Other Intangible Assets” in Notes to Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further information on goodwill.

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Indefinite-lived intangible assets are tested for impairment at least annually; however, these tests are performed more frequently when events or changes in circumstances indicate that the
asset may be impaired. Impairment exists when carrying value exceeds fair value. The Company’s fair value methodology is primarily based on the relief from royalty approach. See Note 10, “Goodwill and Other Intangible Assets” in Notes to
Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further information on intangible assets.

Definite-lived intangible assets are amortized over their estimated useful lives, generally on a straight-line basis for periods ranging primarily from 3.5 to 15 years. The Company continually
evaluates the reasonableness of the useful lives of these assets and upon a triggering event evaluates its asset group for impairment.

Fair Value

U.S. GAAP establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The
hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under U.S.
GAAP are described below:

Income Taxes

We account for income taxes under ASC 740. We record the effects of income taxes under the liability method in which deferred income tax assets and liabilities are recognized based on the
difference between the financial and tax basis of assets and liabilities using the enacted tax rates in effect for the years in which the differences are expected to reverse. We assess our ability to realize future benefits of deferred tax assets
by determining if they meet the “more likely than not” criteria in ASC 740, Income Taxes. If we determine that future benefits do not meet the “more likely than not” criteria, a valuation allowance is recorded.

Stock-Based Compensation

We measure stock compensation costs related to our stock options using the fair value-based method under the provisions of ASC 718, Compensation – Stock Compensation, which requires
compensation cost for stock options to be recognized based on the fair value of stock options granted. We determine the fair value of these awards using the Black-Scholes option pricing model.

We grant performance-based restricted stock units (“PRSU”) subject to both performance-based and service-based vesting conditions. The fair value of each PRSU is our stock price on the date of
grant. For purposes of recognizing compensation expense as services are rendered in accordance with ASC 718, we assume all employees involved in the PRSU grant will provide service through the end of the performance period. Stock compensation
expense is recorded based on the probability of achievement of the performance conditions specified in the PRSU grant.

We grant restricted stock units (“RSU”) subject to service-based vesting conditions. The fair value of each RSU is our stock price on the date of grant. We recognize compensation expense as
services are rendered in accordance with ASC 718. Stock compensation expense is recorded over the service period in the RSU grant.

Inventories

Inventories are stated at the lower of cost or net realizable value using the first-in, first-out (“FIFO”) method. Leaf tobacco is presented in current assets in accordance with standard
industry practice, notwithstanding the fact that such tobaccos are carried longer than one year for the purpose of curing. We recorded an inventory valuation allowance of $20.6 million and $4.5 million at December 31, 2023 and 2022, respectively.

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Results of Operations

Summary

The table and discussion set forth below relates to our consolidated results of operations for the years ended December 31 (in thousands):

Comparison of Year Ended December 31, 2023, to Year Ended December 31, 2022

Net Sales. For the year ended December 31, 2023, overall net sales decreased to $405.4 million from $415.0 million
for the year ended December 31, 2022, a decrease of $9.6 million or 2.3%. The decrease in net sales was primarily driven by decreased sales volume in the Creative Distribution Solutions segment.

For the year ended December 31, 2023, net sales in the Zig-Zag Products segment decreased to $180.5 million from $190.4 million for the year ended December 31, 2022, a decrease of $9.9 million
or 5.2%. The decrease in net sales was driven by anticipated declines in the U.S. rolling papers and wraps businesses which were impacted by a reduction of trade inventory, partially offset by growth in our Clipper products. Additionally, a
discontinuation of an unprofitable product line negatively impacted Canadian sales by $4.9 million against the previous year.

For the year ended December 31, 2023, net sales in the Stoker’s Products segment increased to $144.6 million from $130.8 million for the year ended December 31, 2022, an increase of $13.8
million or 10.5%. For the year ended December 31, 2023, Stoker’s Products volume increased 4.2% and price/mix increased 6.3%. The increase in net sales was driven primarily by double-digit growth of Stoker’s® MST. MST represented 68% of Stoker’s Products revenue in 2023, up from 66% for the same period in 2022.

For the year ended December 31, 2023, net sales in the Creative Distribution Solutions segment decreased to $80.3 million from $93.8 million for the year ended December 31, 2022, a decrease of
$13.5 million or 14.3%. The decrease in net sales was primarily the result of reduced volumes.

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Gross Profit. For the year ended December 31, 2023, overall gross profit decreased to $203.2 million from $205.5 million for the year ended December 31, 2022,
a decrease of $2.3 million or 1.1%. Gross profit as a percentage of net sales increased to 50.1% of net sales for the year ended December 31, 2023, from 49.5% of net sales for the year ended December 31, 2022. The overall decrease in gross profit
was driven by decreased margins in the Creative Distribution Solutions segment partially offset by increased margin in the Stoker’s Products segment.

For the year ended December 31, 2023, gross profit in the Zig-Zag Products segment decreased to $101.1 million from $106.6 million for the year ended December 31, 2022, a decrease of $5.5
million or 5.2%. Gross profit as a percentage of net sales remained steady at 56.0% of net sales for the years ended December 31, 2023 and 2022.

For the year ended December 31, 2023, gross profit in the Stoker’s Products segment increased to $81.9 million from $71.3 million for the year ended December 31, 2022, an increase of $10.6
million or 14.9%. Gross profit as a percentage of net sales increased to 56.6% of net sales for the year ended December 31, 2023, from 54.5% of net sales for the year ended December 31, 2022, primarily as a result of the strong incremental
margin contribution of MST.

For the year ended December 31, 2023, gross profit in the Creative Distribution Solutions segment decreased to $20.3 million from $27.7 million for the year ended December 31, 2022, a decrease
of $7.4 million or 26.7%. Gross profit as a percentage of net sales decreased to 25.3% of net sales for the year ended December 31, 2023, from 29.5% of net sales for the year ended December 31, 2022, primarily as a result of channel mix.

Selling, General and Administrative Expenses. For the year ended December 31, 2023, selling, general and
administrative expenses decreased to $125.0 million from $130.0 million for the year ended December 31, 2022, a decrease of $5.0 million or 3.9%. Selling, general, and administrative expenses for the year ended December 31, 2023, included $6.6
million of stock options, restricted stock and incentives expense, $0.2 million of transaction expenses, $0.4 million of restructuring expenses, $0.6 million of ERP/CRM expenses and $2.1 million of expense related to PMTA. Selling, general, and
administrative expenses for the year ended December 31, 2022, included $5.3 million of stock options, restricted stock and incentives expense, $0.8 million of transaction expenses, $3.4 million of restructuring expenses, $2.0 million of ERP/CRM
expenses and $4.6 million of expense related to PMTA.

Other Operating Income, net.  For the year ended December 31, 2023, other operating income, net was $4.3 million as a result of a

$4.3 million gain from a federal excise tax refund and a $15.2 million gain related to insurance, partially offset by a $15.2 million reduction in inventory due to storm damage. For the year
ended December 31, 2022 there was no other operating (income) expense.

Interest Expense, net. For the year ended December 31, 2023, interest expense, net decreased to $14.6 million from $19.5 million for the year ended December
31, 2022, primarily as a result of the repurchases of $44.0 million and $10.0 million in aggregate principal amount of Convertible Senior Notes in 2023 and 2022, respectively, and increased interest income on cash as a result of rising interest
rates.

Investment Loss. For the year ended December 31, 2023, investment loss decreased to $11.9 million compared to $13.3
million of investment loss for the year ended December 31, 2022. The change is primarily a result of the 2023 impairment charges recognized on our investments in Docklight, Wild Hemp and Old Pal of $8.7 million, $2.3 million and $1.3 million,
respectively, in 2023 compared to impairment charges of $7.9 million, $4.3 million and $1.4 million in 2022 related to our investments in Dosist, Real Brands and Old Pal, respectively.

Other Income.  For the year ended December 31, 2023, other income was $4.0 million as a result of a $4.0 million gain related to a legal settlement.

Goodwill and Intangible Impairment Loss.  For the year ended December 31, 2023 there was no goodwill and intangible impairment loss. For the year ended
December 31, 2022, goodwill and intangible impairment loss was $27.6 million primarily as a result of fully impairing the goodwill balance of the Creative Distribution Solutions reporting unit.

Gain on Extinguishment of Debt. For the year ended December 31, 2023, gain on extinguishment of debt was $1.7 million as a result of the repurchase of $44.0
million in aggregate principal amount of our Convertible Senior Notes at a discount. For the year ended December 31, 2022, gain on extinguishment of debt was $0.9 million as a result of the repurchase of $10.0 million in aggregate principal of
our Convertible Senior Notes at a discount.

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Income Tax Expense. The Company’s income tax expense was $23.9 million, or 38.7% of income before income taxes, for the year ended December 31, 2023, and
included $6.4 million of valuation allowance for the deferred tax asset related to unrealized loss on investments and $1.7 million valuation allowance for foreign net operating losses. The Company’s income tax expense was $4.8 million, or 30.3%
of income before income taxes, for the year ended December 31, 2022.

Net Loss Attributable to Non-Controlling Interest. Net loss attributable to non-controlling interest was $0.7 million for the year ended December 31, 2023,
compared to $0.5 million for the year ended December 31, 2022.

Net Income Attributable to Turning Point Brands, Inc. Due to the factors described above, net income attributable to
Turning Point Brands, Inc. for the years ended December 31, 2023 and 2022, was $38.5 million and $11.6 million, respectively.

Comparison of Year Ended December 31, 2022, to Year Ended December 31, 2021

Net Sales. For the year ended December 31, 2022, overall net sales decreased to $415.0 million from $445.5 million
for the year ended December 31, 2021, a decrease of $30.5 million or 6.8%. The decrease in net sales was primarily driven by decreased sales volume in the Creative Distribution Solutions segment.

For the year ended December 31, 2022, net sales in the Zig-Zag Products segment increased to $190.4 million from $176.5 million for the year ended December 31, 2021, an increase of $13.9
million or 7.9%. The increase in net sales was by led by double-digit growth in sales of U.S. rolling papers and e-commerce, other smoking accessories, and Canadian businesses partially offset by a double-digit decline in the wraps business.

For the year ended December 31, 2022, net sales in the Stoker’s Products segment increased to $130.8 million from $124.3 million for the year ended December 31, 2021, an increase of $6.5
million or 5.3%. For the year ended December 31, 2022, Stoker’s Products volume decreased 2.6% and price/mix increased 7.9%. The increase in net sales was driven by the continuing double-digit growth of Stoker’s® MST offset by high single-digit decline in loose-leaf chewing tobacco. MST represented 66% of Stoker’s Products revenue in 2022, up from 63% a
year earlier.

For the year ended December 31, 2022, net sales in the Creative Distribution Solutions segment decreased to $93.8 million from $144.7 million for the year ended December 31, 2021, a decrease
of $50.9 million or 35.2%. The decrease in net sales was primarily the result of volume declines as a result of the changing regulatory environment relating to liquid nicotine products.

Gross Profit. For the year ended December 31, 2022, overall gross profit decreased to $205.5 million from $217.8 million for the year ended December 31,
2021, a decrease of $12.3 million or 5.6%. Gross profit as a percentage of net sales increased to 49.5% for the year ended December 31, 2022, from 48.9% for the year ended December 31, 2021. The increase in gross profit as a percentage of net
sales was driven by product mix.

For the year ended December 31, 2022, gross profit in the Zig-Zag Products segment increased to $106.6 million from $102.7 million for the year ended December 31, 2021, an increase of $3.8
million or 3.7%. Gross profit as a percentage of net sales decreased to 56.0% of net sales for the year ended December 31, 2022, from 58.2% of net sales for the year ended December 31, 2021. The decrease in gross profit as a percentage of net
sales is a result of product mix including the launch of our CLIPPER lighter products which have lower gross profit margins.

For the year ended December 31, 2022, gross profit in the Stoker’s Products segment increased to $71.3 million from $68.1 million for the year ended December 31, 2021, an increase of $3.2
million or 4.7%. Gross profit as a percentage of net sales decreased to 54.5% of net sales for the year ended December 31, 2022, from 54.8% of net sales for the year ended December 31, 2021. The decrease in gross profit as a percentage of net
sales is primarily a result of product mix shift including mix of discount loose-leaf products.

For the year ended December 31, 2022, gross profit in the Creative Distribution Solutions segment decreased to $27.7 million from $47.0 million for the year ended December 31, 2021, a
decrease of $19.3 million or 41.1%. Gross profit as a percentage of net sales decreased to 29.5% of net sales for the year ended December 31, 2022, from 32.5% of net sales for the year ended December 31, 2021, primarily as a result of product
mix and the highly promotional environment.

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Selling, General and Administrative Expenses. For the year ended December 31, 2022, selling, general and
administrative expenses increased to $130.0 million from $127.5 million for the year ended December 31, 2021, an increase of $2.5 million or 2.0%. Selling, general, and administrative expenses for the year ended December 31, 2022, included $5.3
million of stock options, restricted stock and incentives expense, $0.8 million of transaction expenses, $3.4 million of restructuring expenses, $2.0 million of ERP/CRM expenses and $4.6 million of expense related to PMTA. Selling, general, and
administrative expenses for the year ended December 31, 2021, included $7.6 million of stock options, restricted stock and incentives expense, $1.3 million of transaction expenses, $0.9 million of restructuring expenses and $1.7 million of
expense related to PMTA. The increase in selling, general and administrative expenses is a result of increased PMTA spend in 2022 and expenses related to of our new ERP/CRM system.