Turning Point Brands Inc

Previous wording

The following Management’s Discussion and Analysis (“MD&A”) relates to the unaudited financial statements of Turning Point Brands, Inc., included elsewhere in this Quarterly Report on Form 10-Q. The MD&A is intended to enable the reader to understand the Company’s financial condition and results of operations, including any material changes in the Company’s financial condition and results of operations since December 31, 2023, and as compared with the three and six months ended June 30, 2024. The MD&A is provided as a supplement to and should be read in conjunction with the unaudited consolidated financial statements and notes thereto included in this Quarterly report on Form 10-Q, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in the Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “2023 Annual Report”).

Current wording

The following Management’s Discussion and Analysis (“MD&A”) relates to the unaudited financial statements of Turning Point Brands, Inc., included elsewhere in this Quarterly Report on Form 10-Q. The MD&A is intended to enable the reader to understand the Company’s financial condition and results of operations, including any material changes in the Company’s financial condition and results of operations since December 31, 2023, and as compared with the three and nine months ended September 30, 2024. The MD&A is provided as a supplement to and should be read in conjunction with the unaudited consolidated financial statements and notes thereto included in this Quarterly report on Form 10-Q, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in the Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “2023 Annual Report”).

Previous wording

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 and iconic 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 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 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.

Current wording

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 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 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.

Previous wording

We operate in three segments: Zig-Zag Products, Stoker’s Products and Creative Distribution Solutions (“CDS”). 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) CLIPPER reusable 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 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.

Current wording

We operate in three segments: Zig-Zag products, Stoker’s products and Creative Distribution Solutions (“CDS”). 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. 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 Beast Distribution (formerly known as VaporBeast), and (iii) market and distribute a wide assortment of products to individual consumers via the Company’s B2C online platform.

Previous wording

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.

Current wording

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 an online platform. Our net sales, which include federal excise taxes, consist of gross sales net of cash discounts, returns, and selling and marketing allowances.

Previous wording

Net Sales: For the three months ended June 30, 2024, consolidated net sales increased $2.9 million, or 2.8% compared to the prior year period, driven by an increase in the Zig-Zag and Stoker’s segments partially offset by a decline in the Creative Distribution Solutions segment.

Current wording

Net Sales: For the three months ended September 30, 2024, consolidated net sales increased $3.9 million, or 3.8% compared to the prior year period, driven by an increase in the Zig-Zag and Stoker’s products segments, partially offset by a decline in the Creative Distribution Solutions segment.

Previous wording

For the three months ended June 30, 2024, net sales in the Zig-Zag Products segment increased $3.8 million, or 8.0% compared to the prior year period. The increase in net sales was driven primarily by an increase of $3.8 million of growth in our cigar products and $1.2 million of growth in our Canadian products business, partially offset by a decline of $1.6 million in our Clipper business against trade load in the prior year.

Current wording

For the three months ended September 30, 2024, net sales in the Zig-Zag products segment increased $2.6 million, or 5.5% compared to the prior year period. The increase in net sales was driven primarily by $1.4 million of growth in our cigar products, $1.2 million of growth in our U.S. papers and wraps, and $0.5 million of growth in our Canadian products business, partially offset by a decline of $0.8 million in our Clipper lighter business.

Previous wording

For the three months ended June 30, 2024, net sales in the Stoker’s Products segment increased $6.7 million, or 18.5% compared to the prior year period. For the three months ended June 30, 2024, volume increased 5.3% as compared with the prior year period contributing $1.9 million to the increase, and price/product mix increased 13.2% which contributed $4.8 million to the increase. The increase in net sales was driven by $3.5 million of growth of Stoker’s® MST and $3.4 million of growth in our modern oral product FRE, partially offset by a $0.1 million decline in net sales of loose-leaf chewing tobacco.

Current wording

For the three months ended September 30, 2024, net sales in the Stoker’s products segment increased $4.5 million, or 12.1% compared to the prior year period. For the three months ended September 30, 2024, sales volume of Stoker’s products increased 2.9% as compared with the prior year period contributing $1.1 million to the increase, and price/product mix increased 9.2% which contributed $3.4 million to the increase. The increase in net sales was driven by $3.9 million of growth in our modern oral product FRE and $0.8 million of growth of Stoker’s® MST, partially offset by a $0.3 million decline in net sales of loose-leaf chewing tobacco.

Previous wording

For the three months ended June 30, 2024, net sales in the Creative Distribution Solutions segment decreased $7.5 million, or 33.0% compared to the prior year period. The decrease in net sales was primarily the result of lower volumes in the liquid nicotine distribution business, contributing $7.5 million to the decrease, and our strategic decision to eliminate certain unprofitable brands and to focus on a narrower set of products.

Current wording

For the three months ended September 30, 2024, net sales in the Creative Distribution Solutions segment decreased $3.1 million, or 17.4% compared to the prior year period. The decrease in net sales was primarily the result of lower sales volumes in the liquid nicotine distribution business, contributing $3.1 million to the decrease, and our strategic decision to eliminate certain unprofitable brands and to focus on a narrower set of products.

Previous wording

Gross Profit: For the three months ended June 30, 2024, consolidated gross profit increased $1.4 million, or 2.6% compared to the prior year period. Gross profit as a percentage of net sales decreased slightly to 49.6% for the three months ended June 30, 2024, compared to 49.7% for the three months ended June 30, 2023.

Current wording

Gross Profit: For the three months ended September 30, 2024, consolidated gross profit increased $2.1 million, or 4.0% compared to the prior year period. Gross profit as a percentage of net sales increased slightly to 50.8% for the three months ended September 30, 2024, compared to 50.7% for the three months ended September 30, 2023. The overall increase in gross profit was driven by increased margins in the Stoker’s products segment, partially offset by decreased margins in the Creative Distribution Solutions segment.

Previous wording

For the three months ended June 30, 2024, gross profit in the Zig-Zag Products segment increased $0.5 million, or 1.7% compared to the prior year period. Gross profit as a percentage of net sales decreased to 53.2% of net sales for the three months ended June 30, 2024, from 56.6% of net sales for the three months ended June 30, 2023, driven primarily by growth during the quarter in our Canadian products business described above, and higher net sales of cigar products, which generate a lower margin than other products in the segment.

Current wording

For the three months ended September 30, 2024, gross profit in the Zig-Zag products segment increased $0.6 million, or 2.2% compared to the prior year period. Gross profit as a percentage of net sales decreased to 55.4% of net sales for the three months ended September 30, 2024, from 57.2% of net sales for the three months ended September 30, 2023, driven primarily by growth in U.S. papers and Canadian products, which generate higher margins, offset by higher net sales of cigar products which generate lower margins than other products in the segment.

Previous wording

For the three months ended June 30, 2024, gross profit in the Stoker’s Products segment increased $3.6 million, or 17.8% compared to the prior year period. Gross profit as a percentage of net sales decreased to 55.0% of net sales for the three months ended June 30, 2024, from 55.4% of net sales for the three months ended June 30, 2023, primarily driven by Stoker’s MST net sales growth at higher margins, and higher net sales of FRE, though at lower margins than other products in the segment.

Current wording

For the three months ended September 30, 2024, gross profit in the Stoker’s products segment increased $2.5 million, or 12.1% compared to the prior year period. Gross profit as a percentage of net sales increased slightly to 55.8% of net sales for the three months ended September 30, 2024, from 55.7% of net sales for the three months ended September 30, 2023, primarily driven by Stoker’s MST net sales growth at higher margins, and higher net sales of FRE, though at lower margins than other products in the segment.

Previous wording

For the three months ended June 30, 2024, gross profit in the Creative Distribution Solutions segment decreased $2.6 million, or 43.4% compared to the prior year period. Gross profit as a percentage of net sales decreased to 22.5% of net sales for the three months ended June 30, 2024, from 26.7% of net sales for the three months ended June 30, 2023, primarily as a result of sales channel mix as business-to-business net sales which generates lower margins than business-to-consumer sales increased to 70% of net sales for the three months ended June 30, 2024 from 65% of net sales for the three months ended June 30, 2023.

Current wording

For the three months ended September 30, 2024, gross profit in the Creative Distribution Solutions segment decreased $1.0 million, or 23.3% compared to the prior year period. Gross profit as a percentage of net sales decreased to 22.1% of net sales for the three months ended September 30, 2024, from 23.8% of net sales for the three months ended September 30, 2023, primarily as a result of sales channel mix as business-to-business net sales, which generates lower margins than business-to-consumer sales, increased to 83% of net segment sales for the three months ended September 30, 2024 from 77% of net segment sales for the three months ended September 30, 2023.

Previous wording

Selling, General, and Administrative Expenses: For the three months ended June 30, 2024, selling, general, and administrative expenses increased $0.8 million, or 2.6% compared to the prior year period. Selling, general and administrative expenses in the three months ended June 30, 2024, included $1.9 million of stock options, restricted stock and incentives expense, $1.0 million of expense related to PMTA, $0.5 million of expense related to the implementation of the new ERP and CRM systems, $0.3 million of expense related to corporate restructuring and $0.1 million of transaction costs. Selling, general and administrative expenses in the three months ended June 30, 2023, included $2.1 million of stock options, restricted stock and incentives expense, $0.7 million of expense related to PMTA, $0.1 million of transaction costs and $0.1 million of expense related to the implementation of the new ERP and CRM systems.

Current wording

Selling, General, and Administrative Expenses: For the three months ended September 30, 2024, selling, general, and administrative expenses increased $1.8 million, or 5.7% compared to the prior year period. Selling, general and administrative expenses in the three months ended September 30, 2024, included $1.8 million of stock options, restricted stock and incentives expense, $1.2 million of expense related to PMTA, $0.9 million of transaction costs, $0.2 million of expense related to the implementation of the new ERP and CRM systems, and $0.2 million of expense related to corporate restructuring. Selling, general and administrative expenses in the three months ended September 30, 2023, included $1.8 million of stock options, restricted stock and incentives expense, $0.3 million of expense related to PMTA, $0.2 million of expense related to corporate restructuring, $0.1 million of transaction costs and $0.1 million of expense related to the new ERP and CRM systems.

Previous wording

Operating Income (Loss): For the three months ended June 30, 2024, consolidated operating income increased $2.2 million, or 10.8% compared to the prior year period. Operating income as a percentage of net sales increased to 21.0% of net sales for the three months ended June 30, 2024 from 19.5% of net sales for the three months ended June 30, 2023, primarily driven by increased gross profit in the Stoker’s and Zig-Zag products segments, partially offset by decreased gross profit in the Creative Distribution Solutions segment.

Current wording

Operating Income (Loss): For the three months ended September 30, 2024, consolidated operating income increased $0.3 million, or 1.4% compared to the prior year period. Operating income as a percentage of net sales decreased to 19.4% of net sales for the three months ended September 30, 2024 from 19.9% of net sales for the three months ended September 30, 2023, primarily driven by decreased gross profit in the Creative Distribution Solutions segment, partially offset by increased gross profit in the Zig-Zag and Stoker’s products segments.

Previous wording

For the three months ended June 30, 2024, operating income in the Zig-Zag Products segment increased $1.3 million, or 7.4% compared to the prior year period. Operating income as a percentage of net sales increased to 16.8% of net sales for the three months ended June 30, 2024 from 16.1% of net sales for the three months ended June 30, 2023, primarily driven by increased gross profit in our Canadian products business, U.S. Wraps and cigar products, combined with lower operational costs.

Current wording

For the three months ended September 30, 2024, operating income in the Zig-Zag products segment increased $0.7 million, or 4.2% compared to the prior year period. Operating income as a percentage of net sales increased to 16.5% of net sales for the three months ended September 30, 2024 from 16.4% of net sales for the three months ended September 30, 2023, primarily driven by increased gross profit in our Canadian products business, U.S. papers and cigar products, combined with lower operational costs.

Previous wording

For the three months ended June 30, 2024, operating income in the Stoker’s Products segment increased $2.8 million, or 18.2% compared to the prior year period. Operating income as a percentage of net sales increased to 16.5% of net sales for the three months ended June 30, 2024 from 14.3% of net sales for the three months ended June 30, 2023, primarily driven by Stoker’s MST net sales growth at higher margins, and higher net sales of FRE which represented a higher percentage of the segment’s sales compared to the prior year period and has lower margins than other products in the segment.

Current wording

For the three months ended September 30, 2024, operating income in the Stoker’s products segment increased $1.5 million, or 9.3% compared to the prior year period. Operating income as a percentage of net sales increased to 16.2% of net sales for the three months ended September 30, 2024 from 15.4% of net sales for the three months ended September 30, 2023, primarily driven by Stoker’s MST net sales growth at higher margins, and higher net sales of FRE which represented a higher percentage of the segment’s sales compared to the prior year period and has lower margins than other products in the segment.

Previous wording

For the three months ended June 30, 2024, operating income in the Creative Distribution Solutions segment decreased $0.6 million, or 123.5% compared to the prior year period. Operating income as a percentage of net sales decreased to (0.1)% of net sales for the three months ended June 30, 2024, from 0.4% of net sales for the three months ended June 30, 2023, primarily driven by a decline in gross profit that was not matched with cost savings. The decline was expected in light of our decision to focus on more profitable products.

Current wording

For the three months ended September 30, 2024, operating loss in the Creative Distribution Solutions segment decreased $0.2 million, or 39.6% compared to the prior year period. Operating loss as a percentage of net sales decreased to (0.3)% of net sales for the three months ended September 30, 2024, from (0.5)% of net sales for the three months ended September 30, 2023, primarily driven by cost savings that were not matched by the decline in net revenue. The decline in revenue was expected in light of our decision to focus on more profitable products.

Previous wording

Included in consolidated operating income are costsof the Company which are not assigned to one of the three 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 three months ended June 30, 2024, unallocated costs were $13.3 million compared to $12.0 million in the prior year period, an increase of $1.2 million or 10.2%.

Current wording

Included in consolidated operating income are costsof the Company which are not assigned to one of the three 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 three months ended September 30, 2024, unallocated costs were $13.7 million compared to $11.7 million in the prior year period, an increase of $2.1 million or 17.6%.

Previous wording

Interest Expense, net: For the three months ended June 30, 2024, interest expense, net decreased $1.0 million compared to the prior year period as a result of the repurchase of $30.1 million of Convertible Senior Notes in the second and third quarters of 2023, and increased interest income on cash deposits due to rising interest rates.

Current wording

Interest Expense, net: For the three months ended September 30, 2024, interest expense, net decreased $0.2 million compared to the prior year period as a result of the repurchase of $15.0 million of Convertible Senior Notes in the third quarter of 2023, the maturity of the Convertible Senior Notes in the third quarter of 2024, and increased interest income on cash deposits due to rising interest rates.

Previous wording

Investment Loss: For the three months ended June 30, 2024, we had an investment loss of $2.4 million compared to a $4.1 million loss for the three months ended June 30, 2023. The change is primarily the result of an impairment charge recognized on our investments in Bomani for $1.8 million and Old Pal for $0.8 million in the second quarter of 2024, compared to an impairment charge recognized on our investment in Docklight for $3.8 million in the second quarter of 2023.

Current wording

Investment (Gain) Loss: For the three months ended September 30, 2024, we had an investment gain of $0.2 million compared to a $2.1 million loss for the three months ended September 30, 2023. The change is primarily the result of no impairments recognized on our investments in the third quarter of 2024, compared to an impairment charge recognized on our investment in Wild Hempettes for $2.2 million in the third quarter of 2023.

Previous wording

Gain on Extinguishment of Debt: There was no gain or loss on extinguishment of debt for the three months ended June 30, 2024 compared to a $0.6 million gain on extinguishment of debt for the three months ended June 30, 2023 as a result of repurchasing $15.1 million of Convertible Senior Notes in the second quarter of 2023.

Current wording

Gain on Extinguishment of Debt: There was no gain or loss on extinguishment of debt for the three months ended September 30, 2024 compared to a $0.6 million gain on extinguishment of debt for the three months ended September 30, 2023 as a result of repurchasing $15.0 million of Convertible Senior Notes in the third quarter of 2023.

Previous wording

Income Tax Expense: Our income tax expense of $4.4 million was 25.5% of income before income taxes for the three months ended June 30, 2024. Our effective income tax rate was 25.6% for the three months ended June 30, 2023.

Current wording

Income Tax Expense: Our income tax expense of $4.6 million was 27.1% of income before income taxes for the three months ended September 30, 2024. Our effective income tax rate was 25.7% for the three months ended September 30, 2023.

Previous wording

Net Income (Loss) Attributable to Non-Controlling Interest: Net loss attributable to non-controlling interest was $0.1 million for the three months ended June 30, 2024 compared to $0.2 million net loss for the three months ended June 30, 2023.

Current wording

Net Income (Loss) Attributable to Non-Controlling Interest: Net income (loss) attributable to non-controlling interest was $0.0 million for the three months ended September 30, 2024 and 2023.

Previous wording

Net Income Attributable to Turning Point Brands, Inc.: Due to the factors described above, net income attributable to Turning Point Brands, Inc. for the three months ended June 30, 2024 and 2023, was $13.0 million and $9.9 million, respectively.

Current wording

Net Income Attributable to Turning Point Brands, Inc.: Due to the factors described above, net income attributable to Turning Point Brands, Inc. for the three months ended September 30, 2024 and 2023, was $12.4 million and $10.8 million, respectively.

Previous wording

Comparison of the Six Months Ended June 30, 2024, to the Six Months Ended June 30, 2023

Current wording

Comparison of the Nine Months Ended September 30, 2024, to the Nine Months Ended September 30, 2023

Previous wording

Net Sales: For the six months ended June 30, 2024, consolidated net sales decreased $1.0 million, or 0.5% compared to the prior year period, driven by a decline in the Creative Distribution Solutions segment partially offset by an increase in the Stoker’s and Zig-Zag Products segments.

Current wording

Net Sales: For the nine months ended September 30, 2024, consolidated net sales increased $2.9 million, or 0.9% compared to the prior year period, driven by an increase in the Zig-Zag and Stoker’s products segments, partially offset by a decline in the Creative Distribution Solutions segment.

Previous wording

For the six months ended June 30, 2024, net sales in the Zig-Zag Products segment increased $8.6 million, or 9.7% compared to the prior year period. The increase in net sales was driven primarily by $4.9 million of growth in Wraps and U.S. Papers, $3.8 million of growth in cigars, $1.4 million of growth in our Canadian products business and $1.8 million of growth in the alternative channel, partially offset by declines of $3.2 million in our Clipper business against trade load in the prior year.

Current wording

For the nine months ended September 30, 2024, net sales in the Zig-Zag products segment increased $11.1 million, or 8.2% compared to the prior year period. The increase in net sales was driven primarily by $6.2 million of growth in U.S. papers and wraps, $5.2 million of growth in cigars, $1.9 million of growth in our Canadian products business and $2.1 million of growth in the alternative smoking accessories market, partially offset by declines of $4.0 million in our Clipper lighter business.

Previous wording

For the six months ended June 30, 2024, net sales in the Stoker’s Products segment increased $9.4 million, or 13.5% compared to the prior year period. For the six months ended June 30, 2024, volume increased 2.8% as compared with the prior year period contributing $2.0 million to the increase, and price/product mix increased 10.6% which contributed $7.4 million to the increase. The increase in net sales was driven primarily by $5.1 million of growth of modern oral product FRE and $5.0 million of growth of Stoker’s MST, partially offset by a $0.6 million decline in loose-leaf chewing tobacco.

Current wording

For the nine months ended September 30, 2024, net sales in the Stoker’s products segment increased $13.9 million, or 13.0% compared to the prior year period. For the nine months ended September 30, 2024, sales volume of Stoker’s products increased 2.9% as compared with the prior year period contributing $3.1 million to the increase, and price/product mix increased 10.1% which contributed $10.8 million to the increase. The increase in net sales was driven primarily by $9.0 million of growth in modern oral product FRE and $5.8 million of growth in Stoker’s MST, partially offset by a $0.9 million decline in loose-leaf chewing tobacco.

Previous wording

For the six months ended June 30, 2024, net sales in the Creative Distribution Solutions segment decreased $18.9 million, or 39.3% compared to the prior year period. The decrease in net sales was primarily the result of reduced volumes in the liquid nicotine distribution business contributing $18.9 million to the decrease, and our strategic decision to eliminate certain unprofitable brands and to focus on a narrower set of products.

Current wording

For the nine months ended September 30, 2024, net sales in the Creative Distribution Solutions segment decreased $22.1 million, or 33.3% compared to the prior year period. The decrease in net sales was primarily the result of reduced sales volumes in the liquid nicotine distribution business contributing $22.4 million to the decrease, and our strategic decision to eliminate certain unprofitable brands and to focus on a narrower set of products.

Previous wording

Gross Profit: For the six months ended June 30, 2024, consolidated gross profit increased $4.7 million, or 4.6% compared to the prior year period. Gross profit as a percentage of net sales increased to 51.4% for the six months ended June 30, 2024, compared to 48.9% for the six months ended June 30, 2023, primarily driven by increased margins as the Creative Distribution Solutions segment became a smaller part of the overall company.

Current wording

Gross Profit: For the nine months ended September 30, 2024, consolidated gross profit increased $6.7 million, or 4.4% compared to the prior year period. Gross profit as a percentage of net sales increased to 51.2% for the nine months ended September 30, 2024, compared to 49.5% for the nine months ended September 30, 2023, primarily driven by increased margins as the Creative Distribution Solutions segment became a smaller part of the overall company.

Previous wording

For the six months ended June 30, 2024, gross profit in the Zig-Zag Products segment increased $5.6 million, or 11.5% compared to the prior year period. Gross profit as a percentage of net sales increased to 56.0% of net sales for the six months ended June 30, 2024, from 55.1% of net sales for the six months ended June 30, 2023 as a result of product mix. Net sales increased in U.S. Papers and Wraps products which generate a higher gross margin than Clipper products in which net sales declined.

Current wording

For the nine months ended September 30, 2024, gross profit in the Zig-Zag products segment increased $6.2 million, or 8.2% compared to the prior year period. Gross profit as a percentage of net sales remained steady at 55.8% of net sales for the nine months ended September 30, 2024 and 2023. Net sales increased in U.S. papers and wraps products which generate a higher gross margin than cigars, while net sales in Clipper products declined.

Previous wording

For the six months ended June 30, 2024, gross profit in the Stoker’s Products segment increased $4.9 million, or 12.4% compared to the prior year period. Gross profit as a percentage of net sales decreased to 56.0% of net sales for the six months ended June 30, 2024, from 56.6% of net sales for the six months ended June 30, 2023, as a result of product mix as the growth in our modern oral product FRE, which generates lower margins as compared with other products in the Stoker’s Products segment, outpaced the growth of MST.

Current wording

For the nine months ended September 30, 2024, gross profit in the Stoker’s products segment increased $7.4 million, or 12.3% compared to the prior year period. Gross profit as a percentage of net sales decreased to 55.9% of net sales for the nine months ended September 30, 2024, from 56.3% of net sales for the nine months ended September 30, 2023, as a result of product mix as the growth in our modern oral product FRE, which generates lower margins as compared with other products in the Stoker’s products segment, outpaced the growth of MST.

Previous wording

For the six months ended June 30, 2024, gross profit in the Creative Distribution Solutions segment decreased $5.8 million, or 45.5% compared to the prior year period. Gross profit as a percentage of net sales decreased to 23.9% of net sales for the six months ended June 30, 2024, from 26.6% of net sales for the six months ended June 30, 2023, primarily as a result of sales channel mix as business-to-business net sales, which generate lower margins than business-to-consumer sales, increased to 83% of net sales for the six months ended June 30, 2024 from 79% of net sales for the six months ended June 30, 2023.

Current wording

For the nine months ended September 30, 2024, gross profit in the Creative Distribution Solutions segment decreased $6.8 million, or 39.9% compared to the prior year period. Gross profit as a percentage of net sales decreased to 23.3% of net sales for the nine months ended September 30, 2024, from 25.9% of net sales for the nine months ended September 30, 2023, primarily as a result of sales channel mix as business-to-business net sales, which generate lower margins than business-to-consumer sales, increased to 83% of net segment sales for the nine months ended September 30, 2024 from 78% of net segment sales for the nine months ended September 30, 2023.

Previous wording

Selling, General, and Administrative Expenses: For the six months ended June 30, 2024, selling, general, and administrative expenses increased $2.7 million, or 4.3%. Selling, general and administrative expenses in the six months ended June 30, 2024, included $4.0 million of stock options, restricted stock and incentives expense, $1.9 million of expense related to PMTA, $1.5 million of expense related to corporate restructuring, $0.7 million of expense related to the implementation of the new ERP and CRM systems and $0.1 million related to transaction costs. Selling, general and administrative expenses in the six months ended June 30, 2023, included $2.8 million of stock options, restricted stock and incentives expense, $0.8 million of expense related to PMTA, $0.3 million of expense related to the implementation of the new ERP and CRM systems and $0.1 million related to transaction costs.

Current wording

Selling, General, and Administrative Expenses: For the nine months ended September 30, 2024, selling, general, and administrative expenses increased $4.5 million, or 4.8%, compared to the prior year period. Selling, general and administrative expenses in the nine months ended September 30, 2024, included $5.7 million of stock options, restricted stock and incentives expense, $3.1 million of expense related to PMTA, $1.7 million of expense related to corporate restructuring, $1.0 million related to transaction costs and $0.8 million of expense related to the implementation of the new ERP and CRM systems. Selling, general and administrative expenses in the nine months ended September 30, 2023, included $4.7 million of stock options, restricted stock and incentives expense, $1.1 million of expense related to PMTA, $0.4 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.

Previous wording

Other Operating Income: For the six months ended June 30, 2024, other operating income increased $1.7 million compared to the prior year period due to a federal excise tax refund of $1.7 million received in the first half of 2024.

Current wording

Other Operating Income: For the nine months ended September 30, 2024, other operating income increased $1.7 million compared to the prior year period due to a federal excise tax refund of $1.7 million received in the first half of 2024.

Previous wording

Operating Income (Loss): For the six months ended June 30, 2024, consolidated operating income increased $3.6 million, or 9.5% compared to the prior year period. Operating income as a percentage of net sales increased to 20.4% of net sales for the six months ended June 30, 2024 from 18.6% of net sales for the six months ended June 30, 2023, primarily driven by increased gross profit in the Stoker's and Zig-Zag Products segments partially offset by decreased gross profit in the Creative Distribution Solutions segment.

Current wording

Operating Income (Loss): For the nine months ended September 30, 2024, consolidated operating income increased $3.9 million, or 6.7% compared to the prior year period. Operating income as a percentage of net sales increased to 20.1% of net sales for the nine months ended September 30, 2024 from 19.0% of net sales for the nine months ended September 30, 2023, primarily driven by increased gross profit in the Zig-Zag and Stoker’s products segments partially offset by decreased gross profit in the Creative Distribution Solutions segment.

Previous wording

For the six months ended June 30, 2024, operating income in the Stoker’s Products segment increased $3.6 million, or 12.1% compared to the prior year period. Operating income as a percentage of net sales increased to 16.2% of net sales for the six months ended June 30, 2024 from 14.4% of net sales for the six months ended June 30, 2023, primarily driven by Stoker’s MST net sales growth at higher margins and higher net sales of FRE.

Current wording

For the nine months ended September 30, 2024, operating income in the Stoker’s products segment increased $5.0 million, or 11.1% compared to the prior year period. Operating income as a percentage of net sales increased to 16.2% of net sales for the nine months ended September 30, 2024 from 14.7% of net sales for the nine months ended September 30, 2023, primarily driven by Stoker’s MST net sales growth at higher margins and higher net sales of FRE.

Previous wording

For the six months ended June 30, 2024, operating income in the Creative Distribution Solutions segment decreased $0.8 million, or 115.3% compared to the prior year period. Operating income as a percentage of net sales decreased to (0.1)% of net sales for the six months ended June 30, 2024, from 0.3% of net sales for the six months ended June 30, 2023, primarily driven by a decline in gross profit that was not matched with cost savings.

Current wording

For the nine months ended September 30, 2024, operating income in the Creative Distribution Solutions segment decreased $0.6 million, or 248.7% compared to the prior year period driven by a decline in gross profit that was not matched with cost savings. Operating income (loss) as a percentage of net sales remained steady at (0.1)% of net sales for the nine months ended September 30, 2024 and 2023.

Previous wording

Included in consolidated operating income are costsof the Company which are not assigned to one of the three 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 six months ended June 30, 2024, unallocated costs were $27.4 million compared to $22.6 million in the prior year period, an increase of $4.7 million or 20.9%.

Current wording

Included in consolidated operating income are costsof the Company which are not assigned to one of the three 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 nine months ended September 30, 2024, unallocated costs were $41.1 million compared to $34.3 million in the prior year period, an increase of $6.8 million or 19.8%, primarily driven by an increase of $2.0 million related to PMTA, an increase of $1.5 million of restructuring expense, an increase of $1.1 million of stock compensation expense and an increase of $0.8 million of transaction costs.

Previous wording

Interest Expense, net: For the six months ended June 30, 2024, interest expense, net decreased $1.6 million compared to the prior year period as a result of the repurchases of $44.0 million of Convertible Senior Notes in 2023, and increased interest income on cash as a result of rising interest rates.

Current wording

Interest Expense, net: For the nine months ended September 30, 2024, interest expense, net decreased $1.8 million compared to the prior year period as a result of the repurchases of $44.0 million of Convertible Senior Notes in 2023, the maturity of the Convertible Senior Notes in the third quarter of 2024, and increased interest income on cash as a result of rising interest rates.