Turning Point Brands (TPB) 28 Jul 202020 Q2 Earnings call transcript

Good day and welcome to the Turning Point Brands Second Quarter Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to Louie Reformina, Vice President of Business Development. Please go ahead, sir.

Thank you. everyone. morning, Good Reformina, Louie of Development. Business This Vice is President

issued Brands' CEO, Officer; second Larry Joining morning, Bobby me in Graham quarter and Point Turning we results This release Officer. Operating are call, today's XXXX Wexler; results. and covering is strategic President Purdy, Chief and also Financial be will news section This a release Lavan, our located our and www.turningpointbrands.com, the website, call on consolidated perspective of a plan. our where In provide conference we this our IR segment our discuss operating a replay of against will Chief available. progress

cited are our securities As The reliance actual publicly and forward-looking is in projections except revise be we place or and results factors These undue today's outlines attention provided to I in in Securities or upon discussion. of may from obligation forward-looking your release various cause no undertake statements. cautionary with you and Exchange and the filings discussion disclosure that not any the update and federal Commission. statement by to direct guarantees of that could press performance, as not materially forward-looking forward-looking statements should factors today's differ customary, projections laws, them, and to statements future those

reasons Wexler, GAAP On will over to believes the management I to in the These our be call can call useful along why CEO. reconciliations today, provide we and found with will earnings reference turn measures. certain non-GAAP Larry that measures financial now information. today's they release,

call. everyone. Thank morning, for Louie, the and joining you, good Thank you

in exceeded revenue. quarter our $XXX second expectations, million Our delivering

growth. within our building Our segments, internal momentum for of longer-term each drove improvements initiatives meaningful

price contributing we Within few for the from to improved materialize consumer positioning trade consumption distribution environment. increased connecting proposition are consumer. driven of in Smokeless market In the loading of did normal and premium absorbed the the leader fair that growth a down MST products. We price our accelerating quarter, the took our with clearly the the and value on Smokeless, is had we the past price, not on addition, tubs, of a with impact increases. COVID our was industry. a instead And increase are along We trends price on continues this same-store most our mostly with which a in first delaying of in May, Secular from anticipated by the we discussed product COVID payback with the in took our predated sales, of July, across the years offering quarter during wins at to cans be that momentum. category that increase

growth our and sales a We by from conditions loose initiative also impacted quarter saw market with a force business. leaf the targeted with entered COVID. We nice chew benefited

For brand the time leaf Stoker's quarter. its loose accomplishment. the of proud first in category in history, was this I'm the the #X very during

the segment's thus COVID-related majority which paper such initiatives hemp than a In dealing the accounted our MYO brand Recently products of number more current as much these gains of of positioned chain were during from and are the in seeing introduced for benefited and our by share signs increased was of hemp This earlier quarter, offset in able growth market supply business, headwind growth. with of unbleached were Dominican papers deliver cones, and during Smoking, Republic. disruption the products, papers, some consumption growth the wraps, from our introduced the paper strong we tobacco is manufacturer vast far, temporary, for quarter gains year. third-party a While chewing despite with we the to future. retention, the in in cigar now wrap better

an extraordinary We our improvements going delivering as market spot, under to a vape started the distribution the team. from platforms and see was quarter. bright share. carried that into year, gain efficient continue one quarter into consolidated we second more management to NewGen business We our the earlier in and the year streamlined another organization

this we In heightened competitors of temporarily platforms story in addition post to levels progress during term, the world. a our of addition, We to stay-at-home retail PMTA these however, e-commerce made although quarter structural we benefited September subsequently how this purchasing during back on BXC up, moderated, in deadline as positioning the the PMT towards our segment X. the during off-line applications improvements, Longer quarter. whenever our continues was ahead business from be are of provisions, open they're significant BXB for outlets submitting

second we marketplace. expect potential navigate the significant to our the consolidated the surrounding market of we in look half process, through the consumers forward the PMTA benefits a as disruption year While from realizing uncertainties

the mix, environment. Our in product supplemental coming proprietary in an trajectory post-PMTA which to on significant a has boost upward receive years a been

on Smoking. transaction also sell assets $XX for were completed business. acquisition that starting as we the its improve from a of profits the secular long-term quarter, legalization a our is within products, eliminates wraps tailwinds quarter in the Durfort MYO paying certain in our was largest We effectively will the the acquired and transaction. a through partner our we of business from start to Durfort we and us related subsegment Holdings During seeing business, from million larger royalty our cigar The portion third profile which helped cannabis margin inventory decriminalization. expenses before

acquired which portfolio. customers, Wrap mostly to existing as In we complementary our gives starting street, back nice to Blunt rights where where addition, currently have and Zig-Zag penetration. to product product call us the fourth our quarter, we what access view This Blunt Wrap, or the a low lives products distribution the early we in

merger. and we As of million the the EBITDA. revenue communicated, transaction in we annual million $X add month, of completed previously this expect also Earlier to $X SDI

the liquidity and allowed of shareholder a to invest the significantly shareholders related participated navigating for the support. We we controlling thank environment in welcome regard presented new the overhang shareholders TPB changing and in us. and to offering. existing continued through secondary COVID, of a removing improves are offering all stock challenges structure, company to our In adapted the through the remain our to shareholders holding new addition their who the to merger and With

a sales As experience use able results meeting We maintain of higher We're we of business. work the customer and fulfillment costs perspective early to controls challenge keep to environment seamless turn and as using teleselling over the force Graham and including to hand add relatively masks, to rising additional and safer a new to our color but adoption related quarter of operational, with prove, Officer. Purdy, Chief the are sanitizers forward, the transition in costs self-produced best call in did made safety the extensive Operating let me able normal. COVID, operating this engagement. higher result on a our elsewhere some To cost practices, operational to field offset path customer tighter of demand maintaining we're and

Thank you, Larry.

quick from Let me a of tobacco core our now give you the performance business. snapshot

to to growth both demand. Stoker's share driven points cans the by same-store year again growth X.X%. was and delivering up delivered our the of strong to driven as A equally were growth double-digit vast compared a saw Smokeless customer in the the gains with during quarter. in results sales ago X.X quarter, quarter robust by snuff tubs moist another Our majority share, record

is XX.X% stores category more share to mid-single-digit industry offset its potential stores, from is XX.X% Stoker's in than runway have Chewing points growth, chains sequentially. . previous volumes. in at basis was Chew expand sales the and now from now year ongoing as wins X.X up from of distribution Stoker's Stoker's decline both of the and saw Our the share. snuff recently receiving represent share which previous the registered in is up X.X%, XXX leaves product X.X year, share long This we continuing points independent and quarter, and a a the share ramp-up chain points from stores chew by moist a tobacco which of increase

during to back in category player temporarily benefit a products. the This did a force from shut value initiative being benefit distribution our growth fourth MSAi. leading evident climbed approximately we to the down, the with the clear came XX.X Smoking saw the Zig-Zag targeted paper seen expand by to premium #X rolling paper XX,XXX single-digit sales has the points In remain to papers. in XX.X% brand, cone high papers growth outlets quarter of points XX.X%, U.S., was position after the there in quarter, year. Zig-Zag share in While its according from in XX,XXX to gaining for also of cones year-over-year levels remain was cones the X.X prior category the above share the #X of are our led competitor earlier share year as the after sales U.S. adding roughly strong from Zig-Zag increasing stores online consecutive as brand. the Zig-Zag double-digit retail growth quarter. paper share now

after has quarter. wrap retail the outlet category strong hemp market an of XX XX,XXX Our welcomed launched year, captured quarter. outlets which -- been earlier this second and XX,XXX just during XX.X% adding the product, with reception now approximately was It in outlets the is

on with of wraps double-digit the our business disruption decline as quarter Our manufacturer. MYO anticipated the result a cigar during

In reduced Zig-Zag quarter quarter disruption is its products. partnership our Canada, placing first still of online, given with up, Marketing expect starting manufacturer dispensaries Canada XXX now our measures. some back XXX manufacturing in from is Our third but to into marketing already distancing capacity ReCreation we with in ramp of the social after our ReCreation results

an level, NewGen, with improved some quarter. benefits business during exceptional along had where to quarter. vape high On saw the execution, distribution Moving temporary we a our

share of Our VaporBeast, as record first gained year. levels building in double it customer the market the throughout quarter to the BXB half base digits its grew platform, from

We also offline. a temporarily benefited being from competitor

opened see push now in as In saw proprietary acquisition introductions. on growth and Our its We prior We've since XX% VaporBeast the products posting as our the The distribution we to [indiscernible] longer-term recent levels the stands begin BXC solacechew.com in well has experienced quarter normalize in our the story to which CBD the seen pre-COVID. new to its remained IVG of trends online. with XX% market. year to expanding products, X.Xx Nu-X to of momentum, the Nu-X our rate above of segment the economy some to year. Solace compared IVG, is build up, and sales but earlier products you business, what our of continue at nu-x.com shifted platform, NewGen visit and best encourage purchasing consumers our

it As the to and organization improvements our a post-PMTA my commentary, this to expect pleased out turn this we Bobby are benefits in as we financial to internal Larry we I'll year meaningfully second an processes Closing initiatives. throughout made to our and review with tangible see world. mentioned, increase Bobby? And quarter excited with in have performance. are for a our that, of

Thank you, Graham.

an sales net Smokeless of segment X%, comping with quarter, continued and accrual been $XX.X decreased year sales its increased to in and Turning to with the both earlier. Smokeless XXXX. to the first Net from Stoker's far represented our retail industry approximately the MST this price/mix chewing in revenues against Total in the up by to million shipments advancing tobacco quarter. X.X%. MSAi allowances a growing X%. the MST under Smokeless price/mix share industry thus chewing eroding weighed for quarter, portfolio tobacco XX.X% Year-over-year XX% MST. in in Note grew the of by half year approximately reviews. the XX% volumes down for XX% increased XX.X%, Smokeless volume that of has outpace by

partnership Marketing. products. growth to and rolling the net U.S. Segment $XX.X sales business X% year's offset million, This partially to in tougher due and increased of business. year-over-year impacted volume comps was increased in period comparing quarter Turning and had in strong X.X%, inventory in ReCreation which with X.X%. the by market $X against a of growth cigar price/mix in non-focus in our disruption, our will about last inventory the pipe papers depletions Canadian Canada MYO papers quarter, the wrap Total ramp-up Smoking double-digit cigars post which changes by quarter Smoking third to Of while note, the million MYO $XXX,XXX a our by face packaging prior year. increased regulation the and rebuild decline in with

papers $X.X $X.X to for to paper and to million Canadian industry revenues our cigarette expectations million increased XXXX were digits. of MSAi, quarterly cigar compared quarter wraps $X million. double second volumes According quarter MYO U.S. Third

in gain addition coming sales of in other to we quarter, base business to our million quarter. Solace especially products. share NewGen and Moving segment, our distribution to the experienced where an million COVID. these from strong vaping should and NewGen. to as easing, BXB increased With Net market XX.X% benefits from strong a positive business $XX.X to result PMTA contributions In Nu-X being for PMTA not temporary quarter down process due you third due $X into approximately -- COVID-related fourth volatility quarter a competitor and the benefited our extrapolate results forward

gross growth margin quarter, of NewGen gross from $XX.X XX.X% increase aided faster in the profit For by business. to mix and BXC proprietary products higher million our increased

included XXXX to compared quarter year million million Second $X.X tariff expense of a ago. $X

also going Moving increased to compared achieved year. quarter, margins EBITDA the consolidated the made prior from business. into this the year. In reflecting for to our the the $XX.X in We benefits was strong earnings as $XX.X guidance. quarter SG&A Adjusted million during the we reductions XXXX incremental million cost release, the

are thus our expenses. our environment year to company into far business the in we be of as the expected the revised during second for to sales should ample $XX transaction $XXX of support powder adjusted off inventory. mid-July Post million manage through With This from the $XX ended that, temporary ongoing account be as $XXX our start which continue million million; maintain third XXXX and of net quarter Durfort this our date; comments. million still attractive in liquidity, to PMTA to sales quarter I'll for $XX to the business this million transaction, within and with of with The taking to we We to total turn burn and for earnings evaluate a framework, call With to the million spent along EBITDA quarter as million segment, also now million; FDA net are $XX hold investment results and compares the near-term to flowing optimism million environment volatility are dry in by the $XX opportunities. benefits the to closing consumer. expected to is and pre-deal Durfort through follows: $XX available Larry XXXX for current balancing with favorable us but an opportunities. projected uncertainty $XX this our projected total $XXX pipeline NewGen million. the encouraged of puts back We now position expects guidance these the we

great a you, of the Bobby. Thank in year. first had half We start the

and for of the our proud are We organization, during such to work want personally execution challenging employees thank as our remarkable an I times.

for and our the We Thank progress are in raising expectations continued to internally to call you that, are looking forward quarters. call up the today. with questions. to in open like the participating And coming I'd

Cowen. our [Operator first Vivien Azer come Instructions]. will with from question And

to I hoping So was Stoker's. start with

certainly momentum So broadly network, and within own constructive. share clearly, your that's so strong store very

broadly tobacco also split buying That the were you capital also between called they Larry. to You perhaps comment. off even pretty was wondering a tubs if Coming out contributing was volume and consumers was suggested of that higher more call, that. cigarette that a that cans, -- consumption. higher it expand Altria and I on earnings could in

tobacco dynamics the I'd think if So hear to you're love similar segment. you in seeing oral

agree cigarette I is more that comment. than a

with I home buying more being greater and the store, trips people having think in fewer packages. we consumption, and bigger and are in people greater seeing

cans that, the the are distribution that are I a increased year-over-year. think benefiting as the result well of doing and very tubs from

by to I well. Altria our that apply think does and as probably comment moist So of categories other the applies to

kind able with you I That's June. guys to of though, just am given industry with the curious, take sticking the that category. wholesalers COVID. expected whether really consumer, helpful. waste would Encouraging maybe so pricing or lithium more And were the retailers, consumer of reaction you of backdrop, than any because in kind from the have even historically from you either saw volatile

No.

in both cans fact, on feedback no In we just gotten in tubs the price it. almost have the and increase negative on May recently,

to interesting reality. to would with the it'll what government as will support. be think consumers, And suspect I this new into consumers a I that that are be go benefit forward, the supporting everybody. we settling be government and the continue happens

more think I No, Yes. be government sure. that to Right. important be Right. is going to

the Just turning process. to PMTA

that million of So the drive year. to of court, full resulting as certainly, just envisioned I $XX you've on impediments just million haven't you think, necessarily necessarily would $XX up. curious process learning date, million that Is this? any surprising through entire there's a But to you expected you delayed what the kind cost higher you're process expense this whether in and be are kind there through anything that being estimate. spent $XX Obviously, that's to gone by the

Yes.

is just prices a up that would the their on past products kind ago, guys we're our clear delay. get tightening that little file. lot some made they the wanted because closing out, smaller -- a you piece lot there to you'd the go up, of open few on gates pretty drop automatically to range. of feel we excited seen ability say, I were just documentation to over as we and submit more the to on submit We've otherwise, They of the think about. bit precipitously months going FDA depth more the months rejected. certain of off to a I of get that because you core went paper one actually systems from that they -- so were the to We confidence up track Everything didn't done. had add put was also that a three couldn't

everything is cost cleaning a where is excited but on outstanding us pretty about, that track. we're -- -- It tightening. -- was it's just up item So one it's it's the

more. squeeze Great. in I'll one

back accounting some the you from excuse margin deal. we of half as called think the gross of the the me, inventory progression, wrap year, the about in Just out

we third that should about please? how in So think quarter, the

Yes.

So half, in mean, So year, a going second you've full wraps $X be that's COGS from to about right? moved got million of I perspective, $X.X the out million.

And line. the so that's just bottom to straight

the the sort Durfort because transaction margin in we a bit primarily was than Additionally, of second was expected segment the than before little quarter of wraps lower higher margins.

able So rest progression margin into you should the of of year. extrapolate to that the for sort be

will our come with Craig-Hallum Lauriers next Capital. question And Eric from

impressive if in Congrats bit on little wondering of the such just I a dig was side quarter. I more on an Smoking could things.

and just focusing e-commerce now are guys dispensary trending? on you sort more initiatives sort progress color of are some bit on what mentioned your growth us you how of Could initiatives. a You and give those

negligible So side. in was e-commerce us XXXX this exact for on

Now percentages of single-digit it's business. the

we're excited about pretty So that.

Additionally, the the Xx consumer, with box French what price XX,XXX cones. cones Same for in that's we've in XX quarter. cones ultimately, the X visits. comes That cones in we're beating we're seeing -- And year really numbers been our it but comes with plus pack on at And We that excited to about because progression point. now a past in sort that really cones this saw versus stores. orange of is are chest leaflets. the drives more -- the

really really channel wraps to about on about both business. is us excited And in exact for e-commerce. to but is wraps cones. Blunt about business, excited be we're it's taking in the So going also we're new adding the also We're off be the we're the those which a in Wraps, about throttles that going second but business, those, half

any Solace then guidance a gears us that had as PMTA ball the upside quarter. Okay. That's about bit you see result proprietary and would how PMTA, mix switching does your NewGen gross to a Great of but half greatly the understand in products. record assumes from NewGen to of crystal increasing Great thinking NewGen on it of I understand for back color half? bit. back margins can you're for in question, no a And but expanding to help what be assume see it's appreciate a I helpful. appreciated. the a

Yes.

come NewGen. $XX the a $XX numbers million $X million, second. million literally We're for a a numbers of We not onetime numbers when in the we to that for So between a made vape -- Vape lot -- that, milked down that. we've money $X in of let's and We need did go on somewhere benefit a in just had happy we bulk of it. down days. sales about quarter, talk that's because got and it. But that those million is round May competitor just we sustainable. ultimately, XX And

you move out. that So

Additionally, we're happen expecting some to in September, October. destocking

that And a the business, you up, the been continues -- to very is so accelerate lot first that's new really vape representative offset nonvape at more as and we've business loud look by we think quarter should the the of how about, it.

least would quarter the is at that there we think second I $X million -- onetime. that in there's call

Okay. That's guys. helpful. very Congrats that. appreciate I really again,

come Anderson from Susan B. And our next question with Riley. will

guys you Nice for level I just that over start I job to on follow think the How business years? on a could to do the gross off about several you that? or the up NewGen. quarter, margin, guess, thinking you level guys. next guess What are the go

from higher clear definitely -- that. that very we've It's about Yes. been here,

step true wraps. given was but we Smoking stop has is take said up But long-term won't branded what you're which proprietary haven't we going XX%, that have a XX%, margin, until Zig-Zag, because We looking we to a segment of at said now historically business guidance.

which step-up we taking Smokeless, incremental get going XX%, was margins. MST, a going taking got XX%, You -- to continue to as continue

we're, So if take but XX% then margin, little we can think NewGen to will. we're going time. getting bit supply We focused really obviously, into that's our chain, some margins. the slide something can And we segment on to that, find that's we a

creeping long as margin we're up, keeps And as that pretty happy. so

grabs could numbers That's will put the any how fall curious for the had up quantitative give. thoughts or what result think a there's of you of market Great. could then PMTA And much do around or as out the you you will was helpful. process, of market if percent that, you be any I after numbers if

down, fall don't out. of going we stay to think XX% market think to slightly how we'll flat We will think the so but somewhere think. around Yes, We the the the out market of SKUs, come is that market. here's we

we vaping. with that is seeing I much And going I'm can't And always we're of studies studies that one who's around continue how Solace we what where of of people are are actually still to coming are now We're the always that, through going growing, seeing going flavor. has that's saying, say -- is that's are but and around Solace until it. liquids okay, are well, and vape lot those. extremely out Vaping -- say. I positive already seeing -- aren't there's we're to saying, vaping. so go, the like they're cessation I people like shops it right to this for like certain and okay, be And that been who's elements this a be there the grabs, on liquid, going are

And that of over so as one lot a we're happens quarters, we're guys the picking up few few are of next clears and share pretty inventory market left already, the the about and out what we standing. excited

Great. for then the how And lastly, That's of it think very guess, quarter, guess, next about we of as quarters? the too, SG&A, just out this SG&A at couple I compares forward, to should going maybe looking positive. I level

Yes.

have -- keep we shipping in we So SG&A.

about flat. expect you it So I from would to back SG&A, if be out shipping

Please [Operator Instructions]. like go ahead, question-and-answer sir. Larry back the concludes closing would I This remarks. conference Wexler to any turn over session. our for to

to quarter. report. have joining again to results Well, for some everybody, next thank much. very you hope We We to the look call. to talking more you forward Thank you, good

now has concluded. you conference for attending today's The presentation. Thank

disconnect. now may You