Turning Point Brands (TPB) 27 Apr 212021 Q1 Earnings call transcript

Good morning and welcome to the Turning Point Brands first quarter 2021 earnings conference call. All participants will be in listen-only mode. All lines have been placed on mute to prevent any background noise. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. is event this note, being recorded. Please now Louie Reformina, would like Officer. to to over conference the the turn I incoming Financial Chief Please go ahead.

incoming Thank Louie everyone. morning CFO. our you. This Good Reformina, is

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

to measures. cause GAAP the attention and not differ them, our In upon call in can customary, today's results obligation and we now today, in could and useful cited why the will disclosure forward-looking reconciliations Larry found to by and information. statements Commission. will cautionary and I except forward-looking to and undertake factors reliance to undue These press reasons provide of your over be management Securities release, projections CEO. statements. are federal the we measures These they with in future place factors call certain Wexler, outlines the turn today's not that projections no materially or and risk any revise is the publicly be of Exchange in statements earnings you provided believes direct statements performance along as I with discussion securities may financial non-GAAP forward-looking laws update discussion. today's reference or release that The various actual guarantees forward-looking filings to that our As should from

Stoker's In range. adjusted the and to above the with up XX% was first the joining up quarter. year's number XX% by Louie growth combined last in inventory prior core was another Revenue million. call. was quarter, Thank which runs. lockdown from XX% $XXX to Zig-Zag even $XX were favorable a begun everyone. related And challenging XXXX up. good despite guidance year segments, trends that comps EBITDA you open as A led We country started strong up revenue Thank continued morning of have to million, the started has our you for and our

market tremendous another segment our execution. products of Zig-Zag continued with saw as Our a we outperform growth healthy quarter to

e-commerce same-store up outperformed also strong gains transaction in drove MSAi growth continues strong in within as Stoker's, segment. our product brand Wraps trend. consolidated the we with results in rights value In to MST acquired remain this growth for this well-positioned marketing a recreation its the to SKUs secular contributors the Stoker's category. shift and Blunt to according now fastest-growing and ramped the last be to year. during Durfort were to brand continued quarter. sales MST, New distribution the of We Canada

FDA disruption and Encouragingly, March in XX up continued reactions issuing from despite quarter process. resulting to letters after the during growth solid in XX the to in manufacturers has efforts, saw enforcement PMTA the letters warning NewGen February January. industry issuing its stepped XX

improves continued the and volatility still process PMTA NewGen as expect We continues. for

customers. the PACT benefited logistical bought the March vape creating to The Act forward disruption. date vaping increased products volatility from looming responded of complexities shipping Act the PACT the vape both entry quarter. in has is late some to addition, competitors further business In as experienced in to and late distribution the barriers and it cost in of Customers the second implementation as in industry the quarter,

short the our of result, market for provide in a create volatility optionality business. are for additional expecting more upside long will As our more we to term term, competitors which the but exit

most Docklight our use. for also Bob one investment of are brand the perfect Marley with about is recent has fits of best a cannabis complement the related Bob rights excited very is one space. brand in the in which well in Brands, and the global to and iconic brands It the houses cannabis We to cannabis space the of building strategy Zig-Zag. Marley our

over enabled emphasis through and out on Officer. investments rolling opportunity to our the we Chief BXC online topical quarter be to our and acquisitions year to distribution to growth balance the well-capitalized of start sheet, year With our and products the will and we forward with and in momentum. our that We of line later $XXX raise over our add value stages. color our us company CBD and of further at Operating in pursue our guidance profile. to Purdy, current the remain early path some enhance turn perspective an call Marley on this Overall, look infrastructure With million let to Graham liquidity to the additional me the performance forward, continuing our the add

Thank you Larry.

MSAi. X.X of U.S. give previous products measured level. quarter, in first segment double XX.X me in e-commerce growth quarter, Zig-Zag channel the performance year-over-year cones, product the Let now digit saw our was by you new a All rolling has double lines points paper the quick digit both to growth strong from realized this up led snapshot platform. the from with consecutive in share and cigar the year. paper universe and in Zig-Zag supplemented market as by brand share In market products XX.X% growth, Zig-Zag premium papers our year-over-year measured strengthened, paper's MYO overall increasing its leading number our according seventh quarter major brand position U.S., by points the the we growth. to This MSAi the the were to expanding and one in wraps. contributed XX.X%, share the In

through the first Our quarter and the in It ramp sales quadrupled of year-over-year. cone to sales it more expect paper over our we year. XX% than would continue to was U.S.

the shops most where to in product Zig-Zag and are of We channel, still currently the that and convenience growth market our dispensaries, where lead expanding in of presence and is penetration including exists underrepresented. continue and non-measured alternative stores head

reminder, we accretive convenient a sheet a strong represented dispensaries the cone effectively to compared our highly XX% saw representing cones share a U.S. to market quarter. of market to was for stores paper during was Stoker's big the year sales on marketing, long above continues up the accounting now continued ago In a for once XX.X% quarter. gained to runway channel. business during in according basis. volumes, quarter. more saw of our the regular company again which E-commerce, basis gaining gain XX.X% MSAi. Canada, and as As times chewing digit share X.X%, a X.X digit sales share MSAi. the little one share points cover tobacco is the of paper now double consolidated The of to an growth within our we single points of over Cones leaves further a per driver business. market to retail, year's moist for has share are sales had which growth to growth. was of our Recreation sells every still now Stoker's that X.X quarter quarter and according XX the growth impressive is in products contributed XX roughly product low last gains. of last again adult a to majority segment individual double snuff moist industry by four a year Stoker's for usage have Canadian to is to are sales at increase consumer Stoker's the an level, addressable price rolling was points single the a year Zig-Zag significant Total their is digit growth, business. Chew in digits of in low with which same-store first growth. being non-existent that accelerate. driven owned Stoker's our

shift is stream with value the as secular annuity provide a value cash category a placed tobacco into to us positioning continued Stoker's forward. the of going the business stable well and leading flow brand, chewing With

Moving growth market we distribution environment. Wild we the stricter pressure a in segment margin of benefited where in advanced anticipation competitive improvement of resilient again to and shipping Hempettes vaping in The to Nu-X, our pouch around free the PMTA had strong growth. contributed as gross related second continued business, nicotine a to our white in the the NewGen the healthy buying vape despite Act quarter a once result regulations Within and quarter saw PACT disruptive our in also from of In product the quarter. process. implementation

begins market to optimistic another service customers. it requirements are continue to to distribution optionality Act expect challenges in competitors PACT the term vape The increasing create we we by as the catalyst volatility for segment logistical the the While in about the our consolidate. as will vape is short business,

While that, this it accelerate financial the increase will larger law, our the like us players first will adjusts this short consolidation costs, term disruption going and I will review well Louie? performance. And increase to the industry industry to of position quarter believe we new a in forward. as with Louie turn for

Thank you Graham.

was quarter once first of the in performance plan. ahead Our again our

into papers cones. wraps million Zig-Zag XX.X% U.S. MYO half from first pushed According the $XX rolling in Turning MSAi, increased growth with of $X segment double increased first in volume net price digit to with driven to XX.X% over to $X benefited increased industry segment quarter products sales cigar mix volumes deliveries quarter rolling quarter reviews. million by the U.S. papers Zig-Zag Total increased XXXX. strong digits double the to papers, of million roughly Canadian which and growth X.X%. the while for

us volumes e-commerce quarter. our X.X if the overall industry alternative MYO grew are out, volume wrap This double the rate strong market. of volumes at excludes seeing were competitors. the rate you strip two from digits and the the times incremental Our And we up of growth in times the cigar we channels. grew

and This MST. above quarter for first segment e-commerce in and from quarter, sales the wrap income segment average. eliminating saw accretive margin result for revenues for MST the increased the to continues from resulting expand portfolio to XX% products X.X%. represented contribution Net million financial trending in be declining outpace $XX.X quarter. is the to volume which higher with continued the earlier. the to XX.X% MSAi accounted Stoker's by to for the currently product During fastest the a Stoker's industry of by with our MST significantly growing advancing the and points basis retail approximately our benefits XX% X%. net gross operating Stoker's X.X% of declined MYO the approximately year and XX.X%. share to increased segment. was industry cigar price year-over-year chewing XX% business, volumes payments its X% mix sales of in chewing growing up The Durfort of by in our we Zig-Zag Stoker both margin Total our in XXX tobacco in royalty quarter, shipments the grew tobacco quarter, XX% segment's

$XX.X Moving increased to sales segment. our X% million. NewGen Net to

continue the to in impact to due PMTA of PACT with near Act. term along the volatility process the We expect XXXX,

NewGen Segment XX.X%. For expanded the gross X.X% margin to quarter, million. XXX gross $XX.X to increased profit basis points

is follows. business. the segments structure. was XXXX This of to million for quarter, our This to this for $XX quarter. $XXX strong during also of be consolidated previous up million Adjusted includes from Adjusted $XXX achieved to fixed million as our previous core of guidance to reflecting as EBITDA $XXX million, XX% the up year. net XX% million. the $XXX morning's million our million. million In up the to $XXX Moving million release, now prior $XXX updated we the to in $XXX incremental guidance sales sales $XXXX of $XX million. in we cost compared quarter the margins guidance leveraged million We year second to performance Net $XXX from to expected as full to EBITDA the is

strong expect now from digit sales previously. digits we Zig-Zag, double double For growth, up

we cigar $X made of up manufacturing-related in million the in wraps for impacted quarter XXXX, in year, the was quarter. by second which fourth from last our disruptions As a business reminder,

COVID for will So overall impact we the year $X on upcoming but manufacturing the in million. comparisons wash last an quarter. year, We from was in that segment was the estimate the Zig-Zag benefit impact the have net

spread loose for to have leaf from out leaf of will sales was benefit in saw a the expect chewing middle high temporarily digit from quarters. tough loose that of the Stoker's, We QX we out our QX. in from in comp XXXX $X the so growth. we being We For some million business the competitor the market year in business, our around our net estimate for upcoming Stoker's COVID benefit single

for expect of single Nu-X. decline single digit up now growth digit to previous mid offset This declines, distribution guidance declines sales we includes digit from a from revenue. in declines. low double is of guidance by single vape NewGen, This For mid digit previous in

implementation. with COVID comping take a called second against quarter the and our expect tailwinds. We quarter QX a we last million market in And the COVID, view we costs increased a a will around competitor benefit impact be of PACT and previously from be Act to significantly market also year so we $X being pragmatic challenging offline. On of out of from the quarter, the logistical a

to to at increase in especially COVID benefited people XXXX, also e-commerce We been that that $XX with in as overall NewGen million from million $XX estimate in impact more stayed QX. in an home, QX. BXC of We from our have business the

We $XXX the and strong execute turn million evaluating in Larry grow opportunities million us liquidity. comments. back position our $XXX quarter that, cash to business. to active our the I of will to for an closing of Moving This with are to an currently balance pipeline With available sheet. of we puts on ended call incredibly

Louie. had strong a year. to We start the Thanks

we to and the balance Our a for is core perform business are well-positioned PMTA prospects transformational momentum as With business term of PACT Act our company. And the remain industry. NewGen to Zig-Zag, the continued believe process longer competitive businesses, events which especially as likely optimistic we navigating our sheet, about the have advantage our we be and that we a exceptionally.

to next our reshaping for balance questions. not and our to like you the thank and in for success. would once without in commitment to to call three the and them be in Lavan participating with also last sheet employees performance years. instrumental continued Bobby of the take our opportunity. for contribution the Bobby over up all has that, possible I best our Our would want contributions company to We personally his open to for the Bobby been efforts time thank growth. want his repositioning I company call wish And their today. to the Thank again I

the [Operator Instructions]. Azer We do Vivien of have from a question with is line Cowen.

Good Thank Hi. morning. you.

Hi Vivien.

So share measured we start more have if you seems about certainly help wondering with little think like but or is I could It's were was opportunities far Zig-Zag really when better start it's easier encouraging than framing the wanted bit into EPD distribution looking for. channels. segment, I The distribution? here. it us guys to you incremental percent to channels nebulous expanding off tremendous guys from track a momentum growth, and even you in non-measured

Thanks. how So should think we that? about

Yes.

are It the to right. So is you in harder non-measured channels. track

the We in channel the alternative may XX% of are the channel. we of digits, estimates only that we is alternative Our digits in underestimated market have that. about but share double that high think still low single

the to us for runway of have plenty we grow XX% still measured there, in that the is channel. there share So especially with

we getting of efforts started terms just our are alternative still the in channel. I think in So

f And sheet. very Understood. strikes Thanks cones. a the It's from cones from just to the certainly that margin, you in me a great to showing XXX wide which are revenue to accretion see. when is as up a for from relative go that. premium, anywhere But that four you on range said can that single gross seeing

pretty drives So what that tough the variability in competition?

Yes.

you really switching from. the depending kind on it's So of product are

you book you look on $X.XX orange So of website, that's papers, booklet look kind a a know our of if of if XX. you for French at

unbleached a to at increase But if drives retail price a our on in for the comes that the price increase XX, product. which papers, paper. times four that of unbleached pack time XX look you that's rolling so And of the

Perfect.

XQ on that Thanks into Okay. it of you item of the segment. out for XQ? context. Can revenue housekeeping I the Last magnitude was Canada, quantify Zig-Zag the from shift, one, believe

Yes.

from shipment delayed a just was that So Canada.

that's of from of over to $X we QX Sot million million last to QX year this $X shifting year. that experienced about

Perfect.

Okay.

coming of the the on around of get Moving conversation, segment. hoping tobacco tax perspectives Capitol your commentary to Stoker's on some out to please? was I Hill

-- tax I you a out. didn't that Is broke question?

a question. It's right. That's tax

know, time. time. that have in you have really we that at states. And tax experience to long level markets. see had, we after some there for go business you a state is seen taxes significant our conversations as is There So all that activities this The about increases is following taxes. up in have the We always been low do shifting value the

proposal. As is you extreme. Bill very Durbin know, first the the It's

very some if a change to and can did, of that come be that. are pack analysis well Durbin it the says of expect would in it cigarettes a better envelope did than positioned. $X be and implementation even would And of of we $X Stoker's and We after back We Bill, change.

we tax that think through. I are So positioned even still very bill well goes

a and just that sure could the federal Yes. That then a makes expand for on to sense demand just Larry. vape? and And you speak if from thought on tax implications for perspective, supply

their to tax. products there's taxes, implications is it the of certainly it excise states consumers the the product, through state consumers, federal become, into lives. consumers pay it once taxes the tax. will We consumers And taxes pay the government and will but tend product, unfortunately have consumer of all may it that state on One vape put even the tends their with your and to Almost the that incorporated relieve the have ultimately, not daily believe go that. pressure. Well, some many a legitimizes partner, from the of

very color. Thanks much for the Understood.

financial. Riley B And your Susan question line of the is Anthony with from

bit the into maybe and in opportunity margin first I for much could Thanks. is the wondering Nice you little operating margins there? guess, growth I Stoker's continue quarter. expand the was longer Zig-Zag segments? the to if continue the to talk there good term a job to opportunity how about quarter. see the accelerated It's

Yes.

the start segment. the We will with segment. on product going of mix. as expanding out Zig-Zag driven the to that is focused the we by So Part Zig-Zag were gross margins not of be

margin For product, example, dollar lower addressable fine we an may at it we highly because mentioned have gross accretive our paper it us is cones, traditional what come But papers for from gross is market a perspective. which which profit a for product the opportunities. expands than

on focused we gross with what SG&A are dollars cost the that leveraging on fixed Zig-Zag for segment. is really So the profit

for much margin the from on segment look don't expansion gross too So Zig-Zag here.

On a that we because the Stoker's, MST that's a product in-house. different story is manufacture

So the we driving as the volumes incremental should margins grow that still we business. keep of

on Okay. like bit NewGen the Great. are doing seems and seeing That's guidance you better And there can like brands bit with then maybe response in better it looks the category, a the little the really consumer? a expected? helpful. Nu-X It talk you a than from it's

Yes.

being driven is So by part the that Act PACT we of that mentioned earlier. implementation

in result seeing Act. competitors volatility to in So our but away. as There the higher we a term we some the is PACT with as of some forward pull are be shipping of see kind customers big consolidates cost sales our for going short did advance a of us pre-bought market opportunity going

what on seeing I the you that's part side the of think the in business. So NewGen strength of are

And last on Where the opportunity where kind I the Okay. seeing on maybe are are by really of one focused in really if quick, you you you can are acquisition give front? you guess terms what segment? us just of seeing an on? And Great. update then

Sure.

build in which want cannabis complements house just brands is a investment very did the focus The in of space about. in we dosist. are investment Docklight excited there to really, So our we that this we

of a you part into view looking these, toes eventually a we too the and company. of these the do of not kind are in We And know, as way water many. our this more dipping consolidated acquiring to few of brands

cigar opportunity $X.X We is in have a mentioned us. market that the we are billion for active space. It

an evaluating opportunities perspective from are acquisitions we there. So

there to something us the term. do medium in for short look So to

product our We on expanding offerings. are also focused

we into are we other products mostly sales infrastructure stores, retail are is which drive North through are XXX,XXX using. on these So same of America. can There that we in the touching that go lot outlets currently that C-stores a

are So at would looking we it what [indiscernible]. we call

pursuing. various is that we are there So opportunities

one for in there in Okay. such eventually guess, Great. How the company? I the Docklight. guess just terms you making as I thinking timeframe are of investment follow-up, guys a the investment full

is investing are Eventually, the from going comes business. slug the we significantly is, be years approaching than market the now. five think cannabis Docklight So of another the we an the that option with segment today into different to way market

an investments that taking course to eventually the Docklight like another investigate fold dosist making our is companies investments, company, small are and So opportunity chunk with them the there we and in into

Great.

rest Okay. much. for luck Good year. Thanks the so of the

And Craig-Hallum. your Des question next of line with the is from Eric Lauriers

Thanks another Great. right. the All strong question again. and quarter really for on congrats

on potential parse about Focusing as strong versus How versus opportunity. measured sort wraps of and that Zig-Zag am I either opportunity market business, wraps? obviously versus growth distribution that see you we of that in that Any through difference channel? there current to really should alternative share in just papers the terms channel well papers for trying major alternative think in guys the or

Yes.

really So mostly the is channel a papers opportunity. alternative

wraps to So of license that product. the a part need is sell of tobacco our

channel fits still. our measured that in so And mostly

alternative opportunity the and the true that's in presence expanding U.S. of really terms our And is So papers more Canada. for in business. both a

sort then channel? am the ability higher for any the that And of Okay. versus in channel. cones assuming opportunity to that sort quantify of of in measured a in But than mix the it's I booklets alternative channel cones alternative

Yes.

is it growth it papers. that driving the convenience store channel. paper than are represented now. right mix alternative is as Really, alternative today is we And the channel your heavier convenience of in and the as channel the a cones chain in booklets think is in the we more it in versus the So market cones large market store the

switching guess, Great. here there. Okay. very That's little profit encouraging M&A. gears bit gross I focusing a on upside to

of filling your as only gaps on infrastructure in portfolio terms talked but you product in the past M&A well. So the not in

you are and the it dosist, M&A with opportunity, like it to good in really the could side job relates As a But seems cannabis filling Docklight. product touch on still might doing in the guys of side Wild understand us infrastrature help what any of be you acquisitions for cannabis targeting sector? or gaps and product you those the M&A infrastructure Hemp maybe

Yes.

the ourselves of branded looking the on consumer which vape we side a portfolio kind the of gummy company, in Zig-Zag we cannabis now and a So dosist, side of Marley, added And strongest really as products in right. Obviously, the complements growing to one California. that extend And iconic large that that in. is to on is view have of most brands our space are brands and cannabis we with one well. our Bob the market brands exposure

So further. looking focused exposure to looking brands see help across if reach our the extend we extend we we to there but on And are supply brands, further. the are chain opportunities are to out of our there also there are

again Thanks Okay. strong congrats helpful. Great. and again quarter. That's on

Holden. Your next Haley question is from line the of

call. have taking two I for Thanks for the just you.

either Following up underwrite of noise potential theme, the out ability tax of on some, the your out have was M&A Washington changes of news coming any I the or FDA transactions wondering with and out regulatory sellers in there terms if to been woodwork? the of M&A

is I uncertainty happening yet. what's tax still obviously, seen really haven't there a of in rate. much of terms We mean on lot changes the

terms tax in results on much to So potential activities any or I rate. really of seen we changes have the don't

the second in the my just second freight quarter. you in I was, a the on you then little us mentioned was script potential think color for costs give more if I that? could And question wondering And Okay. higher

Yes.

Act the of implementation. by that being driven lot a So is PACT

terms are fulfill to forecasting in orders. of we decent our So a of ability kind increase

So perspective that some is opportunity to market going on some of our second upcoming from competitors quarter. Consumer. a be is passed of are also as the a to this away for going share us But big there

So invest our this market we grow are coming quarter to looking share quarter. or or next

very Thank much. Great. you

with Greg from is next question Sidoti. your of line Pendy And the

Thanks guys. taking Hi questions. my for

real letters. just of warning type Just mix Or vape open of those quick the FDA tank Are predominantly that on players? is players? a both

tank of lot mostly them players, the of bulk The a are open liquids.

about, Is year I Okay. as I am this Great. guess, are year, price some I we there around coming mistaken. through you if Stoker's and July, May took increases those an price increases times? And this thinking expectation in for not in believe

fairly The comments regular. price increases are in Louie's

yes, expect to the year's. we be last schedule similar somewhat So

question. kind Okay. then of, channel. How just be just And of the too is should one e-commerce right you in at point? thinking in it quantify small general, Zig-Zag, Great. Or final just how this Can just kind to that about is now? we big

papers U.S. sales. digits our within So double business, it's of our

So we expect us that for to continue the through year. to ramp

Okay. Great. Thanks.

there you further no question. sir, And any are remarks? final Reformina, do Mr. have

Larry. to I call over will turn the

Thank you. Well, stay you thank you look July. the And for next quarter. safe you and see everybody joining We call. in forward to seeing again in the

and you your conference call. Thank for concludes today's gentlemen, this Ladies participation.

disconnect. now may You