Turning Point Brands (TPB) 27 Apr 222022 Q1 Earnings call transcript

Good morning and welcome to the Turning Point Brands' First Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode. All lines have been placed on mute to prevent any background noise. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Louie Reformina Chief Financial Officer. ahead. go Please

Good Financial operator. This Louie is Thank morning Chief Officer. Reformina, you everyone.

call slide available if presentation is President section our on a perspective site. morning Joining Efremov; and our Point located is on first Turning we against me Brands' also will release call, presentation This website Purdy, to be news covering provide is Operating at quarter a There results. strategic progress and On the our segment this you during the turn discuss and Chief consolidated two, referencing Officer. disclaimers, our that a will operating issued This our plan. IR we in the release we our of Graham on and Yavor CEO, www.turningpointbrands.com. results

is with your I'd cautionary in in to today's of risk discussion SEC. release the direct our statements the factors forward-looking and the and press filings customary, As attention

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

measure trajectory better joining slightly Good share than and Louie. in on our the our another its with gains business morning our building start Zig-Zag of Thank with you US channel. to year quarter led to by market We thank expectation. our its you everyone had for call. the strong double-digit results growth papers strong a first in line growth continued quarter

sales the focus we in also in our industry. secular into double-digit Stoker's the benefit showing the good from channel alternative addition quarter. and during progress efforts growth we're saw the MST growth channel as force increased In

wallet from PACT decline traded navigated the consumer sales Act with quarter. regulatory resulting environment. to share proposition capture during the its pressuring the down in NewGen an as well-positioned Stoker's expected consumers was value is the inflation While Meanwhile, as

fact completed and business the Our scope that budget. both we vape plan of did profitable I'm distribution quarter challenges. despite within and on so these the on the and the ERP of remains CRM system proud very the

step and the process obtained the corners not top bottom. While that engagement journey, cut this long its organization lot we be a first the did the fact all nicotine and oversight On FDA encouraged that that to by a all I'm of quarter. non-tobacco XXth, potential. full done strong delivering in still in did We of this is needed believe over I a about to the products. April had says and regulatory while

to we year during authorization million evaluating focus it $XX they heavy we of receive up upcoming may a capital regulatory enforcement. market from the subject spending and As offerings quarter filing a now buy receiving modern the subject a to oral. our short-term product allocation, as industry number We our industry. products a on nicotine the the applications for continue timely On same to we on products non-tobacco Products long-term non-tobacco while pouch application result view position Premarket entire products regulation a effective the subject must unless this including XXth. to in some as after action. shares enhance negative and back regard free new and With throughout to file a field to playing positive increased After until deadlines products to are filings a be our oversight component are on products. PMTA with become of to July XX our submitted July as regime to critical Board. for we continue May by level may these around the these tobacco-derived of the nicotine view aim disruption FDA cause nicotine XXth, remain portfolio,

here balance all aim We remain remaining to as buybacks will throwing be long cash cash not attractively. flow to use priced as Practically, we our our our to directed be continue invest committed in toward growth. to the organic so from cash shares flow

On the near-term M&A is focus. stated front, as that not before, our

our announced reiterate business the that deliver synergistic leverage further team expertise, acquire organically. our Any distribution and network to existing excited from to However, and to that extensive we're to assets, and a consumer an shareholders. be Frein, will may including she We will experience and call, hiring brings shareholder brand is can the to who – to prefer what marketing rather acquisitions brands. we large-scale capability than about patient Summer we existing build our products and previous new pursue to of tuck-in be will and our smaller build intent that, pursue our recently we industry service also We do deals thus CMO value-accretive leverage be distribution our drive value. do transaction and

In Chief including we addition, Information systems, our a People to to ERP and oversee Officer technology brought our organizational also a Officer Chief support infrastructure. have implementation on our

We accountability our and reporting responsibilities have the organization. revamped within structure organizational define functional and more structure clearly the improve to

business. also have our reporting reflect the to results segments We of better vape realigned our

into reporting integrated and platform. was of combination the financial business in Effectively, and past vape and part rest NewGen an the we profitable standpoint. a have Nu-X streamlined the distribution our organization operational the from Nu-X non-vape of development a product of

to our it now XXX% entity. if that, go call standalone our NewGen the of results is clean of a organization let through to me results. turn are vape With were a representation back Louie

QX decline Starting gross strong in gross X, is by margin in the with Adjusted down which with from Stoker's sales PACT and decrease lower and million Stoker's segments vape Yavor. in in decline margin mixed sales. in business. double driven the distribution digit was decline were benefits the million $X.X the our increase in by and Act. the environment our improvement basis with NewGen, Zig-Zag coming $XXX.X on regulatory Zig-Zag NewGen from to margin year-over-year, growth, along increased Adjusted Stoker's slide down results expected X.X% by offset our Thank points higher impacted margin EBITDA in including sales you, XXX with consolidated

Now Zig-Zag product. performance hemp Sales turning volume and and to million, on mix. trade X that, year-over-year half revenue due was inventory from during in ramped $XX.X the a natural wrap quarter, building wraps in leaf Zig-Zag and hemp for up offsetting segment Partially, the working We more the levels. and digit X.X% the collectively offset is was XX.X% decline was industry HDL for quarter. which X% Warps double sales category normalized grew into now wraps last growth HDL of for by and its believe price business to the X.X% inventory year accounted for wrap. an with slide down leaf year-over-year, wraps first percentage in natural up during

last in quarter, benefited pull comparable a have the quarter. second sales as year's our second $X As will from million of tough we reminder, a quarter forward of into

year-over-year expected Our up represent the e-commerce by sub as was cone and up was segments, paper e-commerce build growth the now of in million customers. times XX% US and growth the E-commerce strong year. driven Papers during inventory X.X as planned and of business sales, the XX% rest $X with well

XX.X% the paper market. due The half comp. in organically. year, our marketing NewGen. Canada, from X.X number more quarter cones in with quarter, and products, addition is MSAi growth down during XX including distributor the decline business in cigars points brand the led subcategories was two We with of grew $XX number alternative Canada leaf was of one-third the times the the Sales was of Zig-Zag targeting cones up QX timing cones recognized when in channel and to primarily which third-party for category our segment. Overall, paper we brand rough-cut year-over-year. Cones share. business million the of e-commerce X.X% XX% introduced the the grew was paper remains now Zig-Zag XX% E-commerce MSAi the the BXB quarter. the quarter. the one only during accounted and and was the market for also our the last in sales, TPB growth over down year to up well in cigars world of during channel to measured receiving the our sub our delivered is remains half than perform products, and with other expected market old large decline measured basis which of with and sales premium of double-digits category a recreation our Our the previously of natural hemp our continues the continue XX% in sales. XX% overall XX.X% paper measured cigars sub business share, orders wild in receiving creating full opportunity MSAi this E-commerce saw during

Gross of TPB points We XXX of margins consolidation for expect segment Canada the biggest during year. a driver steady was decline the built The the decline. this quarter. basis

Given driven products decline operating the growth our also led XX The costs the lower Canada dedicated The costs from excited Margins by the the for lower DVW with higher TPB the during with was decline. our TBP periods. and marketing. quarter. Increased continued brand been quarter The to segment points acquisition from the gross margin to cones. of like due the the down now We would reallocation in costs of Zig-Zag basis the year. acquisition declined. part to have to shipping and marketing in Zig-Zag were marketing last Canada Nu-X margins margin both and DVW the and margin strengthen personnel also excluding paper impact particular as of pressure declined sales team increased

of states last late cannabis a in of New fastest to fundamental line the The with and Zig-Zag including our for Spring acceptance operating mainstream legal new segment for is remains growing intact, Following fashion Bergdorf Goodman. XXXX week. like available partnership to and board drivers and be for Zags we purchase income segment. in segment recreational now the which accounted XX% as quarter this come Zig-Zag continues gain collection on Jersey year, sales and for continues launch launched long-term our recently stores luxury AMIRI last Studio

as points down were according quarter revenue grew Turning Sales XX% for to $XX.X to our to X.X% a from product. the Stoker's year and MST while represented X.X% Stoker's earlier. X.X% and price X.X%, portfolio share was XX million up quarter Net we X.X% in in up XX% the at increased X.X% volume grew to during quarter, Slide for sales with Category MSAi. basis of the this mix. volume X XX%

incremental of as Our declined XX X.X% in tobacco shares XX tobacco MSP which general from in expanded price well from quarter, our resonated higher margin products proposition for XX% store now points Stoker's Chewing gross points industry from consumers, sales still marketing growth. during our runway with basis by points was during but stores volume, inflationary representing year. long margin current quarter, industry in and provides the higher shipping previous by sales with XX.X% a in costs higher the environment. selling up increased as the of to the points the to Segment its share to X.X% one the MSAi. is offset, margin in to basis Operating basis performed well growth partially Chew and according quarter driven the down in XXX demand quarter with increased of value Stoker's the and costs. increased XXX was brand volume. to the Stoker's especially number softening chewing the sales margin volume industry basis Stoker's according the Despite XX.X% within Category MSAi. gaining X.X% was

X, Turning NewGen to Slide products.

down previous manage million. year from continue a to We sales environment XX% through $XX.X with disruptive to the

valuable distribution reallocation basis margins PACT lower and of gross $X.X implementation late were including higher into vape business income costs last Act million mentioned shared Adjusted the to XX due was Our and sales points by environment costs lower of offset segment continues by disrupted be year-over-year. operating regulatory corporate Adjusted earlier. the as freight the down to year. down SG&A

March BXB mile reach. and despite now revenue challenging a last the its this distribution NewGen continues business in business of environment. strongest Encouragingly representation result our cleaner our build its quarter BXC which quarter to the business profitable, month at are our in remain vape

in are and our the size present to continues ability opportunity to all the adapt regulatory dynamics We we our in given challenges industry. term still changing us the the PMCA for progress in FDA and Ultimately, our an navigate still and awaiting long business believe our short-term based applications the the on environment. that

shares ended We $XXX deployment. balance $XXX flexibility during of X. the million of to in liquidity quarter. Moving the providing with repurchased of over the million and Slide We sheet us million quarter available and cash $XX.X with capital

maintaining are call. we the previous the press in mentioned As earnings in our QX guidance release, as communicated

to which are organization we projects the higher which on In do our a CapEx update firmer up ERP this million believe addition filing including our that as Yavor upgrade. nicotine to hope PMTA we regards and value expect free year additional mentioned, and year. the In We once we of the later ERP products are reviewing to to drive projecting for patch. CapEx CRM includes expense provide project pricing $XX have include still we also will to this be

open like in for the We a automation Thank participating warehouse are from million today. call evaluating with in entire as for I the a potential started to project spending questions. that And would ERP million excluding up with $X that the automation and you from attributable consolidation call for million evaluating. projects year, manufacturing last are to project, the we $XX that, we the year to increase $X

[Operator we Eric Lauriers you. Capital first Group. Des our Instructions] take with will from And Craig-Hallum question Thank

could sizeable Great. here. cost that, Obviously, costs. Thank wondering, you and ability you and questions solid you absorb from that'd was Thanks you could I out on, guys margins ability sense do the for if freight seeing, give have But great. that what your and on just you congrats perspective that be higher are called that. taking bit seeing I to inflation an on some more inflation us my of some guys pass expand to quarter see a you're a you. if just just

our of sure. I one our is costs, variable in especially shipping segment. larger NewGen mean, Yes,

for implementation. lot a PACT of for was Act shipping related NewGen to the freight quarter So the the increases

the I So over our were what little NewGen segment our a our Zig-Zag in segment. our to shipping but in was bit, that year-over-year, traditional call, XXX saw we costs, products the percentage within that shipping channel, would not up in, as up basis points extent our costs

labor, seeing that. it whether like be And material packaging are you or guys any signs of this or other point, inflation at anything

Thank Just sort be any that you helpful. or not seeing of you. of signs may inflation other be may will

we increase obviously we're seeing year kind Yes, we this are that is that our that. not last We started employees and everyone have pressure already to immune else year. of feelings, our seeing merit and for but the labor normal

so, we're seeing is. like And else it everyone

kind in see me that a you right. half year? All makes way I certainly you second us way see Could other Okay. I of, of bit adding starting alternative mean, the just the kind distribution well. help for That here. of sense. channel the sort CLIPPER understand and then, And the around the adding impact just synergies to it, from of this last penetration as into revenue a expect

year understand of you. of, help the quantitatively, sort what maybe, kind So, us just expecting half Thank second qualitatively whether in you're CLIPPER? with or

are as protecting and how markets that little from, US distributors we're Sure. be this taking million that of so opportunity success going us, in over it, other a that the market second year. mentioned it about number Yes, share $XXX in the share where is given in the there They gained we long terms bit and in is had I mean, a about the of one term about cautious transitioning There's we is are US-Canada period, of large half lighter from but they've to in a CLIPPER for we're manufacturer transition revenue standpoint. given size CLIPPER the margin a X% we -- were

Thank much. Appreciate great. Okay, it. very you

our take next with question Cowen. Azer from We'll Vivien

first data materializing was the Good hoping are through but in you is you. prices morning. softening the scanner follow tobacco the you incremental Thank demand for quarter. category, color see of changes higher gas can around that up off terms made we can Any with Clearly, I that problematic the in consumer comment to Thanks. Hi. that? on how offer in behavior? Louie,

Sure. This is Yavor.

the was there me shock take after immediately we’re and which shows was from where one this. the our was pump a price companies up gas we quarter. share Look, on CPG area which consumer is, April. has in gain visiting get can benefits Let tell from consumer, us. pump, consumer throughout the significant when to of they different we've most gas behavior bit lot appearances But hit into spending spend result a have there's Obviously, the perspective, reverberate and Hopefully, are have a now and is, temporary, you as continued more convenient that what the lot which, who into late we definition the adjusted. we've left one we're late price April. is QX so gaining a quarter, a in seen as saw share, store. And at the as far by that brand means, That continued shifting are cheaper a to seen the people points, toward value you we net

has helpful, but from We're is At quarter more some the money weight continue consumer it's towards we're so which gain we it's way point, to seeing goes. with which to though lower the we pops basis. point you're we're even are a done can and at So cans spend, quarter make more a Not that's obviously gaining today. it take pressure the last -- where expensive see same tell. time happy too on share. away we'll the share this the we're we're price if because that early less sure, But measures to trading continuing doing to happy sure we've to not and

shock. I is generally to Yeah. mean, but I I term think immune short category not a temporary And inelastic, Vivien, it's do

healthy. obviously from quarter incredibly a leader, Yeah, math are guys price-mix which price but the a if in Stoker's has perspective correct not in pricing been follow-up the guys from category benefit dovetails realized is very point pricing X.X realization you where healthy you which perfectly into our segment the the

talking we just the increases, through maybe all really us future the have already When that when flow about right equal like the three but implemented year. anniversarying increases marketplace, remind not now? you So, price to those does the price next the such quarters been very start normalize, that that expect how that price else price do healthy of increases would for increases, last absent any of incremental in it's

two was mean three the took last been years just last a Yeah. last October. one increases and has price And the year. we industry -- past we thing February in last took taking I and year the two the the the generally in in June in

thank it, so Got you much. perfect,

our Riley. Anderson We question Susan with next from B. will take

Alec just morning, Susan longer next Good you [ph]. largest presents Hi. five for growth the say Lagon think brand? the at On opportunity do for Zig-Zag looking years term the what of

Yeah.

for for opportunity a Zig-Zag we the specifically after a and that brand success is that phenomenal large internationally. us So CLIPPER on has think

this in like the products under to natural leaf product cut penetrated other continuing a is that you of on cigar I next launches, segment we of new leaf with there's launch that top continues sometime other think not into very, are continues into is for to drive the a top can of On alternative market to amount that, up a our And year growth channel. leaf we introduce introduction that, the we so we It's that, ones it started hemp about. And on the wrap the consolidated product over products new are ramp going couple feel still cigars, QX up So palm to excited big ramp of be we're of us. which one year. for but big are easy years. rough next market later natural decent we so opportunity top would of

effort. pay build channel this we E-commerce BXB our and of channel sales growth I over We're for continuing Zig-Zag the to driven was couple a expect years. that alternative commerce to alternative by our and that us in As dividends led next force lot of mentioned sales our business year

returns obvious alternative well efforts just Have terms we're that legal takes federal last get we'll channel great keep are Those to personnel as of doing say in more-and-more the we the resources marketing seeing ride the are space states in point we're more-and-more And hiring of a all so terms to is hopefully and very makes to reiterate in rec as to meaningful and into we'll time and it the we're early going and both deploying traction far long in legalization significant of growth. form sales becomes innings the great and in so alternative channel trends as legalization. for that.

and to So long reason of have good we path strong it's then That's now have long, long, probably hopefully growth. don't a and different. a consistent thing believe I right any

up out partnership [ph], of in brands Thanks. the collections I the one collectable probably even like And and licensing U.S. thoughts with feel to Zig-Zag, your apparel most brand that on just follow the maybe image I guess just and Amuri on, recognized you going is forward? said smoking-related or expanding the

we a investing marketing. that's This on brand. the support fantastic we will Frein continue Summer to is run marketing. QX brought handling Look behind heavily it. we're to have just that the say We team that reason did We

I they've partnerships, phenomenal think collaborations. developing job in a relationships, done

currently see that licensing a course with to of to not expect it's just on should as effective speaks to itself. highly being long it as continue That brand. of complementing our for our lot because said, unlikely plate. it, size competitors That's and start we'll highly of we're it You the know

Perfect.

we our today, a If have website at $X,XXX you look limited box. edition

we offering that out hefty almost launched sold it's pretty just already. So and

what doing think development I So for marketing terms our general and beneficial partnership in kind brand. product of, in of, been they're has

our with Gaurav take from next question [Operator Instructions] will we And Barclays. Jain

Hi. Good morning.

which Yavor you questions. you at had here? at, So be a you categories Number but looking you M&A thinking M&A, quarter any further might what have how on had are on front. anything interesting last few if We the one discussion looked and is thoughts about extensive

quarter entirely executed on down the look hands and business. the was So

reiterate actually the to been get both and deal. saying; right the and deal lot I has M&A call, opportunistic synergistic. as as on call a we on we've previous time view the and to have find take this would We plate, it's I going what on mentioned right our to

is most angle be to synergistic. us address deal be asset are do going it. then the things thing unique again for we deals is we have tuck-ins that is add our I the is table, with distribution, them have to Whether which an or obviously the to to the that's small to buy We obvious that some to other small. other would that only qualifier going they And may to are going bring

Okay. million on And specified this which is and second were don't Thank of $XX you. PMTA is recall amount money. a earlier decent I cost, it

us where thought last could just because I able use largely you So the have you help understand filed PMTA. would to to be putting would PMTAs would those you you time the be that PMTAs that new file

So maybe some into products. going you're new

cost? understand So why help just this you can million $XX we have us

Yeah.

by is let So modern PMTA filing be going clear. the the focus me the to cover meant to to is start what PMTA describing of be just oral

We in and vape others. part little be the have very vape it to partnership is with going in

very with somebody going spending be an of arrangement proprietary we'll have be getting the or strictly modern else's where oral. somebody where of it. benefit money is are which but else PMTA parts we're share products, lion's to the spent essentially we'll So million own $XX little the our The we supporting hopefully

And we've on would correct, is the and did to product, modern and it hold discussing it. you the a to later had just to is is different, now it's get the we got and are off cover see and not reactions We it to after reality obviously, figuring terms we're the to of the of have earnings our more is discuss FDA we how time very file We and accelerated the exact it. see have it, test have works. timing that's it. be by previous it when PMTA all meant it which about oral, out of the discussed, I'd we think that's we'll honest in the were we discuss we But not PMTA excited what of lot free One to in preference very very, to call. still another like like Congress market But different. them year that feedback on very, been

overall something $XX for In the on I the you million to as million see terms $X this some result had working that not and quite time it would why about for of what you months our a and but which can do been we've months. working we've to it PMTA in tell spend, is acceleration, people of on went PMTA the can file be the been we is in budget, rush, interesting because

So you ahead. know go --

I could versus quite going how are us. putting so ask how what velocity? numbers that see How But share is distribute I be if to would say share PMTA also helpful places oral you're and modern from In stores what of you mean many have compare been or money some learnings you online. can distributed? was your free behind far? just it you could terms then if then many token like that I have and do free much you sold for velocities let's of much that how the

is Graham here. Gaurav, this Hi

marketplace cleave stores. stores XX,XXX would The the some I salesforce a in roughly year off to of encouraging. so, with stores. of is Sort and we're measured the store in to we've of of consistent those a with product not our in into philosophy share identification and success To-date, numbers market allocation terms last starting the approaching we're you taken approach go nice a those very just specific products half the gains tell in time. incredibly that or going I'm to

ever reorder I we've just that thing comparison is the launches to reorders other a highest seen. in one add done. from Gaurav And would the perspective we've This has

just down that that's to the and our only is level. thought encouraging one I lower product from So, a be full level a to clear we higher think step allows

same in So, have attractive. quit unique to is not that the vouchers low. walking the accomplish we're from a that you market if us which with result all way you're where high multiple the product of looking And the very all you be walking makes competing to to to around

Thanks Okay. lot. a

to over further time. no this questions will back turn are I call you. there Yavor, And at the

last very patience. for been would you. optimistic. we and like the Thank everybody very I to months here the We're for to guys. can I'm I its to a happier quarter. look than forward of I learned I'd company forward few am been I you I've more had I've look in more very, people this into thank months. again optimistic the that and to We're you a I thank like about and more now do talking Obviously am obviously to the you potential, investing their together. of few its all what kind and I here call good we company. We that can now next all. tell The the earnings

This conference call. today's concludes

You now disconnect. may