Turning Point Brands (TPB) 27 Jul 222022 Q2 Earnings call transcript

Good morning, ladies and gentlemen, and welcome to the Turning Point Brands Second Quarter 2022 Earnings Conference Call. [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. Please go ahead.

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

on will news me Efremov; is a Graham Turning Chief release Officer. issued is we Brands’ results. the presentation second and our Point Yavor CEO, Marketing website, a the on we the morning, section and located President This covering slide. Purdy, This also referencing call be Frein, our quarter Joining available Summer are release IR Chief of in Officer; Operating There www.turningpointbrands.com. which

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you, some have and and where wanted for start I we sharing opportunities. our call. quarters what on with thank now far for to Good everyone, been Thank joining have and the by you seen company morning, so I thoughts Louie. X see areas

and light to side the year. In a OpEx for number taken have the protect terms control the turbulence on our immediate continued steps the uncertainty, we of our quarter, flow of of restructured in we and CapEx cash saw in measures have cost plan

on spending putting cost the risk. company for delayed future We where without material areas can review continue improve we to performance at or

of are opportunities the given to I'm happy all report ahead that are significant there While environment, steps current growth us. necessary

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As can control and to drive technology allow the top line companies many right us leveraging cost. the other shown, have

are we market looking market dynamics. pivot CRM and functionality allow quickly allow us to and expand performance our respond in Specifically, to better to to opportunities the us track both to to

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Turning to the quarter.

with pump comparable While are inflationary our in second heightened the quarter, quarter the and we pleased results the business. the of had period overall a stable environment against an convenience had the Rising Zig-Zag previous traffic experienced on during prices resilience consumer stores. we year. impact uneven tough in at the

offsetting pressures e-commerce combined DTC new products, market outpace targeting with demand our consumption. of impact consumer cannabinoid off the on tail of is and initiatives the recent of and proliferation COVID-related the Continued and new inflationary

capital loose-leaf gains down forward with growth value has for E-commerce another decline its U.S. in delivered looking the consumers sales the XX% quarter faced another was Stoker's remained saw forward the during navigated our pre-PMTA business be products MST proposition, that company, look consumers. strong supply the during back to despite during maintain capital which which our continuing buybacks buy along On white to challenging previous sheet Our and filing, in shares to with year. but a pouch offset accretive and double-digit strong well and further strong With we was share The in quarter. Meanwhile, trade pull tough a reps to continue quarter. business, positioned priorities, deployment a sales. FDA by investing M&A. business in quarter our to the our of allocation, profitable NewGen of for Stoker's and the and continued our accepted we quarter Papers balance decline the a to comparable

Going forward, and well as positioned. a outlook be Stoker's we continue maintain favorable Zig-Zag to

by the inflationary uncertainty the however, environment continued and confidence the We in consumer environment. driven are, mindful of economic

the the With turn that, second the as our call year, results. me remainder current press during With along backdrop, our of for in go today's over the let back Louie release. to outlook the we economic the volatility with adjusted we have to experienced quarter, through stated

driven XX.X% down $XXX.X Yavor. results million and Gross our margin you, Starting stable our lower-margin Stoker's EBITDA the X. mix coming in year-over-year, by a offset with decline in with a distribution vape of Thank sales. to by from increased results that QX sales down XXX from was decline decrease million $X.X on Zig-Zag basis NewGen points from Slide NewGen. business. double-digit consolidated in Adjusted to with were most decline

price $XX.X by in growth in to volume Zig-Zag. X decline performance, X.X% offset X.X% mix. was HCL over wraps. decline due from natural Zig-Zag Wraps Wraps to an leaf year-over-year year-over-year Going declined segment XX% with X.X% revenue down million partially industry sales offset the on a Slide by into category

in previous comps. pull forward second affected which a have of the sales did $X we of reminder, year a quarter As million the

saw addition, category inventory this first but a a of year the down the MSAi. as result, double-digit the building first half trade of was this In inventory per the up year, last decline year in during brought half

X.X%. remains receiving high recognized acquisition. year-over-year our XX%, driven growth paper for declined costs million a by with also from the cones up part MSAi for in a higher was overall products to measured Cones basis variable in DVW was measured products Operating in a during brand market with XXX MSAi margin rest addition share. stores of in and the Canada XX.X% Our to XX% paper Canada. E-commerce from us a lower-margin quarter XX% was and the decline, MSAi declined U.S. and as the cones decline Papers Paper margin of BXC in XX% and from subcategory the in for number the that Wild The from category represents Cigars TPB the measured the previously measured number and saw sales X market due margin cones. by during up points margins share. X $X.X market subsegment. sales Hemp only was like of the wrap growth paper and and remain strong growth contribution quarter sales, year. other in new market of quarter a that decline full the with was cones in to XX% XX% acquisition market. in Gross the down products subsegment was Zig-Zag sales. grew Sales The increased cigars growth quarter of driven continues during impact and X/X the MSAi the load-in expected NewGen. of was of XX% business of premium quarter a and due receiving E-commerce paper e-commerce DVW in and the gross up now paper with E-commerce the cone the opportunity XX% the large category business products now in the up Zig-Zag the with

from to recreational team to partnership athletes drivers strengthen of and for as segment the its social the count led pressure and Trent Its Arnold like XXXX tens store growth with Club. Liverpool long-term for the Mick NFL from impressions Channel. to continues drive continues legal Alt FIFA in its organic posts, marketing Jagger, The Alexander Lamb including collection in its fashion French intact Football brand. cannabis Our remain and of the at Spring Star luxury CeeDee Emery Montana and line Zig-Zag sales athlete fundamental media like musicians millions

the share X.X%, with XX.X% year-over-year year. for quarter, second sales MST well volume basis long volumes, was was in but And price the its to growth XX during ramp consumers to decreased sales basis in basis mix. the was due the number Stoker's basis share to shipping X.X% during environment. X XX loose-leaf the The of sales especially net the $X.X during Gross category million down quarter, basis in higher sales costs, a Stoker's was share but Stoker's over with and XX% write-down volume points up was partially to increased ahead in well stores of portfolio products higher points excluding the softening X.X%, performed now points in XXX sales gaining down impacted inventory with Slide Chew MSAi. increased decline. the price increased XX and from $XX.X representing in marketing X.X% as represented contributed Stoker's the margin decreased negatively whilst by XX costs. MST resonated XX% [X.X%] its X. decline to inflationary Category points the during sales to in quarter, the margin grew of general grew FRE the store X.X% tobacco Despite incremental X.X% Operating industry quarter. and up again in in with costs quarter, the Chewing products X% demand offset in Stoker's a its margin proposition XX% still with XXX selling gross share quarter. declined quarter the brand basis with Net current PMTA the according FRE offset FRE for revenue during from provides offsetting XX% X.X% of points volume points growth. industry submission runway expected half. up Stoker's as earlier. from quarter. is to million was value year in FRE previous to by Turning That chewing

X. Slide to Moving

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

late down be year. the environment. competitive were by freight variable million the income costs shared XXX by distribution as vape into of points due to business down lower mix environment, corporate channel segment. Gross offset including $X.X continues well by product basis in the costs Our and the regulatory higher sales last to reallocation and Act disrupted impacted and margins PACT was Operating the as of SG&A implementation lower

this now our representation NewGen results profitable are vape a cleaner reminder, despite business, a remain As of which challenging environment. here

business leading continue We based still our FDA the dynamics industry. PMTA in on from and changing adapt progress our are the the to on

still in believe happy FRE our our an was segment, the applications. accepted we regulatory PMTA long this term week. challenges given to this size and for development are is presents our report Ultimately, that in We to navigate application that of part the Again, ability environment. was positive but short-term a last all it Stoker's the us opportunity

to the over liquidity. our quarter. million annual now and for is and of generally available with Slide million sheet balance do weakest when QX quarter purchase business. balance Turning $XXX our flow in sheet $XXX flexibility ended liquidity, X, providing We tobacco our the is of we capital This cash on our free cash deployment. MST

for and shares repurchased given during expect -- front-loaded year. this purchases through bottlenecks year half X.X also products Zig-Zag bleed the the second of We million that transportational quarter. the of to transportation We down

Stoker's expectations QX million products results selecting $XXX Slide We to the of $XXX CapEx and ERP to to CRM this $XXX macro million primarily EBITDA due implementation uncertain now million of over for million our X. wraps in Due expected expect roughly compared of $XXX expect year. partner. which to product projects, to the million sales process in the $XXX previous we consolidated the environment, the Zig-Zag be weakness Turning of to than $XXX in This improvement sales and $XXX excludes following NewGen to to sales. $XX slower we're million adjusted product million of year. $XX to million our segments, an million. now

of provide and implementation part more able ERP the call. We process and in next on to are that in CRM an choosing should color still the of be

nicotine products call I Thank includes you are we the our to P&A FRE participating projecting the which new addition, for like approximately today. open of filings questions. that, In pouch. would in with including $X for call also million spend, And supplemental for

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

you pump. your for start the the with transparency post-quarter any just decline just a since Generally been at month you the if swings change quarter? but directional can perhaps a in on nearly now. we Has update. could was in segment. wondering been I category, provide inflationary line consumer with particularly have very expectations Gas given the maybe prices Stoker's to is So Obviously, our core sensitive the closed the there

less would of consumer That think So obviously from being this a the kind is performed the foot Look, said, And perspective, We traffic severely. lot foot that, we've impacted seen got we're a say obviously, just Yavor. I extremely Stoker's translated. traffic. reduced seeing I that quite traffic think foot well.

it in and consumer we we've look share way, a expect you to very So at basis, if to strong on a as that continue share gained continue the trades down.

the happy So as quality. Stoker's have we charge, performed. great deliver with we are how we very Again, we deliver brand, and of we value amount portfolio that positioned money

and I the consumer benefiting has think the that we're us. seeing shift recognized

backdrop? in been increase there to for receptivity shelf placement any has given change And of terms the inflationary Stoker's retailer

are our to store has growing this buyer tubs this Both make Vivien, estimation Graham. At we've receptivity, historical is continued with store cans our for consistent Look, and product. gains our in not our time, patterns. changed point counts.

pivoting guidance Stoker’s, on to are maybe of that read recognizing the consumer lot the of inflationary to and range, compare where you’ve perhaps just you anything price is is how could us, business. that there competitors Okay. that a just we moving pressures? macro there guidance into? just high remind beyond But nature end does Understood. that this terms tempered of if in to pieces to the And a point? a put lens just revision Or Do a response think to of

to demand. the that we wraps some quarter. slowing remarks, in trade related saw lot reduction the that – in to in mentioned a related lot that during the a guidance Vivien, inventory response of And in weakness to as of reduction, we the

So of we’re the I we little are given caution consumer a think from that categories. bit rising gas the prices. seeing different And do seeing across

would just the one continue is, continues to that, I overall stress Vivien, very even add macro perform And environment, well. in to thing the to to brand that very,

our environment performance continue what to to gain overall so not for do harsh being concern much and we But do brand perform more consumer. the – for to as very to well. It’s not continue our a we’re expect consumer seeing share. brand. expect the it’s the we’re around So concern of We very

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

mainly start before inflationary by is driven Louie, you continue the pushback on Yavor, Stoker's, trend left Susan. you Alec see category. been up. And the I that price margins, in that FRE, taking pricing write-down Graham, it's Legg take to you gross On this when in guess, for how more might of think previously, it's But they to exclude much in to that I category? said environment,

good ones as we pretty past, in pricing environment, are Obviously, terms to encouraging pressure category Yes, are to we be on segment. of we're so Obviously, price not in pretty And said we for that and segment. still feel be to the market the pricing seems Stoker's. inflationary this the in us. in the seeing about Okay. rational is activity in we've a feel followers what only in holding up it

keep And to little are past And we what same is, expand measure increases a price just At I we have time, we look, the to on the the tremendous in under pressure. would thing that share. consumer noticed bit one say that gaining them. we take again. We have one, our see get given we onetime not then a once is something then It get keep we the a customer, tend so products, and seriously. is that quality that and customers gaining of our very back, shares to is we goes customer, we that

the are increase the Again, but increasing keeping we against room is price. to balancing benefit are long-term ability price share. there we follower, and So of

NewGen. to over switching then And it. Got

guess you you products us accepted you when again might have was decision. a hear time guys but still And then how many any do application filed I PMTA remind for? of news? you can the said You line a waiting

me heavy, we So vape modern highlighting let oral modern filed inside oral the That's by We application. very had kind heavy of bulk products. start little on that the of the specifically.

We have is the which that X is One got products. FRE, one accepted.

to than very we and We going of we Kind in any news, terms guys both more else. timing, another visibility have but we optimistic discussed don't And oral. publicly get let of today, we're you I'm very, as not it. product not have which have obviously do They're we about anybody know. modern

very FRE So we But difficult when to is tell. doing going FRE was they're know very to accepted. get well. Exactly to is

a even excited more so now should the backlog year. we about I'm excited we're products to we're about have bringing filling that hopefully it. be up, We next other that market

And take from our Des will Capital we Eric with question Group. next Lauriers Craig-Hallum

With for cautious towards the your other commentary trade inventory any in of little Or your won't and your QX? wraps customers here as rebound a in other would in Zig-Zag, look rebound categories? take of with sort of dynamics more consumer QX there a sign a as the half, QX? expect trade to out see was reduction see to that on that getting to this call normalization And more regards some second or should a you are wraps we you necessarily a

Yes, think we latter. more of the it's

into going certainly supply about You're chain, concerns had and than likely normally carry. more were they inventory year, there the they

expect ramp us. Zig-Zag. ramps is benefit in And normalization more CLIPPER, Zig-Zag as So of that so up us think that for is should we for product launching second for this half the we in the where a do

So that's the Canada. in both happening and U.S.

Or Is that a NewGen flushing. sort that you're gears just whether current Obviously, of that with with of then just on any vape inventory switching of Great. to kind that business? volatility stable third-party trend? you're kind on distribution in some sign regards here, it's of regards a more business seeing commentary. can give you bit transparency comment I we just a there appreciate or what turnover saw can to quarter-over-quarter. what broader of you to Just And in the relatively in a a us of sense brands results seeing volatility?

Sure.

government then double about They taken has of I'll obviously, me a some looking kind in level the have been regulation. let On on business. to level, macro vape, So at own federal primarily our area. and steps start that click macro the increase for

seen big we X the that kind We We're inventory increased to managing done which of with One us said, well. to hard and you're we're brand But being one, to of you're be we're made the customer we business. fact throughout enforce just they're illegal not giving on just the and profitability. color. continue news and dollars how how as is And to Number ourselves, keep, we have quite what which position kept vape number so about yet. I going of of can -- low, how necessarily very that that's become enforcement I'm And the managed the the FDA massive everything July the next That they industry-wide FDA to inventory quarter the inventory because aggressively for extent They to just line of have requires think, specifically obviously so uncertainty that, hesitant kind date. management where FDA in know a continued -- kind a impacts to about just we do. don't an the the going compliant keep anything reason. in is write-downs, continuing don't far top on how necessarily a -- were what dispose it's same bit have us. generate customers to inventory you of be it there going order do product you where proud obviously, to on nervous quite have can and push obviously announcement, big, that Against to -- we XX executed, two, out order. has that the the for have the the publicly In put if which was going which and far to are day, much going they impacts be side, have BXB you how impacts to to available. of going they things.

or and said better. So previous clarity the be on with diminishes, either very, don't we very more with supportive hopefully next the should quarter. get strong to the much to settle this is FDA, that have from uncertainty should today continues. us clarity uncertainty are The enforcement for calls, doing that That we better the tell in in business being the down you the we said, going enforcement, as as hopefully,

We continue same the paying to is have the is, our which approach, mind, flow option. cash a to business vape

So cash can of us. hopefully are as end a but wait profitable, up so uncertainty It's they being. enforcing generate for lot not the cash, vape they regulations for we the the and long FDA to whatever get resolved

impressive Got able it. maintain Very to and in profitability helpful color be certainly environment. to this

time last of some one remind start see can benefits you'll here. the Just should me to for and be you system, your expected of regards that? the to completed that just us of rough maybe when With ERP line when

at next seeing time the year. discussed selected we'll current end to continues by Hopefully, we implementation of that. benefits earlier be point, Our year, start the to as line we we expect complete have an same the But be which partner. this yet in the is not before

part We expect the kick And expect do the project we off that solved. to to implementation shortly. be of

have There's no line change We same discussed before. with the in store. we time stable

our take Jain will next we question with Gaurav from And Barclays.

me questions few a and FRE. all from So on

back I'm you companies we booked very not this PMTA see would revenue the deadline also is So I that why what some and had mean, pull of don't quarter nicotine. because that around of you clear told because write-down us And normally, sort happen. synthetic PMTA deadline. a you have of

at your So end? what exactly happened

Yes.

but were we acceptance the our around the strong and for So now, nicotine we're some on FRE was we that FRE. on the we synthetic strong a that during of and products backlog the was have now, reason receptivity backorders with a forward. going the certain a FRE because And of customers. pause chose regulation there seeing to There perceive product the make for so have right we quarter that which flavors file. write-down to especially what wanted of from the we encouraged file, on We're to uncertainty actually decision not with

because amount is you be volume but you in massive Would from data? of different revenues promotions you the that some very players any seen share this able quarter, clearly, what Right. And have us told be volumes have could booked market. to we other

Yes, we're to disclose competitive volumes. for -- obviously, we're the reasons, going not

the quarter. of we the the you did last us and of So of we to We What indication reported a during year. in we an ramp say that -- that quarter. synthetic gives I outside second expected expect the we half have would sales regulation, for ramp, disclose did nicotine that our what was, sales, do so would

can to Match find not outspend out to On it's marketing, approach your in the toe marketing. that to competitors promotional Swedish them promotional side, go to comment looking to heavily our not a if change. we on and outspend to is and never go category, been our has We're that going to toe BAT with

differentiated is force. product sales and approach Our fantastic a

will reduced below expectations? expanding a trending it it e-cigarettes trending expectations? the additional clearly you to of is it initial is are year likely. guidance investments you Right. business related that that Because FRE? have just most Is Or the bit that in lose money And is EBITDA of here. you Could core your disaggregate? Or because below product,

Yes.

So as need that. careful significant and on for Yavor large good mentioned, we be about growing money. We're don't we share that to about we're a have on The line going impact to not an is bottom looking market, end market end our how to spend and thing lose FRE.

cautious more We're the a on at bit little flow-through in we ramping we cautious to us is real we about high reduction was, for going release, QX, for FRE. not being of how The that hit that comes the as to promote business, press on extent because the So very one, your margin guidance the reason be to NewGen that contribution we're thought. The highlighted point, there. product. wraps a our in

And for so the those the reasons X guidance. main are in of reduction

So there seeing also that news -- else in headline seeing terms the a from response to kind the consumer of out as everyone of what is in well. environment we're

your we seen around company M&A -- months from around And the me months And almost spoke philosophy. last Like a ago X that ago. anything now, on haven't few from question you yet.

your M&A? evolved how So have thoughts around

can say we call, to one Kind our M&A I of us are emphasized patience. is not they well what And wouldn't Things going much a back we've that M&A, game buy The we I to we're Look, be sense. that's to comes successful makes could business, we was best if we're do said do things quarter priorities; we that we'll when invest make price to thing And done. sense. within and patient. every It back I've like? pursue M&A. does And it What buy is the the things pretty to fit it we'll be And don't same and that of M&A have and that for to changed. be the on things own shares, continue our own like. be that what going exactly accretive, needs going make that following make that sense. in this sense, very wait company, opportunistic back to our shares it for buying shares acquire

to or will at time. for Yavor this call now any additional there And closing are no I turn back remarks. further questions the

achieve happy and for look us joined its to Thank you. to who company everyone with thank highlight we continue deliver to on and we are very the resilient brand, to today. And for call execute we and on results are, time. all the you again, wanted I we have to where goals the and forward plan the

today's conference this and ladies call. And gentlemen, concludes

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