Turning Point Brands (TPB) 3 May 232023 Q1 Earnings call transcript

Good morning, and welcome to the Turning Point Brands First Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode and 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 and please note this event is being recorded.

I would now like to turn the conference over to Louie Reformina, Chief Financial Officer. Please go ahead.

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

first Joining Graham Summer Purdy; Turning the Point IR covering Frein. located our release and CEO, Brands President our release and news www.turningpointbrands.com. morning, section issued me results. in we This is at This a quarter website, Chief of Revenue Officer,

our and perspective on the During this our discuss a will our consolidated and plan. environment provide and progress call, we segment against strategic operating results operating

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

along On they certain to with non-GAAP why the management and produce reference found reconciliations will GAAP measures today, call financial can useful measures. release, in information. the believes we reasons that These be earnings today's

turn Purdy. Graham now our will the call to over CEO, I

Louie. everyone, call. Thanks, morning, Good thank you our joining for and

line our with as we results place and gains with all and put were expectations first in beginning are consumers initiatives we start Our our from we to see have of responding market demonstrated in share quarter categories. by the our in as traction pleased major to are generally are XXXX,

quarter last our XXXX. we mentioned second a the to tough comparison of we As on last environment, inflation of call, customers started the our in anticipated principally QX macro Recall year. materially impacting

consumers continue interest the reflect results feel rates. where an many Our to uncertain end consumer of our and prolonged of impacts inflation higher environment

paper levels their cost to portfolio been financing Moreover, higher working in Zig-Zag customers, and buyers today's wraps reflected as of capital. numbers, have last U.S. wholesale discussed inventory particularly the in call monitoring also our of carefully response our on and

think our largely inventory That behind them. said, are we adjustments now customers'

the non-traditional the U.S. the penetration paper consumer and the this balance In to wrap continued secular experiencing expect driven strength progress growth markets alternative product new further satisfy in we're Zig-Zag tailwinds making the segment still the given penetrating year, of and growing of introductions, are normalization channel by and base. end better We patterns. the for demonstrate see fact, order we of we to space

had market proposition to consumers. loose to share all our the categories strong we've chewing and as both internal continues an MST leaf drive our shareholder best Turning value. Stoker's position for value to organization, across growth Moreover, opportunity tobacco of resonate execution quarter solid gains profitable, its taken as another with long-term in business to areas refocus Point with this

my strategies, our on Since distribution has infrastructure, business, product improving of logistics and become more our and the go-to-market efficient. portfolio plans, our appointment evaluating focused to CEO, and all been systems from to aspects channel team to capabilities our and

be notional convertible continue purchased during while further help in first our maturities. address proactive quarter a maintaining and to the We $XX.X of optimizing capital also structure opportunistically million cash another our strong notes to balance

me now some of segment Let the highlights. take through you

quarter, the and discussed during decreased First, remains North reduction rolling the Zig-Zag. previously one sales in the Net America. anticipated e-commerce a in presence trade our build another alternative saw and accessories, in of we the quarter operation, growth channel. growth to our we our business but of paper wraps due and Zig-Zag strong smoking continue other brand number to as Canadian inventory double-digit had

and moments. sales our in gains in at in retail wraps, the remain U.S. by a decline encouraged initiatives experienced in alternative the which measured Summer we channel and market shipments, double-digit In few had we will papers the channel, despite discuss share

three years. progress in is made now the have U.S. Zig-Zag's of over significant meaningful e-commerce improvement over as XX% paper a We sales, past

us categories market we increasingly as across with from We important in enhanced a scale continue customers variety allows store. had CLIPPER, across through papers to a assortment adjacent the to address complete of product distribution. the more offer in a our our and also are brands to portfolio penetrate cones, categories needs additional accessories now believe traditional CLIPPER quarter strong to their wraps, that

to on Stoker's. Moving

revenue quarter in growth loose growth us which low-single in by confidence digit X.X%, Stoker's highlighted up tobacco, gains, mentioned, MST reflecting and with another high-single As in gives our leaf delivered both share solid digit chewing market approach.

the continue us, for try as led that current store to silver For MST differs time increase in the product is lining economic we first to Stoker's penetration. some the it's environment our

the stick with on economic impressed with the Based high when reasonable We new expect conditions flavored many think experiences, even our improve. of Stoker's to and quality product, value customers price. are proposition past a we

are adjusted year maintaining Looking ahead, our XXXX full we EBITDA guidance.

the me walk specific results over Summer our of hand go-to-market initiatives. some some With that, and of to through to let call progress

you, Thank Graham.

prior alternative discussed the Zig-Zag market in continue continue accelerating to lifestyle positioning the growth we a map heavily focus and on by as quarters, have addressable and built this broadening channel. emerging multiyear As to its generation in for Zig-Zag's a brand growing to solidify brand road

As previously continue the across ubiquitous what especially we in capture fair important which addressable trends, secular and call are push to the share channel, is traditional the shared, Zig-Zag we our more channel. alternative given while growing hard is relatively our market. to This

and resonates allows with end, To channel. both an with shops, our these the Expanding and our traditional head classes traditional us alternative channels. in that continue innovation from portfolio to leverage in and product to trade adopters can on-shelf such key we that increase we expand continue as consumers our us to we allows alternative learn dispensaries that early in presence product the believe to

the Zig-Zag have with and In brand's manufacturers consumer branding. to quality addition, power meet selling to another we and harness is cultivators opportunity end our to

Zig-Zag expanded Palm rolled the innovative XX-millimeter year, (ph). cone far So portfolio offerings, and we product with have this two

and Zig-Zag to our new powerful ever-evolving go. trade the a a sets have and for Both partners consumers received positively offerings consumer of substrate our of Zig-Zag's are Canadian to preferences. and the end XXs Palm franchise taking consumers further learnings is wraps, reinforces satisfy smaller on ability designed meet been cone by new version from the

pipeline with like, partnerships, sales our alternative products on our we and with that increased recent penetrate the collaboration to channel, high-end and addition past of continue brands to new AMIRI, build are a existing element to efforts In These our learnings relevant brand resonating our plan and with critical consumer of remain base. growing fashion and our multiyear engaged growing and initiatives highly diverse consumer a are to base. with

Hippie As broad-based in strategy, with our collaborating band. are another example we currently independent a music popular Sabotage,

activations to wheels cities Zig-Zag key a partnership country. Zig-Zag rolling band through bus as wrapped we We've branding the this significant to several consumer alongside with the its So launching XX engagement on brand city tour this across seen tours. addition of in amount travels billboard on their

our e-commerce we initiatives For team to portfolio. double-digits, our is BXB grew The due expand continued pipeline customers, and growth our the business in growth and combined investment led size quarter, increases our in of to growing. with as in order that sales new average was

I exciting more We and look to underway, in have forward updates initiatives future quarters. more sharing

Turning CLIPPER. to

brands we've As well-known and record grow we discussed, the brand U.S. of proven to markets we marketing engines in the a leveraging a international have brands track lighter is believe our in top and sales force

is and across increase focus sales to distribution department initial expand channels. product Our rapidly all

channels the has be a refilled, its is brand ability with friendly awareness explaining educating unique content, such CLIPPER more packing and focus with its features detachable digital and building is environmentally highly and on through to unique longer-term brand consumers relevant by as at tool retail flint. Our engagement its

point year. to lighter. their chains this continue the placement of and our CLIPPER's trade reusable we Securing stores difference number subset grow C-store shipping relative and this of We retail of secured the into we will later largest recently the of begin footprint one in reflects competition U.S. world's interest market as a one the to partner the and to value

channels CLIPPER on and Amazon such as growing sales other across We brand our and and launch for social are digital other also awareness sales channels. QX

our to in is previous $XXX and this runway business presents noted believe of roughly plenty to continue given far. calls, the market existing and our As growth million category thus we synergistic

inflationary benefit store consumer on delivers penetration. promise well to especially positioning the continues and we trend helped great strong the a ended adoption. a XX% the with and which Stoker's distribution, up consumer drive at with QX we as fair We likely execute had challenging down quarter has secular and Stoker's growth on believe to resonates at share weighted price, consumers, quarter XXXX. its Moving from in Stoker's. backdrop to a from accelerate increase further dip Stoker's facing to a trade of those of XX%

our support competing in the On will of it free in more free $X difference refine competitive within and matures success becomes to promotional product in-store billion category. We committed the efficiently see market. We from and out scale online, the distinct continue product we a learnings innovation profitably position as believe encouraging brand to enable to and and growing in and pouch every in carve time. white and we'll continue Smokeless, to category both remain over pouch the point results, segment our satisfaction front, take other categories to into less with the strategy the

maximizing capabilities. In world class extensive of and value hyper on focused the our are summary, we distribution brands

now to Louie call Let go the to turn me back through over our results.

up to XX.X% Summer. gross year-over-year to Adjusted to gross quarterly down basis Zig-Zag decline due was $XXX.X with QX down mix. you, EBITDA points in sales Adjusted and $X.X were million. due $XX.X segment Starting margin results. X.X% our million, was Thank consolidated profit. XXX product to million the

to $XX.X X.X%. volume Going million segment up Zig-Zag price/mix into X.X% down with sales decreased and performance. X.X%

our Our traded is market we've look sell-through U.S. But traditional through the double-digits and papers anticipated to to if in quarter, reduction the the the wraps inventory in previously discussed. down during were channel. retail, due which you outperforming our businesses shipments

sales particularly e-commerce Our double-digit. business, grew alternative BXB

double-digits both accessories and Canadian sales. categories smoking quarter, other grew aided the by CLIPPER during also Our

the basis contribution quarter, paper inventory the U.S. operates CLIPPER XX.X% primarily Gross points the and margin by profit further at adjustment product to lower margin impacted principally and of declined margins. which trade higher wraps mix, products during gross and rolling by lighters, XXX of driven

U.S. as We expect and sequentially margins higher sales wrap paper gross normalize.

to Net was representing net X.X%, price quarter, still grew for million XX during XX up high-single basis in-store share Moving increased points according products portfolio to and Stoker's which down up which the in-stores X.X% provides volume of a despite category sales MSAi. share selling now the increase. for X.X% Stoker's industry points long volume basis $XX.X X.X% volumes, growing Stoker's with growth. increase was a to X.X% year-over-year MST Its the X.X% sales runway to a with to X.X%, volume digits. XX% year-over-year in Stoker's. mix quarter

margin from the flat the versus Chew volume sales of a MSAi. Overall, digits brand gaining points increased decline basis chewing category, loose-leaf larger TPB's loose-leaf was trade in driven was volumes a TPB to which MST share quarter, Stoker's basis to XXX compared were consumer according Gross in Chew primarily XXX declined by performance with from was to low-single X%. gains. brands premium XX.X%, previous discount pricing up points, desk. benefiting year. to one due the Category number

our $XX.X wholly-owned distribution XX.X%. were gross Moving adjusted were to and million margins Sales CDS, subsidiary.

our million cash and providing during balance available capital We to ended notional XX.X Moving the flexibility million the of $XXX.X quarter of for deployment. sheet. bonds our with we quarter and convertible repurchased further value million liquidity, $XXX.X of

We current believe our July continue and the to monitor markets flow of note cash closely XXXX ahead our address We provides necessary flexibility free financing cash us convertible to the balance generation the maturity. maturity.

include to year, point economic $XX effective previous to guidance. fiscal we and million continue consolidated Now tax for year of to on XX%. rate adjusted At up XX% projections to $XX EBITDA XX% of of with projection income million uncertainty, the of XX%, XXXX. from this to continued Other project

this to million temporarily a manufacturing to this million elevated continue with $X expect year projects $XX complete approximately year. CapEx we to related be We to expect at

to normalized expect We return levels more XXXX. to CapEx in

completed related million CRM We of software and million end still the to implementation expect which ERP by spend are to to $XX expected be implementations, to year. costs our $XX the in capitalized

continue potential accepted carefully to have our modern PMP which spend all evaluate to by We oral been of the products, related FDA.

Now let to back me it Graham. turn

of front we some year I why thoughts call you rearview reset that balance opportunity the I'm and have have we excited is long-term to Q&A, mirror. on about Before I to inventory of wanted give us open we the the confidence believe largely in in the now why in the the

that portfolio that consumers a product is Zig-Zag benefiting compelling in channel number iconic brands have brand is a consumption, North cannabis love. the rolling wraps introductions secular one from America and growth trends We and paper new in opportunity. of

in liters category expands market in We've entered brand new that a global compete a significantly we addressable proven the with in. CLIPPER

providing of that mass-market is being attractive an those that one are environmental don't to For of me know, remind of you let that you lighters, benefit by many refillable, customers. few the differentiated CLIPPER among our that's

brand sizable of marketed of yet sold, value growth remains category acting is are financially Stoker's moist brands fastest-growing Stoker's penetrate. snuff shareholder organization market a distributed to is our in with one and entire class being with and a creating loose-leaf disciplined. the have by brands the combined the These world one aligned number team we and organic by towards driving share

to I'd Thank you for for today. participating call call And open in questions. like with the that, the

[Operator our take Instructions] question Vivien first with TD you. We'll from Azer Thank Cowen.

This in Hi. have price competitor on a for U.S. you tobacco revised Meier the space for market. questions. elasticities very thank is in expectation U.S. for Azer and the down Vivien I key recently few. cigarette their Viktor A the much

have and in can comment play you are segment, that MST While elasticities views how on you your price of evolved? don't

industry. thinking. in a price the We're don't in think generally our I evolution follower there's Yeah. any

And and a to follow think industry does. current continue I get the so to to is our weighted positioned value MST proposition continue well plan and got We've environment. go and our in what distribution economic the we're with more nice

Got evolved or and then in continuing is the high-single digit MST you on here? expect persist And that that's Stoker's would it. you suggest Can whether you. growth comment downtrading down-trading how so in space. to accelerate from Thank

Yeah. in over fairly the been accelerate whether can't the It's prognosticate going future. consistent last to years. few I it's

on head market this taking in at so and we're And existing down point give the keeping plan us. time, our focused will what our

to free that. all up, way the original the expand offering a sits you and volume was down bulk a of you. And the please on expanding to Got rationale it. at for offering Thank rationale the category go strategic X-milligram the on then X-milligram can the above free for positioning

the that around of differentiation with free range what's diluted. So an gets that of expanded offerings the risk nicotine

Thanks Hi. question. for that Yeah.

keep have for wide perpetuity. to this the nicotine in we're them important into available it's we variety learning it's as offering as But consumer, free, a them. that us important mean we'll to for for all are think to Does offerings consumers it on that point. for transitioning I up us for category that that about market feel offer

last And Thank question. Understood. you. then just

margins CLIPPER were to given we under in the quarter. pressure, and that headwinds better expected second the but headwind what than to space in recovery were it continue Zig-Zag expect reasonable next Is half, to the they with stabilization will So U.S.? be understanding margin the the

of because expect actually those inventory from We margin increase Yeah. the reduction, higher came gross most sequential our just trade products.

uplift. should continue So have sequentially CLIPPER you see you'll an But then after grow. that, to

a forward. headwind that be so going And to gross will margins

so Understood. me. That’s Thank you for the color. much it from

take from next Lauriers Des Eric you. Thank We'll Craig with question our Hallum.

questions. you for Thank taking Great. my

I far on First, some dynamics the think that I perhaps seeing was just you're year-to-date? I some or Zig-Zag could you of expand just hoping so retail at comments. those just reiterate of missed

on could strength, first. of some seems Thanks. some have just was significant side. you obviously I expand hoping it but through at You your a that inventory, like the retail working bit customers

There's our to what two Thanks We shipping dynamics customers Eric. then and wholesale four and for major of the retail grew wholesale moves all customers ultimately share talked to quarter. the what our of in to shift quarter. last categories really question. the consumer. in this about Yeah, then We our

trade It balance inventories And what in about is disruption what feel we we and pulling XXXX. the off shelf. consider a in good just that really the was occurred so consumer the

the about consumers. QX good plan and trade just, the to for blip a to feel execute time we here markets, again, in So in inventories. on win we're It's that continue those on

then commentary to would themselves? be the you within When for Do to perhaps just on the in just some there specifically? seems of expand skewed much color additional of see look number of would the some plans Zig-Zag channel, kind at Zig-Zag around C-stores, SKUs alternative offerings more of innovation any have example. us of Zig-Zag the more competitive papers you the And for plans innovation especially great. than sort you And kind Great. of at give Okay. be paper on you could side, some

lot talking great That's we time that and question about. a Hey. spend of one a

particularly innovation. noted, in you non-traditional for As consumers, space, continuously product are looking the

And focused something on. we're hyper so it's

as call, driven some teams may products, cone, a looking lot consumer the heard the were and seeing Palm you those the have we sales of XX-millimeter we that about we in by they're rolled market. As spend about on well what they're two launched to and do as thinking time what our have recently insights for in talking because consumers, market

So we pipeline excited products certainly a market. have to bring that are to we're and of underway,

on channel well, here. in that paper increased any sort question seeing be you the I of one color. you're the order asked competitive alternative share the wondering just any appreciate the All The competitors. then your as if just great? pr And rolling to last main court me would last one comments following I to for call specifically changes but take right. opportunity Any against there of additional Thanks. have dynamics

Sure. Yeah.

it's last both call, navigated plan out your and we that and and on coming referenced to a consumers focus quiet, Zig-Zag year through our and that continue As you about with on we that initial the the order bit through maintaining did talk excited chatter point that we plowing court our certainly with of to our are our customers Candidly, keep consumers. with with and to it. been customers

Thank you. All right.

next Barclays. our from question take with Hale Holden We'll

questions. in Hey. those XX-millimeter have the the might there are space or shelf? for have else on wraps I are substitutions they cones, allocation those something Good on places you two on just But [indiscernible] the the innovation morning. on Palm shelf additional on

It's in allow capture market. particularly they channel us in to to alternative fair important cases, excited share that Great that shelf most expand space. us, the our question. to We're really in our

the affords is space. shelf opportunity an us additional that so this And

last The definitely, results. know. you new Great. cone it incremental drivers? was hard launched me Just for noticeable you these or in think to time guys Are products, big

the the It's days of early in Yeah. launch.

Our incremental for trying to for plan do a end options, is for be of needs. different wide sizes is provide what consumer. different we're to product the the Ultimately, consumer range

opportunity view we So incremental it company. the for as an

Great. Thank much. I appreciate it. you so

Thank you.

call conclude additional to I'd for remarks. question-and-answer our closing session. or does back the to like that any presenters turn And the over

to you, and we look Thank forward you. Thank Appreciate operator. time you next to everybody's quarter. today, speaking

you for today's Thank Thank you. That does conclude your participation. presentation.

now You disconnect. may