Turning Point Brands (TPB) 1 Aug 242024 Q2 Earnings call transcript

Thank you for standing by. My name is Sully, and I will be your conference operator today. At this time, I would like to welcome everyone to the Turning Point Brands Second Quarter 2024 Conference Call. [Operator Instructions] Thank you.

I would now like to turn the call over to Andrew Flynn. ahead. go Please

A release everyone. located ago, issued at we the Good our short QX press www.turningpointbrands.com. website our covering section is results. a IR morning, of while This in release

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

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

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

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

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

Our expected results against consolidated continued progress than plan. were demonstrated better our and quarter first

Adjusted the for $XX EBITDA quarter. just X% increased over million to

solid Given CDS. guidance million. adjusted these the our XXXX are we projected include Neither million our our for $XXX $XX start guidance from to contributions $XXX to to ranges $XX million versus to increasing EBITDA of year, million of prior

During driven the and growth from high more heavily cigar Zig-Zag June our revenue wrap in by and American business, North papers single-digit we've a to $XX.X strong well leaned into up businesses with X% quarter, showing which million, our performed in XXXX.

customers. for old committed alternative channel our our to strategy excited are remain a going this about one-stop becoming We We shop forward. business of

a calendar products. the first customers to in particularly alt trade large X% robust having in business in of is In whole, this more up half, timing particular, channel the a we drop continue XX%. of as The SKU March. quarter first quarter. and purchases offer expand some to sequential The attributable is in But the the about show a to our diverse portfolio assortment these declined

We've winning buying success in within seen stores. Nonetheless, more space complete not we customers, expanding sizes estate portfolio. and customers merchandising while with alt only shelf Zig-Zag a also real average Zig-Zag with order valuable new existing alternative having healthy untapped are more but these increases

have to fluid continue in emerging and We this long market. a runway

the know, additional and as expanding recreational medical you alternative is cannabis. states As channel consistently embrace

and retailers, to product expanding including provide experience dispensaries, a shopping addition, our smoke for shops all head better shops, In offerings consumers.

As this we of for converging evidence traditional Zig-Zag marketplaces view many us. and for the we've with market, such, we that good is done for distributors in which news seeing increasingly products target business C-store decades, ways, are as

us, plays and address said, considering seeing We And are our partner. that mind although as specifically C-store your in our as own just product channel as versus this exciting distributors checks. well market. a to That's reliable will our likely also measure make to news especially the it you strength, sales. reputation and is That evidence to traditional challenging emerging this of forward, going alt depth new great breadth increasingly of keep to something as it for lines do

Stoker's. to Moving

moist snuff. revenue prior loose-leaf reflecting sequentially in up approximately the quarter, sales than a to FRE X% a During year. million increased decline the the XX% versus for in Stoker's quarter, more were and million XXX% XX% $X increase and $XX.X XX%

market growth with pleased favorable are share for which be pricing volume long steady the and runway to continues dynamics. growth increases We with Stoker's a for engine a

a our time it Based launched a response takes was to wanted we get recently XX the to We XX immediately FRE. website, milligrams are launch X, our we X-milligram product frepouch.com. also on the successes, pleased with on with We national launched to on and the Naturally, differentiated. of shelves some market's a initial enthusiastic product brand-new that because product shelves.

to expect start this on retail fall. X-milligram can product shelves see the you to So

FRE and the seeing lot of a regional more chains. gotten national and well-known we've Also, some about C-store timing of of questions potential the

As strategies. out planogram merchandising longer sales have and tend and planned you to can cycle these imagine, chains

successes with more stores be act have So large, our tended independently immediate to owned that, and quickly. by can

a estimated billion say, wholesale of to decade be Suffice billion analyst us runway we roughly long of and XXXX end $X what's worth $X a in billion have be ahead market MSAi various the per reports. between by for and it $X to could in the

products, addition seeing this also the product volumes TPB to of channel, FRE. new providing platform. quarters to In stores We sell bear many demand look exciting traditional and we're sales, to if our store with Even to the synergies to years and for on updates come. the distribution brings forward tobacco all channel it don't convenience world-class service these speaks in

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

you, Thank Graham.

QX, During as map. road progress against further position Zig-Zag building by made lifestyle brand we in multiyear our a executing

cigar noted, a Graham posted push the by wraps Zig-Zag As and category. distinct fueled strong into papers, a more quarter

achieved second history, $XX million brand For Zig-Zag's over in revenue. only time the the in

also and We promote preferences. resonate evolving that to with consumer products launch continue

June, products, In Cones. Rose Zig-Zag rose new portfolio Like we these Rose introduction with of the Mini an enhanced smoking our experience. are made pedals Cones growing promise organic to all added prior cone natural that with Mini our growth innovative rose

with compound. culturally part smoking brand teamed to relevant homes endeavor exclusive compound as beyond and in largest of influencers festival world's with partner lifestyle that Jeans we a our of and Coachella the them into some of continue the accessories, brand largest presence multiple the The of celebrities expand goes on to moments Guess brought up our musical to year. consisting Additionally, we during activation together a their build

rolling the throughout from XX sponsoring well content The reach celebrity the stations products, venues a artists as yielded as tag million gifting, co-brand cumulative festival post and after-party. with compound the weekend individuals. in participated of Zig-Zag

of to the and growth. We portfolio, updates to forward that the look product efforts support new across momentum introductions provide healthy that have pipeline Zig-Zag's a we continuing Zig-Zag highlight and

the company history. pleased which be $XX in to brand's continue first with the revenue in over to we grew Stoker's, time For performance, for million

We consumer. and are distribution to brand resonate fair great continue fit on a see the at expanding with price messaging focused today's

Turning to FRE.

keenly that revenue teams for focused brick-and-mortar as building made on the with will digital are marketing sales Our growth. term. progress stores Graham long both noted, with We across brand our and a quarter further resonate marketplaces, consumers the in and

I moisture quarter a nicotine shared proposition. reinforce are the and receptivity last to differentiated consumers and our pouch from and engagement with quality, partners size selling offerings our powerful continue product trade that content,

proposition with phrase We fuel, flavor. summarized power, selling the the

enables into pouch forward category. the to the sharing in look assortment product the lean Our into expansion importantly, to our portion of progress recent We our the nicotine year. expand participate to portfolio product us X-milligram as proposition and throughout further selling largest

our brand business summary, the our executing In retail we plan and against term, continue for building consumers. established with and we've in long our the growing

to We capabilities. on distribution the extensive continue will value maximizing of focus our world-class strengthening our and brands

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

quarterly is Thank were up on Starting our with up XX% sales you, basis. Summer. $XXX.X a results. million, consolidated QX sequential which X.X% to

Excluding to was margin due to X was up Gross X% XX%. Adjusted points product million. was revenue CDS, down up segment EBITDA mix. $XX overall basis and to XX.X%

margins primarily XXX our product by increased to strength North X.X% into performance. Gross due decreased the points year-over-year in quarter. mix. cigars basis wraps XX% million $XX.X businesses. in to growth and American Going was Zig-Zag papers driven during and to segment sales This

year-over-year increase a points for million with the price Net according increase. MST was sales growing in XX% XX with to and quarter, up during the X.X% to XX.X%. increased share a $XX.X XX.X% net basis portfolio volume mix Stoker's the X.X% X.X% MSAi. despite Stoker's grew quarter category volume volume sales down to X.X%

basis up stores which to with volumes, runway was representing X/X selling now Stoker's Share for of still XX.X% points of in-store XX long year-over-year a approximately industry growth. provides in

X% were MSAi. down the brand #X points to according quarter, chewing year. previous from Overall, TPB share declines chewing gaining X.X%. volume the XXX X.X%, sales category tobacco Stoker's loose-leaf tobacco XX.X% of down to of approximately in beating volume basis the was Chewing was

TPB's trade from volumes benefiting from Category performance premium as by year. with a in down larger was volumes driven consumer Stoker's loose-leaf previous the grew decline

product distribution as somewhat gains. the we by continue national product. sales to FRE XX margin of to tripled a MST basis pricing Gross more low due off mix, declined points XX%, primarily Our than offset base

$XX XX.X%, approximately EBITDA Moving adjusted $XXX,XXX. was were million. was to Gross margin Sales CDS.

debt, million on July do our $XXX.X the note Next pro on ended quarter XX. just $XXX of the the net to over a million. convertible XQ this is with date ABL. We Post We were cash. able without close, on million On balance retiring drawing forma million, of gross $XXX sheet. debt to maturity the $XXX.X after our our retired convert, we basis,

with previously free within this disclosed projected position. we our year, comfortable our generation cash Xx leverage well and With are our of X liquidity to flow are

to and other items. guidance line On

of our include from Neither CapEx for guidance forecasted $XXX our we $XXX to to million revised $XX noted, million million. of to from We million. $XX versus XX%. contributions Effective adjusted Graham expectation are rate guidance to ranges these $XX million our $XX As tax XX% increasing to XXXX income EBITDA million prior CBS. of

reductions changed Our and have are not driven. plans timing investment

year spend the to products, million to review supplement are expect for which We our by approximately under $X to that related full our FDA. remain the Oral PMTAs Modern

Graham. turn me back let to it Now

conclude, pleased to that, over with progress And . we're turn halfway point. To I'll our with it XXXXs questions. at

the The Your Legg of [Operator from question Instructions] Michael with line Company. comes first Benchmark

for everyone. quarter, a you. on opportunity FRE great like a Congratulations seems obviously huge

and milligrams side, milligrams You the didn't had long X the X, launch for X which and the the decided -- XX on XX-milligram packets. you PMTAs

decided bit you a on little just launch can timing talk X the about milligram First, the to now? why you

provide product with the for being Yes, Thanks filled X-milligram. to well Graham. were the products, of I sort various customers thesis original it's question. our differentiated for up consumers a shelves sub think Michael, was as the as as

consumer. with customer opportunity unique both pretty so and And

frepouch.com, through very think over that differentiator has is I a us. strong selling direct our we time become apparatus, mouthfeel found for what

for X-milligram quarter. QX, gave of confidence the the segment X-milligram lean segment into So as then XX%, segment us about the was to that

portfolio those have. So it into strong broader for opportunity that really sort a them products gives to participate of the we consumers us really and of grow

talk the and capacity your capability bit Okay. produce And a is can you about little how manufacturing you it there? and what

we we and Yes. year, feel really balance perceive where manufacturing about look, next the we a it. we feel sort year strong confident got got how of the right If good have. who's into now. partner we're in through partner that at look this appetite We really invest moving of -- we a behind to We've

disclose? far as any level capacity, But as there you is Okay. could

No.

you Okay. And then when actually? did

Yes.

potential for FRE. margin longer-term The

I'm sorry, that again? you say can Mike,

margin FRE. longer-term for The potential

well. signaled seeing for products, sort is dynamics launches, higher favorable range tend invest of the I which it intro to We in past the in which think some follows this brands recall days, category I we're thesis, XX% time. we Look, our as that early margins pricing Yes. in of but our the of over of to sort past of growing kind was XX% sort emerge into

over that pretty in so And to more more we're confident follow brand of be the leverage that we'll same sort we get marketplace, model. that able scale and time, gets the as

then we get and marketplace Okay. the obviously basically, is building Great. on to. And competition now supplies constraints out on their the capacity in so

You only guys competition, X, guys and have more and PMTAs X, in that X XX in the have the They're XX. you Is the also right? correct?

Yes.

Okay. Great.

the of comes with from Craig-Hallum Des next line Your Capital Group. Lauriers Eric question

a impressive X quarter now. with questions here. I'll on Congrats the very for stick

for spend recently growth just marketing makes seeing sense. the category, wondering early of this and in how just in trade obviously I'm brands sort you're were You in explosive kind of days, mentioning thinking promotion investing we're the you're about FRE. that Considering

of would about this promotion you wondering potential or going and we sort COGS? how spend marketing Just see how increase should forward? What of investment net falling And thinking think SG&A trade between as and sales sort to spend? need about you're or to

Yes.

brand we're if this robust think well take got our I relative as just think spending. as online the segment back I a from through to We've a view, data specifically channels. step our and decision informs we And very think our how data-driven. data I you MSAi XX,XXX-foot for throttle

make of that's makes out where the profitability marketing of maybe we've incredibly as promotion But that, always which to that us little bit what balancing determination In investment we unique and is to read lean terms between think the in trade I view. we're that the proud we that day, end and and act think harder expense, to of where or a a market data, of a a at gone on press in where we sort particular segment, I little spending maintained think of. the I distinction

the I And great. appreciate there. color That's

a You mentioned on, these larger comments chains some cycle. obviously, C-store longer have sales

Do for of maybe wondering trajectory had too into with You've and looking are number that be aware of be maybe Or initial load-in these Just more you to shouldn't this sort about of could half of just in that the quarter-to-quarter? landscape. some gotten a trajectory there's wondering here? the independents point? sort volatility we is of of of viewing early of volatility inventory independents. we necessarily quarter-to-quarter sort see kind feel good of that we that success the sort kind some some I'm second how near-term thinking at more robust growth how you're this you've

a to Look, question. lot Yes. in it's unpack that

So I'll start environment. with the chain first

with we're of it's the to with customers. representation XX long country the with a some that a for overwhelming large our and so out creating TPB partnerships While we'll majority value history note the SKU in the and sales we've because long that creating cycle important accounts, it's chains got chain with top note in

ability So we're larger accounts. into get sort the time to our very of in confident chain over

about of small how of I it's segment. to Obviously, it's the think volatility terms entirety days think early the from right comparative quarter-to-quarter, still we In the now. in relatively Stoker's

load how if terms went In you market of will. to a sort big didn't strategy, go we with to certainly market, a of we

product a And are. of what we're can get and do pull-through is make well, rates sure into what consumers to seeing stores, merchandise point view it the the placing that sale trying for it, see get

so over-inventorying days not sort And trade for launch. we're this of really in the early the managing

a Very All another I question. XX,XXX-foot of kind -- just Overall, or hear. is, of great this I longer-term guess, right. question to sort mean,

you've other attacking category. of your of the the Stoker's been products, sort with side -- value So

Here, here. you're kind of head on competing

you any you the this target still market share anything is single being have or on of in you if or goals digits of something MST? sort Stoker's longer see wondering of as with view I'm I sort potential as targets the here kind mean, where are term?

overall maybe seeing given is could products? Stoker's goals different thinking there competitive Or how slightly the FRE that more either that market or wondering you're versus you're that other I about just anything less. else be mean with positioning share your

Sure. Great question.

player brands the in So we them, emerges top, an sort you as have aspirations mean and large. you is X which being sort in I be of of one our that or would everyday And on aspirations to the think that if that unpack take that say, market. of the goal across are U.S., our -- few our actually shelf X the

ahead year Stoker's And pouch think early a category entrenched against we've sort informs with into gains entry snuff that the it there FRE in category, we're Modern I that the to made we our the of moist us the category. relatively think throughout could what took the and product, potential of in be. to white get the with we're differentiated certainly, we're way large the and whereas inside Oral incumbents, cycle competing years XX game

the expected that from engaged. coming So into category that largely there's consumers is category of will throughout decade this adoption. the a lot growth be of new The aren't rest currently

win category satisfaction, existing and difference. of try better to we the an and and the of X-milligram sort think our for gives think for consumers come so opportunity into are competing for that a while they us also there's to those to as And looking launch for give speak looking great to see us mouth the new little a license that more them we the opportunity consumers feel product consumers

That C-store increasingly prepared you me, made great. certainly switching targeting in Zig-Zag. are kind Last alternative to gears mentioned of comments to sense kind of for earlier customer. just one makes guess, how the on remarks, customers of me. I That's the to Yes. wanted Graham, over channel double-click your traditional I question you

a wondering blurring and I lines alternative you wondering sort much And of and C-store could an between traditional the about between expand that. there's a traditional expand the you of assortment the this new is C-store I'm something there else mean was could just C-store that doors, customers Or on ordering is I channel, if bit. if new wider blurring SKUs? something or lines on alternative of now like stores channel. a just And that

Yes.

also a stores, we smoke of the head have shops, clarification, on as of defined are that of are stores we that to set specifically Where lines shops, growth emerging just were that and that point strategy, a are alternative service our space. traditional dispensaries going the really some focused also we getting is distributors the as of blurry distributors customers. So those launched as after

stores grows, service customer that base to so those for well. them And as opportunity as it's

what so for They're way. we're that you think if some with segment passing legacy our decades. business they're look, about along leaning done the trucks seeing is they're traditional very convenience good And us, and seeing driving for stores because, these of -- and that again, distributors we're to stores, it, into we've news

leverage product a for great in So terms to fixed it's them stores. cost their opportunity taking to of those

a just we're where for in also you're just an the blurring but one, distributor, to see starting channel, the that up starting opportunity is seeing to a those occur creating sort us, and bit. sort so an bit And kind of a which distributor lines little of alternative cross of traditional of

very I see. That's helpful.

was I the I to were where think see me, confused Zig-Zag which to blurred very mean, that some alternative talking shops. sounds at there, about brands of distributors the we these that rolling paper here the lines -- that's of of beneficial I to some that might getting are sort and sort compared like other was you of that

with the with stronger you more that -- imagine run some traditional old your channel? -- Can traditional sort that I maybe on relationship any distributors that your you the in versus competitors mean, would some of distributors. comment you just of into I on of the much have kind these guys of relationships subject,

sort you at from this since -- Yes. a standpoint, look say company been has would in business the I relationship of XXXX. if

of distributors, a that been lot traditional we've since So these business long. with doing

that we've process partnership at view is that a so not those long, to really built specific that's alt we grow. the they the the transferable these channel created deep. haven't and around been traditional relationships well be are negative alternative folks as and that the strong. with we can of Most that feel as And we time, that that incredibly And same as bring distributors value distributors quite that the on relationships as that focused

so And distributor to to future, up that well approach they and omni wherever consumers ability as speak us of our us ability the nicely as an that really it on servicing our I channel want through product. think for the having in sets overlaying sell top buy direct-to-store to own really website, to gives direct-to-consumer the

quarter. Congrats Very on a helpful. again great

no this our time. remarks. are the turn There back further now Purdy questions session. Q&A Graham concludes for I will That over closing conference at to

we and Thanks, you speaking operator. joining few I today, in the months. appreciate forward to a look everybody to call again

joining. concludes gentlemen, you Ladies Thank and that call. today's all for

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