TPB - Earnings call transcript Q3 2019 | Turning Point Brands, Inc.

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good day and welcome to the Turning Point Brands Third Quarter 2019 Call. Today's conference is being recorded. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]

I would like to turn the conference over to Robert Lavan. ahead. go Please

Robert Lavan

Good Turning operator. I'm Lavan, Bobby Thank Brands. morning, of Point CFO you, everyone.

of Joining where Turning Nu-X located release today Planning. covering Graham section Murray, me our are Relations Vice in This Purdy, a Larry and Senior will our be today's XXXX a of who the Wexler; morning CEO, third we conference Investor heads news of quarter call is the President subsidiary; replay issued Jim Point and website, Business Brands' release President This results. available.

discuss In we progress. consolidated call, results this operating and our will our our on and perspective segment provide

the As is The disclosure and various forward-looking press statements of in from Exchange factors customary, discussion outlines today's be actual forward-looking cause or that materially I that with direct in release differ and to may in results cited Securities the cautionary discussion. projections Factors to statements, attention Commission. and Risk could your filings today's our

measures will can release, In are today, statements. call they future useful and measures. to that reasons as forward-looking guarantees undue Securities provide by upon update them why certain revise no to or performance not should with publicly Laws, be information. not along place reconciliations we the financial Federal obligation non-GAAP These These found forward-looking in earnings and and GAAP provided we reference except you today's any undertake reliance management statements projections and believes of

now Wexler, CEO. I'll our over call turn the Larry to

Larry Wexler

growth. results broad on surrounding vaping of by products trajectory dominated industry its among you, drawdown outbreak the and this of other even its consumers. joining has challenging the this parts Company. environment the you relating Nu-X the vaping to to of for compelling and headlines. illness and The continues in of call. was everyone. Company's news morning, growth potential and controversy from Canadian quarter overshadow the has an vaping was impact inventory Thank the Thank Stoker's The the to produce Smoking vaping by caused strong Bobby, good continues begun accelerated the substantial recovery in portfolio

dramatically our in mid-August. environment consumers of and has starting vaping consumer impacted The and third-party disrupted distribution behavior the confusion on headlines misinformed store both News illnesses of owners. current business

result, a taking strip we costs the to rightsize are infrastructure from our As to action immediate TPB organization.

other will the Company deliver various expected which business $X in plans, of accelerate activities. to warehouse plans and and million to reduction $XX cuts corporate cost to Specifically, come intends consolidation million related annualized savings. are from properties vaping These

reduce growing we week any to capabilities while to costs vaping proprietary sufficient support implemented headcount strength maintain nicotine XX% participate a e-commerce is preserving to our in reduction. our potential recovery. Nu-X in goal and The assortment products of to This

of could the any to light that was employees, confused base alternative it imperative lose me simultaneously it of exploring transaction no While given to will in valuable changing result the vaping pains completion the approval third-party in this for environment. business, strategic of in the the process uncertainty of particular be And There in consumer Directors businesses. these distribution the is Board and assurance future. or some alternatives strategic finally, or business rightsize the

with Cigar momentum in Zig-Zag share versus ago, advances and XX% share. smoking than by the has volume Moving at velocity smokeless with commands strengthened particularly cones store MST year Zig-Zag genuine in XX%. X% both yet to tobacco record by metrics, another and the remain satisfaction. our nice XX% segment quarter, solid growth a Smoking demonstrating product per increased sales where of Stoker's greater propelling sales by strong upward on delivered quarter same-store Wraps, and performance velocities MST the Nu-X. we core in Stoker's our pleased of products and sales strength the

The bring Despite and headlines' million is in on pipeline by will into second entirely meaningful additional in third launch, quarter sales from quarter spaces, take quarter. lines million total Nu-X product to voyage fourth what and that there the the Solace to team call in Nu-X Company that $X.X $X.X robust on the at the the vapor including Nu-X I opportunities. where impact genuine RipTide increased supported forward new track sales potential white represent our spaces,

collectively are delivered Stoker's These growing markets. are disrupted we has to by to current business in continue year-to-date Zig EBITDA. The in smoking, fortunate of a strong smokeless foundation brands controversy. thriving XX% enter Nu-X have vape We and and Zag been the attractive of position to which

and proprietary market the other We actives development, as have plans to same leading regulatory these in PMTA exposure product already for TPB's brands, committed core businesses. This products. affairs our as process businesses. investing time, adult create FDA growing the TPB of and branding, includes actives on aspects capitalizing heavily CBD third-party well to in remains in the financial motion to to reduce competencies distribution, our At

intend product the we Over have These are not investments We for these acquiring products. BXC portfolio e-commerce both investments of now few powerful leverage environments, capabilities platforms to waste. fully and propel to made BXB years, last going our to proprietary

that Nu-X The and the the open one able contrary, the emerge are of out moments, major we process. few shifts we my over PMTA be on We've that have industry. FDA got seen activities. XX of will those side the of in on additional I've tobacco and PMTA of be on confident systems. years one that some to as right is year-to-date of consumer upcoming the we in marketers process data purchase can millions leverage On behavior points business of preferences we and to color

Purdy, turn Nu-X. to me call President the Let of Graham over

Graham Purdy

Larry. you, Thank

were Third quarter up $X.X from of million million in sales Nu-X $X.X QX.

I'm in journey the satisfied, nice advance While we're not growth, a is satisfied. not XX% step onward toward accelerated our

across Nu-X first-mover TPB there before, demand us hemp in we a pens the In products are discussed five with These each alternative quarter, disposable for most happy. CBD notably products. derived the we swelling third products, As is CBD traditional favorably platform. There the carrying introduced or advantage. pens like relax, line positioning particular position mood CBD in a a retail the focus

The retail price very that for very sold consumers report the been results we this fourth to trade Further by in retail the both each encouraging, has initial and pleased month. of point is fact quarter. queue out alike. well I'm are and $XX.XX in expansion received

Nu-X especially While exploring we for novel that Premier gives of development with products. narrative level portfolio enthusiasm us retailers, potential a of product high concepts the incurred alternative compelling an

from retailers TPB. a suite trying partners and assemble of but CBD engaged Leading into actively in products, are only trusted suppliers to quality

enthusiasm will only products industry-leading velocity our partners, behind our chart quarter, a of desires but selection brands experience. CBD our When QX palpable. work are and with suite demands We their path discuss In meet them, high us to we of and have an from our broadening bringing of also long track understandings to of products eager with and for to They not standing reputation the products forward winning, we Nu-X to The flows products. learnings retail is be the new record our out consumers. with the retail and fourth product alternative e-commerce products. the partners and

energy ounce new will Tincture's and Shots of to are entry create XX% well-positioned specialty shipment those introductions XX and With in are CBD an trade. November Nu-X and in CBD This include as with profiles edibles, shots. new product as have flavor unique capsules. bottles interest, for consumers sales. of almost bottle, milligrams consumers be and XXX are for and to four in point product in Nu-X in QX speedy trial ml stress of of two CBD sure scheduled Nu-X few be with flavors. These relieving gummies liquid formats XX November, December, purchasing these late milligrams the A CBD formats CBD available CBD that Also integral. emerged will gel

infused trusted of supported the that delivers propel The the flavors the for company, wide products on, portfolio CBD company this than discussions the better in be of of to the introducing traditional we'll product category. brand see a consumers. sprayed opportunity We on can months, and one the the to-date quality being great are across who pens, of with be products the of for within and XX% the products us early unique formats In support. success build retail. on a a category. deal forefront focused on a in range We a dealing appreciate enthusiasm sales by CBD establish trade solution The rather as with cover who to are indicate merchandising available coming growing quality Nu-X this and

QX, desires. especially pipeline product new uniquely highly meet specific and with to forward to Looking innovative beyond, robust, our products, consumer needs and XXXX positioned remains

much the about innovation just more wide new a market is are we variety CBD on While Nu-X attaining products. market, a means leadership rapidly bringing in growing certainly Nu-X CBDs. alternative all position in forth of focused than

begin of creativity to the As and team. development we move see XXXX, into depth our innovation you'll

share retail that we packaging revisit time, improvements, Moving X,XXX to in observing we to expanded we targeted program. same revisited present QX, late two a steady deep will early an increase number fully albeit store the looking large share our approximately and the have product a doing muted gains. quarter, by implemented the leading quarter. store X,XXX which RipTide. project to doors, in vape RipTide to sales footprint are headlines. a hit progress chains. the upon Based been is satisfaction, including U.S. already now the this X%. associated good, rates preliminary In traction up through research understand dive convenience we intensive velocity In retail already, bit a Early has have consumer are stores later In store findings we evaluate by at in of At

our the for show partners is and opening account well distribution. introduction in ReCreation we Canadian queue for vape large the Vapex the week. players presented preliminary ReCreation retail at Importantly, in their highly feedback finalizing the was PO from encouraging placed with with last the major largest presentations Marketing. RipTide UK are RipTide at

only excited All are are Results our shadow more trade of not but with progress only what's to but come. encouraging, the enthusiasm a us especially to-date so Nu-X building of and our to-date, at TPB partners. with momentum

I'll quarter with review Bobby a of And turn to for third it performance. financial that, our Bobby?

Robert Lavan

businesses expanding Performance third Company in profit our quarter were reportable consistent were of gross smoking were a results in XX.X% bit as address up long-term our swiftly sales mix, smokeless positive to with our Graham. you, Total net move margins the growth segments. disruption. and advancing each XX.X% of company gross a we in and the vapor in with plan. Thank three

performance I Before the the let Marketing segment update on and investment our in quarter, into ReCreation in Canada. consolidated dive me

in Canada. we in in Marketing on July, announced quarter's As made we ReCreation last call, investment strategic a

dispensaries. specialty outlets a including that is and stores, firm established marketing ReCreation retail distribution XX,XXX to convenient cannabis up newly targets

$XX.X ReCreation for to Canada the Smokeless in this expect Stoker's net we continue smokeless excited to revenues the products accelerate. with Net ventures in from alternative moist other increased sales for momentum. million smokeless, in volume a about XX.X% XX% advancing represented readying to In great earlier, future generate team a introduce on also I'm trend increased are price quarter. smokeless XX% year up the quarter, brand of personally sales X.X%. XX.X% We impact portfolio the continues XXXX our The and mix in financials. to to

tobacco in third approximately TPB industry volume October XXXX. see chewing gains Stoker's the in we're quarter, moist leverage. retail business declined on moist the overtaking profit shipments operational moist. chewing to by both to price growing the our scale its of outpaced moist X% Year-over-year the impact XX.X% followed share tobacco increased price respectively. of now for and and beginning million. Smokeless and industry tobacco in are robust the Notably, Stoker's favorable volumes increase increase the $XX.X quarter, in the and industry smokeless to chewing gross X% products,

expenditure year Our incremental this year. reap benefits capital next projects will

million increased increased is other. $XX.X strong increased each sales rolling participation Cigar depleted, smoking on X%. Zig-Zag's promotional results on premium Non-focused products particularly declined offsetting cigar paper X.X% strong products wraps price remains on to paper cigar net increased share segment trade mix rolling and number rate, inventory essentially inventories promotional Zig-Zag Turning products, sequentially wraps. X.X% on momentum U.S. to Smoking ago U.S. new while pipe paper and increased million. versus year brand. in the $X.X volume and MYO one

store cigarette MSA, more much low products U.S. third next count mid Zig measured cones. continue in into cones at quarter volumes Zig-Zag preliminary have respectively. rolling gain wraps papers introduction to is single are scheduled cones XX,XXX Canadian MYO with U.S. distribution by with begin channels Zag to digits of digits, Zag's capturing for convenient consumers industry early super The to results migrate year. and while the category encouraging expansion the According XX% end, paper Zig increased at universe. to we quarter like MSA alternative standing single and cigar volumes continues

significant NewGen vaping our XX.X% In segment, total were product to sales to our media segment quarter, Moving sales $XX.X million. NewGen disrupted headlines. the grew on

increase right-size the NewGen warehouse plans will quarter. the below Importantly, has trajectory business. the flavored total prior approximately primary were of NewGen the specific swiftly August. from our sales disruption the $X.X generated moving focus consolidation products, These the to in business or changes of Nu-X, in be a and sales to are Not we which current in XX% on knowing completed XX% duration in or fourth September regulatory quarter been the any nature million. vaping

due to than spread gross The net introductory sales on sales XX% to almost promotion. heavier expected hit of RipTide

RipTide, sales with all million. but at $XX.X gain share Nu-X continue We were Year-to-date not net costs. to

continue. new recap million NewGen product include into in quarter this $XX.X To expect the quarter to there trajectory We expenses. growing significant XX.X% increased to quarter, tariff spaces. quarter, million. gross initiatives third profit Late were of $X.X In introductions the novel fourth

in was million. the to expenses quarter prior $XX.X in million quarter consolidated the EBITDA Adjusted totaled $XX.X for SG&A to million in $XX.X $X.X million. the consolidated SG&A quarter specific the was compared year. Moving as the business expense Nu-X

following. in updated which growing X.X In we We our was balance continue times. to the guidance, the includes investing morning's adjusted times X.X targeted range Net debt EBITDA this to XXXX X.X to inside also times release, our business. EBITDA of

of million from due XXXX sales $XXX the reduction to million to total sales $XXX Nu-X to million. vaping net net $XXX aforementioned This of prior of business sales to base $XXX million million million of and is guidance disruption. comprised $XX a Projected $XX

in in which million Company resulting in Importantly, IVG is sales infrastructure, gross expense The expenses be and invest XXXX, restructuring we will the RipTide fourth costs, certain Solace million which from achievements. SG&A organization that quarter. fully to million in $X and $X.X acquisition maximize profits still $X intend $XXX,XXX Nu-X in payments, severance in the warehouse transaction to market primarily Nu-X expenses to earn-out costs. launch expects including includes support

pathway to million in We PMTA for $X expect $X spend to million preparation the XXXX. during FDA's

the to non-cash units to expense million has of for expect is restricted accounting We be $X.X Final to and the the million, Solace which project expense EBITDA in coming months. stock due Stock part that XXXX increased We Regulation performance-based $XX projected acquisition. incentive PMTAs requirements XXXX to compensation were adjusted million. in $XX the of

income at the tax expect We effective low of in XXXX rate to end XX%. the of the come range

are this MST potential where approximately to $XX investments expected continue million to $X will next excited including are reap very XXXX, of of quarter targets, benefits discussions be fourth net about we million. as evaluate $XX M&A business. potential million, in and partners the for part leverage finally, year. the from And certain expenditures to operations, expected be sales we our the Capital operational

You next the should expect us to year. do deals in

rewarding the compelling we smokeless, quarter challenging which smoking implementing proved quarter, Fourth be and be new savings consumer. company's delivering priorities. initiatives, on cost and to while NU-X, remain our side, on third products vapor the The integration to will

I'll With call back the closing Larry that, comments. for to turn

Larry Wexler

you, Bobby. Thank

will you otherwise morning, company. cost savings exceptionally process produce for deliver math. to the As vapor and strong engine My that integration is confident heard initiatives forward the by growth revitalize I'm supported an for simple and is quarter drive this a company. challenge can our confidence in the compelling disruption to

Both of smokeless categories quarter. year-to-date performed third the represent adjusted in XX% and First, products well EBITDA. smoking

annually weather positive current from the do which of establish a environment. $X Second, operating to can $XX our likely initiatives million we are foundation million cost savings

The another Third, the distribution aggressively capabilities CBD great with traditional brand. to enter block Nu-X category retail. within releveraging category the our potential, building for

cost synergies. by we expanding driving will continue brand and the through and while to our delivering forward, Looking savings execute , corporate designated strengthening innovation plan and strategic our growth, simultaneously focused acquisitions infrastructure

our Thank for today. journey. the Our company you people remains the resilient, participating committed call in solid and and remain to

the And with call to that, like I'd open questions. to

Operator

you. Thank

comes Azer We the Cowen Instructions] Vivien [Operator question-and-answer & now with question begin First from session. will Company.

Vivien Azer

morning. Good Hi.

Larry Wexler

Good morning.

Graham Purdy

Hi Vivien.

Vivien Azer

you've Larry, of millions was from insights you your a there from high give intrigued consumer is So points. but you. that a the data that teaser comment can on gathered takeaways of sure the lot, to little still level on us I by I'm analyze, consumer that discerned you've Thank some data? all

Larry Wexler

Yes.

the have consumers. preferences distributions As different of you age you flavors. profiles from understanding a on And us know, communicate deep from we the away and we we which flavor it fairly good very issue. have have a BXC among those takes database When very we also older at look sell BXC, our whole has products profile, where and youth a age

I all at the you look would you think science, PMTA this the very the in important it process. on When but this,, be have also behavioral.

products behavioral which top the We them. we on are who, of consumers and buying what are know are are and where consumers and buying the doing our

this think process. us advantage in huge a gives we So that

Vivien Azer

flavors at Is think particular level different kind commentary it flavors your given that offer on, on I of of, kind I'm across to bit skew little older mix three a these all high in consumer buckets. about in base possible any does

you've there? Do you've any then traditional got else. Thanks. menthol flash tobacco, can and you you've mint everything So offer got insight have got you

Larry Wexler

they Yes. flavors. tobacco has understanding a there away combustion, and want It our move from profile to move Everything and else dominant among the submission type menthol that people when is away is consumers. is, from

names some these flavors appeal may younger you that to to other appear on surface The that thing is have the is interesting of that audiences. see

little if you'd notorious I the age age or and you But anybody how old look sell a are profiles, don't sometime sort of insight seem under profiles draw flavor names at future. surprised the we'll look at and give at we to of to guess currently. some to these, of attention. be at XX in that lot of some least a try data interesting the It's Now, to you Vivien, these more

Robert Lavan

XX% Yes. hodgepodge about The our Tobacco sales. XX% other the to is menthol open-systems which XXX sales, combination. rest flavor of a on of different and of flavors, being is

I think data certain that. have to and that flavors adults we mean, we prove it's So use the

Vivien Azer

Well, for That's than Thank I helpful. guessed that, that's and would very mint. have lower tobacco, you for far Graham. menthol

this it your out around on expand quantify vapes, guys On retail encouraging you like what Can distribution very then commentary the now looks retail Thank CBD and maybe going sold you that month. expanded you. distribution forward? all

Robert Lavan

it Thank we qualitative you. stores Vivien, ran encouraged. in very, We take now, Right terms a etc, seems thousand started of of take retail away late. there's stock, but rates, couple out velocity of from very rates, great

supply but present at we're time. couple stores right the of a thousand have process, coming now, We in the in early

Vivien Azer

That's curious promotional helpful. and around given the And the net there really sales happening I'm CBD as vapes on whether then between your on disconnect is Thank well? RipTide. growth commentary any spending you.

Larry Wexler

dramatically nothing this on There margins. segment the margins CBD. Frankly point than stronger are is at CBD

think promotional perspective, spending last. can't I fairly unique, is RipTide and our the from on

what's so side. on in net but CBD gross market, on and that that going between of it's, the And same is spread won't sort but you see the

Vivien Azer

last me. Very one then helpful. And just for

there your distribution, work have capacity aspirations Given out-of-stocks if through, to Thank so? CBD that to you. on how those, you address are bottlenecks going you to are the and in expand

Larry Wexler

a CBD that in unique of touch there. chains feel we capacity Frankly, on ramp and extremely five the than we pretty out to our we just, on the that products are are up faster market unique. is we're over CBD still the no excited months using been bottlenecks. sort has our thought. selling is There next data were four, about. side that national We massive is pen we're coming feel There It's

Graham Purdy

launched our Yes, vape. here. sort pen of Vivien. This We is firestorm Graham amid the the this, hit that

actually a sort be, that out. had perspective of take play like and we a from expectations down our So throttled proved to distribution retail perspective, to not rate

encouraging it perspective. that from was very So

Vivien Azer

you Thank very terrific. That's much.

Operator

Riley, our And FBR. of B comes Susan next from Anderson question

Susan Anderson

It Are the morning, Good wondering, I what traditional categories on all helpful. if back, saw benefiting vapors, like color maybe on quarter. good this your some your that, curious for pressure seeing Hi. more was categories? you morning, strength pretty looks give now this you very guess switch it's Thanks. details other can traditional thanks with I the seeing. you're And is if any other consumers more there

Larry Wexler

but, rolled, of may the that On of be of has the strength our, on the strength tobacco predated Canadian core back that seeing about the business the coming I think you restocking. Zig-Zag and margin little the told while smoking, roll a that a controversy a strength happening, been from brands. is Stoker's vaping was for that bounce bit you're we pre-dated in

are brands thriving. these think I

the not of helping. think brands. any certainly hurting think are But again margin, those on the of independent is it I controversy. they strong I is probably It

Susan Anderson

out Great. guess where year, That's of revenue kind next modeling should helpful. can provide vape just there out I from color looking think terms if you perspective? we to the And about of in settles any how EBIT then is business or a

Larry Wexler

early days. still It's

an EBIT EBIT of We're not let's So talk right. money. sales. business October From we're the in in committed growing to EBITDA, perspective, losing about

So that that's on is a side. the business products. we selling still vape there believe dynamic key in open-systems, a perspective, vape From sales a

committed PMTA. to are through the We going

numbers through products. So will proprietary we derive

a from that's directionally our products look there through products, on perspective, the at correct, trend I proprietary of modeling the stuff to is kind of put PMTA. is but which that of proprietary should that, sort you today So open-systems top and then think lines our

Susan Anderson

year? I think And guess how shifting then you very how helpful. many expand about guys are there. into, maybe really How I guess that growth thinking That's trajectory? doors Great. nice you about Stoker's, can just over the to we growth additional that Okay. next should

Larry Wexler

the point. XX% this share about at in of weighted We're market Yes.

same-store that there and XX,XXX focused growth close a that we there extra very that of years is important that's, we focused on we on so moist, so not really sales doors approach. on are, but So XXX,XXX metric dual-prong management and multiple becoming are it's is, store performance focused only a gap the growing for still and XX% but which team, are will are trajectory sell is are there here growth, we the count,

there so in And business. is growth years that of

Susan Anderson

guess, last And just RipTide. one one then, I on Great.

You as talked opportunity there? about years? out we couple that of think selling I what's should look the Canada about the versus over How next UK. guess in and opportunity we U.S., the

Larry Wexler

way it the $X is which think think a to got, about perspective, market, I from modeling manufacturer the vape $X you've the billion, you've Yes, billion is got if level. U.S. at

got, have but higher Canada you we're you UK You've our the and smaller of guys propensity is of in market sort vaping, have can of that's, what independents but focused right? populations, a gave these you play the we're math. sort underwriting assumptions, And on so work We you mean to. that that that X%. share with that's I on

Susan Anderson

Great. That's guys. so much helpful. Thanks

Operator

have question-and-answer time, queue. remarks. session. further I At Instructions] presenters closing this no over any concludes in to turn for our the we the would questions [Operator like back This conference to

Larry Wexler

to talking you the next everybody. to quarter. forward you in Look Thank

Operator

and concludes ladies Thank today's you, This gentlemen. teleconference.

You may disconnect. now

Turning Point Brands (TPB) 3 Nov 192019 Q3 Earnings call transcript