Turning Point Brands(US:TPB)2023-08-05 20:26Financial Data and Key Metrics Changes - Q2 2023 sales increased by 2.6% to $105.6 million, with adjusted EBITDA rising by 2.2% year-over-year to $25.3 million [14][15] - Adjusted gross margin decreased by 30 basis points to 49.7% due to segment and product mix [14] - The company raised its annual EBITDA guidance to $90 million to $95 million from a previous outlook of $88 million to $94 million [4][18] Business Line Data and Key Metrics Changes - Zig-Zag sales increased by 1.1% year-over-year to $46.7 million, with strong growth in e-commerce, particularly B2B alternative sales, which grew double-digits [14][15] - Stoker's products net sales rose by 7.3% to $36.1 million, with a 0.7% volume increase and a 6.6% price mix increase [15] - The modern oral product FRE showed positive consumer feedback and results in recent test markets, indicating optimism for future growth [8][24] Market Data and Key Metrics Changes - The alternative channel is expanding due to more states legalizing medical and recreational cannabis, contributing to a 30% increase in Zig-Zag B2B e-commerce sales [6][7] - Stoker's market share in the MST category grew by 60 basis points year-over-year to 6.9%, with the brand becoming the number one manufacturer of loose leaf products for the first time [7][15] Company Strategy and Development Direction - The company is focused on solidifying Zig-Zag as a lifestyle brand, particularly in the expanding alternative channel [9][10] - Partnerships with top multi-state dispensary operators are aimed at increasing in-store presence and brand awareness [10][11] - The company is committed to optimizing its capital structure and has repurchased $15.1 million of convertible notes during the quarter [8][17] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges from prolonged inflation and higher interest rates but expressed confidence in the strength of the Zig-Zag brand and market demand [4][5] - The company expects continued sequential improvement in Zig-Zag sales in Q3 and beyond, despite some inventory adjustments from wholesale customers [21][22] Other Important Information - The company plans to spend $12 million to $15 million on capitalized software implementation costs related to ERP and CRM systems, expected to be completed by the end of the year [18] - The company maintains a strong cash balance of $100.5 million and $124.1 million of available liquidity, providing flexibility for future capital deployment [17] Q&A Session Summary Question: Can you quantify potential inventory headwinds for Zig-Zag in the upcoming quarters? - Management indicated that they expect sequential improvement in Q3, despite some inventory adjustments still being observed [21] Question: How is the gross margin progression for Zig-Zag? - Management noted that the gross margin improved in Q2 due to a rebound in higher-margin products, but future growth may face headwinds from lower-margin products [22][23] Question: What insights can you provide on the competitive landscape in MST? - Management highlighted that the value category continues to perform well, while premium brands are struggling, indicating a favorable environment for Stoker's [25][26] Question: Can you discuss the penetration and growth potential for CLIPPER? - Management stated that distribution is expanding, and they are optimistic about growth in both traditional and alternative markets [30] Question: What is the marketing strategy for new products like CLIPPER and FRE? - The marketing approach includes traditional in-store promotions and online engagement through social media channels [46][47] Question: How does the company test new products in the market? - Management explained that they utilize e-commerce channels to test products and gauge consumer interest before wider distribution [42][43]