Turning Point Brands(TPB) - 2022 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Q2 sales decreased by 16.1% to $102.9 million, with stable results from Zig-Zag and Stoker's offset by a double-digit decline in NewGen [22] - Gross margin increased by 110 basis points due to a decline in lower-margin NewGen sales [22] - Adjusted EBITDA decreased by $5.3 million year-over-year, primarily due to the decline in the vape distribution business [22] Segment Performance Changes - Zig-Zag sales declined by 2.1% year-over-year to $46.2 million, with a 2.3% volume decline offset by a 0.2% price mix [23] - U.S. Papers and E-commerce business grew by 10% year-over-year, driven by an 84% increase in E-commerce sales [24] - Stoker's products net sales increased by 0.7% to $33.6 million, with a 6.1% volume decline offset by a 6.8% price mix [30] - NewGen sales decreased by 45.1% year-over-year to $23.1 million, impacted by regulatory challenges [34] Market Data and Key Metrics Changes - Zig-Zag holds a 32.4% share in the MSAi measured market, remaining the number one premium paper brand [25] - Stoker's share grew by 50 basis points year-over-year to 6.3%, with its products representing 64% of industry volumes [30] - The paper category in the MSAi measured market declined by 8.6%, while Canada saw a 38% increase due to new product load-ins [26] Company Strategy and Industry Competition - The company is focusing on penetrating the alternative channel, which is expected to grow strongly due to deregulation [12] - Investment in technology is prioritized to enhance CRM functionality and replace outdated ERP systems, aiming for significant cost efficiencies [15][16] - The company continues to buy back shares and maintain a strong balance sheet for future capital deployment [20] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about growth opportunities despite the current economic uncertainty and inflationary pressures [9][21] - Adjusted outlook for the remainder of the year due to Q2 weaknesses, particularly in wraps sales [38] - Management remains cautious about consumer confidence and the overall economic environment [21] Other Important Information - The company ended the quarter with over $107 million in cash and $129 million in available liquidity [37] - Capital expenditures are projected to be around $10 million for the year, excluding ERP and CRM projects [39] Q&A Session Summary Question: Update on Stoker's segment and consumer behavior - Management noted reduced foot traffic impacting sales but highlighted Stoker's strong performance and market share gains [43] Question: Retailer receptivity to Stoker's products - Management confirmed continued store gains and positive receptivity for their products [44] Question: Guidance revision and competitive pricing - The guidance reduction was primarily due to wrap sales weakness and cautious consumer behavior amid inflation [46][68] Question: NewGen PMTA application status - Management confirmed acceptance of the FRE application and expressed optimism about future product launches [52] Question: Current volatility in vape distribution - Management acknowledged regulatory uncertainty affecting inventory and customer ordering behavior but maintained profitability [60] Question: ERP system implementation timeline - The timeline for ERP completion remains unchanged, expected by the end of next year [62] Question: M&A strategy and philosophy - Management emphasized a patient approach to M&A, focusing on accretive opportunities that fit well within the business [69]