Turning Point Brands(TPB) - 2020 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q4 2020, revenue increased by 31% to $105 million, and adjusted EBITDA rose by 81% to $26 million compared to Q4 2019 [9][11] - Full-year revenue reached $405 million, up 12% from the previous year, with full-year EBITDA of $90 million at the high end of guidance [10][11] - Adjusted EBITDA for Q4 was up 81% to $25.8 million, with incremental margins of 46% for the quarter and 53% for the year [48][49] Business Line Data and Key Metrics Changes - Zig-Zag Products segment saw net sales increase by 47% to $40.5 million, driven by strong growth in US rolling papers and MYO cigar wraps [41] - Stoker's Products net sales increased by 15.2% to $28.8 million, with MST portfolio growing by 25% [45] - NewGen segment net sales increased by 30% to $36 million, with gross profit of $11.8 million and a gross margin of 32.7% [47] Market Data and Key Metrics Changes - Zig-Zag Papers strengthened its market position, increasing its share by 1.9 points year-over-year to 36.7% [25] - Stoker's moist snuff market share grew to 5.5%, up over 1 full share point compared to the previous year [31] - E-commerce accounted for double digits of US paper sales during the quarter, indicating a significant growth driver [30] Company Strategy and Development Direction - The company rebranded its core segments to better align with its positioning as a branded consumer products company [13] - Focus on expanding e-commerce and alternative distribution channels, particularly for Zig-Zag products [39] - Plans to pursue acquisitions to enhance growth, with a strong liquidity position following a $250 million senior secured notes issuance [22][56] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the business momentum heading into 2021, expecting continued growth in core segments [23][60] - The company anticipates double-digit sales growth for Zig-Zag and high single-digit growth for Stoker's in 2021 [51][53] - Management highlighted the importance of FDA enforcement actions and the potential impact on the NewGen segment [21][55] Other Important Information - The company expects to adopt new convertible accounting standards, which will affect interest expense reporting [57] - Management noted the challenges faced during the COVID-19 pandemic but emphasized the workforce's commitment to servicing customers [12] Q&A Session Summary Question: Update on FDA dialogue regarding PMTA - Management noted progress with the FDA and expects movement in the upcoming quarter, looking forward to executing in the marketplace [64][65] Question: Pricing environment for Smokeless products - Management observed accelerated price increases in the Smokeless category and expects this trend to continue through 2021 [67] Question: Thoughts on cannabinoid products - Management is focused on CBD but is waiting for FDA clarity before making significant moves; they have invested in THC-related accessories but cannot touch flower directly [70][71] Question: Drivers of gross margin growth for segments - Management indicated that margins for Zig-Zag and Stoker's will continue to improve, with expectations for Zig-Zag margins to remain above 60% [74] Question: Future market share for Stoker's - Management is optimistic about Stoker's growth, driven by same-store sales and a significant distribution opportunity [78] Question: Growth potential in alternative channels for Zig-Zag - Management highlighted significant underrepresentation in alternative channels, estimating potential volume could be 30% to 40% of the overall market [85] Question: M&A strategy and focus areas - Management is focused on expanding the Zig-Zag portfolio and is open to attractive opportunities in the cannabis sector, particularly cash-flowing assets [89]