Turning Point Brands(TPB) - 2020 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported $104 million in revenue and $24 million in EBITDA for Q3 2020, exceeding expectations [7][48] - Adjusted EBITDA for the quarter was $23.9 million, compared to $18.8 million in the prior year, achieving 70% incremental margins [48] - The company raised its 2020 guidance for total net sales to $395 million to $401 million, up from previous guidance of $370 million to $382 million [50] Business Line Data and Key Metrics Changes - Smokeless segment net sales increased 13.7% to $29.8 million, with MST portfolio sales growing 16.3% [39] - Smoking segment net sales increased 19% to $36 million, driven by strong growth in U.S. rolling papers and MYO cigar wraps [42] - NewGen segment net sales decreased 4.8% to $38.4 million, with flat performance in vape distribution [46] Market Data and Key Metrics Changes - Stoker's Moist Snuff market share increased by 60 basis points to 5.1% [22] - Zig-Zag papers increased their market share by 4.2 percentage points year-over-year to 35.3% [25] - The smokable hemp market is projected to grow from $70 million to $80 million in 2020 to a range of $300 million to $400 million by 2025 [14] Company Strategy and Development Direction - The company is focusing on strategic acquisitions and investments in growing markets, including a $15 million investment in dosist and a partnership with WildHemp [15][18] - The company aims to leverage its regulatory expertise to navigate the PMTA process and expects significant upside as the market consolidates [12][36] - The company is committed to expanding its product pipeline and enhancing its brand presence in the cannabis and CBD markets [16][19] Management's Comments on Operating Environment and Future Outlook - Management noted that the company successfully navigated a volatile selling environment and saw positive trends across all product lines [7] - The company anticipates near-term volatility due to the PMTA process but remains optimistic about long-term growth opportunities [31][36] - Management expressed confidence in the company's ability to capitalize on increased cannabis consumption as legalization spreads [30] Other Important Information - The company ended the quarter with $67 million in cash and $114 million in available liquidity, indicating strong financial health [51] - The company has implemented cost-cutting measures that have contributed to improved margins and operating leverage [49] Q&A Session Summary Question: What was the impact of distribution gains on volume sales in the Smoking segment? - Management indicated that there was about $3 million to $5 million from wraps, offsetting inventory reductions in the second quarter [60] Question: How is the company preparing for potential consumer behavior changes due to economic pressures? - Management stated that they are positioned to benefit from down trading trends and are preparing new product initiatives to capture market share [65] Question: What is the plan for distribution of dosist products? - The focus will initially be on the THC-free segment, with potential for future cannabis product distribution depending on legalization [74] Question: When is the PMTA-related inventory liquidation expected to normalize? - Management expects inventory liquidation to continue through the end of the year and into the first quarter of 2021, with a catalyst being the FDA's enforcement of product approvals [75] Question: What is the expected impact of recent investments on the company's financials? - Management indicated that dosist will be accounted for as a non-controlling investment, while WildHemp is expected to contribute significantly to sales and gross margins [83]