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Edited Transcript of TPB earnings conference call or presentation 26-Feb-20 3:00pm GMT

Full Year 2019 Turning Point Brands Inc Earnings Call

LOUISVILLE Mar 12, 2020 (Thomson StreetEvents) -- Edited Transcript of Turning Point Brands Inc earnings conference call or presentation Wednesday, February 26, 2020 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Graham A. Purdy

Turning Point Brands, Inc. - COO

* Lawrence S. Wexler

Turning Point Brands, Inc. - President, CEO & Director

* Robert Lavan

Turning Point Brands, Inc. - CFO & Senior VP

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Conference Call Participants

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* James Martin Clement

The Buckingham Research Group Incorporated - Analyst

* Steven Jason Schneiderman

Cowen and Company, LLC, Research Division - Research Associate

* Susan Kay Anderson

B. Riley FBR, Inc., Research Division - Analyst

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Presentation

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Operator [1]

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Hello and welcome to the Turning Point Brands Fourth Quarter 2019 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to your host today, Bobby Lavan, Chief Financial Officer. Please go ahead, sir.

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Robert Lavan, Turning Point Brands, Inc. - CFO & Senior VP [2]

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Thank you, operator. Good morning, everyone. I'm Bobby Lavan, CFO of Turning Point Brands. Joining me today are Turning Point Brands' President and CEO, Larry Wexler; Graham Purdy, Chief Operating Officer; Jim Murray, Senior Vice President of Business Planning; and Louie Reformina, Head of Business Development, who is picking up the IR role. This morning, we issued a news release covering our fourth quarter 2019 results. This release is located in the Investor Relations section of our website, where a replay of today's conference call will be available.

In this call, we will discuss our consolidated and segment operating results and provide our perspective on our progress against our strategic plan. As is customary, I direct your attention to the discussion of forward-looking and cautionary statements in today's press release and the risk factors in our filings with the Securities and Exchange Commission. The disclosure outlines various factors that could cause actual results to differ materially from projections or forward-looking statements that may be cited in today's discussion. These forward-looking statements and projections are not guarantees of future performance, and you should not place undue reliance upon them, except as provided by federal securities laws. And we undertake no obligation to publicly update or revise any forward-looking statements. In the call today, we will reference certain non-GAAP financial measures. These measures and reconciliations to GAAP can be found in today's earnings release, along with reasons why management believes that they provide useful information.

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

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Lawrence S. Wexler, Turning Point Brands, Inc. - President, CEO & Director [3]

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Thank you, Bobby, and good morning, everyone. Thank you for joining the call. Let me first address the vape disruption or vape gate, as we call it, head on. We entered 2019 with strong momentum across the board. In the third quarter call, we shared with you the rather dramatic impact that the late summer vape controversy had on our results. The impact of the vaping disruption from last summer carried over to the fourth quarter and was further compounded by the acceleration of the PMTA and additional FDA flavor regulation.

We moved swiftly and announced plans to restructure the business. We did this with speed and efficiency, announcing a company-wide workforce reduction of 10% in early November and implemented our consolidation plans to rightsize the platforms.

In the fourth quarter, we completed the warehouse reorganization going from 4 warehouses a year ago to 1. We have eliminated low-margin platforms and consolidated our entire wholesale B2B business under VaporBeast, our premier platform. We shut stores and are now actively exiting certain leases. And we shrunk our exposure to the vape business to a manageable size that affords us both B2B and B2C access for our quality products and brands, while retaining sufficient capacity to ensure that we come out of the PMTA pathway as a winning player.

Vape gate was an earnings drag and a management distraction, where we moved rapidly to restructure and rationalize the organization so we can get back to growing the business. As for the rightsizing initiative in the quarter, we addressed all aspects of the business, including writing off unsalable inventories and running down certain other vape inventories due to the accelerated PMTA time frame and the FDA flavor ban.

While the category-wide reset affected our business in a material way, I'm pleased to say that we have addressed all known and anticipated issues resulting from these external events. Initial sales results for vaping in 2020 are already exceeding our expectations. While early and results vary by platform, we are seeing a stronger-than-anticipated recovery. We have retained the flexibility to come out of the PMTA process as a materially stronger player and believe we are well positioned relative to other less prepared and less resource competitors.

Adding to that, our Nu-X product pipeline and the many white spaces we see available in the market, we are now better prepared to drive for accelerated results. I've seen several major shifts in the tobacco business over my 36 years in the industry. The PMTA is one of those moments, and we are confident that we will be on the right side of that process. We believe our scientific and regulatory expertise will allow us to get a robust portfolio of products through the PMTA. Let me be clear, this portfolio of products pivots us from simply being a distributor of third-party vaping products to marketing a suite of proprietary vapor brands.

Now let me give you a quick snapshot of the performance of our decor tobacco business. Fundamentals and results continue to deliver strong, compelling and sustained results. First, in Smokeless. Net sales for the year increased double digits on the continued robust advances of Stoker's Moist Snuff, partially offset by secular decline in chewing tobacco. In the quarter, Stoker's Moist Snuff delivered another record share of 1 full share point compared to a year ago, with both cans and tubs delivering significant gains.

In Smoking, Zig-Zag's positioning delivered strong results in the quarter with both U.S. and Canadian rolling paper net sales up high single digits. Growth is being delivered with new products, including cones. We have already captured greater than 20% of the measured market.

In Canada, Zig-Zag equities are even stronger, with the brand commanding a 65% category share in the measured universe. We are on track to further propel the brand forward with our new Canadian distribution contract and the ReCreation marketing partnership, which will help facilitate our entry into a large and growing universe of dispensaries.

The core tobacco business is strong, and we're especially focused on accelerating growth. Both Stoker's and Zig-Zag remain the engines behind the continued company gains, with total tobacco gross profits up 8.8% in the quarter.

Having put the changes in the vape business behind us, we remain primarily focused on growing the core tobacco business, while also delivering novel new products to consumers who are searching for new forms and actives via the Nu-X umbrella of products. Nu-X CBD products are available in over 4,000 stores at year-end 2020.

To add some color and perspective on our path forward, let me turn the call over to Graham Purdy, Chief Operating Officer.

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Graham A. Purdy, Turning Point Brands, Inc. - COO [4]

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Thank you, Larry. Hello, everybody. As you know, I'm a freshly minted COO, and believe it or not, I'm fully energized about the situation I'm inheriting. Like Larry, many of us have lived through a highly tumultuous time in the tobacco industry, from the price wars of the '80s to Marvel Friday, the MSA in the '90s, SCHIP in the 2000s, these are challenging but not overwhelming times for the well prepared. And that's how I would characterize my team: thoughtful, well prepared and able to move swiftly and efficiently.

As we look to the future with a sense of purpose and energy, allow me to summarize how we are prepared to meet and exceed the challenges before us, starting with the cultural evolution we have already kicked off. Your management team will win with integrity, accountability and responsibility. Let me tell you what that means for each member of the leadership team.

Winning is a benchmark. It's why we come to work, why we fight so hard and punch above our weight in the industry. It means everything to everyone here at TPB. Accountability to each other and to the company plan. We have full alignment across the company and with our shareholders. Active engagement and personal ownership by the leadership team is a hallmark trade of the organization.

Integrity. An unwavering commitment to ethical and compliant behavior. That does not mean we don't think outside the box, just what the bright lines of the box are drawn that we comply appropriately and completely. And responsibility. Responsibility is somewhat different than accountability. A team member may be responsible for advancing a new product or initiative, but the department head is accountable. Both are necessary components of any winning organization.

This is an organization committed to winning in everything that we do. It includes new products, new actives, new initiatives and new channel of opportunities. We will be tenacious and outwork our competitors. Hard work is just as important as talent and intelligence when competing in the marketplace. Decision-making is fact-based and focusing -- focused on solving for consumer wants and needs.

Our 2020 strategies are clearly communicated with full alignment across the organization. First, maximize the core business. We are relentlessly focused on driving Stoker's MST growth and expanding the iconic Zig-Zag portfolio across both the U.S. and Canada.

Next, cost efficiency. We have successfully grown our gross profits, and we are rapidly focused on capturing increased operating leverage through solid cost controls and spending efficiencies. This will deliver a higher return on invested capital.

Improving products. We'll use our rich and robust data tracking system to identify emerging product forms that consumers are increasingly gravitating to. The evolution of consumer preferences is a given. Identifying and testing products early ensures a deep winning product pipeline.

And finally, strategic acquisitions. We are in deep dialogue in several potentially transformative acquisitions. That does not mean we are certain of the outcome, but we'll most certainly continue to pursue accretive opportunities that can further propel company growth. We have the access to capital, and we will efficiently deploy those resources to accelerate the company momentum.

Fourth quarter 2019 was certainly a challenge given the dynamics of the vaping industry. Despite those tests, we not only coordinated and initiated a comprehensive restructuring plan, but also delivered strong results in our core tobacco business.

Smokeless sales trajectory remains exceptionally positive, with high single-digit growth in the quarter and a record for the year in terms of both net sales and Stoker's MST market share, up 1 full point to a year ago, with share in stores selling at 8.1%.

Perhaps most encouragingly, sales advances are being driven by both same-store sales from a growing body of Stoker enthusiasts and continued store wins. With that Stoker's MST in stores representing 54% of industry volumes, the runway for continued growth looks bright and encouraging.

In Smoking, Zig-Zag's U.S. paper share in the measured universe increased for a third sequential period to 35%, up 2.9% a year ago on new products momentum and remains the #1 premium roller paper brand. The Zig-Zag paper cones distribution drive continues with a total of 22,000 stores carrying at year-end, capturing a 25% share of the measured cones market.

Zig-Zag Hemp rolling papers are now available in 35,000 retail outlets, establishing Zig-Zag as the #1 hemp brand with a 27% share of the hemp segment.

In late fourth quarter, we initiated shipments of hemp cigar wraps to the U.S. trade. Initial enthusiasm has been highly encouraging, with wholesale take rates rapidly depleting our opening stocks. Replenishment is in transit. And in Canada, we are eagerly looking forward to not only a Zig-Zag paper cones expansion, but also the mid to late second quarter opening of the swiftly growing dispensary market. Zig-Zag expansion and brand building efforts are in place and will be carefully monitored to ensure progress against the plan.

And in NewGen, we are seeing positive early indicators on both a rebound in sales vitality and efficiencies gained from our methodically planned and implemented restructuring program. NewGen growth will also be fueled by exciting new CBD products and other actives in the product pipeline, including gummies, tinctures and shots, just to mention a few. I trust you can sense my enthusiasm for the challenges I've inherited as COO and the optimism and confidence of the team I'm surrounded by.

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

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Robert Lavan, Turning Point Brands, Inc. - CFO & Senior VP [5]

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Thank you, Graham. Company results in the fourth quarter were turbulent, as we moved swiftly to address the vapor disruption with an orderly restructuring program, designed to unlock increased competitiveness and efficiency. As a consequence of the highly publicized vape disruption, total company net sales were up 15% to a year ago. Despite the significant vape disturbance, the performance in our Smokeless and Smoking businesses were very encouraging, with both segments up versus a year ago.

So I'm going to go a little off-script here and start with NewGen. A year ago, we started filing Schedule D, which discloses adjusted segment operating profit. When I looked at the performance of our respective businesses, I built a model that uses the information disclosed there. I encourage you to do the same. I'd point you to the NewGen buildup that shows adjusted operating profit in NewGen swung from a positive $3 million in the fourth quarter 2018 to negative $2.5 million in the fourth quarter 2019.

No one is more disappointed about a $5.5 million year-over-year swing than me. Segments going negative are not something we take lightly, and we reacted but didn't get the benefits until the lower volume month in December. The segment was positive in January by a considerable margin.

So going back on script. Let me summarize some exciting new developments. Moving to the FDA and PMTA pathway, TPB filed ingredient disclosures for the newly deemed products as required with the agency on February 12. Additional submissions are being ready for the next filing date of May 12, 2020. With these filings in motion, including the social, scientific and pharmalogical testing regimes required, total expenses on PMTA will be $15 million to $18 million.

Yesterday, the TPB Board of Directors approved a $50 million share repurchase authorization intended for opportunistic execution to strengthen shareholder returns. And finally, yesterday, the Board unanimously approved an 11% increase in the dividend to $0.05 per share, which will be paid on April 10 to shareholders of record as of the close of business on March 20. We are committed to total shareholder returns.

And even with vape gate, 2019 was our strongest cash flow from operations year as we continue to implement stricter working capital policies. We ended the year with $95 million of cash on the balance sheet and $141 million of liquidity, dedicated to capital allocation.

Turning now to the segment reviews. In Smokeless, the Stoker's brand continues to deliver sustained growth momentum. Smokeless net sales increased 8% to $25 million in the quarter. Net sales for the MST portfolio grew 21.7% and represented 54% of Smokeless revenues in the quarter, up from 48% a year earlier. Total Smokeless volumes increased 6.5%, with price/mix advancing 1.5%.

Year-over-year industry volumes for Moist declined by approximately 2%, with chewing tobacco eroding by 6%. Stoker's shipments to retail outpaced the Smokeless industry in the quarter, growing its share in both chewing tobacco and MST. In the quarter, Stoker's MST shipments from wholesale to retail were up approximately 25%, with year-end trade inventories at their lowest levels in the past few years.

Turning to the Smoking product segment. Net sales in the quarter increased 1.9% to $27.6 million on high single-digit growth for both U.S. and Canadian papers, partially offset by a year-over-year decline of $700,000 in non-focused cigar and pipe products. I can't wait for those businesses to stop being a negative comp.

Cigar wrap net sales were flat a year ago despite a sequential depletion of 1.5 weeks of trade inventories. Total Smoking volume decreased 0.6%, while price/mix increased 2.5%. According to MSAi, fourth quarter industry volumes for U.S. cigarette papers increased by low to mid-single digits, while cigar wrap shipments to retail contracted by the same amount.

Moving to our NewGen segment, where vaping product sales were disrupted on significant media headlines and a general decline in consumer offtake and trade inventory depletions. Largely as anticipated, total NewGen net sales decreased 37% to $27.6 million, including a $1.5 million contra revenue reserve for RipTide returned goods. For the quarter, NewGen gross profit was negative $15.8 million, reflecting $23.2 million in write-offs and reserves as a consequence of the FDA flavor ban and accelerated PMTA.

Moving to the consolidated business. Adjusted EBITDA for the quarter was $14.2 million as compared to $17.1 million in the prior year. In this morning's earnings release, we also provided our 2020 guidance, which included projected 2020 total net sales of $338 million to $353 million. This includes $100 million from vaping sales with no PMTA upside assume.

Adjusted EBITDA of $69 million to $75 million. The company expects $15 million to $18 million of total FDA PMTA expenses, which includes $2 million spent in 2019. Our banks have agreed to a carve-out of PMTA expenses in the adjusted EBITDA calculation. And for the first quarter, we expect sales to be $82 million to $86 million. M&A discussions continue as we evaluate potential partners and targets. More to come, and I'm very excited about the opportunities there.

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

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Lawrence S. Wexler, Turning Point Brands, Inc. - President, CEO & Director [6]

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Thank you, Bobby. While temporary setbacks are never welcome, I've always chosen to see the world as it is and not as I hoped it would be. Reality is often a great motivator. It helps us focus on the task at hand.

First, to grow the tobacco business, which we did exceptionally well in 2019 in both Smokeless and Smoking core products. Second, to contain and control costs, which are embedded in our 2020 plan and psyche. This priority objective will aid in delivering improved operating leverage.

Next, to identify new market opportunities, like paper cones, for example, where we can leverage our existing equities to secure a meaningfully strong new revenue stream. And finally, we remain very committed and engaged to identify high-quality acquisition candidates that can accelerate growth and shareholder value. Our company remains solid and resilient, and our people remain committed to the journey. Thank you for participating in the call today.

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) And the first question comes from Vivien Azer with Cowen.

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Steven Jason Schneiderman, Cowen and Company, LLC, Research Division - Research Associate [2]

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This is Steve Schneiderman pitching in for Vivien today. Let's start on vapor. The Nielsen data we've seen so far would now suggest an improvement in the category. So can you please expand on your comment that certain portions of the vapor market are exceeding your early 2020 expectations? And in addition, can you offer perspective on your expectations by vapor system type, so open, closed and disposables?

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Robert Lavan, Turning Point Brands, Inc. - CFO & Senior VP [3]

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So Steve, as you know, sort of -- vaping from our perspective is almost entirely open systems, which doesn't really show up as much in Nielsen. There was a dramatic pullback in September, October, November. The market is still off, and we have our own retail, so we can kind of see that. But the nice thing that's happened is all of the small guys that kind of were nipping at our heels have fallen out of the market.

Like we -- I'm not happy. We went negative in the fourth quarter, but we have the balance sheet and the flexibility to maintain that. There are other guys who had to go to work for cash, and those guys are effectively out of business. So we're just taking market share at this point.

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Steven Jason Schneiderman, Cowen and Company, LLC, Research Division - Research Associate [4]

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Okay. Great. So if you think about the run rate guide for $100 million vape sales when you finished the quarter with 27.6, inclusive of the returns for RipTide, where should we think of -- in place of the recovery that you're seeing, where are the further headwinds coming from?

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Robert Lavan, Turning Point Brands, Inc. - CFO & Senior VP [5]

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Yes. So you've got the PMTA process that's going to play out in May. And there's going to be sort of just a lot of noise that we're expecting in the market in the second and third quarter. So we're sort of expecting a little bit of slowdown in the second and third quarter, and that kind of will bounce back up in the fourth quarter. Now we're not giving ourselves any credit for PMTA, which has significant upside.

So right now, we're just kind of with vape. We are being conservative just because our investors, our employees, like they want that business to maintain its optionality with PMTA, where we come out in the end being one of a few manufacturers that's participating in. But we also needed to bring the noise down. So we are being conservative. We're not looking to grab every dollar at every -- at all costs. And so it's just -- right now, we are kind of expecting a slowdown in the second and third quarter.

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Steven Jason Schneiderman, Cowen and Company, LLC, Research Division - Research Associate [6]

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All right. Within the Nu-X sales -- sorry, within NewGen sales, how much was Nu-X specifically? And have you progressed on CBD after being short on some inventory in that last period? I imagine you've probably caught up. But are you still selling out?

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Robert Lavan, Turning Point Brands, Inc. - CFO & Senior VP [7]

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Yes. So we are selling out. Some Nu-X sales, we're going to stop disclosing. We're going to keep it as part of NewGen just because it's gotten to a size that it's sort of proprietary to us and, frankly, it was confusing investors. So we are very excited about it. It's also integrating into the rest of our business. But it was up year-over-year. It's a strong business. It's going to be up significantly in 2020.

On the CBD side, we're in 4,000-plus stores, I think 4,200 at the end of 2019. That's pushing forward. We're pretty excited about the opportunity there. I mean I went through the airport the other day and saw CBD in Hudson News, like -- so it is becoming more ubiquitous. As we've sort of discussed in previous calls, the input on CBD, the input cost is down 80-plus percent so -- over the past year, which creates a huge tailwind from cost that also allows us to grab this $4.99 and $9.99 price point. So we're really excited about.

And it's a slog. I mean we have a -- the lineup of meetings over the next months is massive with chains, and so chains are really starting to accept it. And so we're pretty pumped about the opportunity this year. It's all about execution at this point.

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Steven Jason Schneiderman, Cowen and Company, LLC, Research Division - Research Associate [8]

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Great. Let's pivot a little bit to Smokeless. Gross profit was down 140 bps. What was the major change in the promotional cadence during the quarter? And is this something that we should expect to continue throughout 2020?

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Graham A. Purdy, Turning Point Brands, Inc. - COO [9]

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Steve, this is Graham. Look, the answer to that question is pretty simple. We anticipated nice growth out of some of the big chain wins that we had last year. We just didn't anticipate the massive growth that we got out of those chain accounts. And then you have some programs that are embedded into those chain accounts that you had tickers at the end of the year that essentially caused that tick down.

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Robert Lavan, Turning Point Brands, Inc. - CFO & Senior VP [10]

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Yes, we were -- we found ourselves about $1 million off side on annual promotions just because we -- like we did not expect to be a 5 or 6 share in the speedway. Like we didn't -- we just didn't expect that to happen. And so at the end of the year, there are sort of kickers that come in. And so there are things that would be -- it's not really fourth quarter, it's more of an annual program. And so you're seeing margins that are a little artificially depressed because we had to catch up those allowances. Those allowances will be spread out throughout the year 2020.

And I got in here, and I think there was -- we were not set up to have a business that was growing as fast as it was from a systems perspective. We now put those systems in place. Allowances are sort of reviewed less from an accounting perspective and now very -- viewed from an operational perspective. And so it just really was a catch-up. It wasn't some sort of fourth quarter promotion.

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Steven Jason Schneiderman, Cowen and Company, LLC, Research Division - Research Associate [11]

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Got it. That makes sense. And last one for me, Bobby, on the buyback. I know you used the term opportunistically. But how long is the duration of the buyback program? Would seem to me doing all in 1 year would be a lot because that would be about 10% of your shares outstanding based on yesterday's close.

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Robert Lavan, Turning Point Brands, Inc. - CFO & Senior VP [12]

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Yes, we're going to be opportunistic. I mean at the end of the day, we feel really good about the business today. We feel like this PMTA provides this optionality that is dramatic. We think Moist is doing great. We're really excited about what's going on in Canada with Zig-Zag. We've got this massive alternative strategy on Zig-Zag. And so that's -- at the end of the day, we're going to evaluate the stock on a monthly basis and kind of just see is the better use of our capital investing in our business or is the better use of capital buying our stock? And so that's sort of the way that we look at it.

It's -- there is an element of, we need to improve liquidity in the stock, and so there are things that we're doing to do that. And so ultimately, the buyback is just another lever in our toolbox to drive shareholder return.

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Operator [13]

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And the next question comes from Susan Anderson with B. Riley FBR.

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Susan Kay Anderson, B. Riley FBR, Inc., Research Division - Analyst [14]

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I guess, just a follow-up on NewGen as we look out to 2020. With all the restructuring activities that you guys have now undertaken, should we look at -- I mean is fourth quarter kind of a benchmark for margins, say, growth in operating? Or should we think about it definitely as we look out to 2020 with the restructuring that you've done?

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Robert Lavan, Turning Point Brands, Inc. - CFO & Senior VP [15]

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Yes. I mean there's -- at the end of the day, we want to get that gross margin up. And so that's really -- I will say 2020 is sort of a -- is an investment year from our perspective, and so it's -- I think fourth quarter should be viewed as a low. That's the way I would look at it. But there will be a little bit of depression in the second and third quarter as we go through, and there's a little bit of just volatility in the market as we have competitors who are going to liquidate. And so we're not -- I would tell you, a year ago, our mentality was to chase that. We're not going to chase that. So we're very focused on holding 30% plus margins and moving that up. So that's -- it's a transformational change from the business perspective.

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Susan Kay Anderson, B. Riley FBR, Inc., Research Division - Analyst [16]

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Okay. Great. That's helpful. And then nice growth again on Stoker's MST. I guess, can you remind us, it sounds like market share grew again. I think you said 6% to 7% speedway. But like overall, where is your share versus competitors and then the opportunity and door expansion? And I guess, have your goals for the brand changed, given the success that you're seeing there longer term in terms of market share?

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Lawrence S. Wexler, Turning Point Brands, Inc. - President, CEO & Director [17]

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Susan, this is Larry. We're very pleased with Stoker's. What we're pleased at is not only we'll be knocking down new chains, but we're also organically growing in the stores that we had distribution. Stoker's share is running about 4.5 right now, and we expect that to continue. We've got a lot of plans for new distribution and to continue to promote the brand. This is a brand that's capturing consumers. Consumers love it.

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Susan Kay Anderson, B. Riley FBR, Inc., Research Division - Analyst [18]

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Great. That sounds good. And then maybe if you could talk a little bit about the -- that Canada partnership? Like how big could this be? What's the sales opportunity for Zig-Zag longer term? I know it's early innings, but just any thoughts around that would be great.

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Robert Lavan, Turning Point Brands, Inc. - CFO & Senior VP [19]

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Yes. Susan, on that one, we're going to kind of keep a little closer to that. At the end of the day, we sell to a third-party Zig-Zag in Canada that hasn't really maintained the brand. And so there's -- despite that, the brand has a 65% market share. So at the end of the day, 65% is great. We want 100%. And so there's opportunities in dispensaries, there are opportunities in alternative shops. And so the market is -- this is the same dynamic we're seeing play out in the U.S. because that's where the growth is coming. So we need to chase that growth. Like we see significant opportunities up there.

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Susan Kay Anderson, B. Riley FBR, Inc., Research Division - Analyst [20]

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Great. And then, I guess, just curious on the cones, which continue to grow robustly. Are you seeing any cannibalization at all in the papers from the cones?

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Lawrence S. Wexler, Turning Point Brands, Inc. - President, CEO & Director [21]

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Yes, because now it'll be natural. They are somewhat substituting for each other. But the fact is that the cones are reaching additional people. So it is net positive or accretive to the brand. We are on occasion, where people just want to have prepared paper rolls.

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Robert Lavan, Turning Point Brands, Inc. - CFO & Senior VP [22]

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Yes. When I got in here, Susan, Larry wisely told me that like Americans are really lazy, and so cones are -- from our perspective, we sell a French orange booklet that's got 32 leaves in it and -- versus we sell for the same price a cone box that has 6 cones in it. And so the gorilla math is by converting somebody from French orange papers to cones. There's literally a 5x multiplier on the opportunity. So that's just massive from our perspective, and it's more convenient to the consumer.

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Lawrence S. Wexler, Turning Point Brands, Inc. - President, CEO & Director [23]

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Yes. Just to give you an indication there. Since we've introduced cones, our share has gone up for 3 quarters in a row. So it's working.

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Susan Kay Anderson, B. Riley FBR, Inc., Research Division - Analyst [24]

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Nice job. Nice to see the core business' strength and rebalancing NewGen. Good luck for this year.

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Operator [25]

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And the next question comes from Jamie Clement with Buckingham.

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James Martin Clement, The Buckingham Research Group Incorporated - Analyst [26]

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Bobby, just to be clear, the share repurchase authorization, is that in the way signals any relative lack of enthusiasm in the deal pipeline, does it?

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Robert Lavan, Turning Point Brands, Inc. - CFO & Senior VP [27]

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No. And Jamie, at the end of the day, like I think you guys all are aware, like vape gate was extremely disruptive. We terminated 60 people, right? And we run a tight ship. And so we have real deals in the pipeline, but they require management to push them through. And if it wasn't for vape gate, we would've had deals done in the fourth quarter. So we -- the pipeline is, frankly, stronger. We did move management around where we've dedicated some resources solely to getting deals done. And those are moving forward.

But deals, you never want to be forced to do deals. The pipeline is strong. The -- frankly, it's -- there are a bunch of companies that I bid for in sort of late summer that have come back and said, is that offer still on the table, which is an interesting dynamic. And so we are sort of evaluating that. I will tell you, there is carnage in the street, blood everywhere when it comes to these cannabis in CBD companies. It is -- the opportunity set is massive. We're just -- it's just a capacity issue.

So we've got this quarter through. We've cleaned up our books, reset the business. We moved Jim Murray straight to deal making, which is awesome, and it's -- we're going to get stuff done.

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James Martin Clement, The Buckingham Research Group Incorporated - Analyst [28]

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Okay. Great. And Graham, if I could turn to you. I know you rattled off a couple of things. But can you talk a little bit about new product pipeline, both CBD as well as just other non-CBD actives?

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Graham A. Purdy, Turning Point Brands, Inc. - COO [29]

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Yes. So we bent around the back half of 2019 with a focus on sort of going to smaller price points for consumers. It's our belief that CBD products will arrive in the mainline channel when the price points are acceptable for consumers in that channel. And so we spent a lot of time in the back half of the year developing products that made sense for -- down the street.

At the same time, you see these large swaps of active ingredients that are sold in other form factors. Let's take coffee, for instance. Caffeine is probably one of the largest active ingredients in the marketplace. And so we've introduced a caffeine inhaler. So we've taken a known active ingredient and put it into a form factor that makes sense in -- with our core competencies. And so you're going to see some development around caffeine, and you're also going to see sort of the introduction of additional cannabinoids profiles like CBG in CBN.

So if you go on to our website, the Nu-X website, you'll see that we've got 2 products on there now that sort of cross away from CBD and get into the other cannabinoids. So it's just the first step in terms of looking at these alternative actives and putting them in form factors and price points that make sense for sort of our down-the-street trench warfare.

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James Martin Clement, The Buckingham Research Group Incorporated - Analyst [30]

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Okay. And then just on CBD and hemp, in general. I read a couple of articles that some farmers were having some problems in the hemp space. Is that actually kind of a good thing for you guys? Is there anything to be worried about in terms of supply chain. I think you know what I'm talking talked about, right?

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Robert Lavan, Turning Point Brands, Inc. - CFO & Senior VP [31]

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It's -- so supply chain is fine. The market -- at the end of the day, you can buy all the hemp you want and more. Larry and I personally went to a farm a few weeks ago. The only real negative, Jamie, on that is no one likes to see farmers get hurt, right? The politicians don't like it. We don't like it. But -- and so that -- and so the farmers were a big part of the farm ville. And so a world where like they're getting hurt, they stop having a champion in Congress.

And then the FDA takes its time on sort of creating these regulatory walls that we ultimately flourish on. So that's really only the side negative. I would tell you, there's more hemp out there than processing capacity. So supply chain is fine. Frankly, we -- people were underwriting $6,000 a liter on CBD a year ago. Right now, I can go buy CBD at $750 to $1,250 a liter right now. So it's -- and there's unlimited capacity -- sorry, there is unlimited amounts of CBD out there. So it's -- we're not seeing any issues on that side.

Really, the only thing that we're concerned about that we are building up a coalition to work on is you've just got these farmers who got really hurt, and it's -- that's ugly. That's never great. So other than that issue, we feel great about the supply chain.

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Operator [32]

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And that does conclude the question-and-answer session. I would like to return the floor to Bobby Lavan for any closing comments.

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Robert Lavan, Turning Point Brands, Inc. - CFO & Senior VP [33]

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Thanks, everyone. We are going to be aggressively on the road meeting with investors over the next few months. So I encourage you to go to our website and come and see us. Talk to you soon.

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Operator [34]

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Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.