Turning Point Brands, Inc.

Good day and welcome to the Turning Point Brands second quarter earnings conference call. All participants are in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note that this event is being recorded. I would now like to turn the conference over to Louie Reformina, Vice President of Business Development. Please go ahead, sir.

Thank you. Good morning, everyone. This is Louis Reformino, Vice President of Business Development. Joining me are Turning Point Brands President and CEO, Larry Wexler, Graham Purdy, Chief Operating Officer, and Bobby Lavin, Chief Financial Officer. This morning, we issued a news release covering our second quarter 2020 results. This release is located in the IR section of our website, www.turningpointbrands.com, where a replay of today's conference call will also be available. In this call, we will discuss our consolidated and segmented operating results and provide a perspective on our progress against our strategic plan. As is customary, I direct your attention to the discussion of forward-looking and cautionary statement in today's press release, and there's 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 reconciliation with the GAAP can be found in today's earnings release, along with reasons why management believes that they provide useful information. I will now turn the call over to Larry Wexler, our CEO.

Thank you, Louis, and good morning, everyone. Thank you for joining the call. Our second quarter exceeded our expectations, delivering $105 million in revenue. Our internal initiatives drove meaningful improvements within each of our segments, building momentum for longer-term growth. In addition, the payback from the load-in that we had anticipated did not materialize during the quarter. I was instead mostly absorbed by improved positioning and increased consumption of our products. Within Smokeless, Most of our growth continues to be driven by MST same-store sales, with distribution wins from the past few years contributing to the momentum. Secular consumer trade-down trends across the smokeless category that predated COVID are accelerating in this environment. And with our offering of a premium product at a fair price, our value proposition is clearly connecting with the consumer. We discussed in the first quarter the impact of COVID on delaying normal price increases We took a price increase on tubs, of which we are the market leader, in May. And we took a price increase on cans in July, along with the industry. We also saw a nice growth with our loose-leaf chew business. We entered the quarter with a targeted Salesforce initiative and benefited from market conditions impacted by COVID. For the first time in its history, Stoker's was the number one brand in the loose-leaf category during the quarter. I'm very proud of this accomplishment. While some of these gains in chewing tobacco during the quarter were temporary, thus far during the current quarter, we are seeing strong signs of retention, and the brand is now in a much better position for the future. In smoking, we were able to deliver growth despite dealing with a COVID-related supply chain disruption with our third-party MYO cigar wrap manufacturer in the Dominican Republic. This henwood was more than offset by growth in our paper business. which benefited from increased consumption of our products and market share gains from a number of initiatives introduced earlier in the year. Recently introduced products such as paper cones, hemp papers, unbleached papers, and hemp wraps accounted for a vast majority of the segment's growth. New Gem was another bright spot, delivering an extraordinary quarter. We streamlined our vape distribution business going into the year and consolidated our platforms under one management team. We started to see the improvements from a more efficient organization earlier in the year and that carried into the second quarter as we continued to gain market share. In addition to these structural improvements, we benefited from heightened levels of purchasing in our B2C e-commerce platforms during stay-at-home provisions, although this subsequently moderated as retail outlets opened back up. In addition, One of our B2B competitors was temporarily offline during the quarter. Longer term, however, the story of this segment continues to be how we are positioning this business for a post-PMTA world. We made significant progress during the quarter towards submitting our applications ahead of the PMT deadline on September 9th. While we expect significant disruption in the second half of the year as our consumers navigate through the market uncertainties surrounding the PMTA process, We look forward to realizing the potential benefits from a consolidated marketplace. Our proprietary product mix, which has been on an upward trajectory, should receive a significant supplemental boost in the coming years in the post-PMJ environment. During the quarter, we also completed a $46 million acquisition of certain assets from Dewford Holdings related to our MYO Cigar Wraps business, our largest subsegment within smoking. Sufer was our long-term partner and helped us start the business. We effectively acquired a larger portion of profits in a business that has seen secular tailwinds from cannabis legalization and decriminalization. The transaction eliminates the royalty expenses we were paying for on our products, which will improve its margin profile starting in the third quarter as we sell through inventory from before the transaction. In addition, we acquired the distribution rights to Blunt Wraps starting early in the fourth quarter. which we view as a nice complementary product to our existing portfolio. This product gives us access to customers in what we call the backstreet, where Blunt Ramp mostly lives and where our ZigZag products currently have low penetration. As previously communicated, we expect the transaction to add $5 million of annual revenue and $7 million of EBITDA. Earlier this month, we also completed the SDI merger. In addition to removing the overhang of a controlling shareholder and a holding company structure, the merger significantly improves the liquidity of our stock and allowed new shareholders to invest in TPB through the related secondary offering. We welcome all our new shareholders and thank existing shareholders who participated in the offering for their continued support. With regard to COVID, we remain adaptive to the changing environment and are navigating through the challenges presented to us. As results proved, we are rising to the challenge of meeting customer demand and made a relatively seamless transition operating in the new normal. We were able to keep our field sales force operational using best safety practices, including early adoption of masks, self-produced hand sanitizers, and extensive use of teleselling to maintain customer engagement. We did experience higher operational costs related to maintaining a safer work environment and higher fulfillment costs as a result of COVID. We're able to offset this with tighter cost controls elsewhere in the business. To add some additional color and perspective on our quarter and the path forward, let me turn the call over to Graham Purdy, Chief Operating Officer.