Turning Point Brands, Inc.

Good morning and welcome to the Turning Point Brands' fourth quarter 2020 earnings conference call. All participants will be in a listen-only mode. All lines have been placed on mute to prevent any background noise. 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. Please note that this event is being recorded. I would now like to turn the conference over to Louis Reformina, Chief Business Development Officer. Please go ahead.

Thank you. Good morning, everyone. This is Louis Reformina, Chief Business Development Officer. Joining me today are Turning Point Brands President and CEO Larry Wexler, Grant Purdy, Chief Operating Officer, and Bobby Lavin, Chief Financial Officer. This morning, we issued a news release covering our fourth quarter and full year 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 segment 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 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 deconsolidation of the GAAP can be found in today's earnings, along with reasons why management believes that they provide useful information. I will now turn the call over to Larry Wexler, our CEO.

Larry Wexler Thank you, Louis, and good morning, everyone. Thank you for joining the call. We finished the year with another strong quarter. In the fourth quarter, revenue was up 31 percent to $105 million, and adjusted EBITDA was up 81 percent to $26 million compared to a restructuring-impacted fourth quarter of 2019. As a result of the stronger-than-expected quarter, full-year revenue was above our previous guiding range and up 12 percent from the previous year to $405 million. Growth was led by our core Zig-Zag and Stoker segments, which were up a combined 19 percent. This is the first year since our IPO where our combined core businesses units were up double digits. And the organizational changes and the growth initiatives we put in place over the last two years are driving this growth. Full-year EBITDA of $90 million finished at the high end of our previous guidance range. This year was not without its challenges. and we took an extra $3 million of additional compensation expense, including temporary COVID-related wage increases for our sales, warehouse, and manufacturing line workers. The COVID-19 pandemic presented a difficult environment for our workforce, but they responded. Their commitment to servicing our customers combined with our pre-planned initiatives are well suited for the changes brought about by the pandemic with the cornerstones of our strong results for the year. In our press release this morning, we highlighted the renaming of our core segments from smoking products and smokers products to zigzag products and stokers products, respectively. This change better aligns with our positioning as a branded consumer products company and highlights the strength and importance of our core brands. Our zigzag product segment saw tremendous growth during the quarter. driven by the continuing benefits from our internal growth initiatives that leveraged a healthy demand environment in both papers and MIO cigar wraps. These strategies were supplemented by inventory replenishment in our cigar wraps business, which generated incremental sales by fulfilling back orders that were built up from COVID-related disruptions early in the year. The Jerkwood transaction continues to pay dividends. by establishing a more direct relationship with our third-party manufacturer that is enabling us to properly prioritize production to meet increasing market demand while improving our segment margins. In Canada, we increased our stake in recreation marketing that will now be consolidating its results within ZigZag as they continue to expand our presence in e-commerce, alternative channels, and dispensers. I'm pretty excited about what is happening with our ZigZag products group. we have made a lot of changes to our strategy, bringing in new talent with different skill sets to accelerate these changes. I've been involved in some interesting shifts in brand strategies over my career, but this one is particularly gratifying and actually a lot of fun. The group is firing on all cylinders. Our new products, headlined by Kohn's, are taking a leadership position in mainline retail. Our alternative strategy is beginning to bear fruit. Our routes portfolio is reasserting its leadership position, rebounding from this supply disruption. And we are starting to assert the power of the brand in e-commerce, particularly on Amazon. I get a particular enjoyment of how consumers are engaging with our portfolio of accessory products. They are demonstrating their feelings towards the brand by buying more than our papers and wraps. They're also buying the T-shirts, trays, and hats, and showing all their friends how they feel about Zig-Zag, which reinforces and endorses the brand among these consumer segments. In Stokers, MST momentum continued. Our market share, according to MSAI, grew by another 100 basis points with revenue growth of 25 percent for the year, doing mostly by same-store sales while we keep expanding our distribution footprint. We remain the fastest-growing brand in the category and continue to be well-positioned for the secular shift into the value category. Our loose-leaf products had one of its best years with significant share gains and modest volume growth. NewGen rebounded from the 2019 disruption in the vape market and grew in the fourth quarter despite a challenging environment with competitors exiting the business and liquidating inventory following the PMTA deadline in September. It now holds significant optionality with applications in place for what we believe is the most extensive portfolio of e-liquid brands submitted through the process. We are encouraged by the FDA's recent enforcement actions. In January, the FDA announced that it issued warning letters to 19 different firms that did not submit applications ahead of the deadline. We've also observed FDA enforcement by actions by customs. We expect the FDA to provide further clarity on the process, begin engaging with applicants to finalize submissions, and take more enforcement actions as we progress through the year. Last week, we priced $250 million of senior secured notes, our first high-yield offering as a public company. This was a big step in the evolution of our capital structure. We are thrilled to welcome a new and large pool of investors that add another source of capital to fund our growth going forward. After this settlement later this week, we will have about $180 million of liquidity to pursue acquisitions to further position ourselves for growth. We are carrying the momentum from our business performance into 2021. And when combined with a newly improved balance sheet, it enables us to issue a favorable outlook for the coming year that we'll discuss later in the call. With that, and to add some additional color and perspective on our quarter and the path going forward, let me turn the call over to Graham Purdy, Chief Operating Officer. Thank you, Larry. Let me now give you a quick snapshot of the performance from segment level. Zigzag products saw double-digit growth in the quarter, led by strong double-digit growth in both U.S. rolling papers and MYO cigar wraps. In the U.S., Zigzag Papers' position as the leading premium and overall paper brand strengthened, increasing its share in the measured market by 1.9 points year-over-year to 36.7% according to MSAI. This was the sixth consecutive quarter Zigzag has realized year-over-year share growth. Our wraps business accounted for a majority of the growth as we caught up on the previously mentioned back orders that built up earlier in the year. Stripping that out, our U.S. wraps business still grew strong double digits during the quarter and grew 27% for the full year. New products were also a strong contributor to the segment's growth. In paper cones, we jumped to the number one brand in the MSI major channel with 47.4% of the market in the fourth quarter. up 20.9 points from the previous year. Our cone sales more than doubled for the full year and tripled year-over-year in the fourth quarter. It built to be a double-digit percentage of our U.S. paper sales in the fourth quarter and will keep ramping for us in 2021. We are now leading the growth and penetration of the product in C-stores. There is still plenty of room for expansion of the product in the measured channel, where only 22% of the stores that ordered zigzag papers from us during the fourth quarter also purchased cones. There is even more significant room to make up ground in the non-measured alternative channel, including head shops and dispensaries, where most of the market currently exists and where zigzag is still underrepresented. As a reminder, cones are highly accretive to our business. Cones are a more convenient product for the consumer, and one cone effectively sells for four to 10 times the price of an individual sheet of regular rolling paper at retail, a significant increase to our addressable market on a per usage basis. In Canada, our partnership with Recreation Marketing continues to ramp. Zigzag is now in dispensaries that cover 60% of the market and is gaining share in that market. E-commerce, which was non-existent for us last year, was again a big driver of growth, accounting for double digits of our U.S. paper sales during the quarter. Stoker's product saw double-digit growth in the quarter. The majority of the growth was again driven by same-store sales gains, as Stoker's moist-enough market share was up to 5.5%, a little over one full share point compared to a year ago, according to MSAI. Our share in stores receiving the product during the quarter was up at 9.1%, up 110 basis points from the previous year. And Stoker's moist snuff is now in stores representing 60.8% of industry volumes, a full five points above last year's level, but still leaves a long runway for further growth. Tune tobacco sales saw low single-digit growth during the quarter. Stokers 2 gained an impressive 4.4 share points and was the number one brand with 25.2% share in the fourth quarter, according to MSAI. Our sales initiatives earlier in the year led to a 14% more stores ordering Stokers during the quarter compared to the previous year. Stokers has continued to gain share every year we have owned the business. With a continued secular shift into the value category and Stokers positioning as the leading value brand, the chewing tobacco business is well-placed to provide us with a stable annuity stream of cash flow going forward. Moving to new gen, where we once again had a resilient quarter in a disruptive environment. In our vape distribution business, we comped against a challenging quarter in the previous year and recorded strong double-digit growth despite continued competitive pressure in the market around the PMTA as competitors exiting the market liquidated their inventory. On an encouraging note, we saw a nice monthly progression in our gross margins during the quarter as we moved further away from the PMTA deadline in September. Our Newex business continues to build momentum with strong double-digit growth. Solace and Newex products both contributed to the growth. We also launched our free white nicotine pouch product in roughly 1,000 stores and are encouraged by the early results. Our overall strategy with NuGen is the continued push of our proprietary products, which stands at roughly 20% of the segment year-to-date. The products submitted in the PMTA and expected industry consolidation, along with our NuEx product introductions, will lay the groundwork to continue to increase this mix. And with that, I'll turn it to Bobby for a review of our fourth quarter financial performance.