Turning Point Brands, Inc.

Good morning and welcome to the Turning Point branch second quarter 2021 earnings conference call. All participants will be in 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 start key followed by zero. After today's presentation, there will be opportunity to ask questions. Please note this event is being recorded. I would like to turn the conference over to your speaker, Louis Reformina, Chief Financial Officer. Please go ahead. Thank you.

Good morning, everyone. This is Louis Reformina, our Chief Financial Officer. Joining me are Turning Point Brands President and CEO Larry Wexler and Graham Purdy, Chief Operating Officer. This morning, we issued a news release covering our first quarter 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 and forward-looking and cautionary statements in today's press release and the risk factors in our filings for 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. They should not place undue reliance upon them except provided by federal securities laws. 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 will now turn the call over to Larry Rexler, our CEO.

Thank you, Louis, and good morning, everyone. Thank you for joining the call. We are pleased to report a quarter that once again outperformed our expectations. In the second quarter, revenue was up 17% to $123 million, above our prior guidance range, and adjusted EBITDA was up 32% to $30 million. Revenue growth was led by Zigzag, which had an exceptional quarter with over 70% growth. We are harvesting the fruits of our strategic growth initiatives and are continuing to outperform the market. We were also aided by a favorable comparison against COVID disruptions in our rafts business that negatively impacted the prior year period and the consolidation of Recreation Marketing's results. There was progress throughout our product lines. Paper cones and e-commerce continued to provide a big boost to sales, while our wraps business benefited from Salesforce execution against favorable market demand and benefited from a trade inventory load. In total, wrap sales doubled in the quarter. Stokers performed in line with our expectations and was up 8%, led by double-digit growth in MST. which continues to be well-positioned for the secular shift into the value category. Our chewy tobacco business gained share but had a modest sales decline as it comped against a competitor going offline in last year's quarter. Nugent faced a tough year-over-year comp and a new regulatory hurdle outperformed their expectations during the quarter. The vape distribution team responded well to the implementation of the PAC Act which made the logistics of delivering vape products to customers and consumers more challenging. While we still expect volatility in NuGen, we are seeing progress in both the FDA's efforts around the PMTA process and increased enforcement against unauthorized products still in the market. During the second quarter, the FDA issued 52 warning letters to manufacturers that did not submit a PMTA. to bring the total to the end of the quarter to 131 warning letters sent out since January in an effort to bolster its enforcement against illegal products in the market. Importantly, on May 20th, the FDA posted its continued compliance list, which provides a directory of those deemed new tobacco products for which a PMCA was timely submitted. We believe this list will provide retailers and trade customers more clarity on which products they can carry. This includes our submissions for our deemed products, all of which have now received acceptance letters. A number of the products are now in scientific review. We are confident that we have submitted robust filings and anticipate working successfully with the FDA through the process. We believe that both the PACT Act and the PMTA process are creating barriers to entry in our business, that will position us well in the long term as these factors force a consolidation in the industry. We've also been very active in our capital deployment with share repurchases and investments. In April, our subsidiary, Recreation Marketing, acquired DBW, a distributor with strong presence in British Columbia and with major national chains. While DBW adds marginal profitability at the onset, It serves as a great platform to expand distribution of our more profitable proprietary products in the area where we previously had limited reach. Last week, we announced a $8 million investment in Opal, one of the most recognized brands in the cannabis space, with product offerings in seven states. Opal has a nimble, answered-like, non-plan-touching business model that has allowed it to scale across multiple states and a team that's been adept at managing the ever-changing complexities of the cannabis market. OPAL fits well within our strategy of building a house of scalable, well-known brands in the cannabis industry, joining previous investments in Docklight, which holds the rights to the Marley brand for cannabinoids and doses. What caught our attention with OPAL is their experienced management team and the awareness they have been able to build with the brand, even in states in which they do not currently operate. Our investment will allow them to accelerate their growth, while also providing a prime opportunity to increase our own product sales presence in dispensaries. Yesterday, we also announced the acquisition of certain cigar assets of Unitebac. Cigars are a very important multi-billion dollar category, where industry observers have highlighted that growth is being driven by cannabis consumption. Cigars are a perfect complementary product to our MYO cigar business. but one where we were lacking the necessary IP to compete effectively in the space. Unit2BAC assets come with a portfolio of grandfathered products and other FDA premarket filings, providing us with a broader and more cost-effective platform to compete in the market. Our plan is to expand distribution for Unit2BAC's brands while leveraging the IP to introduce line extensions in the ZigZag cigar portfolio. With approximately $180 million of liquidity on our balance sheet to end the second quarter, along with strong free cash flow generation, we remain very active on the acquisition and investment front. With another solid quarter of performance, we are able to raise our guidance once again and look forward to continuing our momentum. 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.