Turning Point Brands, Inc.

Good morning and welcome to the Turning Point Brands first quarter 2023 earnings conference call. All participants will be in a listen-only mode and all lines have been placed on mute to prevent any background noise. Should you need assistance, please signal a conference specialist by pressing star followed by zero. After today's presentation, there will be an opportunity to ask questions and please note this event is being recorded. I would now like to turn the conference over to Louie Ruffarina, Chief Financial Officer. Please go ahead.

Thank you. Good morning, everyone. This is Louis Reformina, Chief Financial Officer. Joining me at Turning Point Brands, President and CEO, Graham Purdy, and Chief Revenue Officer, Summer Freen. 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. During this call, we will discuss our consolidated and segment operating results and provide our perspective on the operating environment and 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 the risk factors in our filings with the Securities and Exchange Commission. On 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 the reasons why management believes that they produce useful information. I will now turn the call over to our CEO, Graham Purdy.

Thanks, Louis. Good morning, everyone, and thank you for joining our call. Our first quarter results were in line with our expectations, and we are generally pleased with our start to 2023 as we are beginning to see traction from the initiatives we have put in place, and consumers are responding as demonstrated by market share gains in all of our major categories. As we mentioned on our last call, we anticipated a tough comparison to Q1 of last year. Recall, the macro environment, principally inflation, started materially impacting our customers in the second quarter of 2022. Our results reflect an uncertain consumer environment where many of our end consumers continue to feel the impacts of prolonged inflation and higher interest rates. Moreover, as also discussed on our last call and reflected in today's numbers, our wholesale customers, particularly buyers of ZigZag US Paper and Wraps Portfolio, have been carefully monitoring inventory levels in response to the higher cost of financing their working capital. That said, we now think our customers' inventory adjustments are largely behind them. In fact, we expect the zigzag segment to demonstrate growth for the balance of the year, driven by new product introductions, further penetration of the non-traditional channel, and normalization of U.S. paper and wrap order patterns. We still see continued strength in the end markets given the secular tailwinds we are experiencing, and we're making progress penetrating the alternative space to better satisfy this growing consumer base. Stoker's had another solid quarter with strong market share gains in both the MST and loose leaf chewing tobacco categories as its value proposition continues to resonate with consumers. Moreover, as an organization, we've taken this opportunity to refocus on internal execution across all areas of our business to best position Turning Point for profitable long-term growth to drive shareholder value. Since my appointment to CEO, the team has been focused on evaluating all aspects of our business, from our distribution and channel strategies to our product portfolio and go-to-market plans, and improving our infrastructure, systems, and logistics capabilities to become more efficient. We also continue to be proactive in optimizing our capital structure and opportunistically purchased another $13.9 million notional of our convertible notes during the first quarter while maintaining a strong cash balance to help address further maturities. Let me now take you through some of the segment highlights. First, Zigzag. Zigzag remains the number one rolling paper and wraps brand in North America. Net sales decreased due to the previously discussed and anticipated reduction of trade inventory during the quarter. But we saw strong growth in our Canadian operation, other smoking accessories, and our e-commerce business had another quarter of double-digit growth as we continued to build our presence in the alternative channel. In U.S. papers and wraps, despite the double-digit decline we experienced in shipments, We had market share gains in the measured channel at retail and remain encouraged by our sales initiatives in the alternative channel, which Summer will discuss in a few moments. We have made significant progress in e-commerce, as is now over 30% of ZigZag's U.S. paper sales, a meaningful improvement over the past three years. Clipper also had a strong quarter as we continue to penetrate the market through additional distribution. We believe that brands with scale are increasingly important. in our enhanced portfolio across categories, from traditional papers to cones, wraps, accessories, and now clippers, allows us to offer our customers a more complete product assortment to address their needs across a variety of adjacent categories in the store. Moving on to Stokers. As mentioned, Stokers delivered another solid quarter with revenue up 6.2%, highlighted by high single-digit growth in MST and low single-digit growth in loosely-chewed tobacco. both reflecting market share gains, which gives us confidence in our approach. For us, the silver lining in the current economic environment is that it's led some dippers to try our Stokers MST product for the first time as we continue to increase store penetration. We think our new customers are impressed with the value proposition of the product, high quality, and flavor to reasonable price. Based on past experiences, we expect many to stick with Stokers even when economic conditions improve. Looking ahead, we are maintaining our full year 2023 adjusted EBITDA guidance. With that, let me hand the call over to Summer to walk through some progress and results of some of our specific go-to-market initiatives.