Good morning and welcome to the Turning Point Brands Second Quarter 2017 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. Please also note today’s event is being recorded. At this time, I would like to turn the conference call over to Mr. Mark Stegeman, Turning Point Brands’ Chief Financial Officer. Sir, please go ahead.

Thank you, Jamie. Good morning and thanks for joining our call today. I'm Mark Stegeman, CFO of Turning Point Brands. Participating with me on the call today are Turning Point Brands President and CEO, Larry Wexler; and Jim Murray, Senior Vice President of Business Planning. Earlier today we issued a press release covering second quarter and year-to-date performance. This release can be located in the IR section of our website www.turningpointbrands.com. We will also be posting a replay of today's conference call on our website. This morning we plan to discuss our operating results and trends as well as progress making towards our strategic growth goals. Following our formal remarks, we will open up the floor to Q&A. 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 maybe 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, we undertake no obligation to publicly update or revise any forward-looking statements. We may also discuss today certain non-GAAP financial measures; these measures and reconciliations to the GAAP information along with the reason management believes that provide investors with useful information regarding the company's financial condition and results of operation are set forth in the press release. I will now turn over the call to Larry Wexler, our CEO.

Thank you and good morning. I appreciate the opportunity to discuss our results and review the substantial progress we are making executing our strategic plan and expanding our presence within the growing OTP market. Since we went public in May 2016, we have focused our energies primary into three areas. First, building our core focus brands; second, acquiring OTP companies that expand our capabilities and offer growth opportunities; and third, building our company's infrastructure for growth. We have made considerable progress in all three of these areas during the second quarter. Let's start with our focus brands. Led by Stoker’s and Smokeless products and Zig-Zag in smoking, our focus brands outperformed our competitors. Smokeless and Stoker’s remains among the fastest growing MST brands and Stoker’s MST also achieved yet another record share in the quarter. In chewing tobacco, Stoker’s also produced a record quarterly share. Stoker’s product quality and the enthusiastically engaged consumer base continue to propel the brand forward. In smoking, the iconic Zig-Zag brand strengthened its share in cigarette papers was the number one brand as measured by Nielsen dollar sales. In MYO cigar wraps, the Zig-Zag ‘Rillo wraps rollout continues with great success. The brand maintains its industry leading share position. And finally in NewGen, VaporBeast distribution engine generated strong gains to increase share of customer requirements as evidenced by larger order sizes and more frequent orders. On the acquisition front, we completed our third transaction since we went public last year. On June 30, we acquired Vapor Shark, a well regarded manufacturer of proprietary liquids and multichannel marketer of vaping products including proprietary vaping devices. It’s another excellent addition to our company and I'll say more a little later about Vapor Shark, VaporBeast and the potential synergies we see. The integration of the five smokeless tobacco…

Thank you, Larry, and good morning again. Before I get into the numbers, let me provide some color on our S-3 shelf registration that we filed with the SEC. We now have the ability to raise up to $200 million in capital in a variety of ways: common stock, preferred stock, depository units, warrants and units. Included under this $200 million shelf registration, there's a $50 million at-the-market facility, which enables us to issue shares as needed depending on market conditions. At the present time, we have no plans or intentions to utilize the facility, but it does give us added flexibility. For example, if an attractive large acquisition opportunity presented itself, we could consider augmenting debt with equity in order to manage our leverage. What we are very cognizant that the cost of equity is more expensive than debt, we would use this very carefully, but this gives us great financial flexibility and, importantly, speed. In the second quarter, we issued 210,000 shares in connection with stock options that were expiring in September of this year. We expect that as many as 130,000 more shares could be issued in connection with the remaining options that are expiring in the third quarter. In the fourth quarter of 2018, another 110,000 options will be expiring. Moving to acquisition accounting, as part of the Vapor Shark strategic partnership, TPB was granted a warrant to purchase the company for a nominal amount, which we executed on June 30. Under the transaction, we assume certain debts and other liabilities totaling approximately $3.9 million and acquired assets valued at $3.9 million. As a result of Vapor Shark being classified as a variable interest entity, we consolidate their results for the quarter. While we will not separately disclose Vapor Shark results separately moving forward, the NewGen…

Thanks, Mark. We had a good quarter that revealed not only the strength of our organization, but also our brands and our result. While investor calls are typically most focused on the financial results, there are number of other metrics that we measure to assess our products. Some of the ones I consider most relevant foretelling include: total sales calls made by the sales organization up in the quarter and year-to-date versus year ago, store call frequency as the number of times you visit and merchandise a store is also up, retail store distribution on our focus brands up for Stoker's chew, Stoker's cans and Stoker's MST cut tubs. Distribution on Zig-Zag cigarette papers and ‘Rillo wraps were also up. International sales were still rather small are up by meaningful amount as we expand our brands to consumers around the world. Our first two acquisitions are performing well with the Wind River smokeless shares up verses the pre-TPB era and especially encouraging VaporBeast sales results. And finally, while early, we made meaningful progress in social media with the Stoker’s Own Your Own Instagram and YouTube channels and the zigzag.com update. So in addition to the solid results we summarize this morning, we believe we have a firm foundation moving forward. I hope you sense that the entire management team is extremely enthusiastic and determined to achieve our strategic goals and increase the long-term value over a fine company. We appreciate your participation on the call today. And with that, I’d like to open up the floor for questions.

Ladies and gentlemen at this time we'll start the question-and-answer session. [Operator Instructions] and our first question today comes from Vivien Azer from Cowen and Company. Please go ahead with you question.

Thank you. Good morning.

Good morning.

Good morning.

Good morning, Vivien.

So a number of questions for me. I’d like to please start with MST category if you don't mind. Mark, that’s for all that detail in terms of the impact from Pennsylvania. I mean if my math is right like that would imply that maybe the industry was in a plus 1%, but if we hadn't seen that tax increase maybe it was a plus 1.5%, which still fundamentally is below the new normal growth rate, right? I mean if we go back a couple years, MST used to grow 5%, now the new normal is 3.5%, so 1.5% is a little bit surprising to me, one, because it's off trend and, two, because it's occurring while the cigarette volumes are deteriorating, which historically has not been the case. So can you offer a little bit of color on kind of what you're seeing in terms of overall MST category volume growth? Thanks.

Vivien, it’s Jim. A couple of things, remember how we measure MST and that’s ex-pouch because we don’t complete in the pouch and snus segments. So, historically, when you think of anywhere from 2% to 4% perhaps even 5% growth that was a category level that the industry speaks about. We view it a little differently because we're not competing in the pouch segment. So the pouch segment -- pouch and snus, but the pouch segments generally is growing close to double-digit rates. We are just not participating in that segment yet. Now I will also agree with you that the non-pouch business as we measure it has also slowed down. Why that's inconsistent with maybe declining cigarette – I'm not so sure how to make that linkage. But there is this move to – that we've seen over time in tobacco generally to cleaner, more discreet, more convenient products to use. And so there's this shift out, it's still obviously an enormous category, but the shift out of a non-pouch segment into the pouch segment.

Thanks for that Jim. Just to follow up though, your point is well taken on the way that you measure it, but your numbers are not that far off from [indiscernible] that MST category on the first six months of the year with a plus 1% and they do measure pouch. I’m still kind of just struggling with lighter categories slowing.

Yeah, I’m not so sure I can answer that. I’m disappointed to say that, but there is no question, I’m fully aligned with you that the category has slowed down over really the last 18 months are so. The growth rates in the smokeless MST category have unquestionably slowed down.

Okay. Thanks for that. The good news of course is that Stoker’s is gaining share, which was great to see. Jim or Larry can you articulate what Stoker’s share was please in MST in the quarter and then just provide a little context on kind of the sequential trajectory around those share gain? Thanks.

Sure, Vivien. Stoker’s share was 2.9% in the quarter. I think that was up 0.3 over last year. We continue to make gains. We're seeing – which is sort of interesting, we're seeing growth in how tubs starting to reaccelerate and I think that as people get introduced to the brand through the cans, they are seeking out the value proposition of the other tubs. So we're seeing growth across both cans and tubs. I think that's good news for the brand.

Indeed it is and it seems that your volume market share gains are actually accelerating, so kind of digging into that, could you offer a little color on any new distribution gains that you realize in the quarter from a store count prospective?

Our store counts were up marginally in the second quarter, chains were up and we lost some marginal independent accounts. So netted to it’s about less than 1,000 stores for the quarter. But I think that reflects a shift in strategy that we talked a little bit about last quarter and we're continuing – we are directing our field sales force to get more frequency in stores. We've done a number of studies that show that as we increase frequency in stores, our share gains are – our share grows incrementally and significantly. So we are focused on strategically important accounts and increasing their frequencies there as opposed to getting marginal independent stores that are out there. We do remain – continue to remain focused on chain store acquisition and we believe that's a huge opportunity for us going forward.

Terrific. Thanks so much.

[Operator Instructions] Our next question comes from Susan Anderson from FBR Capital Markets. Please go ahead with your question.

Hi, good morning. Nice job on the quarter. I was wondering – I may have missed this, but did you break out the impact that Wind River had on the smokeless category and then also when do you expect it to really kind start to contribute to growth after we start to cycle the acquisition? Thanks.

Yeah, Susan, thank you. Thank you for your compliment. We don't break out Wind River, but we did mention and in fact it is true that its share is actually up despite not being the focus of our sales force yet. We're looking forward to the fourth quarter where we'll start increasing the distribution on the Wind River brands.

Okay, great. And then in the NewGen category, the growth ex the acquisitions, maybe just talk about what you're seeing in the e-cig category and then any update on Primal?

Yeah, I think in e-cig I will talk more about e-vapor both the e-cigs and the other products. What we are seeing is growth in both the traditional retail as well as in the story universe where VaporBeast sells their product. We're also seeing VaporBeast continuing to make incremental gains with their consumers with both average order sizes up as well as the order frequency. Stores are actually ordering more frequently. So, we – what we see from that is that while there is no syndicated data, we believe that the category is growing in these favor shops.

Great. That’s helpful. And then I guess any update on the acquisition pipeline, would you feel comfortable given the slew of kind of recent acquisitions making another one in the near-term and then how should I think about leverage targets now, I think you took on a bit more debt from VaporShark and then if there are more acquisitions in the future?

We are already talking with a number of companies, it was nothing close to where we want to disclose any of those context. We do see it is still a pretty fertile field out there, companies, we’re looking at them. As far as our leverage and I guess you asked that within the context of acquisitions, if you add up all the acquisitions that we’ve done, it’s been relatively leverage neutral, maybe and slightly positive. There was some marginal increase in leverage from VaporShark, but we expect that to payoff pretty well in the Future. We maintain our 2.5 to 3.5 goal – if you adjust our – we are currently at 3.9 and I think if you adjust it for pro forma acquisitions, we’re running about 3.7.

Great. That’s helpful.

By end of the year, if current trends continue, we should be down. We are already close or inside the range that we’ve been talking about.

Great. That’s good to hear. I think that’s all for me. Good luck.

Thanks a lot, Susan.

[Operator Instructions] And at this time, I’m showing no additional questions. I’d like to turn the conference call back over to management for any closing remarks.

Thanks for joining us on the call today everyone and we look forward to discussing our Q3 2017 results with you in November. Have a great day.

Ladies and gentlemen that does conclude today’s conference. You may now disconnect you lines.