Good day and welcome to the Turning Point Brands Third Quarter 2017 Earnings Conference Call. All participants will be in listen-only-mode. [Operator Instructions]. After today's presentation there will be an opportunity to ask questions. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Mark Stegeman, CFO. Please go ahead.

Thank you, Andrew. Good morning and thanks everyone for joining our call. 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 news release covering our dividend initiation, third quarter and year-to-date performance. This release can be located in the IR section of our website www.turningpointbrands.com where a replay of today's conference call will be available. In today's call, we will plan to discuss our operating results, share our views on the evolving regulatory climate and update the progress of our long-term growth strategies. 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 may be sited in today’s discussion. These forward-looking statements and projections are not guaranteed of future performance and you should not place undue reliance upon them except as provided by Federal Security 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 they provide investors with useful information regarding the company’s financial conditions and results of operations are set forth in the press release. I will now turn the call over to Larry Wexler, our CEO.

Good morning and thank you for joining the call. I am pleased to announce that given our solid execution against our strategic plan today the Board of Directors approved the initiation of a cash dividend to shareholders. Initial quarterly dividend of $0.04 per common share will be paid on December 15, 2017 to shareholders of record on the close of business on November 27th. Declaring of dividend underscores the Board’s confidence in the company’s long-term growth opportunities and financial strength and demonstrates our ongoing commitment to enhancing shareholder value while expanding the universal potential shareholders. We believe a dividend at this level is consistent with our focus on accretive acquisitions, continued organic growth and the strengthening of our capital position. With that exciting news and a statement of confidence expressed, I'm thrilled to talk about the progress Turning Point Brands continues to make in the OTP marketplace. Record third quarter sales of $73.3 million, were up 44% higher than last year. Additionally the company recorded records for gross profit, operating income and adjusted EBITDA. All three of our focused brands Stoker’s, Zig-Zag and VaporBeast are vibrant and compelling long-term growth engines and their success produces the cash flow that fuels our internal investments, which are focused on generating organic growth and funding acquisitions to expand our product portfolio and operating capabilities. The core tobacco portfolio led by Stoker’s in smokeless and Zig-Zag in smoking was up low single-digits in sales and delivered record gross profit in the quarter. Our strategy of reshaping the company for continued growth by acquiring VaporBeast in late 2016 and Vapor Shark earlier this year we have substantially expanded our NewGen reach and a share of company revenues. Our NewGen segment now 34% of company revenues has produced advances for five sequential quarters, not only net…

Thanks, Larry. Larry mentioned some of the top-line metrics at the beginning of the call. And I'll provide some additional color and measures. Segment net sales mix continue to shift on the growth of VaporBeast. For the quarter, NewGen represented 34%, smokeless 29% and smoking 37%. Net sales for the quarter increased 43.9% to a record $73.3 million. This was driven by volume gains of 39.5% and price mix gains of 4.4%. Gross profit for the quarter increased 33.8% to a record $32.9 million. Gross margin was 44.9% down from 48.3% a year ago, primarily as the result of the mixed impact of lower distribution margins from VaporBeast. Consolidated SG&A expense in the second quarter was $18.6 million compared to $12.7 million in 2016, driven principally by the inclusion of VaporBeast and Vapor Shark's SG&A expenses and strategic expenses. For the quarter, strategic expenses and SG&A were $200,000, up about that same amount from a year ago. New product launch cost and SG&A were $400,000 about half of last year's third quarter. And the quarter also included new product launch cost and cost of goods sold, which amounted to $100,000 compared to $200,000 a year ago. This quarter's cost of goods sold also included $300,000 associated with the smoking segment product line rationalization. On a year-over-year basis, smoking products margin was also negatively impacted by roughly $200,000 from the year ago. Net income for the quarter was $7.4 million, up $600,000 against the year ago quarter. The weighted average fully diluted share count during the quarter was $19.6 million and fully diluted earnings per share was $0.38 per share. For the quarter adjusted EBITDA increased 16% to $15.9 million versus $13.7 million last year. Now let me discuss some non-operating drivers. For the quarter, interest expense was $4 million, 27.6%…

Thanks, Mark. We had another good quarter which produced solid results on the strength of our organization and our focused brands. In smokeless Stoker’s MST cans, tubs and Stoker’s chew are each up in share driven by increased retail distribution. In smoking, Zig-Zag cigarette papers are up in revenue in both the U.S. and Canada. In NewGen key metrics for VaporBeast continue to improve driving positive performance in the segment and most importantly in the quarter, we produced record net sales, gross profit, operating income and adjusted EBITDA and we just initiated our first dividend. Moving forward we’re continuing to explore acquisition candidates and have an active pipeline of opportunities at reasonable multiples. We have a firm foundation, a determination to achieve our strategic goals and a motivation to increase the long-term value of our company. Thank you for participating on the call today and with that I’d like to open it up for questions.

We will now begin the question and answer session. [Operator Instructions] The first question comes from Vivien Azer of Cowen. Please go ahead.

Hi, good morning.

Good morning, Vivien.

So congrats on the dividend announcement that’s certainly encouraging to see, a host of questions, I think just starting off on smokeless please, obviously a very rational pricing environment that was reflected and your good price mix realization, but I would like to hear kind of your thoughts on price gap management given that you didn’t fully match the pricing announcement that we saw from your key competitors? Thanks.

I think that Vivien when we look at our pricing it’s hard to look at the headline pricing that you see on Copenhagen and Grizzly where our price positioning is sort of aligned with the tub pricing and some of the pricing with Long Horn in the value segment. We believe overtime that we have the opportunity to increase our prices and get greater realization, but we'll do so, but we still believe that we had a long runway of shared growth ahead of us and don't want to get out ahead of that.

Fair enough, that makes sense. On the gross margins, sticking with smokeless, could you just expand, are there any kind of key drivers to call out? Because we've kind of accustomed to modest but steady margin degradation given negative mix shift to the 1.2 ounce can over the tub. So any drivers to call out in terms of the gross margin expansion in the quarter for smokeless? Thanks.

I think the biggest driver and I'm looking at Jim to confirm this that the difference would be in the types of promotions that we ran and the gross margin hit that buy one get one free that we ran in 2016 depressed the gross margin a little bit. So I think it's more in that, we try to give some inside into that with some of the numbers in the promotional -- the cost of promotions and new initiatives in the cost of goods sold.

Yes, I think the only thing I'd add to that Vivien is we also as we reported had a very good quarter on chewing tobacco. And we have some nice margin there as well.

Perfect, thank you. On the smoking products, the qualification of the comp had me scratching my head a little bit. Just in terms of cycling a tough compare in 3Q '16, if I'm looking at my number correctly from a gross sales perspective, you're actually cycling your easiest compare of the year. So if you could just explain on that. Thanks.

I think one of the differences that I gave a sense that you look at quarter-over-quarter when you are talking about compares, well we're looking sequentially. And so it just happened that last two third quarters benefited from the volatility of the segment. So both of those quarters were pretty high. The last year's third quarter was the strongest quarter we had in past eight quarters. So it really was an outlier in terms of that volatility. I think what you see when you look at it sequentially that our sales were sort of in line with recent patterns. So I think it's just a difference that you were looking at year ago we try to look at the business sequentially.

Great, that's exactly right. We were looking at year-over-year growth rates. So that's helpful, thank you for that. Last one for me, can you just help us think about the excise tax, because I was really surprised to see it down as much as it was in light of fairly notable excise tax increases in California and Pennsylvania? Thanks.

The excise tax remember the cigar wraps and I don't know to what extent we highlighted that in our last call I can't remember, but cigar wraps were not taxed at all in California now they're bearing a 65% of federal excise tax.

It's really largely due to the continuing weakness we're having perhaps in the quarter at least weaker performance in cigar. That's what's driving the delta there.

Perfect, thank you very much.

Sorry, Vivien I kind of missed that question a little bit.

[Operator Instructions]. The next question comes from Susan Anderson of B. Riley FBR. Please go ahead.

Hi, good morning. Nice job again on the quarter and nice to see the dividend too, congrats. I was wondering maybe if you could talk about how should we think about the growth of the NewGen category as we start to cycle the acquisitions. I guess should we assume second quarter to third quarter as a good run rate and then -- except for annualized and then growing off of that. And maybe two, if you could just give some color on the other two categories and when you expect the impact of excise taxes to start to taper off? And maybe how we should think about the annual run rate there too going forward? Thanks.

Okay, let me address the NewGen category first. We are working very diligently to improve the capabilities of that category. And while we will start lapping obviously the fourth quarter last year, I think, we had one month of VaporBeast. So after the fourth quarter we’ll start going against full quarter comparables. We continue to see improvements in the operating performance there. So we intend to continue to invest and to grow that category. In terms of the excise taxes, we’ll start lapping the Pennsylvania tax in the fourth quarter and then we’ll go to more normalized comparisons and growth in those categories. And I think you can see from the numbers particularly in smokeless we’re performing fairly strongly, the moist business is up, our chew business is up and we anticipate continue that progress over the next couple of quarters.

Great, thank you. And then just one…

I missed the first one, I was trying to check that all the questions you have.

Yes, no problem that was helpful. And then just one more question for me you talked about in cigarette papers just the increase in competition on the discount papers driving sales. And I guess I'm just wondering is that impacting your premium brand at all or is it impacting pricing like maybe if you cloud just give a little bit more color on that dynamic?

Okay, when you look at shares and performance we look at it through the MSA database, which actually tracks shipments from wholesalers to retail and there was a very large promotion in the third quarter from one of our competitors in the low price area. As you can see from our sales being up in both Canada and United States obviously Canada was impacted by that. The paper business is solid and is having good track and if you look at it on a longer period of time the 26 and 52 weeks and again because of the volatility in this category internally that’s what we look at. We’re seeing continued growth in share from the Zig-Zag brand. So I think this is a blip from this promotional activity, obviously it will take a few months to see if that has any impact in the marketplace, but we thought Zig-Zag had a pretty good quarter.

Great, yes it looked good. Actually just one more question too on the vape category obviously you have a very strong distribution to hold now, it does seem like a lot of the acquisition opportunities are within vape and surrounding it. I guess how do you see kind of that category growing is there still significant acquisition opportunity there? Do you think that the growth in the category tapers off longer term or how should we think about the investment that you want to continue to add there?

Okay, that’s a pretty broad question, let me try to pick off all and if I missed any come back and reask the question. The first thing I’d like to comment on is that we’re looking at both acquisitions in both the tobacco space, as well as the NewGen space. It just so happen that the NewGen one’s occurred earlier. But we are actively looking at companies there are 300 companies in the OTP space that are tobacco only. Obviously not coming any NewGen and we think there’s some right acquisition opportunities there. Second thing is just to remind you of our strategies for NewGen going forward is that with VaporBeast they now ship to little less than half of all of the identified at vape shops than we have found. We believe that there are opportunities for increased penetration among the total vape shops as well as increasing share of requirements. So importantly the third aspect of that is that once we were happy that we have the infrastructure in place, we do have a set of products that we’d like to put through that sales engine. So we do have quarter three prong strategies there for continued growth. As far as the vape category, it was a burst of enthusiasm, when it first came out then it particularly in measured retail through MSA saw a sort of a leveling of it, but in the alternative non-traditional retailers it was continuing to grow. We’re seeing growth inside our VaporBeast, some of the candidates that we’ve looked at and some of the conversations with other companies in this space they are experiencing growth. So we do think that although it’s hard to measure we do think that the overall e-nicotine market is growing and is -- I just can’t put a number on it because we don’t have insight to that. And one last aspect of it, remember there is still just under 40 million combustible smokers in United States and the FDA has announced a focus on continuing of risks implied in that is that they would like to see people shift from combustion to other forms of nicotine or leaving the market. But as they announced their programs and all, we believe there is going to be greater opportunity for new product development and for interesting developments in the NewGen category and we expect to benefit from that overtime.

Great, that’s very, very helpful. Thanks so much, guys good luck next quarter.

Thank you, Suzan.

This concludes our question-and-answer session. I would like to turn the conference back over to Mark Stegeman, for any closing remarks.

Thank you very much for participating on the call today. And we look forward to next quarter’s report. Have a great day.