Welcome to the Turning Point Brands First Quarter 2017 Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to Mark Stegeman. Sir, please go ahead.

Thank you, Stephen. Good morning and thank you for joining our call today. I'm Mark Stegeman, CFO of Turning Point Brands. Participating with me o 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 first quarter 2017 performance. This release can be located in the IR section of our website www.turningpointbrands.com. We also be posting a replay of today's conference call on our website. This morning we plan to discuss our quarterly results, the performance of our segments and the progress we're making towards our strategic growth goals. Following ourformal remarks we will open up the floor to Q&A. Today's discussion contains forward-looking statements and projections of future results. I direct your attention to the forward looking and cautionary statements disclosure in today's press release on our website and the risk factors in our filings with the Securities and Exchange Commission, for a review of the various factors that could cause actual results to differ materially from projections or forward looking statements. 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 reasons 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 Mark and good morning to everybody on the call. There's a lot to like about our performance in the first quarter and about the way the company continues to transform and prepare for future growth we're delivering on our strategies. Today marks the one year anniversary of our successful IPO on May 11, 2016. The past 12 months have been packed with activity including two successful and accretive acquisitions, the refinancing of our capital structure and strong gains for our focused brands. We've also been developing and implementing stocks requirements and strengthening our public reporting processes and investor relations efforts. During the first quarter the organization was focused on managing the integration of VaporBeast and Wind River acquisitions, also growing our core tobacco portfolio. We believe strongly in building a firm foundation to grow upon while also establishing our positive and collaborative culture across the entire company. Here are the key highlights for the quarter. Net sales grew 34% to a company record of 66.8 million which includes the first full quarter of sales from VaporBeast and Wind River smokeless tobacco brands that we acquired last November. Gross profit rose 12% also a company record 27.7 million and adjusted EBITDA grew to 13.6 million. Our core tobacco portfolio of smokeless and smoking continued to generate sales advances on the strength of both stokers and Zig-Zag. Despite a challenging quarter from a competitive perspective net sales for the core tobacco portfolio were up 2.4% versus a year ago while gross profit excluding LIFO expenses in both years was up modestly. Over the last 12 months core tobacco sales grew 5.1% and continues to produce steady cash flow and provides a solid foundation for continued growth. Before I go into our segment results let me briefly review the breakdown of…

Thank you, Larry. Net sales for the quarter increased 33.9% to a record 66.8 million on volume advances of 30.1% and price mix of 3.8%. Gross margin for the quarter increased 3 million and gross margin was 41.4%. As Larry mentioned earlier our segment net sales mix had shifted with the addition of a VaporBeast to about 30% smokeless, 40% smoking and 30% NewGen. This mix shift influenced the quarter's consolidated gross margin. Typically the gross margin expectation for our smokeless segment is in the high 40% to low 50% range. In our smoking segment we expect gross margins in the low 50% range. Importantly NewGen has grown substantially as a proportion of our consolidated net sales with the VaporBeast acquisition. We expect gross margin going forward in the mid 20% range for the segment. Consolidated SG&A expense in the first quarter was 16.9 million compared to 13.7 million in 2016. Included in this year's first quarter was a full quarter of VaporBeast SG&A which was the primary driver of the increase in the quarter. Strategic expenses were 300,000 in the quarter versus 400,000 last year, nonrecurring new product launch costs were 500,000 which is 300,000 higher than last year's first quarter and lastly recurring public costs were 200,000 in the quarter. Nonrecurring launch cost for MST and cost of goods sold in this year's first quarter was 100,000 compared to 200,000 in last year's first quarter. Net income for the quarter was 1.9 million which included a one-time pretax non-cash charge of 6.1 million or 3.8 million after tax related to this quarter's debt refinancing. Last year's first quarter net income was 2.2 million. Fully diluted earnings per share for the quarter was $0.10 and included an after tax charge of $0.19 per share related to the debt extinguishment.…

Thanks, Mark. Just to close let me summarize how we're thinking about the business. We're going to continue to boost our focused brands primarily keen on the Stoker's MST roll out, market expansion of Zig-Zag Rillo wraps. We are going to continue to integrate and leverage the opportunities afforded by the acquired smokeless brands and VaporBeast, expanding our strategic partnership with VaporShark and continue to explore acquisition candidates. We will also continue to maximize our capital flexibility and strengthen our financial position. We appreciate your participation in the call and the opportunity to update you on our progress. We like to say we're moving forward, we're not there yet. We remain determined and focused to achieve our strategic goals and increase the long term value of our company. Thanks for joining us today and with that I would like to open up the floor to questions.

[Operator Instructions]. Our first question comes from Vivien Azer with Cowen and Company. Please go ahead.

Aaron Grey [ph] here on the call for Vivien. Congrats on the quarter. So first off could you comment on the state of the competitive landscape for MST and where there disruption from the product recall from one of your competitors created opportunities for you?

Yes, I think there was some dislocation in the quarter from the product recall. We did see some response on the flavors that they had problems with. I think it's sort of settling down now I think they're past at this point but there was a couple of I'd say about four to six weeks disruption in the market.

Okay. And you mentioned distribution for MST in terms of additional stores was roughly lower than the I guess 5000 sequential additional we had seen in previous quarters, could you offer some color on your initiative to expand more into retail chains and can we expect the sequential uptick in stores to be more lumpy going forward with the focus on same stores?

That's exactly right, Aaron. You know this business pretty well. Change tend to [indiscernible], their departments periodically and not necessarily on a schedule nor they do it every quarter. So the changed penetration will come in lumps particularly with the larger chains. So you're exactly right.

And then just in terms of VaporBeast were there any inventory adjustments from the acquisition that may have impacted gross profit and also you mentioned there was a step up in SG&A from the acquisition. Could you offer detail on the run rate we should be thinking about for SG&A going forward with the impact of VaporBeast?

We did threw up the working capital adjustment on VaporBeast so that didn't flow into cost of goods sold, it was an adjustment to goodwill and it's pretty well delineated in the 10-Q.

In terms of the SG&A one of the things that you just have to be careful about is that you look at the 8-K we filed you can use that as a base for the run rate of SG&A. We did do a geography change, they had accounted for shipping in cost of goods sold where we normally account for at SG&A. So about a $1 million of cost came out of cost of goods down into SG&A, there's also a couple $100,000 less than a couple $100,000, about less than $200,000 of changed SG&A for implementing our corporate benefits and some of the costs of being a public company and get allocated there. So if you start with that nine month base and do those adjustments, I will give you some insight into what the SG&A is at the VaporBeast.

And then just one last one, could you provide a stats update on [indiscernible] rigs and whether you would expect any changes with the new administration?

I think the new administration is sort of sorting out what they're doing, they appear to be at least from my observation to be much more open to listening to the realities of how products get to market and how companies compete in the marketplace so I'm hopeful that they will be a little more flexible particularly in the vapor space in terms of how one can get products to market but I think Gartley [ph] was just confirmed this week and we got to give him a couple of days to sort of put a stamp on the department. So we're looking for -- as I think as you've probably seen they did announce a week or so ago that they're delaying all the dates by three months which I think reflects that they are rethinking some of the prior administrations plans and regulations on the industry. So we're fairly hopeful but it remains to be seen.

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

I was going to drill down a little bit on the growth margin side, what were the big drivers excluding I guess the LIFO impact and then also was the core down or was it mainly just the make shift to VaporBeast?

It was primarily the mix shifts with VaporBeast been in there for a full quarter.

As Mark highlighted, Susan the VaporBeast been large part of NewGen now has gross margins that are being -- distribution business has a gross margin lower than rest of the business roughly half about half and so it will drag our gross margin percentage down but our dollars will be up.

Okay. And then maybe if you could talk about a little bit more on the selling investment, is this across all of your distribution or is it focused on particular segment like the NewGen segment?

I'm sorry, I didn’t catch the beginning of that question.

The investments that you made in sales force is this going to be utilized really across all of your earth segments or will it be more focused on the NewGen segment at all.

The number that we quoted was basically our tobacco sales force. Any number you get from us in the future will probably focus in tobacco sales, that’s real highlight any people that we put into VaporBeast. Now when you say what part of the business is going to impact that tobacco sales force close on [indiscernible] stores but it does call on some day for shops and we expect that it will get synergies from face to face conversations in the vapor shops with our tobacco sales force introducing them to the VaporBeast service model. So it will impact VaporBeast business but its principally focused on the street people for the tobacco sales force.

And then I guess with the Zig-Zag brand just curious are you seeing any substitution at all from paper to the Rillo wraps or do you think that its additional purchase is being made out there.

When we first introduced the MYO cigar wraps we thought there would be a high degree of substitution. We look forward on individual store bases, we look forward on a market basis, the wrap business is mostly additive to the papers. On the margin it maybe some but it's not large enough to really jump out of any analyses that we have done.

And then I guess last question just you mentioned you remained focused on acquisitions, Maybe if you could just kind of give some color you know should we expect similar ones to what you've already done and just kind of the categories where you see the most opportunity or anything you could highlight there it would be helpful. Thanks.

Okay. So we have been approached by a number of companies and they're really across the board because all across the MYO, OTP landscape anywhere from cigars to additional some in vapor. It's a pretty fertile field out there and it doesn't appear to be that there's many buyers so we have some good conversations, nothing that does reach the point of discussing today but we're hopeful that there's lots of opportunities out there and we will try to find the best companies, the best fit for our company and we're somewhat diagnostic as to where -- to what particular area of OTP they are from.

Our next question comes from Ernie Segundo with Pandion Capital. Please go ahead.

I had a question just to give us a little more color regarding the returns and I know it's elevated due to the stokers rollout but could you kind of give us a little flavor of the detail in this past quarter and what to expect over the next several quarters?

So the returns are interesting in two areas of our business, I'll focus on those. The first one is with the MST, MST is a dated product so when you put it out there it has a date stamp on it and as it nears its expiration date retailers will return that a year ago it was a newly introduced product and it was still within its original date. So we're seeing some returns coming back on MST. The other area that I would like to highlight is in the NewGen with particularly the V2 series of products. There's been a consolidation at retail of the NewGen landscape, the introduction of [indiscernible] has eaten up a lot of the shelf space and a lot of marginal brands have been taken off the shelves and we have seen heightened returns from the V2 on the V2 product as some of the store distribution declines. It has come down from the first half of 2016 over the last couple of quarters and we hope that trend continues.

This Jim Murray, I just want to add a little bit more color on the MST returns there. As Larry clarified year ago we had essentially no returns because we're essentially setting up the pipeline and the new store sets etcetera and so now we're beginning to realize those returns as you communicated but we do track our returns as well as competitive returns from retail to wholesale and so our return rates are going from zero much towards very much in line with what I see for the category as a whole. So in essence we're not surprised by what's happening here and it's paralleling the industry performance at this time.

Just one note on that, do you expect it to normalize however because your product is generally has a much longer shelf life I believe from a dating standpoint than a competitor all those their's may turn faster at retail, I'm just curious about that dynamic.

Yes, I think we would anticipate forward looking statement. We would anticipate in the Q3 and Q4 period that there will be a stabilization and you won't hear us talking about [indiscernible] price Q4 really when we get to that point, it will hit the -- kind of parallel what's happening with the industry and there won't be this year over year comparison going on.

Are there any particular even if it's anecdotal share gain stories on Stokers you'd like to share with us?

Sure. The Stokers for the period versus a year ago is up about 0.2 share points which is in line with the growth rates we've been -- share expense that we've been experiencing. It is a tough slot, we're up against some very large competitors. We think we have a demonstrably different and we happen to believe superior product and a lot of consumers seem to perceive it the same way. It's just a very, very long slow ride for us and our goal is to keep satisfying more and more consumers and we'll keep thinking picking up these 2/10th of a point year-over-year as we march forward.

And how would that translate into the actual outlets where you have a presence because I know you're not in a lot of places.

Not so sure I quite get the question but if your talking about--

Share in store.

Share in store selling, its quite a multiple of our national for obvious reasons. So national we have about a 27 on the brand nationally and in store selling you can think about having a seven share and consumers just really appreciate the product so it's our goal to continue to expand retail distribution and pick up more outlets where we can capture that same 7% share and it's growing within source selling as well.

Perhaps you know you mentioned going into more mass channels going forward without tipping your hand to competition, could you give us a little more detail on how you'd expect to attack that?

Well the sales force is focusing on a number of the leading chains. We're in discussions with them, we're making some progress. The Moist segment/section of OTP is highly controlled, its usually a fixed geography. So it requires them moving somebody else. So it does take some time in chains, we're making progress and we expect to -- hopefully we will have some good news for your next couple of quarters.

There are no further questions at this time. So I'd like to turn the conference back over to Mark Stegeman for any closing remarks.

Thanks again for joining us on the call today. We look forward to discussing Q2 2017 results with you in August. Have a great day.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.