Good morning and welcome to the Turning Point Brands Fourth Quarter 2020 Earnings Conference Call. All participants will be in a listen-only mode. All lines have been placed on mute to prevent any background noise. [Operator Instructions] Please note that, this event is being recorded.

I would now like to turn the conference over to Louie Reformina, Chief Business Development Officer. Please go ahead, sir..

Thank you. Good morning, everyone. This is Louie Reformina, Chief Business Development Officer. Joining me today are Turning Point Brands' President and CEO, Larry Wexler; Graham Purdy, Chief Operating Officer; and Bobby Lavan, Chief Financial Officer. This morning, we issued a news release covering our fourth quarter and full year 2020 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 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 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. And 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 Wexler, our CEO..

Thank you, Louie, and good morning everyone. Thank you for joining the call. We finished the year with another strong quarter. In the fourth quarter, revenue was up 31% to $105 million and adjusted EBITDA was up 81% to $26 million compared to a restructuring impacted fourth quarter 2019.

As a result of the stronger than expected quarter, full year revenue was above our previous guiding range and up 12% from the previous year to $405 million. Growth was led by our core Zig-Zag and Stoker's segments which were up a combined 19%.

This is the first year since our IPO, where our combined core businesses - units were up double digits and the organizational changes and the growth initiatives we put in place over the last few years are driving this growth Full-year EBITDA of $90 million finished at the high end of our previous guidance range.

This year was not without its challenges and we took an extra $3 million of additional compensation expense including temporary COVID related wage increases for our sales, warehouse and manufacturing line workers. The COVID-19 pandemic presented a difficult environment for our workforce, but they responded.

Their commitment to servicing our customers, combined with our preplanned initiatives that are well suited for the changes brought about by the pandemic were the cornerstones of our strong results for the year.

In our press release this morning, we highlighted the renaming of our core segments from Smoking Products and Smokeless Products to Zig-Zag products and Stoker's Products, respectively. This change better aligns with our positioning as a branded consumer Products Company and highlights the strength and importance of our core brands.

Our Zig-Zag Products segment saw tremendous growth during the quarter, driven by the continuing benefits from our internal growth initiatives that leveraged a healthy demand environment in both papers and MYO cigar wraps.

These strategies were supplemented by inventory replenishment in our cigar wraps business, which generated incremental sales by fulfilling backorders that were built up from COVID-related disruptions early in the year.

The Durfort transaction continues to pay dividends, by establishing a more direct relationship with our third-party manufacturer, thus enabling us to properly prioritize production to meet increasing market demand, while improving our segment margins.

In Canada, we increased our stake in recreation marketing, but we'll now be consolidating its results within Zig-Zag as they continue to expand our presence in e-commerce, alternative channels and dispensers. I'm pretty excited about what is happening with our Zig-Zag Products group.

We have made a lot of changes to our strategy, bringing in new talent with different skill sets to accelerate these changes. I've been involved in some interesting shifts and brand strategies over my career, but this one is particularly gratifying and actually a lot of fun. The group is firing on all cylinders.

Our new products, headlined by cones, are taking a leadership position in mainline retail. Our alternative strategy is beginning to bear fruit. Our wrap portfolio is reasserting its leadership position, rebounding from the supply disruption. And we're starting to assert the power of the brand in e-commerce, particularly on the Amazon.

I get a particular enjoyment of how consumers are engaging with our portfolio of accessory products. They are demonstrating their feelings towards the brand by buying more than our papers and wraps.

They're also buying the T-shirts, trays and hats and showing all their friends how they feel about Zig-Zag, which reinforces an endorsement of the brand among these consumer segments. In Stoker's, MST momentum continued.

Our market share according to MSAI grew by another 100 basis points with revenue growth of 25% for the year, driven mostly by same-store sales, while we keep expanding our distribution footprint. We remain the fastest-growing brand in the category and continue to be well-positioned for the secular shift into the value category.

Our loose leaf products had one of its best years with significant share gains and modest volume growth. NewGen rebounded from the 2019 disruption in the vape market and grew in the fourth quarter despite a challenging environment, with competitors exiting the business and liquidating inventory following the PMK deadline in September.

It now holds significant optionality with applications in place for what we believe is the most extensive portfolio of e-liquid brands submitted through the process, and we are encouraged by the FDA's recent enforcement actions.

In January, the FDA announced that it issued warning letters to 19 different firms that did not submit applications ahead of the deadline. We've also observed FDA enforcement by - action by customs.

We expect the FDA to provide further clarity on the process, begin engaging with applicants to finalize submissions, and take more enforcement actions as we progress through the year. Last week, we priced $250 million of senior secured notes, our first high-yield offering as a public Company.

This was a big step in the evolution of our capital structure. We are thrilled to welcome a new and large pool of investors that add another source of capital to fund our growth going forward. After this settlement later this week, we will have about $180 million of liquidity to pursue acquisitions to further position ourselves for growth.

We are carrying the momentum from our business performance into 2021. And when combined with a newly improved balance sheet, enables us to issue a favorable outlook for the coming year that we'll discuss later in the call.

With that, and to add some additional color and perspective on our quarter and the path going forward, let me turn the call over to Graham Purdy, Chief Operating Officer..

Thank you, Larry. Let me now give you a quick snapshot of the performance from segment level. Zig-Zag products saw double-digit growth in the quarter, led by strong double-digit growth in both US rolling papers and MYO cigar wraps.

In the US, Zig-Zag Paper's position as the leading premium and overall paper brand strengthened, increasing its share in the measured market by 1.9 points year-over-year to 36.7% according to MSAi. This was the sixth consecutive quarter Zig-Zag has realized year-over-year share growth.

Our wraps business accounted for a majority of the growth as we caught up on the previously mentioned back orders that built up earlier in the year. Stripping that out, our US wraps business still grew strong double digits during the quarter and grew 27% for the full year. New products were also a strong contributor to the segment's growth.

In paper cones, we jumped to the number one brand in the MSAi measured channel with 47.4% of the market in the fourth quarter, up 20.9 points from the previous year. Our cone sales more than doubled for the full year and tripled year-over-year in the fourth quarter.

It built to be a double-digit percentage of our US paper sales in the fourth quarter and will keep ramping for us in 2021. We are now leading the growth and penetration of the product in C-stores.

There is still plenty of room for expansion of the product in the measured channel where only 22% of the stores that ordered Zig-Zag papers from us during the fourth quarter also purchased cones.

There is even more significant room to make up ground in a non-measured alternative channel, including head shops and dispensaries, where most of the market currently exists and where Zig-Zag is still underrepresented. As a reminder, cones are highly accretive to our business.

Cones are a more convenient product for the consumer, and one cone effectively sells for 4 to 10 times the price of an individual sheet of regular rolling paper at retail, a significant increase to our addressable market on a per usage basis. In Canada, our partnership with Recreation Marketing continues to ramp.

Zig-Zag is now in dispensaries that cover 60% of the market and is gaining share in that market. E-commerce, which was non-existent for us last year, was again a big driver of growth, accounting for double digits of our US paper sales during the quarter. Stoker's Products saw double-digit growth in the quarter.

The majority of the growth was again driven by same-store sales gains, as Stoker's moist snuff market share was up to 5.5%, a little over 1 full share point compared to a year ago according to MSAi. Our share in stores receiving the product during the quarter was up at 9.1%, up 110 basis points from the previous year.

And Stoker's moist snuff is now in stores representing 60.8% of industry volumes, a full 5 points above last year's level, but still leaves a long runway for further growth. Chewing tobacco sales saw low single-digit growth during the quarter.

Stoker's Chew gained an impressive 4.4 share points and was the number one brand with 25.2% share in the fourth quarter according to MSAi. Our sales initiatives earlier in the year led to a 14% more stores ordering Stoker's during the quarter compared to the previous year. Stoker's has continued to gain share every year we have owned the business.

With the continued secular shift into the value category and Stoker's positioning as the leading value brand, the chewing tobacco business is well placed to provide us with a stable annuity stream of cash flow going forward. Moving to NewGen, where we once again had a resilient quarter in a disruptive environment.

In our vape distribution business, we comped against a challenging quarter in the previous year and recorded strong double-digit growth despite continued competitive pressure in the market around the PMTA as competitors exiting the market liquidated their inventory.

On an encouraging note, we saw a nice monthly progression in our gross margins during the quarter as we moved further away from the PMTA deadline in September. Our Nu-X business continues to build momentum with strong double-digit growth. Solace and Nu-X products both contributed to the growth.

We also launched our free white nicotine pouch product in roughly 1,000 stores and are encouraged by the early results. Our overall strategy with NewGen is the continued push of our proprietary products, which stands at roughly 20% of the segment year-to-date.

The products submitted in the PMTA and expected industry consolidation along with our Nu-X product introductions will lay the groundwork to continue to increase this mix. And with that, I'll turn it to Bobby for a review of our fourth quarter financial performance.

Bobby?.

Thank you, Graham. Before I turn over to results, I'd like to make some comments on our M&A strategy and how it relates to the rest of our business. In 2018, we saw one of our biggest opportunities with revitalizing the Zig-Zag business. It is an incredibly strong brand, but lacking e-commerce and alternative distribution presence.

We identified that we needed incremental resources to drive the growth of Zig-Zag. In mid-2019, we acquired a leading vape brand, Solace. But even though we acquired the company at an accretive multiple, more importantly, was the e-commerce expertise, the acquisition brought with it.

E-commerce became a big initiative for us and helps drive our other Zig-Zag initiatives. Our revamped Zig-Zag website helped push our new cone products now over 10% of our US paper sales in the fourth quarter. Another initiative was our presence in the alternative channel.

The Zig-Zag brand was strong in C-stores, but was underrepresented in head shops and dispensaries, where the growth in the industry was happening. A typical head shop sells 5 to 10x the volume of paper books versus the C-store, new carry other Zig-Zag SKUs and accessories that are hard to place in a C-store.

In 2020, we made in-person visits or calls via the Solace Nu-X team drove 3,700 alternative stores and partnered with over 20 distributors that focus on this channel to offer over 40 different Zig-Zag products and accessories, pushing our omnichannel approach.

I'm very happy with our recent debt raise that gives us a war chest to deploy capital via M&A, where we can fill in the gaps not only in our products portfolio but in our infrastructure. We will continue to deploy accretive capital more to come. Now to our results. Our performance in the fourth quarter was ahead of plan once again.

Turning to the segment reviews. Zig-Zag Products net sales in the quarter increased 47% to $40.5 million with strong double-digit growth in US rolling papers and MYO cigar wraps. MYO cigar wraps benefited from an inventory restock, increased sales by $4 million to $5 million during the quarter.

This more than offset $1.5 million decline in our Canadian Papers business. Non-focus cigars and MYO pipe declined $600,000. Total segment volume increased 40.9%, while price mix increased 5.8%.

According to MSAi, fourth quarter industry volumes for US cigarette papers increased strong double digits, with our volumes growing 1.4x the rate of the overall market. This excludes the incremental volume growth we are seeing from the alternative in e-commerce channels. MYO cigar wrap industry volumes were up strong double digits in the quarter.

During the quarter, we saw the segment's gross margin expand significantly by 580 basis points to 62.1%.

This was a result of financial benefits of eliminating royalty payments to Durfort, resulting in higher margin for our MYO cigar wrap product, and accretive contribution from our e-commerce business, which is currently trending above the segment average.

Additionally, during the quarter, we wrote off approximately $750,000 related to a product line transition. Our team has done a great job so far of turning the segment into the heart of our story, to its 55% of our segment operating income in 2020, including 51% in the fourth quarter is now our fastest-growing segment.

Look for more to come from us on that front. Stoker's Products net sales increased 15.2% to $28.8 million in the quarter. Net sales for the MST portfolio grew 25% and represented 59% of Smokeless revenues in the quarter, up from 54% a year earlier. Total volume increased 7.5% with price/mix advancing 7.7% for the segment.

Our price/mix benefited from comping against a catch-up in a pool of allowances last year related to faster than expected ramp-up of our chain wins. Year-over-year industry volumes for MST grew by approximately 1%, with chewing tobacco declining by approximately 2%.

Stoker's shipments to retail continue to outpace the industry in the quarter, growing its MSAi share in both chewing tobacco and MST. Moving to our NewGen segment. Net sales increased 30% to $36 million. We saw double-digit growth in both the base distribution and Nu-X businesses. For the quarter, NewGen gross profit was $11.8 million.

Segment gross margin was 32.7% compared to a loss the previous year related to write-offs and reserves associated with the vapor business disruption. Moving to the consolidated business. Adjusted EBITDA for the quarter was up 81% to $25.8 million as compared to the prior year.

We did accrue an extra compensation expense in the quarter of approximately $2 million. Despite that, we achieved 46% incremental margins during the quarter and 53% for the year, reflecting strong performance in our core segments and the benefits from the SG&A cost reductions made going into the year.

Leveraging our fixed cost structure was a focus for the entire team and something new to our story in 2020. While we expect 2021 to be an investment year for growth, we will continue to focus on generating strong incrementals in the future by managing and getting strong returns on our SG&A spend.

In this morning's release, we issued our initial 2021 guidance. There were several external variables we had to consider in our guidance, mostly around the impact of COVID-19, which I will give some assumptions on later and fiscal government measures to support the consumer. With those factors in consideration, our guidance is as follows.

Net sales of $412 million to $432 million, including $97 million to $102 million in the first quarter, and adjusted EBITDA for the full year is expected to be $99 million to $105 million.

To help guide your models, here is some incremental color on our 2021 guidance, which will include some COVID-19 assumptions, which I caveat is more of an art rather than a science. For Zig-Zag, we expect double-digit sales growth. This is exciting.

In 2020, our cigar wraps business was impacted by $5 million from manufacturing-related disruptions in the second quarter, which we made up for in the fourth quarter. So the manufactured impact was awash for the year, but will have an impact on a quarterly basis.

We estimate that the net benefit from COVID on the overall segment was $7 million in 2020. For Stoker's, we expect high single-digit sales growth.

We saw some benefit from our competitor being temporarily out of the market in the middle of the year in our loose leaf chewing business, while we had growth initiatives in place, so we have a tough comp then. We estimate that the net benefit from COVID in 2020 for Stoker's was approximately $3 million for the year.

For NewGen, we expect a mid-single-digit decline in revenue.

This includes double-digit declines for vape distribution offset by growth in Nu-X as we take a pragmatic view of the market in front of PACT Act implementation, comping against COVID tailwinds, particularly in the second quarter, a $3 million drag from the sale of our retail stores and continued disruption in the vape business as the FDA begins enforcement actions.

On COVID, we previously called out a benefit of $5 million in the second quarter of 2020 from our competitor being off-line. We also benefited from an increase in our B2C e-commerce business as more people stayed at home, especially in the second quarter.

We estimate the overall impact to NewGen for the year was $15 million, with $10 million in the second quarter. Moving to our balance sheet. We ended the quarter with $42 million of cash on the balance sheet and $88 million of available liquidity.

After closing of our $250 million senior secured notes this week, we'll have over $150 million of cash on our balance sheet and approximately $180 million of liquidity. This puts us in an incredibly strong position to execute on an active pipeline of opportunities we're currently evaluating to grow the business.

For 2021, we will elect early adoption of new convertible accounting standards, so we'll no longer amortize the OID on our July 24 convertible notes. Amount amortized and charge interest expense in 2020 was $7 million. With that, I'll turn the call back to Larry for closing comments..

Thank you, Bobby. We are pleased to report the progress we made in 2020. We made several key changes in the last several years, including restructuring the business and bringing in new talent with different viewpoints and skill-sets. We did this both organically and through the acquisition of Solace to help position the Company for accelerated growth.

We are starting to see the benefits of these moves and the initiatives that we put in place. 2020 results reflected these strategies. Our core businesses, especially Zig-Zag, should continue to create value for us going forward. Stoker's momentum - Stoker's has momentum across its portfolio.

We have tremendous optionality in our NewGen business as the PMTA process unfolds and with our new products. Overall, with strong momentum in our business and increased liquidity, we have never been better positioned as a Company and expect another strong year in 2021.

This would not be possible without the hard work of our employees who continue to execute in these difficult times, and I want to personally thank them once again for their commitment and contribution to our success. Thank you for participating in the call today. And with that, I'd like to open up the call to questions..

[Operator Instructions] Your first question today comes from the line of Vivien Azer with Cowen. Please proceed with your question..

This is Gerald Pascarelli on for Vivien. Thanks very much for taking the questions. My first question, Larry, I was hoping that you can maybe provide us with an update, some color around your current dialogue with the FDA regarding PMTA. Thanks.

Look, the FDA is making progress. As I mentioned in my notes, we're starting to see some enforcement action, which is terrific. They've been somewhat slow in terms of interacting with companies. And as you know, they have a very large backlog. We expect to see some movement on that in the upcoming quarter. And we're looking forward to it.

We think we've got a terrific portfolio of products for the open tank systems, and we're eagerly looking forward to getting through the process and be able to execute in the marketplace..

Super helpful, thanks. Next one is around pricing. I know - and around Smokeless. I know you mentioned just briefly in the prepared remarks, but we have been seeing some aggressive cigarette pricing.

And so as you look at the overall environment for Smokeless, if you could just provide your view or some color around the pricing environment over the course of 2021, that would be helpful. Thanks..

Yes, we have seen pricing in Smokeless, not necessarily following cigarettes, but you've seen a pattern of accelerated price increasing, at least in terms of number price increases per year. We expect that to continue through 2021..

Last one for me. There's been some evolution around your thinking related to cannabinoid products. And so with that said, would just love to get your thoughts on how you're thinking about the relative opportunity between both CBD and THC..

Yes. So let's split the baby. So CBD is something we've been focused on really with the signing of the Farm Bill in late 2018. The market had a soon down in 2020 as sort of COVID, stay at home, made retailers reticent to bring new products into their portfolio.

But we've got a strong e-commerce presence and we kind of continue to dialogue with the majors on their CBD portfolios. Now I think everyone is sort of still in a holding pattern as it relates to the FDA.

And so it really is something that we're in, we like, but we're not going to count the pavement on until we get sort of clarity from the FDA on where that is. From a THC perspective, we did make our investment in dosist this year. It's something that we invested in a structure that it kept us from touching flower.

And that's the - basically the rule for us at this point is we can't touch flower directly until there is an evolution of government policy. That being said, there is a very large sort of accessories market that we continue to focus on, and we continue to invest in..

Your next question today comes from the line of Susan Anderson with B. Riley. Please proceed with your question..

Nice job again on another very good quarter. I was wondering if you could maybe talk about the margin - gross margin growth drivers for each of the segments, very good growth in all three segments.

I guess, should we think about this as being a new base for 2021? And how are you thinking about gross margin for each segment in 2021?.

Yes. So margins on Smokeless and - sorry, new segment Zig-Zag and Stoker's, are going to continue going. So on the Stoker's side, we manufacture our moist. So every incremental product we sell comes in 65% to 70% gross margin. And that being 60% of our business will sort of offset the flatness of the chew business.

So you'll see that margin continue to creep up. And I think it will actually accelerate in the next few years. On the Zig-Zag segment, the big change was that we bought in Durfort. So Durfort took our wraps margins in sort of the mid-40s to the high 50s, and that's a huge change for us.

Additionally, we had a other segment that was effectively a flat margin and that business has gone from double-digit dollars of sales to this year - or 2021, that'll be sub a few million. So I think you should expect sort of - 2020 was not a baseline, you should expect it to continue going.

On the NewGen segments, we think that this - the margin profile will continue moving up but sort of more of a medium-term perspective. We do need enforcement from the FDA for us to be able to sell more of our proprietary products in vape.

And Nu-X, while they're proprietary products, they do come in at sort of slightly better margin than the segment, but it's still because there are new products we do have to invest in them. So that's something that we're very focused on moving that low 30s into the 40s, but that's a medium-term trajectory..

And then I guess just on Stoker's, nice to see that at mid-single-digit market share now, which I think is pretty amazing based on where it was a few years ago.

I guess, how are you thinking about that share now as we look out over the next several years? Where do you think it could go over time? I think you said mid-single-digit growth this year again..

Yes.

Larry?.

Yes. No, we're very optimistic about the Stoker's business. What was particularly important about this year's growth and it's quite substantial in MSP was it's principally driven by same-store sales growth. And we're very focused on continuing that trend. We think the product has a distinct advantage in the marketplace.

And if we can get it in the consumers' hands, they will buy it. The other thing that happened is that the - our chew business significantly outperformed the market and also presented some opportunities for us.

So going forward, we think that same-store sales growth will continue to drive the business, and we still got 40% of the weighted distribution out there to grab and get our products distributed into. So we look - we're very optimistic over the medium term..

And just one follow-up on the Zig-Zag growth for this year. I think you said double digits. Obviously, there was some pretty significant growth in fourth quarter.

So when looking at double digits, are you thinking teens or 20% range? Or how should we think about that?.

Teens..

[Operator Instructions] Your next question comes from the line of Eric Des Lauriers with Craig-Hallum Capital. Please proceed with your question..

Really amazing execution on the Zig-Zag business. Congrats to you guys and great all-around quarter. Focusing on Zig-Zag a little bit. Can you talk about how the strong cannabis association with the brand is impacting sales? I mean, obviously, there's a mix between cannabis users and just traditional tobacco users.

But at a time when cannabis industry is normalizing and legal sales are booming, can you just talk about how that association with cannabis is impacting sales? And then looking forward, where do you see room for growth, whether it's new channels or new product types?.

Yes. I mean, so early on, I think the first strength we saw from sort of legalization was actually more a decriminalization dynamic with wraps. Our wraps product is something that doesn't have sort of any competitive pressure from other form factors just because of the demographic.

And so as you had decriminalization, we really saw tailwinds on that and that accelerated into 2020. On the papers business, there is some cannibalization that happens from other form factors, ultimately. But I think that the TAM opportunity on cones is so massive, it offsets that.

Additionally, this is less tied to the cannabis industry, but we weren't selling into head shops or dispensaries where all the growth in the industry was happening. We didn't see that data because it's not sort of in our measured channels. And so we attacked those channels as well, and that's really driven a lot of the growth.

And so great tailwinds, decriminalization was great, cones is what's next..

So then I guess could you just give us a sense of some of the upside you see in terms of maybe number of doors that you guys could get into in those alternative, the dispensary and head shop channels? Just kind of give us some sense of how big this opportunity is compared to the already large and strong base business?.

Louie?.

Yes, sure. So in terms of kind of the alternative, we think from like a volume perspective, it could be like 30% to 40% of the volumes relative to the measure - of the overall market. And so we're well underrepresented there.

I would say when we're 35% share in the measured market, we're closer to single digits, low double digits in the alternative channel. So there's a lot of white space there. In addition, in the alternative channel, what you see is there's a higher percentage of cones.

And cones, as we mentioned before, is on a per use basis, is 5, 10 times the size of paper book wrap market. So there's significant headroom for us to keep growing in the alternative channel just through our increased share on booklets and also through our penetration in the cones business..

Yes. Okay. Great. No, that makes a lot of sense and certainly exciting. I guess just a follow-up for me on M&A.

You guys touched on it a bit, but can you talk a bit more about what you're seeing in the M&A market? What sectors you're focused on right now? And then if we do get Federal Cannabis Reform sometime in the next 12, 24 months, whatever it may be, is M&A of a direct operator, is that kind of on the table for you guys? Or is it mostly looking at brands like you've done with dosist? Just kind of help us understand current M&A market and how that could change if we do potentially get Federal Cannabis Reform here? Thanks..

So our primary focus on M&A right now is expanding the Zig-Zag portfolio. There are some product lines that we're not in, that we feel like we can jump in very aggressively. We've looked at deals in sort of the 6 to 10 times EBITDA range on a pre-synergy basis and the synergies are significant. You'll see us spending a lot of time there.

And we're pretty excited about the growth opportunities from that. And it really - these types of acquisitions are plug-and-play. They're - we can swap the product into our portfolio and push it into 100,000-plus stores very quickly. On the question on cannabis, MSOs, so we like cash flowing assets.

So I don't think you're going to see us go and buy an MSO that wants to trade at a multiple of revenues. But we have seen opportunities at very attractive EBITDA multiples that I think as we can thread the needle, you should expect us to be there..

Your next question comes from the line of Greg Pendy with Sidoti & Company. Please proceed with your question..

Just one on Stoker's on the price/mix. I think you said there was a catch-up in accruals.

Can you quantify that on the price/mix?.

It was a year-over-year dynamic. So it was about - we had to take an extra $1 million of accruals in the fourth quarter of 2019..

And then - so that was anniversarying the 1.5 price/mix in the prior year?.

Correct..

And then just as we think about double-digit growth in Zig-Zag, is it fair to say - I mean, we'll be anniversarying a $5 million as we think about the cadence quarterly throughout the year? We'd be anniversarying a $5 million headwind in 2Q - I'm sorry, tailwind and then a headwind in 4Q.

Is that fair?.

Yes. Yes..

Okay.

And then does that impact margins at all given the fact that it's purely on the wrap side as we think about the segment margins?.

Well, margins for the first quarter and the second quarter of 2021 will be significantly higher than 1Q and 2Q of '20 because we acquired Durfort in June and it didn't start flowing through our financials until July..

[Operator Instructions] And at this time, there are no further questions in queue. I turn the call back to the presenters for any more remarks..

Thank you very much for your time..

And this concludes today's conference call. Thank you for your participation. You may now disconnect..