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VPR Brands, LP. (VPRB)·Q1 2017 Earnings Summary

Executive Summary

  • Q1 2017 was a transitional quarter as VPR Brands shifted its focus to cannabis-sector vaporizers under the HONEYSTICK brand; revenue was $786,535 with gross margin of 34.96%, and net loss of $(292,294) .
  • Sequentially, revenue declined 19.1% vs Q4 2016 ($972,322) as the company moved from distributing third-party brands to building its own brand, while gross margin improved from ~29.03% to 34.96% .
  • Year-over-year comparisons are not meaningful given Q1 2016 had no revenue and minimal activity; net loss increased from $(61,005) to $(292,294) driven by higher operating expenses and interest expense linked to the late-2016 asset acquisition .
  • No quantitative guidance or Wall Street consensus estimates were provided/available; investor narrative hinges on execution of the HONEYSTICK brand pivot and cannabis vape device growth .

What Went Well and What Went Wrong

What Went Well

  • Established meaningful revenue base post acquisition: Q1 2017 revenue of $786,535 vs $0 in Q1 2016 as wholesale assets from Vapor Corp. contributed .
  • Margin improvement: Gross margin rose to 34.96% in Q1 2017 from ~29.03% in Q4 2016, indicative of mix shift and brand building effects .
  • Strategic focus and management conviction: “The Company has completely shifted its focus to service the cannabis sector and is increasing its investment into our award winning HONEYSTICK brand… [which] should translate into increased margins and ultimately, profitability” — Kevin Frija, CEO .

What Went Wrong

  • Sequential revenue decline: Q1 revenue fell ~19.1% q/q vs Q4 2016 ($786,535 vs $972,322) as the company transitioned away from distribution of popular vapor brands to building HONEYSTICK .
  • Operating expense intensity: Q1 OpEx rose to $598,556 vs $61,005 in Q1 2016, with payroll ($250,482) and marketing ($162,330) driving most of the increase; net loss expanded to $(292,294) .
  • Financing costs: Management attributed increased net loss partly to interest expense from loans related to the asset acquisition, pressuring bottom-line profitability .

Financial Results

Quarterly Performance (oldest → newest)

MetricQ3 2016Q4 2016Q1 2017
Revenue ($)$608,354 $972,322 $786,535
Gross Profit ($)N/A$282,298 $275,014
Gross Margin (%)N/A29.03% 34.96%
Net Loss ($)N/A$(206,174) $(292,294)

Year-over-Year Snapshot (Q1 2016 vs Q1 2017)

MetricQ1 2016Q1 2017
Revenue ($)$0 $786,535
Gross Profit ($)$0 $275,014
Gross Margin (%)N/A34.96%
Net Loss ($)$(61,005) $(292,294)

Actuals vs Estimates (Q1 2017)

MetricActualConsensus EstimateSurprise
Revenue ($)$786,535 N/AN/A
EPS ($)N/AN/AN/A
Note: Consensus estimates unavailable via S&P Global for VPRB for Q1 2017; microcap OTC issuers may lack analyst coverage .

KPIs and Operating Detail

KPIQ4 2016Q1 2017
Cost of Sales ($)N/A$511,521
Total Operating Expenses ($)N/A$598,556
Payroll Expense ($)N/A$250,482
Marketing Expense ($)N/A$162,330
Net Loss ($)$(206,174) $(292,294)

Segment/Brand Mix

ItemDetail
Sales SegmentationSales are not segregated by brand or product category; primary revenue source is vaporization devices for medical cannabis and recreational marijuana .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
RevenueFY/Q1 2017N/ANone providedMaintained: N/A
Gross MarginFY/Q1 2017N/ANone providedMaintained: N/A
OpExFY/Q1 2017N/ANone providedMaintained: N/A
EPSFY/Q1 2017N/ANone providedMaintained: N/A
Tax Rate / OI&EFY/Q1 2017N/ANone providedMaintained: N/A
DividendsFY/Q1 2017N/ANone providedMaintained: N/A
Note: No quantitative guidance was issued in the Q1 2017 press release .

Earnings Call Themes & Trends

Note: No Q1 2017 earnings call transcript was available; themes derived from press releases .

TopicPrevious Mentions (Q3 2016)Previous Mentions (Q4 2016)Current Period (Q1 2017)Trend
Strategy: Cannabis focusAcquisition set foundation; positioning for cannabis growth Emphasis on cannabis market opportunity “Completely shifted… to service the cannabis sector”; brand investment in HONEYSTICK Strengthening focus
Brand: HONEYSTICKN/APortfolio and alliances referenced Primary focus on expanding HONEYSTICK in cannabis Intensifying brand build
Product performance: VaporizersPrimary revenue source from cannabis-use vaporizers Same emphasis; devices for oils/concentrates Continued emphasis; discrete, portable vaporizer benefits Consistent
M&A/Asset acquisition2016 acquisition “bold move” adding incremental business Running start into 2017 Transition quarter post acquisition; loans tied to acquisition noted Transition effects fading
MarginsQ4 operating margin ~29.03% Slightly down vs Q3 Q1 gross margin 34.96% Improving
Regulatory/LegalNot discussedNot discussedNot discussedStable/low visibility

Management Commentary

  • “The Company has completely shifted its focus to service the cannabis sector and is increasing its investment into our award winning HONEYSTICK brand… We’re excited about our new trajectory… focus on the HONEYSTICK brand will lead to increased sales… increased margins and ultimately, profitability.” — Kevin Frija, CEO .
  • “The first quarter was a true transitional quarter… made the switch from distributing popular vaporizer brands and liquids, to building, expanding, and focusing on the HONEYSTICK brand and further expanding its presence in the cannabis space.” — Dan Hoff, COO .
  • 2016 acquisition “added incremental business… and has given us a running start into 2017… well positioned to take advantage of the growing cannabis market segment.” — Kevin Frija, CEO (Q4/FY release) .

Q&A Highlights

  • Not applicable; no earnings call transcript available for Q1 2017. The company communicated results via press releases .

Estimates Context

  • No Wall Street consensus revenue or EPS estimates were available for Q1 2017; therefore, beat/miss analysis cannot be performed .
  • Given the strategic pivot and lack of guidance, any future estimates (once available) should incorporate brand build costs (payroll, marketing) and potential margin tailwinds from proprietary product focus .

Key Takeaways for Investors

  • Q1 2017 marked a purposeful pivot to proprietary cannabis vape devices (HONEYSTICK), with gross margin improvement to 34.96% despite a revenue step-down versus a strong Q4 2016 .
  • Operating expenses ramped to $598,556, led by payroll and marketing, as the company invests to build brand equity and direct distribution; near-term losses reflect this spend and acquisition-linked interest costs .
  • Sequential revenue decline should be viewed in context of the transition away from third-party distribution to higher-margin proprietary devices; watch for revenue reacceleration as brand penetration deepens .
  • Absence of quantitative guidance and consensus coverage increases uncertainty; focus diligence on order flow, channel expansion, and margin progression as KPI proxies .
  • The cannabis vape market tailwinds and VPR’s atomization IP can support a medium-term thesis of margin expansion and potential path to profitability if OpEx scales efficiently relative to revenue growth .
  • Near-term trading setup hinges on updates to HONEYSTICK distribution, new product launches, and any incremental disclosures on sales mix and operating leverage .
  • Monitor financing costs and working capital needs associated with scaling inventory and marketing to ensure balance-sheet resilience during the brand build phase .