VPR Brands, LP. (VPRB)·Q2 2017 Earnings Summary

Executive Summary

• Q2 2017 revenue was $1.04M, up 31.82% sequentially vs $0.79M in Q1 2017 and up 1,685% year-over-year vs $0.06M in Q2 2016; gross margin improved to 39.68% from 34.96% QoQ, driven by higher mix of HoneyStick-branded products and expanded private label channels .
• The company reported an operating loss of $0.08M and a net loss of $0.34M in Q2, reflecting interest expense and a loss on extinguishment of debt tied to convertible notes; derivative liability remeasurement also impacted results .
• Management highlighted traction in cannabis-focused vaporizers (HoneyStick) and added distribution/private label growth as key drivers; sales are not segmented by brand, but commentary points to cannabis devices as the primary revenue source .
• No formal guidance or earnings call transcript was available for Q2; S&P Global Wall Street consensus estimates were unavailable, likely due to limited micro-cap coverage, removing the potential for a beat/miss catalyst from estimates this quarter .

What Went Well and What Went Wrong

What Went Well

• Revenue growth and margin expansion: Revenues rose to $1,036,806 (+31.82% QoQ; +1,685% YoY) and gross margin increased to 39.68% QoQ, attributed to increased sales of HoneyStick-branded products and added distribution/private label channels (“Increased sales of our own branded products helped grow our margins”) .
• Strategic focus on cannabis vaporizers: “We have successfully continued to build our business around our HoneyStick brand of Vaporizers… engineered for use with Cannabis oils and concentrates,” with COO noting HoneyStick growth and private label expansion .
• Customer and brand momentum: Management reported new distribution, co-branded initiatives, and trade show presence, with HoneyStick garnering awards and broader brand awareness in the cannabis space .

What Went Wrong

• Continued operating and net losses: Q2 operating loss of $(78,243) and net loss of $(342,971) despite revenue scaling, reflecting higher SG&A and financing-related costs .
• Financing/derivative headwinds: Interest expense ($41,441), loss on extinguishment of debt ($185,953), and change in fair value of derivative liability ($(37,334)) weighed on Q2 profitability, tied to convertible notes and conversions .
• Liquidity strain: Cash declined to $0 at quarter end with increased current notes payable ($779,297) and accounts payable/accrued expenses ($417,782), heightening near-term liquidity risk; management disclosed going concern language .

Financial Results

Income Statement vs Prior Periods and Year

Drivers/notes:

• Q2 2017 other expense included interest expense ($41,441), loss on extinguishment ($185,953), and derivative fair value change ($(37,334)) .
• QoQ gross margin expansion reflected higher mix of branded products (HoneyStick) and distribution gains per management .

KPIs and Balance Sheet Highlights

Segment/line-of-business disclosure:

• Sales are not segregated by brand or product category; management states primary revenue source is vaporization devices for medical/recreational cannabis oils/concentrates .

Prior Quarter (Q4 2016) Context

Notes: Q4 2016 revenue rose 59.82% QoQ from Q3 per press release; full year 2016 revenue was $1,580,676 with gross margin 30.42% .

Guidance Changes

Notes: No guidance ranges or updates were provided in Q2 filings/press releases.

Earnings Call Themes & Trends

No Q2 2017 earnings call transcript found/available [ListDocuments result]. Trend assessment below is based on press releases and filings.

Management Commentary

• “We have successfully continued to build our business around our HoneyStick brand of Vaporizers… We also saw growth in our private label business… Increased sales of our own branded products helped grow our margins in the second quarter.” — Kevin Frija, CEO .
• “In the second quarter of 2017, VPR Brands was able to add new distribution channels, increase its private label business, and greatly grow the HoneyStick brand… We continue to innovate and capitalize on opportunities within the Vape and Cannabis markets.” — Dan Hoff, COO .
• “We believe that the Company is now well positioned to take advantage of the growing cannabis market segment… building long-term value… both organically or through additional acquisitions.” — Kevin Frija, reflecting on 2016 acquisition and trajectory .
• “We have conducted a complete overhaul of our web presence… formed strategic alliances… launched approximately a dozen new items and retired several old ones… co-branded Honey Stick products… company store and showroom.” — Shareholder letter .

Q&A Highlights

No earnings call transcript was filed or located for Q2 2017; therefore, no Q&A highlights or call-based guidance clarifications are available [ListDocuments result].

Estimates Context

• S&P Global Wall Street consensus estimates (EPS and revenue) for Q2 2017 were unavailable/failed to retrieve; likely no formal coverage for this OTC micro-cap. As a result, we cannot assess beats/misses vs consensus this quarter. Values retrieved from S&P Global were unavailable due to data access limits.

Key Takeaways for Investors

• Strong top-line and margin momentum: Revenue scaled to $1.04M with gross margin improving to 39.68% QoQ, driven by branded HoneyStick and private label distribution; consider this momentum as a potential multiple-expansion driver if profitability improves .
• Profitability constrained by capital structure: Interest expense, debt extinguishment losses, and derivative accounting materially pressured earnings; monitoring note conversions and refinancing options is critical near term .
• Liquidity risk elevated: Cash at $0 with rising current obligations suggests a need for external funding or accelerated cash generation; short-term positioning should factor potential dilution/financing events .
• Execution on cannabis vapor segment: HoneyStick traction and distribution gains appear durable; expanding private label with top extractors supports recurring revenue channels and margin mix benefits .
• Transparency and uplisting efforts: Corporate actions to increase transparency and market presence (e.g., OTCQB aspirations) could broaden investor base if operational controls improve (material weakness remediation in progress) .
• No guidance or consensus: Absence of formal guidance and limited Street coverage reduces near-term estimate-driven catalysts; focus should be on sequential revenue/margin trends and balance sheet de-risking .
• Tactical implication: Near-term trades should watch filings for conversions/financing updates and monthly sales cadence; medium-term thesis hinges on sustaining branded/private label growth while normalizing financing costs .

Appendix: Additional Data Points and Citations

• Q2 2017 Statement of Operations: Revenue $1,036,806; Gross Profit $411,397; Operating loss $(78,243); Net loss $(342,971); Loss per common unit $(0.01) .
• Q1 2017 Statement of Operations: Revenue $786,535; Gross Profit $275,014; Operating loss $(323,542); Net loss $(292,294); Loss per common unit $(0.01) .
• Q2 2016 comparatives: Revenue $61,526; Gross Profit $24,590; Gross Margin 39.96%; Net loss $(26,233) .
• Q4 2016 revenue $972,322 (+59.82% vs Q3 2016 $608,354); full year 2016 revenue $1,580,676; gross margin 30.42% .
• Capital structure/liquidity: Cash $0; AR $303,399; Inventory $189,545; Derivative Liability $361,120; Current notes payable $779,297; AP & accrued $417,782 .
• Financing activity: Convertible note terms and conversions (DiamondRock), including multiple conversions during/after Q2 .

All facts and figures above are sourced from VPR Brands’ Q2 2017 10-Q, Q1 2017 10-Q, and related 8-K press releases and shareholder letter .