Turning Point Brands, Inc. 2026 Q2 Earnings Call

Please go ahead. Good morning, everyone.

Earlier today, we issued a press release covering our second quarter results, available on our investor relations section of our website at www.turningpointbrands.com. During this call, we'll discuss consolidated and segment operating results, the operating environment, and our progress against our strategic plan. Before we begin, please refer to the forward-looking statements, disclosure, and risk factors in our press release and SEC filings. We'll also reference certain non-GAAP financial measures. Reconciliations and explanations are included in today's earnings release. With that, I'll turn the call over to our CEO, Graham Purdy.

Thanks, Andrew. Good morning, everybody, and thank you for joining our call. We delivered another quarter of strong execution in Modern Oral, with gross and net sales up 149% and 128% year-over-year, 26% and 32% sequentially. Growth was driven by our continued focus on expanding retail distribution for both FRE and ALP and our direct-to-consumer platforms. Our performance versus the market proves that both brands are resonating with adult nicotine consumers. Our investments continue to strengthen our competitive position and drive market share gains. In the quarter, Modern Oral accounted for 48% of our total revenue, up from 26% in Q2 of 2025. We were pleased by Stoker's Tobacco results and early customer response to the launch of our new Stoker's Proud MST product earlier this year. We believe Stoker's will continue to gain share as the segment's only truly premium product for value-oriented consumers.

Performance across Zig-Zag was in line with our expectations. We are sharpening our new product pipeline to better reflect evolving consumer preferences and leveraging our growing sales force to expand distribution. These initiatives have helped stabilize our heritage businesses and position them for long-term growth. In the near term, these businesses continue to contribute strong cash flow, which we are investing to accelerate growth in Modern Oral. Last quarter, we discussed the generational opportunity Modern Oral represents as nicotine consumption shifts away from cigarettes. Our priorities for 2026 remain centered on the initiatives we believe will have the greatest impact on building scaled, profitable nicotine pouch businesses. These strategic actions, despite near-term zoning pressure, are critical to capturing meaningful share in this evolving high-barrier category. First is accelerating customer traction. We are seeing positive results across both FRE and ALP.

Summer will expand on wins, supporting both awareness of our products and customer acquisition. Second is growing distribution. As previously mentioned, we expect our chain store count to increase 70% year-over-year by the end of 2026 as a result of our strong chain store conversations. Working alongside these retailers, we have established distribution plans for these new placements. As is typical with national chain accounts, shelf resets can have long lead times, meaning our products will be added to stores incrementally over the next several quarters. Notably, shelf resets have begun with numerous new large retail accounts across the country, which we expect to largely fulfill through the balance of the year. Third is building and scaling our infrastructure. As we've scaled the distribution of our brands, we've continued investing in our sales force to service these new accounts.

Our sales organization is critical to executing successfully at retail by ensuring product availability, merchandising execution, shelf placement, and ongoing customer support. We are on pace to increase our sales force by approximately 50% this year, making strong progress towards building the right sales force that can best capture the nicotine pouch growth opportunity and maximize performance at Zig-Zag and Stoker's. After this initial build-out, we'll be able to further scale without comparable increases in SG&A. Subject to regulatory approval, we are on track to launch U.S. manufacturing by the end of the year, which we expect to significantly reduce COGS over time. Once fully scaled, we believe we can achieve gross margins of approximately 70%. Our results continue to reinforce our disciplined capital allocation strategy. We are directing capital and commercial resources towards the brands and categories with the greatest long-term value creation potential, particularly Modern Oral.

The investments we've made over the past several quarters in FRE and ALP are already contributing meaningfully to our top-line performance and should accelerate earnings growth over time. These foundational investments position us to capture meaningful market share and create sustainable shareholder value as the category continues to develop. With that, I will hand the call over to Summer to walk through the progress of our key go-to-market initiatives.

Thank you, Graham. Good morning, everyone. Our growth strategy has been consistent: invest for the long term, build durable brands, and scale alongside consumer demand. We are encouraged that our investments are translating into tangible results. Each new retail win expands consumer reach and first-time brand trial, while stronger demand supports additional distribution and greater scale. Together, these advantages will reinforce one another and create a growth platform we believe will compound over time. I'd like to begin with our commercial momentum. As we highlighted last quarter, our sales organization is now selling both ALP and FRE. Building on the success of ALP's direct-to-consumer performance, we're seeing positive retail response and evidence of pent-up consumer demand for ALP. Additionally, we've taken early steps to grow internationally through a phased expansion into select European markets.

As with any new market, we will remain disciplined in our approach while continuing to evaluate the opportunity thoughtfully. We believe these efforts further strengthen our long-term growth platform. Moving to brand-building initiatives, our partnership with TKO has driven success across several early indicators of brand awareness and consumer engagement. To extend that momentum into retail, we have begun introducing UFC co-branding in stores, helping to bring the partnership directly to consumers at the point of purchase. Across our portfolio, our investments remain intentional and focused on strengthening long-term brand value. In Zig-Zag, we are deepening engagement with existing consumers while expanding brand awareness in under-indexed markets. Our recent Life's Fast, Burn Slow campaign reflects our ability to connect with today's consumers while remaining true to the heritage that has defined the brand for generations.

These efforts contributed to our strongest 4/20 weekend in Zig-Zag's history, demonstrating that thoughtful and strategic brand investment can drive increased engagement. Overall, we are encouraged by the progress we are seeing across both retail expansion and brand-building initiatives. While we are still early in our journey, initial results reinforce our confidence that nicotine pouches can become a significant long-term growth driver for Turning Point. Let me now turn the call over to Andrew to go through our financial results.

Thank you, Summer. Starting with consolidated results, sales were up 23% year-over-year to $143 million for the quarter. Growth was driven primarily by Modern Oral. In the quarter, we received a tariff refund that had a positive impact on gross profit. As reported, gross profit was $94 million. Adjusting for the out-of-period COGS related to tariff refund, gross profit was $81 million, which is an increase of 22% versus year ago. The increase in gross profit dollars was driven primarily by Modern Oral. Adjusted gross profit as a percent of sales was 57%. Reported SG&A was $77 million for the quarter, which was up $21 million sequentially. Our SG&A investments are designed to create long-term brand value. As we grow leading consumer brands, investments in our commercial team, marketing sponsorships, and in-store merchandising are critical, yet highly flexible.

This flexibility gives us confidence to invest where we see momentum and incremental opportunity. As our retail footprint expands and sales continue to grow, we expect our costs to be leveraged over a larger revenue base. Adjusted EBITDA was down 50% year-over-year to $15 million for the quarter, at 11% margin. The decline was attributed to our strategy to increase sales and marketing investment and softness in Zig-Zag, partially offset by accelerated growth in Modern Oral. Stoker's segment net sales increased 55% year-over-year to $108 million for the quarter. The Stoker's segment now accounts for 75% of consolidated net sales. The growth was driven by Modern Oral nicotine pouch net sales, which increased 128% year-over-year, achieving net revenue of $68 million. Gross revenue was 149% year-over-year. This performance was driven by both growth in e-commerce and brick-and-mortar sales.

For the quarter, Modern Oral accounted for 48% of consolidated net sales, up from 26% a year ago. Heritage Stoker's brands net revenue decreased 1% year-over-year to $39 million for the quarter, driven by continued share growth in MST that was partially offset by anticipated declines in loose leaf. Stoker's as-reported gross profit was $71 million. On an adjusted basis, Stoker's gross profit increased 41% to $61 million year-over-year, with gross margin down 600 basis points to 57% due to higher chain penetration. Zig-Zag segment net sales were down 4% sequentially to $35 million for the quarter. Zig-Zag gross profit was $23 million. Adjusted gross profit was $20 million, which is 57% of net sales, which was flat on a sequential basis. Second quarter free cash flow was $26 million, and we ended the quarter with $268 million of cash.