Turning Point Brands, Inc. (TPB) 2026 Q2 法說會逐字稿

Good morning and welcome to the Turning Point Brands' second quarter 2026 earnings conference call. (Operator Instructions) Please note this event is being recorded. I would now like to turn the conference over to Andrew Flynn, Chief Financial Officer. Please go ahead.

Good morning, everyone. Earlier today, we issued a press release covering our second quarter results, available in 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, and 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 earning 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 US 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, and 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've 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're 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're encouraged by the progress we're seeing across both retail expansion and brand building initiatives. While we're 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 a 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 $87 million, up 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 is flat on a sequential basis.

Second quarter free cash flow was $26 million and we ended the quarter with $268 million. Free cash flow was positively impacted by a tariff refund of $18 million. In the quarter, we raised $60 million of equity to support long-term strategic objectives within Modern Oral.

We are raising our full year 2026 Modern Oral gross sales guidance to $330 million to $350 million from $280 million to $300 million and raising net sales guidance to $260 million to $270 million from $210 million to $225 million. We are maintaining our full-year EBITDA guidance of $70 million to $90 million, inclusive of increased nicotine pouch investments.

Budgeted 2026 CapEx remains $4 million to $5 million, excluding projects related to Modern Oral. Our pending PMTA application is progressing well and remains in process with the FDA. Although the process can be resource-intensive and timing can be uncertain, we have the expertise to succeed in dynamic regulatory environments. In support of our PMTA applications, we expect to spend an additional $3 million to $5 million in 2026. Now let me turn it over to Graham.

Thanks, Andrew. We continue to believe we are in the early innings of a generational shift in nicotine consumption and each quarter reinforces our confidence and our ability to compete and win in this evolving category. And with that, I'll now turn it over to questions.

(Operator Instructions)

Eric Des Lauriers, Craig-Hallam Capital Group.

Congrats on another very impressive quarter here, especially on the top line for nicotine pouches. I mean, certainly clear that these growth investments are paying off. My first question here, just wondering how the conversations with C-Store chains are progressing.

Obviously, several significant wins evidenced in Q2. Just wondering how that -- how conversations with other chains are going. Do you see potential for additional wins in the second half of this year, or should we be more looking to kind of the springtime for shelf resets and additional for -- additional expansion gains?

Eric, thanks for the question. So as we've shared, we had some really great progress in the spring with many, many of the large chains in our network. As you can imagine, and as the category is growing, those conversations with other chains that maybe didn't come on board in the spring will continue into the fall, which is typically when these reset seasons sort of pick up again. So I anticipate that we'll continue to have strong conversations in the fall and bring ALP into those conversations at that time as well.

All right, that's great. And then my follow-up. Could you just kind of touch on the timing or outlook for potential domestic manufacturing? Do you still see this as, kind of, tied to PMTA or needing to wait to hear from the FDA first, just any kind of commentary on how you're looking at domestic manufacturing would be helpful.

Yes, look, there's a couple of pieces to this equation. First and foremost, as we've mentioned on last calls, it was laying down the infrastructure in the US to be able to tap domestic manufacturing when the timing was right. We've also mentioned, Eric, in the past that there is a regulatory aspect to qualifying your US manufacturing.

And so we're just being mindful of the process and dedicating ourselves to the PMTA sort of first and foremost in preparing the company to a place where as we get some positive outlook there we're able to move quickly on domestic production.

Ian Zaffino, Oppenheimer.

Just trying to understand some of the puts and takes in the guidance. Obviously sales of Modern Oral is doing much better than expected, but then when I look at the EBITDA, roughly flat. So maybe help us understand what the driver of that is. Is that just increased slotting fees?

Because it seems like maybe things are going better than expected and you're having to pay higher slotting fees initially. Is that TKO, sales force? Maybe help us understand that. And then how do you then feel about leverage of a lot of those expenses going into the second half of the year as revenues ramp up?

Thanks, Ian. So we are investing in durable brands, as we've mentioned in the script and as we've mentioned previously, and that is going to depress our earnings temporarily as we have these high costs related to sales and marketing. We're confident in the EBITDA guidance that we've given. And as you've noted, over time, we anticipate EBITDA will grow as we mature in marketing and these sales investments.

Okay. And then when we think about domestic production, in the changing kind of tariff environment, where are we now as far as the savings? You'd realize onshoring the production versus kind of keeping your manufacturing production as it is now?

Yes, so as we've discussed previously, we are in the midst of the PMTA and we have made progress here domestically. And we're in good shape in terms of being able to ramp up as we progress through the PMTA process.

Okay, squeezing one more.

Yes. And then over the long term, our long term gross profit potential with US manufacturing, we are anticipating 70% gross profit margins.

Okay, perfect. Then I'm just squeezing in one more. The international kind of piqued my interest here. Maybe help us understand your go-to-market strategy there. I'd imagine you're not going to do a fulsome sales force there, maybe use more influencers, but maybe give some color on the go-to-market strategy.

Yes, you're spot on with that. We view the international opportunity. I think, the market saw the press release from ALP as they move into the EU. Much different than the US footprint in terms of how we sell internationally.

We find partners internationally to take sort of the regulatory burden as well as the sales burden off of our shoulders. So there are no plans to ramp up a sales force in any country outside of the United States at this point in time.

Aaron Grey, Alliance Global Partners.

First question for me, I just want to go back to pouches and the guide. Had some real nice sequential growth in the quarter. It looks like the largest on an absolute dollar basis. So I just wanted to ask, was there any shipment timing impact in 2Q that could impact 3Q trends?

Are you seeing continued momentum on expanded doors or replenishments within existing doors or replenishments within existing doors? Just try to triangulate maybe where you're at 1H and specifically for 2Q relative to the guide for 2H.

Yes, look, I would say there was nothing out of the ordinary in Q2. And as we've also mentioned in the past, Aaron, you sort of always have sort of puts and takes relative to when shipments go into our wholesale customers, when they go out to retail. As we continue to grow and scale the brand, we think that those are sort of somewhat of an offset, frankly.

And look, I think that we're really excited about sort of connecting the marketing pieces that we laid down in Q2 and connecting that with the consumer retail on the FRE brand. And then with ALP, very early innings, but we're excited about the early results that we've gotten relative to ALP in the stores that we placed it in.

Second question, could you give any color in terms of your anticipation for the promotional environment over the next 12 months? Some peers have been calling out increased investment in the category and specifically noting the higher nicotine and moist pouch sections of the category as well. So any commentary there would be helpful.

Yes, I think I have been pretty consistent on this over the last couple of years. We're really excited about the promotional environment because we think that leveraging the balance sheets of the large manufacturers, bringing new consumers into the category. If you assume the category is going to double from here or more, that means that there's a lot more new consumers in the category.

We think that the work that we're doing with scaling the brands and building these durable brand equities is going to connect with new consumers coming in the category. As well as give us the opportunity to compete against the existing consumers, which I think we've done very well up until this point in time.

So look, I think, it's -- the category hopefully is still in the early stages at this point in time. And what we're trying to do is we're trying to create an environment where we're not intense on the promotional side of the equation. We're investing in shelf placement, visibility at retail, and also connecting brand equity building activities around that to strengthen the brands and build a long-term premium potential for our product portfolio within this category.

Gerald Pascarelli, Needham.

I wanted to ask about your gross-to-net sales dynamics in Modern Oral. Relative to your prior guidance, the updated outlook now implies a lower level of contra revenue as a percentage of your gross sales this year. I understand the spread was lower this quarter, but can you help us understand what's driving that?

And I'm asking this because I'm wondering if it's fair to assume that you are potentially getting better in-store selling from FRE, following the prior distribution gains that you made into the large chains. So any color on those dynamics would be great.

Yes, look, the spread between gross-to-net is something that we're incredibly mindful of. I think you've got a bunch of different things that are occurring right now relative to our portfolio of products. When we've got strong e-commerce sales, and I think we've mentioned in the past that the gross-to-net ratio relative to our e-commerce is not the same shape that you see in bricks and mortar. And so growth within the e-commerce environment I think tightens that spread up.

I also think adding ALP in Q2. We took ALP sort of as we took FRE in the early innings back in 2024 to the independent environment. The independents are less intensive from a spread gross-to-net and so I think you're seeing some sort of early green shoots of that activity. And then the last piece that I think you pointed out is, as we grow our sales base in reorders by the chain accounts, that also sort of helps with that variance.

Understood. Just to follow up on ALP. Over the course of the quarter, we saw meaningful store adds in the measured channels. These adds were broadly consistent with the amount of door increases that you have on your on your online store account.

It seems like a lot of it is independent but can you just maybe provide some more color on the makeup of these like notable gains that we saw in 2Q maybe where the brand is getting the most traction and if you were potentially seeing incremental interest from the large chains to carry these products maybe a little earlier than you were anticipating at the start of the year.

Yes, Gerald, as you noted, the field sales organization as they're going down the street with ALP are currently primarily focused on independents and in some cases, regional chains. Really solid progress so far, as you also noted, and we'll start to see ALP carried into chain account conversations, the larger chain accounts that we've been talking about for FRE as we proceed into Q4 in the fall reset period and certainly into the spring. And we're excited given ALP's early traction and how those conversations will pan out.

Nick Anderson, ROTH Capital Partners LLC.

Congrats on the quarter. First for me, just on slotting, given the velocity from your brands within Modern Oral, has this changed slotting fee discussions with either your existing accounts or new ones you're trying to onboard? It feels like you'd have some more leverage given the performance of your products on the shelf. Any color there would be helpful.

Nick, I'll start and Graham can chime in with any color he would like to add to. I think the promotional environment, the slotting fee environment, I think was pretty consistent in the spring in terms of what we were seeing.

We anticipate that much of that will remain the same as we turn the page into Q4, but I think it's a bit early to predict what that will look like. Certainly as we bring ALP into the conversations, we'll take all of the learnings that we had from selling FRE in the spring and translate those into what we bring into the mix for ALP as well.

Okay, I appreciate the color. Second for me, just on the regulatory landscape. Recently a competitor got an MRTP designation that can now claim nicotine pouches carry lower health risks when compared to cigarettes. Just curious what you think this means in general for the Modern Oral category, both in terms of consumer perception and just the pending PMTA applications. And if this accelerates anything on the FDA side in terms of ruling on these products?

Look, I think I think the news coming out of the agency relative to white pouch, whether it's MRTP or additional approvals is great news for the category. And so, from our standpoint, as the news comes out, and it's positive to that effect, we feel really good about where we sit and also what the future potential is for the company.

And so it's, I think, we view it as really positive news and anything that allows the consumer more information relative to how these products perform and what they can mean to them from a long-term use standpoint, we think is fantastic news.

I can't reiterate more that our focus is building our brands, building equity, working through the PMTA process. And we think that as consumers continue to flock into the category that we're really well-positioned to win in the future.

There are no further questions at this time. We have reached the end of the Q&A session. I will now turn the call back to Graham for closing remarks.

Thanks, everybody, for joining the call this quarter. We're really excited about some of the results that we had coming into Q2. We think that there's great opportunity for long-term growth for this company and really excited about speaking to you here in the next few months.

This concludes today's call. Thank you for attending. You may now disconnect.