Turning Point Brands (TPB) Q2 2026 earnings call transcript

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, and our press release and SEC filings. We'll also reference certain non-gap financial measures. Reconciliations and explanations are included in today's earnings release.

With that, I'll turn the call over to our CEO, Grand Party.

Thanks, Andrew. Good morning, everybody, and thank you for joining our call. We delivered another quarter of strong execution and 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 free and out 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 games. 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 segments only truly premium product for value-oriented consumers. Performance across the zigzag 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 and modern oral.

Last quarter, we discussed the generational opportunity model oil 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 terms earning pressure, are critical to capturing meaningful share in the evolving high barrier category.

First is accelerating customer traction. We are seeing positive results across both free and out. 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 account 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 zigzag and smokers.

After this initial build out, we'll be able to further scale without comparable increases in SGA. Subject to regulatory approval, we are on track to launch US manufacturing by the end of the year, which we expect to significantly reduce cottons over time. Once fully scaled, we believe we can achieve gross margins of approximately 70%. Our results continue to reinforce our discipline 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 and free and out are already contributing meaningful 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 shareholders value as the category continues to develop. With that, I will hand the call over to summer to walk through the progress of our CGO 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 out and free. Building on the success of Alps direct to consumer performance, we're seeing positive retail response and evidence of pins up consumer demand for out.

Additionally, we've taken early steps to grow internationally through a phase expansion and to select European markets. As with any new market will remain disciplined in our approach while continuing to evaluate the opportunity softly. 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 USC 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 Zigzag, we're deepening engagement with existing consumers, or expanding brand awareness in under index markets. Our recent life's fast burn flow campaign reflects our ability to connect with today's consumers while remaining true to the heritage that is defined the brand for generations.

These efforts contributed to our strongest for 20 weekend and zigzag 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, but nicotine pouches can become a significant long term growth driver for turning point.

We 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 or in the quarter, we received the tariff refund that had a positive impact on growth profit. As reported gross profit was 94 million. Adjusting for the out of period calls 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%. Report 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 even it 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 zigzag, 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 dollars. 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.

Zigzag segment net sales were down 4% sequentially to 35 million for the quarter. Zigzag 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 of cash. Free cash flow was positively impacted by tariff refund of 18 million. In the quarter, we raised 60 million of equity support long term strategic objectives within modern oral.

We are raising our full year 2026 modern oral gross sales guidance to 330 to 350 million, from 280 to 300 million, and raising net sales guidance to 260 to 270 million, from 210 to 225 million.

We are maintaining our full year EBITDA guidance of 70 to 90 million, inclusive increased nicotine pouch investments. Budgeted 2026 CAPX remains 4 to 5 million, excluding projects related to modern oral. Our pending PMP application is progressing well and remain 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 PMP applications, we expect to spend an additional 3 to 5 million in 2026.

Now, let me turn it over to Graham.

Thanks, Andrew. We continue to believe we are in the early beginnings 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.

Hey, Eric, thanks for the question. So as we 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 categories 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 out into those conversations at that time as well.

Yeah, look, there's a couple of pieces to this equation. First and foremost, as we mentioned on last calls, it was laying down the infrastructure in the US, you know, 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 we get some positive outlook there. We're able to move quickly on domestic production.

Thanks, Eric. Thanks, Eric.

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 EBITDAW will grow as we mature in marketing and these sales investments.

Yeah. So, as we've discussed previously, we are in the midst of 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.

Yeah. You're spot on with that. You know, we view the international opportunity. I think the market saw the press release from out as they move into the EU. Much different than the U. S. footprint in terms of how we sell internationally. You know, we find partners internationally to, you know, 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.

Yeah, look, we're, I would say there was nothing out of the ordinary in 2Q2. And as we've also mentioned the past there, and, you know, you sort of always have, you know, sort of puts and takes relative to, you know, when shipments go into, to our wholesale customers when they go out to retail. You know, 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 to, and connecting that with the consumer retail, you know, on the free brand. And then without very early innings, but we're excited about the early results that we've gotten, you know, okay, great, thank you.

Yeah, and I think I've been pretty consistent on this, you know, over the last couple of years. We're really excited about the promotional environment because we think that, you know, leveraging the balance sheets of the large manufacturers, bringing new consumers into the category, you know, if you assume the category is going to, you know, 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, you know, 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, you know, very well up until this point in time.

So look, I think it's, you know, 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, you know, to strengthen the brands and sort of build a long-term premium potential for our product portfolio within this category.

Thanks, Aaron.

Yeah, 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, is, you know, tightens that spread up. I also think adding out in Q2, we took out sort of as we took free in the early innings back in 2024 to the independent environment, the independence 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, you know, as we grow our sales base in reorders by the chain accounts, that also, you know, sort of helps with that variance.

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

No problem.

Hey, Nick, I'll start in granting chime in with any colors you'd like to add to. I think the promotional environment, the spotting the 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 Q for, but I think it's a bit early to predict what that will look like. Certainly, as we bring out into the conversations, we'll take all of the learnings that we had from selling free in the spring and translate those into what we bring into the mix for for out as well.

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 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, you know, as consumers continue to flock into the category that we're really well positioned to win in the future.

Thank you, Nick. Appreciate it.

Thanks, everybody, for joining the call this quarter. We're really excited about, you know, 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.