Turning Point Brands (NYSE:TPB) held its second-quarter earnings conference call on Tuesday. Below is the complete transcript from the call.
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Summary
Turning Point Brands reported a significant increase in Modern Oral gross and net sales, showing growth of 149% and 128% year-over-year, respectively.
The company is focusing on expanding retail distribution and enhancing direct-to-consumer platforms for its brands Free and ALP, contributing to Modern Oral accounting for 48% of total revenue.
Strategic initiatives include expanding chain store count by 70% by the end of 2026, increasing the sales force by 50%, and preparing for U.S. manufacturing to reduce costs.
Financial results show a 23% year-over-year increase in sales to $143 million, with Modern Oral as the primary growth driver, and adjusted EBITDA down 50% due to increased marketing and sales investment.
The company raised its full-year 2026 sales guidance for Modern Oral and maintained EBITDA guidance, despite increased investments in nicotine pouch development.
Turning Point Brands is exploring international expansion, particularly in Europe, and is leveraging partnerships to build brand awareness and consumer engagement.
Management remains confident in capturing market share in the evolving nicotine consumption category, with a focus on long-term brand building and strategic investments.
Full Transcript
OPERATOR
Good morning and welcome to the Turning Point Brands' second quarter 2026 earnings conference call. All participants will be in listen-only mode. All lines have been placed on mute to prevent any background noise. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation there will be an opportunity to ask questions. 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.
Andrew Flynn, Chief Financial Officer
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.
Graham Purdy, Chief Executive Officer
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 Free 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 Straight 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 a scaled, profitable nicotine pouch business. 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 Free and ALP. Sommer 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 made over the past several quarters in Free 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 Sommer to walk through the progress of our key go-to-market initiatives.
Sommer
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 Free. 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'll 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.
Andrew Flynn, Chief Financial Officer
Thank you, Sommer. 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 the 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 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. 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 of cash. 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 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 of increased nicotine pouch investments budgeted. 2026 CAPEX remains 4 to 5 million excluding projects related to Modern Oral. Our pending PMTA applications are 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 PMTA applications, we expect to spend an additional 3 to 5 million in 2026.
Now let me turn it over to Graham.
Graham Purdy, Chief Executive Officer
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 in our ability to compete and win in this evolving category. And with that, I'll now turn it over to questions.
OPERATOR
We will now begin the question-and-answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimal sound quality if you are muted locally. Please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Eric DeLaurier from Craig-Hallum Capital Group.
Your line is now open. Please go ahead.
Eric DeLaurier, Analyst at Craig-Hallum Capital Group
Great. Thank you for taking my questions. 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, you know, several significant wins evident in Q2. Just wondering 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, you know, kind of the spring times for shelf resets and additional expansion gains?
Graham Purdy, Chief Executive Officer
Hey 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.
Eric DeLaurier, Analyst at Craig-Hallum Capital Group
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, you know, 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. Thank you.
Andrew Flynn, Chief Financial Officer
Yeah, 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 U.S. 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 U.S. 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, you know, as we get some positive outlook there, we're able to move quickly on domestic production.
Eric DeLaurier, Analyst at Craig-Hallum Capital Group
Awesome. That's helpful color. Well, congrats again on all the progress, guys, and good luck going forward.
OPERATOR
Your next call comes from the line of Ian Zaffino from Oppenheimer. Your line is now open. Please go ahead.
Ian Zaffino, Analyst at Oppenheimer
Hi. Great. Thank you very much. Just trying to understand, you know, some of the puts and takes in the guidance. You know, obviously sales of modern oral is doing much better than expected, but then I'm going to look at the EBITDA roughly flat. So, you know, 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, you know, TKO, you know, salesforce? 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.
Andrew Flynn, Chief Financial Officer
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.
Ian Zaffino, Analyst at Oppenheimer
Okay, thank you. And then, you know, 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? Thanks.
Andrew Flynn, Chief Financial Officer
Yeah. So as we've discussed previously, we are in the midst of a 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.
Ian Zaffino, Analyst at Oppenheimer
Okay, maybe I should squeeze in one more.
Andrew Flynn, Chief Financial Officer
Yeah, yeah. And then over the long term, our long-term gross profit potential with U.S. manufacturing, we are anticipating 70% gross profit margins.
Ian Zaffino, Analyst at Oppenheimer
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 salesforce there, maybe use more influencers, but maybe give some color on the go-to-market strategy. Thanks.
Graham Purdy, Chief Executive Officer
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 in the U.S. 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.
OPERATOR
Your next call comes from the line of Aaron Gray at Alliance Global Partners. Your line is now open. Please go ahead.
Aaron Gray, Analyst at Alliance Global Partners
Hi, good morning, and thank you very much for the questions. First question for me, just wanted to go back to pouches, and the guide had some real nice sequential growth in the quarter—looks like, you know, the largest on an absolute dollar basis. So just wanted to ask, was there any, you know, shipment timing impact in 2Q that could impact 3Q trends? Are you seeing continued momentum on expanded doors or replenishments within existing doors? Just trying to triangulate maybe where you're at, you know, 1H, and specifically for 2Q relative to the guide for 2H.
Thank you.
Graham Purdy, Chief Executive Officer
Yeah, look, we're—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, you know, 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 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 free brand.
And then without 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.
Aaron Gray, Analyst at Alliance Global Partners
Okay, great. Thank you. Second question, could you just give any color in terms of your anticipation for the promotional environment over the next six to 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. Thanks.
Graham Purdy, Chief Executive Officer
Yeah. And I think I've 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 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.
Aaron Gray, Analyst at Alliance Global Partners
Appreciate the color there. I'll jump back in the queue, thanks.
OPERATOR
Your next question is from the line of Gerald Pascarelli from Needham. Your line is now open. Please go ahead.
Gerald Pascarelli, Analyst at Needham
Great, thanks very much. Good morning. Thanks for the question. 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 were potentially getting better in-store selling from free following the prior distribution gains that you made into the large chains.
So any color on those dynamics would be great.
Andrew Flynn, Chief Financial Officer
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. One, 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 tightens that spread up.
I also think adding ALP in Q2—we took free, 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 early green shoots of that activity. And then the last piece, I think you pointed out, is as we grow our sales base in reorders by the chain accounts, that also helps with that variance.
Gerald Pascarelli, Analyst at Needham
Understood, thank you. Just to follow up on help, over the course of the quarter we saw meaningful store adds in the measured channels, and these adds were broadly consistent with the amount of door increases that you have on your online store count. It seems like a lot of it is independent. But can you just maybe provide some more color on the makeup of these 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?
Graham Purdy, Chief Executive Officer
Yeah, Gerald, as you noted, the 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 free—as we proceed into Q4 in the fall reset period and certainly into the spring. And we're excited, given ALP's early traction, at how those conversations will pan out.
Gerald Pascarelli, Analyst at Needham
Perfect. Thanks very much for the color.
Graham Purdy, Chief Executive Officer
No problem.
OPERATOR
Your next question comes from the line of Nick Anderson at Roth Capital Partners, LLC. Your line is now open. Please go ahead.
Nick Anderson, Analyst
Yeah, good morning. Thanks for taking the questions. And 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 shelves. Any color there would be helpful. Thank you.
Andrew Flynn, Chief Financial Officer
Hey, Nick, I'll start, and Graham can chime in with any color you'd like to add, too. 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 FRĒ in the spring and translate those into what we bring into the mix for ALP as well.
Nick Anderson, Analyst
Okay, I appreciate that color. Second, for me, just on the regulatory landscape, recently a competitor got an MRTP designation. It 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.
Thank you.
Graham Purdy, Chief Executive Officer
You know, look, I think the news coming out of the agency relative to white pouches, whether it's, you know, MRTP or, you know, additional approvals, is great news for the category. And so from our standpoint, you know, as the news comes out and it's positive to that effect, we feel really good about, you know, 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, you know, from a long-term use standpoint, we think is fantastic news.
You know, 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.
Nick Anderson, Analyst
Great. That's it for me. Congrats again on the quarter.
Graham Purdy, Chief Executive Officer
Thank you, Nick. Appreciate it.
OPERATOR
There are no further questions at this time. We have reached the end of the Q and A session. I will now turn the call back to Graham for closing remarks.
Graham Purdy, Chief Executive Officer
Hey, 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.
OPERATOR
This concludes today's call. Thank you for attending. You may now disconnect.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.
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