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Good morning, and welcome to the Turning Point Brands Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Graham Purdy. Please go ahead.

Thank you, operator. Good morning, everybody, and I really appreciate you all joining the call. A little bit of a somber morning here for us in town here. Before we walk you through our Q3 results, I'd like to say a few words about the tragedy that hit our community yesterday with the UPS flight crash. As I'm sure you're aware, we're a Louisville-based company. Aside from being a business partner of ours, UPS is really woven into the fabric of the Louisville community. In many ways, Louisville is a -- it's a very small town and the community is very tight-knit. And while we're fortunate that none of our employees were directly impacted or affected by the tragedy yesterday, it's likely that we have friends and loved ones that know somebody that was. Our heart goes out to the families of those that were directly impacted by the tragedy and then to the UPS family as they deal with this heartbreaking situation. And so with that, I'd like to turn the call back to the operator to get started.

Thanks, Graham. Now I would now like to turn the conference over to Andrew Flynn, Chief Financial Officer. Please go ahead.

Good morning, everyone. A short while ago, we issued a press release covering our Q3 results. This release is located in the IR section of our website at www.turningpointbrands.com. During this call, we will discuss our consolidated and segment operating results and provide some perspective on the operating environment and progress against our strategic plan. As is customary, I direct your attention to the discussion of forward-looking and cautionary statements in today's press release and the risk factors in our filings with the Securities and Exchange Commission. On the call today, we will reference certain non-GAAP financial measures. These measures and reconciliations to GAAP are in today's earnings release, along with reasons why management believes they provide useful information. I will now turn the call over to our CEO, Graham Purdy.

Thanks, Andrew. Good morning, everyone, and thank you for joining our call. Our consolidated third quarter results were better than expected and demonstrated continued progress against our plan. Revenue increased 31% to $119 million for the quarter, including $36.7 million net Modern Oral revenue, which includes $1.5 million of slotting fees that are accounted for as contra revenue. Adjusted EBITDA increased 17% to $31.3 million for the quarter. We are increasing adjusted EBITDA guidance to a range of $115 million to $120 million, up from $110 million to $114 million. We are increasing full year consolidated nicotine pouch sales guidance to a range of $125 million to $130 million, up from $100 million to $110 million. This includes both FRE and ALP. We are particularly pleased with the growth of our white nicotine pouch brands. Their long-lasting vibrant flavor options, comfortable mouth feel and flexible nicotine levels have resonated with consumers. During the quarter, white pouch sales increased 628% year-over-year and 22% sequentially. Some of you may have noticed that ALP, already one of the top D2C pouch brands in America, has started to appear on bricks-and-mortar shelves in select retailer tests. Recall that we initially expected ALP to be exclusive D2C for all of 2025. Suffice it to say, we are pleased that ALP is running ahead of schedule. We believe the nicotine pouch space, like most other nicotine businesses, will ultimately feature five to six widely distributed brands that command most of the market. Analyst expectations for the size of the category differ, but most believe it will approach, if not exceed $10 billion in manufacturers revenue by the end of the decade. Our Q3 performance supports our long-term target of double-digit market share in the category. In order to best position the company to capitalize on this multibillion-dollar opportunity, we have made and will continue to make significant investments in the business and refine our route-to-market strategy to prioritize FRE and ALP, while continuing to generate strong cash flow from our heritage brands. During the quarter, we raised $100 million of gross proceeds under our previously announced at-the-market offering program at an average share price of $98.59. We expect to opportunistically deploy this capital across a variety of high-return opportunities to accelerate the growth of our Modern Oral business. Consistent with our policy of maintaining active buyback and sales authorizations to maximize capital markets flexibility, we plan to update our ATM prospectus supplement and buyback authorization to provide for $200 million of capacity under each program. We have no current plans to transact under the updated authorizations. Key investment initiatives include reallocating sales and marketing resources, increasing the headcount of our sales force, improving our online presence, ramping up investment in chain accounts, expanding to international markets and building out U.S. manufacturing to improve white pouch profitability and mitigate supply chain and tariff risk. We are pleased with our progress on the manufacturing front and expect to qualify the first production lines in the first half of 2026. We have been particularly encouraged by our ability to identify and onboard new sales talent. We are ahead of schedule in our goal of doubling the size of our sales force by the end of 2026. The rest of the Stoker's segment portfolio also performed better than expected in the quarter. Overall, Stoker's revenue increased 81% to about $74.8 million, reflecting a 4% increase in looseleaf, a 6% increase in MST and the aforementioned 628% increase in Modern Oral revenue. During the third quarter,

Thank you, Graham. As he noted, we continue to make significant investments to support our go-to-market strategies to prioritize FRE, while also continuing to generate strong cash flow from our legacy brands. Throughout the quarter, we continued to expand our efforts and our initiatives to support the growth of FRE focused on sales and marketing. Our key initiatives to support FRE include: first, optimizing our approach to expand distribution, improve brand merchandising and minimize out of stocks. To support our growing sales organization and increase store footprint, we have developed new sales and merchandising tools to secure the ideal assortment, establish shelf space and execute a premium look and feel at retail. Throughout the quarter, we also continued our expansion efforts not only into new stores within large-scale chains, but also expanded our SKU offerings. Toward the end of the quarter, we launched FRE Watermelon. Fruit flavors represent about 1/4 of all OSB sales when excluding mint and wintergreen flavors. Watermelon is not merely a flavor extension, it is the fastest-growing fruit flavor in the nicotine pouch category, and FRE is uniquely positioned as a first mover with a complete strength offering. Second, continuing to invest in and expand strategic marketing campaigns to accelerate brand awareness and consumer loyalty. We have been encouraged by engagement and early returns from our partnership with Professional Bull Riders and are exploring other brand partnerships and collaborations that align with FRE's Own Your Edge tagline and brand ethos. With regards to

Thank you, Summer. Sales were up 31% year-over-year to $119 million for the quarter. For the quarter, gross margin was 59.2%, which was up 360 basis points year-over-year and 210 basis points sequentially. The change in margin is mix driven, primarily related to our outsized growth in Modern Oral. Reported SG&A was $44.5 million for the quarter, which was up $4.2 million sequentially. This increase was primarily driven by Modern Oral related sales and marketing investments as well as increased outbound freight charges to support our growing business. Adjusted EBITDA was up 17% year-over-year to $31.3 million for the quarter at a 26.3% margin. Going into segment performance.

To conclude, we are pleased with our third quarter results, and I'll now turn it over to questions.

[Operator Instructions] The first question comes from Eric Des Lauriers from Craig-Hallum.

Congrats on yet another fantastic quarter here. First question for me, just on the onshoring, nice to see. How should we think about this from a capacity standpoint? And how are you thinking about sort of COGS per unit for nicotine pouches produced onshore versus via your co-manufacturing partner right now?

Eric, thanks for the question. So the way we're thinking about the unit economics for our white pouch is with onshoring, we'll have sort of immediate savings in terms of inbound freight as well as avoidance around tariff. So we should have favorability on those two items out of the gates once we actually qualify the lines, which we're expecting in the first half of 2026. And then on an ongoing basis, as we get volume on those lines, we expect the unit economics to improve from there.

Okay. Great. That's very encouraging. And then just any commentary on that capacity standpoint, how we should think about this?

Yes. Look, I think that as we've disclosed in the past, we feel good about the capacity that we've got with our third-party manufacturer. And the capacity that we get in the U.S. will be additive to that. So we believe that we're in a very good position, both from an inventory perspective that we have on hand today as well as capacity on a go-forward basis.

All right. That's encouraging. And then just as a kind of follow-up here, could you comment on what you're seeing from an in-store market share perspective for your Modern Oral category here? Just any -- I know it's still very early and you're still rolling out, but any comments on early kind of in-store market share would be helpful.

Yes. Look, it's -- we certainly haven't disclosed that publicly, but it's really sort of bifurcated at this point. Obviously, you have sort of a national perspective on where our market share sits from a national standpoint. As we grow our distribution base, we're really focused on share in-store selling. And I'll tell you, we're highly encouraged by those results.

The next question comes from Ian

Really good quarter. Question would be, can you maybe talk about the MST and looseleaf growth there? What was driving that as far as price, volume and kind of market share, if you could talk about that?

Yes. I would say that it's a combination of a couple of those things. We grew share sequentially in the quarter as well as there was some favorability around pricing. I would note that we anticipate that there's going to be north of 900 million cans sold in that category. We still have less than 10% share, although it's high single-digit share. We think there's tremendous opportunity for further gains within MST. So we remain excited about the opportunity.

Okay. And then on Modern Oral, can you just maybe help us understand the drivers there, FRE versus ALP? Maybe you could talk about each one and what you're seeing there. And then as you kind of continue to push into larger chains, what kind of cadence should we expect as those start to hit and as your discussions have been ongoing?

Sure. I'll take the first part of that question. To this point, we haven't disclosed the differentiation between FRE and ALP given the sensitivity around the partnership. What I can say is we saw healthy growth from both properties during the quarter. So we were excited about that. Our ALP business continues to dominate from a B2C standpoint, but they are also making some inroads into some bricks-and-mortar accounts. We're highly encouraged by the results of some of those early tests in there. FRE had a very nice quarter, both online as well as in bricks and mortar. I'll pass it over to Summer to answer the second part of the question there for you, Ian.

We continue to make progress in both new chains and expanding our SKU assortment in existing chains. So we remain really excited and encouraged about our progress there. And in particular, with some of the partners we've had for a while, both sides continue to be happy with the partnership, and we're excited to see how it evolves in coming quarters. And as we look toward progressing in upcoming quarters, major chains are in the process of evaluating their planograms for next year, and we're in those conversations, same as our competitors. So we look forward to how the next few quarters roll out.

Okay. And then if I could just ask one more here. As far as in Modern Oral, the promotions, how did you handle the promotions that we saw a couple of months ago? And how do you kind of navigate the landscape given that? Or what's kind of, I guess, your overall view of how the category is going to kind of play out over -- the competitive landscape is going to play out over the next, call it, quarter or 2 quarters or so?

Sure. Look, I remain bullish on the category. And one of those sort of foundational components about that bullishness is around the balance sheets that the large manufacturers have to deploy against converting consumers into the category. We believe we have a winning format as well as two winning brands that give us an opportunity to really chase after consumers. Obviously, Q3 was a brutal promotional quarter, but not for us. We sort of maintained the integrity of our pricing at retail. We continue to focus on the things that we know win for our brands, which is getting more shelf space, getting broader presence in the store. So we really did participate within the quarter as we saw the major competitors sort of deploy their promotional resources in the market. And look, we think long term, there's going to be strategic opportunities for us to invest in opening up the funnel for the consumer, but we're taking a really measured approach and really reading our data and listening to what consumers are telling us within our online platforms, which gives us somewhat of a distinct advantage when we have that really direct touch point with our consumer. So we'll be opportunistic in terms of the way we think about deploying our promotional dollars from a retail standpoint. But more importantly, we're really focused on getting our platform right in the store because we see when we do that, that we have a really great opportunity to win consumers.

The next question comes from Aaron Grey from Alliance Global Partners.

This is John on for Aaron Grey. Congrats on the strong quarter. So I know in the prepared remarks, you touched on the go-to-market strategy progress. But in terms of distribution, do you still see meaningful white space opportunities for FRE more so near term? And for ALP, when should we expect to see meaningful brick-and-mortar distribution? Were some of the initial brick-and-mortar channel pilots to see how ALP and FRE performed? Just any more color on what you think may be the right approach to promote the brands alongside each other would be helpful.

Yes. Look, we're excited about the continued gains that we make. We've mentioned in past quarters and as well as on this call that we continue to invest in our sales infrastructure to further our distribution gains in the market. Some are just noted a second ago, we're pleased with our progress against the chain accounts, both large and small chains. We do have an account that shares both platforms, both FRE and ALP. We've been excited about the results of sort of that shared platform inside the store. There's a tremendous amount of white space for both brands, albeit a little bit more for ALP at this point in time, given the fact that we've been focused on bricks-and-mortar distribution out of the gate, and ALP has been focused on direct-to-consumer. So I think there's a really great marriage there as we move forward with tremendous opportunities for both brands to effectuate a broad-based distribution and really screen to multiple consumer audiences to give us the greatest upside to capture consumers into either one of the franchises.

Great. And second, how would it be best to think about the approach to balancing profitability and growth? 4Q embeds a little bit of EBITDA margin pressure and the company has been able to achieve sizable growth while maintaining a healthy EBITDA margin of 26% year-to-date in 2025. Do you expect you'll be able to maintain that? Or could there be some EBITDA margin pressure even beyond 4Q as you invest in the promotional pouch environment?

Yes. Look, we're not certainly going to comment on our investment strategy specifically for competitive reasons. I would say that at this point in time, we've struck a sort of a healthy balance between growth and profitability. And so I think that we'll be measured in the future in terms of how we deploy our resources around high-return projects.

The next question comes from Nick Anderson from ROTH Capital Partners.

Congrats on the quarter. First one for me, just on Modern Oral. Given the growth in the category, have you seen any noticeable changes in shelf space allocation by retailers? I know someone mentioned the planogram phase going on now, but how do you expect that allocation of space to trend kind of going forward? And if Modern Oral products are gaining allocation, which products are losing allocation?

Yes. I'll take that question, and Graham can chime in as well. What we're hearing from retailers that they're really taking a methodical approach to how they do allocate space across their shelf and their back bar area, because they see the category dynamics shifting more to OST. And so they're being really diligent and deliberate about how they're allocating that space across the segments in the nicotine space and then being really thoughtful about which brands they're putting on shelf as well based on performance. And so we're happy to be part of those conversations.

Yes. Look, I think we anticipate that the allocation of space for Modern Oral will grow given the underlying growth of the category. And I think it's really -- it's too difficult a question to answer specifically on which products will be displaced on the shelf because there's a lot of regional preferences around different types of products that sell nationally. So I think it's a little hard to say what could be displaced in that process. But from our standpoint, we think opening up more shelf space is just -- is a big tailwind for our business.

Great. I appreciate that color. Second for me, just on the loyalty initiatives. You have ALP and FRE rewards programs online. Just wanted to get some color on how those are trending in terms of program growth and engagement, and if there's any noticeable difference in spend from these consumers in those loyalty ecosystems.

Yes. Look, I think having rewards programs on any D2C site is a smart strategy for a D2C brand because you're able to engage with those consumers that are loyal and coming back to purchase and engage with your brands. And those are really the customers that we highly value. And so as we continue to grow that program, we'll continue to evolve and engage with those consumers, and they're certainly the most valuable to us. And that first-party data and being able to understand their preferences is something that we're really focused on.

Yes. And look, I'd like to add to that as well, both FRE and ALP, I think where we're particularly excited is the engagement with our subscription sign-ups on both platforms. While we haven't specifically pointed out what that growth is, we're very encouraged with the consumer adoption around our subscription service.

The last question comes from Gerald Pascarelli from Needham.

Just on Modern Oral. Obviously, it's another very strong quarter, another very strong guidance raise here. But the guidance does imply that the trends that the revenue will slow, I think, to like mid-single-digit growth sequentially if you use the midpoint of the updated guidance here. So if you could maybe just talk about some of the dynamics. Was there a potential pull forward in revenue in 3Q? Or is it fair to assume that there may be a certain degree of conservatism embedded in the new outlook just given some of the category dynamics? So any color there would be helpful.

Yes. Gerald, great question. Thank you for asking. Look, I think the -- while we're excited about sort of the guidance increase, I think the area that we would point out is as we go out and we get on shelf and we negotiate those deals to get on shelf, that comes at the expense of contra revenue. And so I think in the out quarters, what you could expect from us is really to talk a little bit of the differential between our gross sales and net sales because of that dynamic of contra revenue. But that's really the area that speaks to your question.

Got it. My next one is on gross margin for Stoker's specifically. Historically, a segment with gross margin that ranged in the high 50s or in the mid-50s to the high 50s. And over the past 2 quarters, now you're above 60%, which comes seemingly with negative mix shift from higher revenue growth in your Modern Oral portfolio. So if you could just help us bridge what's driving this really strong margin? Have the margin profiles on both FRE and ALP come up maybe relative to where they were a few months ago as you continue to scale the brand? And I guess just like a long-winded way of asking like what's driving the 60% plus margin in Stoker's?

Yes. Thanks for the question. So what's driving the higher margins in the segment is really mix. And what we're seeing is that we have a higher D2C in the Modern Oral part of that business. I think the thing that's important to keep in mind is that our freight expense is actually in SG&A and not in cost of goods. And so when you look at it, when you include the SG&A portion of that freight that's attributable, you will see some compression on the margins at the EBITDA line. But that's part of the driver. The other part of the driver is tariffs on a go-forward basis, we would expect to have more of an impact on tariffs. So as I think about the short term over the next couple of quarters, I would expect to see those margins come down just a bit due to margins, but also we'll still have a higher mix of D2C, which should elevate. But I'd expect net-net for those margins to come down just a bit.

Perfect. And then if I could just squeeze one more in. Just going back to some of the promo commentary. Graham, if you could just maybe provide I don't know, your near-term outlook on the category, what you expect from the promotional environment and whether or not you expect it to maybe become a little more rational in 2026 than it is currently? I would just love your thoughts there.

Yes. I appreciate the question. Look, you've got three well-run, well-financed companies with incredibly strong balance sheets. And they really -- this category sort of is an area that they have to win in, right? And so I think that with that as the backdrop, as they all fight for the consumer, I would anticipate that the promotional environment would be -- would remain healthy, driven by the large competitors in the category. And from our standpoint, we're really focused in on building brand, building the connection with the consumer, both with our FRE and ALP properties and being really mindful of how we spend against the funnel and opening up for consumers. We certainly don't have the same types of resources that the large companies do, but we believe that we're -- our balance sheet for our size is it puts us in a really good position to sort of strike in the areas that make sense for our brands. And so we're excited about the promotional activity from the standpoint of the growth of the category. This is the way the category gets to $10 billion or north by the end of the decade is by the conversion of cigarette consumers into Modern Oral, and there's no better companies to do that than the folks that own those cigarette brands. So I remain bullish on the category. I'm particularly bullish on the large manufacturers converting consumers into Modern Oral. And I'm particularly excited about our brands and the properties of our brands relative to the variety of nicotine strengths, the flavors as well as the mouth feel. I think that when we have a consumer that tries our product, we have a really good shot at converting that consumer. And so I don't anticipate that the landscape will lighten up anytime soon from a promotional standpoint. It's been going on for over a year now. There has been some large company in the space that has been on promotion at some point in time for well over a year now. And so I don't think it's going to change anytime soon from that standpoint. But we're just bullish and excited about our opportunity to win consumers because of our brand as well as the features and benefits of the product.

That concludes our Q&A session. I will now turn the call over to Graham Purdy for closing remarks.

Thank you so much, everybody, for joining the call this quarter. Certainly really excited about our Q3 results and really excited to talk to you as we bend around to 2026. So thank you so much for taking the time, and we'll talk to you all in a few months.