Good morning, and welcome to the Turning Point Brands Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. It is now my pleasure to turn the conference call over to Andrew Flynn, Chief Financial Officer. Please go ahead. Andrew F

Good morning, everyone. A short while ago, we issued a press release covering our Q2 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 second quarter results were better than expected and demonstrated continued progress against our plan. Revenue increased 25% to $116.6 million for the quarter, including $30.1 million in Modern Oral revenue. Modern Oral now accounts for 26% of our total revenue. Adjusted EBITDA increased 15% to $30.5 million for the quarter. We are increasing our adjusted EBITDA guidance to a range of $110 million to $114 million, up from $108 million to $113 million, inclusive of significant sales and marketing investments. We are increasing full year consolidated nicotine pouch sales guidance to a range of $100 million to $110 million, up from $80 million to $95 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 mouthfeel and flexible nicotine levels have resonated with consumers, and we continue building FRE's presence in bricks and mortar. During the quarter, white pouch sales increased by nearly 8x year-over-year and was up 35% sequentially. We believe ALP is now one of the top D2C pouch brands in America and is poised to expand into retail sooner than initially expected. We believe the nicotine pouch space, like most other nicotine businesses, will ultimately feature 5 to 6 widely distributed brands that command most of the market. Analyst expectations for the size of the category differ, but most now believe it will approach $10 billion in manufacturers revenue by the end of the decade. Our Q2 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 refining our route-to-market strategy to prioritize white pouch while continuing to generate strong cash flow from our heritage brands. As we mentioned last quarter, 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 and developing U.S. manufacturing. We have been particularly encouraged by our ability to identify and onboard new sales talent. Our goal is to approximately double the size of our 2024 sales force by the end of 2026. So far, we are ahead of schedule and pleased with the initial results. The rest of the Stoker segment portfolio also performed better than expected in the quarter. Overall, Stoker's revenue increased 63% to about $70 million, reflecting a 3% decline in looseleaf, a 4% increase in MST. And as April mentioned, our Modern Oral revenue increased by nearly 8x. During the first quarter, Zig-Zag revenue was down 6.9% to $47 million, but essentially flat sequentially despite our focus on the white pouch category during the quarter. For modeling purposes, people should recall that in the second half of the year, we will continue to face difficult year-over-year comps due to the wind down of our CLIPPER business and the deemphasis of the cigar category. With that, I'll hand the call over to Summer to walk through the progress of our key go-to-market initiatives.

Thank you, Graham. As he shared, we've made exciting progress in the Modern Oral category so far in 2025. Throughout the quarter, we continued to receive favorable consumer and trade feedback, reinforcing our portfolio's meaningful points of difference in strength, moisture and flavor. We also continue to see increasing order and repeat purchase rates online and in wholesale. This strong performance continues to give us confidence in our brand investments, particularly in sales and marketing. Key initiatives in this space include: first, we will continue growing the size of our sales force to increase the frequency of store visits with a focus on expanding distribution, improving brand merchandising and minimizing out of stocks at retail. As a result, we expanded our distribution and product assortment with notable chain partners throughout the quarter. Second, strategic marketing campaigns to accelerate brand awareness and consumer loyalty. For example, in the quarter, we announced a long-term partnership with Professional Bull Riders or PBR. Few sports deliver quite like PBR, and we believe this opportunity will enable free to connect with consumers who appreciate authenticity, seizing the moment and pushing boundaries, core tenets that align with FRE’s brand ethos. We marked our debut with this partnership at the PBR World Final Championship at AT&T Stadium in May, where the free brand was woven into fan experiences and the competition itself. We are looking forward to the PBR season officially kicking off this fall and integrating this partnership into 360 marketing campaigns. We believe in the importance of building our brand for the long term, and we'll continue to invest to support growing consumer loyalty. With regards to Zig-Zag, we continue to execute marketing and sales initiatives that build upon our 145-year legacy and solidify our premium position in papers, cones and wraps. Recent new product introductions include the launch of hemp cones and pop tubes, which are singular cones available in our unbleached variety and sold in a reusable premium tube. We have solid traction during this introductory period with more brand news to follow in upcoming quarters. As we shared last quarter, we anticipate second half headwinds within the Zig-Zag segment from cigars and CLIPPER lighters. Our expansion plans in these categories included investments behind some lower-margin products, which we deemphasized in light of tariff impacts and our reallocation of time and resources to our nicotine pouch initiative. In closing, we continue building our brands for the long term, executing against our omnichannel plan and winning new consumers. We will continue to prioritize strategic investments to maximize the value of our world-class brands and further strengthen our distribution capabilities. Let me now turn the call back over to Andrew to go through our financial results.

Thank you, Summer. Sales were up 25% year-over-year to $116.6 million for the quarter. For the quarter, gross margin was 57.1%, which was up 310 basis points year-over-year and 110 basis points sequentially. The change in margin is mix driven. Reported SG&A was $40.3 million for the quarter and up $3.9 million sequentially. The increase on a sequential basis is driven by continued investments in sales and marketing as well as temporarily elevated outbound freight charges. Adjusted EBITDA was up 15% year-over-year to $30.5 million for the quarter and a 26.1% margin. Going into segment performance. Zig-Zag sales decreased 6.9% year-over-year to about $47 million for the quarter and is in line with recent quarterly performance. Gross margins declined 410 basis points, driven primarily by product mix due to an accelerated exit from our CLIPPER business. Stoker's net sales increased 63% year-over-year to almost $70 million for the second quarter. Net sales for the MST portfolio grew 4% year-over-year to $29 million in the quarter. Share in-store selling was up 60 basis points year-over-year to 11.8%. Stoker's chewing tobacco was the #1 chewing brand in the quarter, gaining 160 basis points of share to 32.7% according to MSAI. Category performance was driven by a larger decline in premium loose leaf with Stoker's benefiting from consumer trade down. Our Modern Oral nicotine pouch sales, FRE and ALP were up nearly 8x year-over-year, achieving total revenue of $30.1 million, a 35% sequential increase. As Graham mentioned, white pouch accounts for 26% of our total revenue mix. Moving on to the balance sheet. We ended the quarter with $109.1 million of cash and free cash flow for the second quarter was $11.2 million. CapEx for the quarter was $3.9 million. During Q3, we will have our first coupon payment on the $300 million, 7.625% bond that we issued in February of 2025. On to guidance and other items. As previously noted, we are increasing our full year 2025 adjusted EBITDA guidance to $110 million to $114 million from $108 million to $113 million and also increasing our anticipated total Modern Oral sales range to $100 million to $110 million from the previous range of $80 million to $95 million. This guidance reflects increased investment in our go-to-market plan as well as tariff and currency-related impacts. For modeling purposes, the effective income tax range is 23% to 26% on a go-forward basis. Budgeted CapEx for 2025 is $4 million to $5 million, exclusive of projects related to our Modern Oral business. We expect to spend between $3 million to $5 million for the full year to supplement our Modern Oral PMTAs. Now, let me turn it back over to Graham.

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

[Operator Instructions] Your first call comes from the line of Eric Des Lauriers.

Congrats on a very impressive quarter here. My first question is on ALP. Graham, I think you mentioned plans for the brick-and- mortar rollout were ahead of expectations. I'm just wondering if you could expand a bit on that and just how we should be thinking about the rollout of ALP from e-commerce to brick-and-mortar.

Yes. Look, I think that we've been pretty excited about the online results. In our estimation, they've grown the brand into one of the largest D2C brands. And I think that's given the team a lot of confidence to move forward with starting in bricks and mortar. It's super early innings. And I think that as the bricks and mortar matriculate, obviously, they're a small sales organization right now. And so I would expect them to sort of plot along and gain stores over time as we sort of bend around the end of this year as they kind of just started the thought process of getting into it.

Got it. And should we think of the rollout for ALP as kind of following in the stores where FRE already is? Is it a bit of a different team or go-to-market strategy there? And then just kind of related to all that, just wondering how conversations with national chains are progressing.

Yes, I'll take the first part of that question. Look, I think that inevitably, our goal with FRE is to be ubiquitously distributed across the United States. So eventually, there should be total overlap of those 2 brands. I think in the early innings, given the different sizes of the organizations, it will be a little bit hit and miss in terms of where that overlap may or may not exist.

And then with regards to expanding FRE in other national chain accounts and throughout the United States, we continue to see progress with the chains that we've spoken about in prior quarters. And throughout Q2, began to make significant progress with other nationally large recognized chains and are in the process of expanding in their geographies across the United States. So we're excited about the momentum that we have and more to come in short order.

Your next question comes from the line of Ian Zaffino with Oppenheimer.

I wanted to just get a sense about the white pouch production, tariffs that you might be facing and then potential to maybe move production out of India.

Ian, Andrew here. So as it relates to tariffs, as you've seen in the news, there's -- it's a dynamic environment. And what we're doing is we're focused on controlling our controllables. So we've built an inventory position around that product. So that gives us some insulation from a tariff increase -- we've also been negotiating with some of our suppliers across the board to get some reductions in our cost of goods. And also, we've been looking at taking some price increases in different product lines. So we're managing the tariff headwind as best we can. And so as it relates to India and our production capabilities there, we've got plenty of capacity. So good news is we're feeling good about that. And then in terms of the mitigation around the tariff exposure and bringing production to the U.S., we continue to invest. You'll see the CapEx was around $3.9 million for the quarter. So we continue to invest in that capability here in the United States.

Okay. And then as a follow-up, would you be able to give us a breakout between ALP and FRE? And then also, what type of slotting fees are you facing now? Or did you pay last quarter? And how do we think about that going forward as far as cost to roll out and to expand distribution?

Sure thing. So as much as I would love to disclose the ALP and FRE split, we've got a joint venture relationship with ALP, and it's something that we're not able to provide in terms of that split. In terms of slotting fees, look, this is a very exciting segment of the market, and it's competitive. And so we've got to pay fees to get into chains and all kinds of other retailers. And so that is something that we have invested in, and it's something that we will continue to invest in, and it's reflected in our top line guidance for the white pouch range that we disclosed this morning.

[Operator Instructions] Your next question comes from the line of Aaron Grey with Alliance.

Congrats on the quarter. First question for me, I just wanted to talk about gross margins a bit, particularly Stoker's gross margin remains healthy. You called out mix kind of for the overall improvement in gross margin. Obviously, Stoker's was a highlight there. So just any color you can provide there, particularly as we think about pouches within that, that's a higher mix. Historically, you had pointed to lower margins from pouches, but maybe better than you initially had expected. There's a lot of dynamics moving between DTC and brick-and-mortar. So maybe just any color in terms of how best to think about gross margins, particularly as we move forward. And it seems like we're going to get increasing mix in terms of coming from brick-and-mortar.

Yes. Thanks for the question, Aaron. Look, I think that we've got our Stoker's heritage business, which is our MST and our chewing tobacco brands. The margins there remain healthy and expanding. As it relates to Modern Oral, I think you rightly pointed out, there is -- you do have a mix of D2C versus bricks and mortar. But I think in the early innings, we're pretty excited about where the margin profile of the business is. Now I think that we need to underscore that, as Andrew had mentioned in the last question, we intend to invest behind the brand. And so I think you can see a bit of lumpiness within the white pouch segment for us. But over the long haul, we have -- we're very bullish on the margin profile of the segment.

I appreciate that color there. Second question for me. Just as we think about pouch in the second half of the year. So guidance implies it will be roughly flat versus first half. I know there's some volatility in terms of new distribution and replenishing. So I wonder if you could provide some color in terms of new distribution you're expecting in the back half and what's embedded within that? And then maybe also some color in terms of how you're incentivizing the sales team that you're looking to double there. So any color you can provide in terms of how you're incentivizing them because this is a kind of different category in terms of growth you're seeing than some of the legacy categories you've seen, maybe where you're sourcing some of that sales force from?

Sure. So look, I think as long as it seems like it's been around, ALP has only been in the market for a few quarters now. And I think that a little bit of the guidance range is reflective of some of the unknown relative to the bricks-and-mortar launch and then ultimately, what the growth profile of both the brand properties will be on the D2C platforms. In terms of how we go out and gain stores, obviously, that's a function of the amount of feet that you have on the street. We have continued to expand our sales force. I think we noted in the call that our plan is to double the 2024 sales force by the end of 2026. And obviously, with that expanded sales footprint, we would expect increased rates of distribution from our historical averages. So I think we're pretty excited about the way that we've resourced the brand at this point in time. We're in a trench warfare format here, and I think that we feel like we're moving our staffing in a direction that gives us the effective capability to compete against the broader market.

And your next question comes from the line of Nick s Anderson with ROTH.

First one for me. Just on the Modern Oral promotional environment. We saw some aggressive marketing activity in the first half of the year. Your gross margin suggests you haven't been participating in this discounting. Just what are you seeing out there in terms of the pricing environment? And how are you planning on positioning your products against maybe a more aggressive promotional backdrop?

Yes. Look, I think that since the category became competitive, meaning once it became a category that was beyond just the market leader, we've seen consistent promotion from one manufacturer to the next quarter-to-quarter. I think what's interesting for us is we're incredibly excited about the promotional environment from the standpoint of building awareness around the category. With the current estimates now sort of cresting the $10 billion by the end of the decade. This is actually how it happens as the large companies spend a ton of money speaking to adult vapers, adult cigarette consumers. And so we're actually very excited about that opportunity. As you've seen with the results of the first 2 quarters of this year, we've had high promotional environments from a large competitor entering the market. You've seen our results. And I think we remain sort of optimistic, number one, around the benefits that our product, we think brings the end consumer relative to the mouth feel and the satisfaction levels that we provide. That's not to say that from time to time, we won't partner with a chain or what have you to increase sort of in-store foot traffic around our brand. But at the same time, we think that we're sort of uniquely positioned in the long haul to be a premium brand in this category. And so that really excites us.

That's great. I appreciate that color. Second for me, just on the MRTP applications and the opportunity there. Is this a path you would consider going down? And if these applications are passed, how would it change the way you could kind of go about marketing your Modern Oral offering?

Yes. No plans at this point in time, and we remain committed to the current PMTA process.

Your next question comes from -- actually, this is the last question coming from the line of Gerald Pascarelli with Needham.

I just had a question on your legacy MST business. Just understanding that you're going to prioritize Modern Oral, which obviously makes sense. Your legacy MST business has been incredibly consistent. It grew again on a very tough comp this quarter. And in the current environment, it's seemingly just very well positioned as a value offering, right? And so just looking forward, how do you think about managing growth and driving continued distribution and market share gains in Stoker's MST with growing and rolling out your Modern Oral business, which is still very early days. So any color on the balance, I think, would be helpful.

Yes. I think what we've seen in the early innings is that there's been relatively strong overlap between the Modern Oral stores that we've focused on gaining distribution in and our Stoker's MST portfolio, which has allowed us the opportunity to cross-sell in those environments. So I think you're seeing a function of the sort of the early day synergy that we actually are really bullish on long term as we grow out our sales force. And look, I think you rightly pointed out, Gerald, that what we've seen from the large competitors and some of their announcements over the last couple of years is that premium MST has been very susceptible to the white pouch category. And what we see within the underlying dynamics of MST is that there's still a large audience of committed dippers in the U.S. We believe we've got one of the best brands that has incredible quality around it, and we continue to provide value to those consumers. And from an MST brand standpoint, we feel great about sort of the potential opportunity that's still in front of us. There's still a lot of runway in terms of store growth that we can get into. There's still pricing opportunities in the segment. And so I think we're still bullish on our MST business on a go-forward basis and think that there's a ton of opportunity out there to harvest.

Got it. Super helpful. Just last one for me. I know it's early, obviously, but if you could share any learnings that you may have had over the past 2 quarters with both of these brands just in terms of the consumer reception or any feedback that you've had -- if you've had any, that would be helpful.

Yes, sure. We continue to hear incredibly positive feedback from both consumers and retailers, as Graham has talked about, the power of the brand and the unique differences between our products relative to competition, including our variety of nicotine strengths, mouth feel and moist pouch. So we continue to see increased reorder rates, increased trade receptivity and are very excited about the opportunities as they proceed. We also, as I mentioned on the call, recently participated in the PBR event in Dallas in May. We had a variety of consumers that we were able to engage with live. We were very active in that event and the consumer reception while we were there was really tremendous.

At this time, there are no further questions. I'd like to turn it back over to Mr. Purdy.

All right. Thanks, operator. Appreciate everybody joining the call today. We're pretty excited about our Q2 results, and we look forward to talking to you in about 90 days or so about Q3.

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