Turning Point Brands, Inc. (TPB) Q3 2026 Earnings Report, Transcript and Summary

Good morning, and welcome to the Turning Point Brands Third Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Andrew Flynn, Chief Financial Officer. Please go ahead.

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 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, David Glazek.

Thanks, Andrew, and good morning, everyone. Before discussing the results of the quarter, I'd first just like to say how excited I am to serve as the CEO of Turning Point Brands. As some of you know, I've been involved with the company for nearly 14 years, including the past 4 years as Executive Chairman, where I work closely with our leadership team on a daily basis. Over that time, I've had the pleasure of seeing firsthand the strength of our brands, the capabilities of our team, and our ability to adapt and capitalize on emerging opportunities. I'm incredibly proud of what we've accomplished to date and see tremendous potential in what lies ahead. Our strategy remains unchanged, investing cash flow from our heritage businesses to build leading brands in Modern Oral. Our investments in brands, people, and capabilities will continue to be focused on maximizing the value of this transformational opportunity. Now turning to the third quarter results. We delivered another strong quarter led by Modern Oral. Consistent with our expectations, Modern Oral gross sales were up 114% year-over-year and 8% sequentially, while net sales were up 103% year-over-year and 9% sequentially. We're encouraged by the performance of both of our Modern Oral brands, FRE and ALP. We remain focused on continuing to build convenience store distribution, especially in chain accounts, where the majority of the category volume now resides. These chain placements are critical to establishing durable brands, expanding our consumer reach, and positioning FRE and ALP among the long-term leaders in the nicotine pouch category. We expect our investments in distribution to differentiate FRE and ALP from smaller competitors and help create durable long-term annuity streams. In the quarter, Modern Oral accounted for 49% of our total revenue. That's up from 31% in Q3 2025. Our heritage businesses also performed well. Zig-Zag sales improved sequentially, and the Stoker's MST business continues to outperform the category. Now turning to our strategy. As we've communicated before, Modern Oral remains our primary growth driver. We're committed to making the investments necessary to build a leading position in the category. Our strategy is centered on 3 key priorities: gaining consumer traction, expanding distribution, and building the infrastructure that's necessary to scale. Importantly, we're seeing meaningful progress across each of these 3 priorities as we enter our next phase of growth. First, we've demonstrated that our brands resonate with consumers. The success of FRE and ALP, particularly in the direct-to-consumer and independent retail channels, has validated our product quality and brand positioning. We are now seeing that traction translate into encouraging results in chain accounts, which further reinforces our confidence in the long-term potential of these brands. Secondly, we're expanding into the channels that matter most. We're making progress bringing FRE into larger regional and national chains, while ALP's expansion into brick-and-mortar continues to gain momentum. We are on track to increase our chain store count by more than 70% during 2026. This reflects in large part the strength of our long-term retail partnerships. Chain account placements provide access to a significantly larger consumer base and establish the durable distribution footprint that's necessary to become one of the ubiquitously distributed brands in the category. Third, we're putting the infrastructure in place to support that growth. Our investments in sales force expansion, retail execution, and domestic manufacturing are designed to support our expanding distribution footprint and improve operating efficiency over time. As we've scaled the distribution, 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 believe this growth is critical to growing share in the nicotine pouch category and should also benefit Zig-Zag and Stoker's going forward. Onshoring the supply chain remains an important driver of long-term profitability and a core strategic priority. As we've mentioned before, we currently expect U.S. manufacturing to commence in 2027. The progress we're making across these priorities reinforces my confidence in our strategy and highlights our ability to execute on the opportunities ahead. As we continue to scale, we're focused on leveraging our expanded distribution footprint and growing brand momentum into sustainable revenue growth and profitability. I'll now turn the call over to Summer to discuss our commercial progress.

Thank you, David, and good morning, everyone. We are encouraged by the progress we are making across our commercial initiatives as we expand the reach of FRE and ALP. Our approach is centered on creating a reinforcing cycle of growth. Broader distribution increases consumer access and trial, growing demand drives repeat purchases and stronger in-store performance, and that success creates opportunities for further distribution expansion. We are beginning to see this dynamic take shape across both brands, reinforcing our confidence in our go-to-market strategy. Starting with commercial momentum. FRE continues to expand its presence across national retail chains while also securing broader product assortments within existing accounts. As David said, we are on track to increase our chain store count by more than 70% during 2026. Importantly, we are encouraged by the early performance of FRE in newly added locations, supported by our expanded sales coverage, merchandising, and shelf visibility. For ALP, we're making progress expanding distribution across independent retailers and regional chains with discussions among larger national chains beginning to take shape. Stepping back, we believe the strength of our 2-brand portfolio is an important competitive advantage. FRE and ALP provide multiple avenues to reach consumers, expand distribution, and strengthen our overall position in the Modern Oral category. As we continue building both brands, we believe it's important to evaluate their combined momentum alongside their individual performance. Turning to marketing and brand building. We continue to leverage strategic partnerships, product innovation, and targeted campaigns to strengthen consumer awareness and engagement across our brands. For FRE, we are building on our existing TKO partnership to deepen consumer engagement and strengthen the brand's presence at retail. We are now beginning to incorporate partnership branding into our in-store merchandising, creating a more direct connection between our marketing initiatives and the point of purchase. As our brands scale, we are also becoming more selective in how we allocate marketing resources. Programs that were valuable in early awareness may offer less relative impact today as larger opportunities emerge. We are applying those learnings to redirect investment toward initiatives with the greatest expected returns. Across both brands, we're taking a more customer-centric approach to innovation. Through FRE Labs, we're introducing limited edition flavors and gathering direct feedback from adult consumers to help inform future product offerings. Similarly, ALP's New Frontier Collection introduced 3 of the brand's most requested flavors, supporting a broader marketing campaign. These initiatives reflect our focus on the individual consumer and brand engagement and ultimately, our response to evolving preferences. In Zig-Zag, we remain focused on strengthening our core rolling papers business, accelerating growth in cones and wraps, and expanding brand relevance in priority markets. Building on the momentum of our Life's Fast, Burn Slow platform, we're evolving our brand strategy beyond traditional advertising to drive cultural relevance and retail activation through strategic partnerships, targeted media investments, and consumer engagement. Our focus is on translating these investments into stronger in-store visibility, expanded distribution, and sustainable growth across the portfolio. Let me now turn the call over to Andrew to go through our financial results.

Thank you, Summer. Starting with consolidated results. Net sales were up 27.0% year-over-year to $151 million for the quarter. Growth was driven primarily by Modern Oral. Gross profit of $85 million increased 21%, driven by Modern Oral. Gross margin was 56%, which was down slightly versus the second quarter when normalizing for the positive impact of the tariff refund. Reported SG&A was $75 million for the quarter, which was down almost $2 million sequentially. As discussed previously, 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 and flexible. We took advantage of this flexibility in Q3 and scaled back in areas where we thought the returns were inadequate. We will continue to assess the effectiveness of these initiatives and allocate capital towards the highest return opportunities. Conversely, we can scale back spending and redeploy those resources towards the highest return. This flexibility gives us confidence to invest where we see momentum while maintaining disciplined capital deployment. Adjusted EBITDA was down 41% year-over-year to $18 million for the quarter. The decline was attributed to our strategy to increase sales and marketing investment. Adjusted EBITDA was up sequentially by $3 million or 21% due to higher gross profit and reduced SG&A. Moving to segment performance, beginning with Stoker's. Stoker's segment net sales increased 52.0% year-over-year to $114 million for the quarter. The Stoker's segment accounts for 75% of consolidated net sales. The growth was driven by Modern Oral nicotine pouch net sales, which increased 103% year-over-year, achieving net revenue of $74 million. Modern Oral gross revenue was $94 million, up 114% year-over-year. Performance was driven by continued brick-and-mortar expansion in ALP as well as momentum in large chains for FRE. For the quarter, Modern Oral accounted for 49% of consolidated net sales, up from 31% a year ago. Heritage Stoker's brands net revenue increased 3% year-over-year to $39.0 million for the quarter, driven by continued share growth in MST that was partially offset by anticipated declines in loose leaf. Stoker's gross profit increased 42% to $64 million. Gross margin decreased 416 basis points to 56.0%. Zig-Zag segment net sales were down 15% year-over-year to $37 million for the quarter. Zig-Zag gross profit decreased 16% to $21 million, and gross margin was 57%, which was essentially unchanged from last year. On to liquidity and capital allocation. Third quarter free cash flow was $3.5 million, and we ended the quarter with $251 million of cash. In the quarter, we repurchased $10.0 million of stock and continue to take a measured approach to our capital allocation. Now to our guidance. We remain confident in achieving our full year outlook provided on September 21, 2026. Modern Oral gross sales guidance is $330 million to $350 million, and our net sales guidance is $260 million to $270 million. We are also maintaining our full year adjusted EBITDA guidance of $70 million to $80 million. We continue to expect an effective income tax rate between 23% to 26% on a go-forward basis. Fourth quarter CapEx is in line with previous annual estimates of $1 million to $2 million in the fourth quarter, excluding projects related to Modern Oral. In support of our PMTA, we expect to spend roughly $3.5 million in the fourth quarter. 2026 has been the year of building the platform and gaining customer traction. We are encouraged by the results. Many of the investments we've made have been focused on accelerating distribution and gaining customer trial. As our retail footprint expands and sales continue to grow, we expect our cost to be leveraged over a larger revenue base. With that, I'll turn it over to the operator to begin questions.

[Operator Instructions] Your first question comes from the line of Eric Des Lauriers with Craig-Hallum Capital Group.

So my first question, just on the net revenue guidance for Modern Oral. It implies sequential growth into Q4 could range from a slight decrease to a slight increase from Q3 levels. So just a couple of questions there. Just hoping if you can help us kind of unpack that. What sort of is implied in that range? What are the dynamics you're seeing across your channels? And then for the brick-and-mortar distribution rollout for FRE and ALP, what inning are we in for both of those brands?

Sure. So I would say, taking a step back, nothing is changing in what we're seeing with the Modern Oral business. We continue to see strong consumer adoption. I think across the different data that we track, our sales to wholesale, wholesale sales to retail, and then consumer pull from retail, we continue to see strength. So nothing has really changed in the trajectory. We updated the guidance, as you know, on September 21. And so we don't have a lot of additional transparency since then. I think as you know, the cadence of the revenue throughout the quarter tends to be somewhat back-end loaded. So I think we are optimistic, but just don't have a lot of additional data since September 21.

I would just add, Eric, on the brick-and-mortar side in terms of the innings that we're in, I think we're in early innings for both brands. As you heard, David and I both mentioned, recent retail wins are looking really positive, and we sort of see that continued confidence toward increasing more than 70% in terms of our chain store count by the end of the year. So pipeline remains strong, but I think we're in early innings for both brands, obviously, a little bit further on FRE in terms of retail distribution, but still plenty of room to go.

All right. Great. That's all very encouraging and encouraging to hear momentum is continuing here. And then domestic manufacturing. So we've seen some manufacturing start-up costs added back to EBITDA each quarter this year. David, you mentioned that you're looking to start in 2027. Just wondering if you have any more color that you can add to some of the investments that you've been making and if there's any sort of sharpening in that potential time frame of when you guys could start ramping?

Yes. Great question. Obviously, we're eager to get going because we do think this is an initiative that has the potential to drive a lot of profitability and improve the margins. What I would say, and I think we've communicated this before, is we are somewhat dependent on the FDA and the timing of the PMTA approval for when we can add a new manufacturing facility. One thing to note, though, is we are not sort of sitting on our hands during this interlude. We're continuing to upgrade the facility. In fact, very recently, we've taken an initiative to add some equipment that should lead to even greater efficiencies going forward. So while we want to get going as quickly as possible, and we don't have great line of sight on to sort of an exact date when that will be possible, we are not sitting on our hands in the interim. I think we're continuing to put ourselves in an even better position for when we are able to flip the switch.

Your next question comes from the line of Aaron Grey with AGP Alliance Global Partners.

First question for me. I just wanted to talk a bit more about potential key wins and distribution gains as we look to 2027 and how that might differ for FRE versus ALP. FRE, you alluded to might be more so focused on national for incremental wins and ALP more so on independents and regional. So just if you could frame out, just given the differences in terms of the channels that you're focusing on for incremental distribution gains, how should we think about the timing of when those wins might come in, whether or not one is more dependent on spring shelf resets or one is just like kind of ongoing? Any color there would be helpful.

Sure. Thanks, Aaron. So I think the way to think about this is that ALP launched online, FRE launched in brick-and-mortar. So FRE is ahead of ALP in terms of the cadence of its brick-and-mortar rollout. And therefore, it's also ahead of ALP in terms of the cadence of its chain negotiations. So what we're seeing for FRE right now is really it's starting to deploy into the chains that it's won over the course of the last year. And one of the things that I think is sometimes frustrating to investors and frustrating to us as well is even when you win a chain, they don't really tell you exactly when they're going to put your product on shelf, right? We kind of talk about the spring reset. That's really when the deals are negotiated when they're actually rolling you out to how many of their stores they're rolling you out. There is still some squishiness in that. So what you see right now with FRE is FRE starting to be deployed in those chain accounts that it won earlier this year. ALP is really attacking the independent brick-and-mortar ecosystem right now, sort of equivalent to what FRE may have done earlier last year. And ALP is now starting to have those chain conversations, so it can try to win chain placements in that spring reset. And I would say the early indications from those conversations are positive. So I think if you roll the tape forward, hopefully, next year, we're sitting here, FRE has got pretty wide distribution in all of these chain accounts that we won this year. ALP has got a bunch of wins and starts to be deployed into those accounts that it negotiates deals for in the spring. Does that make sense?

No, that does. That was great color. I appreciate that. Second question for me. Great to see the continued momentum on distribution gains. I wanted to also just maybe talk about velocity trends in current and legacy stores. Any color you could provide in terms of repurchase rates and kind of sell-through at existing or longer-term stores and how that might differ between FRE and ALP. I understand ALP is a little bit newer in terms of brick-and-mortar stores.

Yes. Look, I think we're pretty encouraged by the velocity that we're seeing in both, right? It's a little bit of a complicated metric, right, because you don't have the same number of SKUs, the same number of flavors and so forth in every store. And so when we look at the velocity metrics, we're really looking at it on a store basis, but then you have to drill 1 level deeper and say, well, what exactly -- which exact SKUs do we have in that store? Right? So I think what we're seeing, not surprisingly, is in the stores where we have more SKUs, the overall velocity is better. That's true for both FRE and ALP. I think, again, encouraging for both brands. I would say the early indications and data that we have with the ALP brick-and-mortar rollout, again, predominantly into independents is, I would say, is meeting or exceeding our expectations. Do you want to add anything to that, Summer?

I think that was great color. As David mentioned, where we have more SKUs, I think we are seeing better velocity for both brands. And encouragingly, in many of the chain accounts that we started in where we had less of an assortment, our progress and momentum from both a velocity and share performance perspective has afforded us the opportunity to increase our assortment over time, and I believe we'll continue to see that as we head into 2027.

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

I just wanted to go back to the guide on Modern Oral for the fourth quarter. Is there any seasonality or anything we need to take into account for? I mean this business has been growing sequentially for a long time. And then I guess the guide really doesn't assume a whole lot, especially on the net side at the high end. So is there like a seasonality going on? Do you have some large chains where you have incremental slotting fees? And I get that you gave guidance in September, but I would imagine you have had data, we update ourselves since then. So I'm just curious in why we're sticking with this guidance. Is there something that you're seeing out there that worries you? Or is this just naturally being conservative? I mean you guys have been conservative consistently. So I'm kind of leaning towards that, but I wanted to hear kind of your thoughts.

Yes. No, look, we're not seeing anything different. There is like some I don't know if you necessarily characterize it as seasonality. There are some like timing issues when you get to the end of the year, if the buyers are sort of buying and loading in late December, it's getting pushed into January. And frankly, that can go either way, right? I mean you do tend to see a lot of volume move at the end of quarters, but there is always some -- a little bit of uncertainty around the holidays because of that. But no real difference in what we're seeing. Anything to add to that, Summer?

Okay. That's fine.

And then on Zig-Zag, I guess, how are you thinking about sales kind of going forward there? Are we seeing -- are we seeing like an acceleration in share shifts maybe to independents or not? Is there -- is that less of a trend now? Kind of give us your thoughts on sales in that channel in like C-stores versus independent and how to think about that?

So I think to directly answer your question on independents versus C-stores and shares, one of the things that's a little bit unique about Zig-Zag relative to the other brands that we have is that there is a decent amount of that volume that moves in the non-measured channel, right? So it doesn't show up in the data sets in MSA or Nielsen or Circana. And so we call that backstreet, think sort of bodegas, smoke shops, those kind of places, which don't report the data in the same way that some of the large chains do. So it's always a little bit more opaque. I think we're fairly comfortable in the stability of the Zig-Zag business. Can it be up or down a couple of million dollars quarter-to-quarter based on sort of individual orders or something like that? Yes. But I think the way that we would characterize it is stable at this point.

Your next question comes from the line of Nick Anderson with ROTH Capital Partners.

First for me, just on the PMTA submissions.

Thank you.

Yes, no problem. We saw a step-up in 2Q and 3Q. You guided for another chunk here in 4Q. Can you just run us through what's been submitted, what remains to be submitted and just the expected go-forward investment there into 2027? Have the applications that would get Louisville online been submitted fully? And if not, when could we expect them to?

Yes. Thanks for the question. I'm going to try to answer this succinctly and inevitably, I'm going to oversimplify it a bit. So I apologize in advance. The short answer is the applications that would allow us to get going in Louisville have been submitted and completed. There is a nuance to this, however, which is that the FDA did give some revised guidance in May that effectively opened up a secondary pathway to market. And for us, one of the consequences of that in the white pouch category is that it is -- there is an opportunity for greater innovation. And so what we are doing is we are prepping a second PMTA submission. In no way does that suggest that we have anything but confidence in the current PMTA submission. But it is a second PMTA submission. We will list U.S. manufacturing in that PMTA submission. And what that will allow us to do is to keep the current PMTA on track in the queue without having to alter the manufacturing site in PMTA 1 because one of the concerns is that if you alter the manufacturing site in PMTA 1 before it's approved, the FDA may come back and ask you to rerun tests with products that come out of that new manufacturing site as part of the PMTA review. So we don't want to do that. So the good news is this May guidance has opened up the secondary path so we can kind of dual track it. We can keep our existing PMTA in the queue, hopefully get that approved quickly without having to add U.S. manufacturing to that and risk sort of disrupting it or sort of going to the back of the line while simultaneously filing a new PMTA that lists U.S. manufacturing. So instead of having to wait for PMTA 1 to be approved, then go back and add U.S. manufacturing, we've got the secondary pathway where a PMTA 2 will list U.S. manufacturing as the primary manufacturing site. Does that make sense?

Yes. That's very helpful color. Second for me, just on the capital allocation side, there's still obviously a lift to be made to get into locations. Just wondering how you view the other larger potential deployment opportunities, maybe M&A or buybacks at these levels. You mentioned the repurchase you made in the third quarter. Given the cash balance you currently have, any color there would be helpful.

Yes, sure. We don't have any expectation for M&A. At this point, this is a pretty phenomenal and unusual organic growth opportunity that we have in front of us. Frankly, just on a personal note, one of the reasons that I'm so excited to step into the role is I really see here a massive, massive opportunity as billions and billions of dollars of cigarette revenue shifts to these new forms of nicotine consumption. And we are really situated in a great place to try to capture a meaningful share of that shift, right? We don't have the golden goose problem of cannibalizing 90% gross margin cigarette sales. So we have been sort of adjacent to some of these large nicotine margin pools historically. Now we think we're able to play in them. And we think we have the right game plan to do that. So I'm pretty excited and very bullish on that. So no M&A, huge opportunity here to capture a meaningful share of this new margin pool. And then on buybacks, look, we are opportunistic. As we've said, obviously, we thought there was compelling value where we purchased last quarter. So that's something that we continue to evaluate on an ongoing basis.

Your next question comes from the line of Gerald Pascarelli with Needham & Company.

My first one is just on EBITDA guidance. I guess, similar to the Modern Oral revenue guidance question. Current guidance is $70 million to $80 million. It implies a very wide range of outcomes in 4Q. I believe the initial expectation was for EBITDA to improve sequentially relative to the $15 million that we saw in the second quarter. And so if you could just talk about the 4Q considerations for us to be mindful of on how you get to the high end versus the low end of where you're guiding, I think that would be helpful.

Sure. Thanks. Let me tackle this and then maybe Andrew can jump in here. So look, one of the issues that we've got, I think everybody knows we've got this investment plan. It's working. It's bearing fruit. We're really grabbing, I think, material share in the white pouch space. We think this is going to have very long-term annuity value. So we're essentially making these upfront investments today to reap what we hope are decades of ongoing sales from these investments. What that has done is it has led to lower EBITDA in the near term, right? And so if we were up around $28 million of EBITDA, a couple of million dollar swing from sort of natural items, timing of things, unexpected health care claims, stuff like that, it doesn't really move the needle. When we're sort of in the range that we've been in the last couple of quarters, $2 million or $3 million of timing-related issues or sort of unusual items can actually swing the number. And so I think that's one of the reasons why you see some of the sensitivity or I guess, why you see some of a wider range at this point. It's sort of that and the fact that, as I said before, we updated it in late September and don't have a ton of additional transparency on it. But I wouldn't really read anything into that other than you can always get a few million dollars of swing up or down that you can't really anticipate. So that's really it, to be frank. Do you want to add anything to that, Andrew?

No, nothing to add. I think you got it.

Okay. And then my second question is just on ALP and then the growth prospects for 7-Eleven. I know you've been testing there. Some of our checks indicate that the brand is doing very well. Like in our local store, it has 14 facings. It's the only brand other than the 3 market-leading brands that are actually on the shelf and the products are turning. So maybe just curious if you could talk about what you're seeing more broadly in the testing there? And then if you think that this could become a more meaningful distribution opportunity for ALP in 2027.

Yes. Look, I think we're very pleased with the results. It's done quite well there. Frankly, it's doing quite well everywhere. Like FRE, the more facings, the better. So as you noted, you had 14 facings in the 7-Eleven you were visiting. So yes, we think it can do very well. I would say one of the things that we are noting is that we think we are early days in terms of the life cycle of FRE and ALP. Somebody, I think, asked earlier on one of the questions, what inning we're in, right? We still think we're in very early innings. However, and this is a little bit of a caveat, we do think that the category is starting to mature. And that's a very good thing for us because what we see going forward is fewer players, some of the smaller guys getting weeded out, and both FRE and ALP really being surviving brands that make it to the other side of that moat, where both of them can become, the phrase we like to use is ubiquitously distributed. What we basically mean by that is you can find it in most of the stores you're in. And so we think there's going to be a handful of brands carried in most of the stores in the United States, and both FRE and ALP have a great shot of being in that handful of brands. So while it is still early innings for FRE and ALP, and in some respects, even earlier innings for ALP when it comes to brick-and-mortar, we think there is a maturation of the category going on that is going to inure to our benefit as there is a little bit of a culling of the herd starting to take place.

There are no further questions at this time. I will now turn the call back to David Glazek, CEO, for closing remarks.

Thanks, everyone, for joining the call. I appreciate it. This is my first call as CEO. And as I mentioned before, I'm really excited by the opportunity. The team is energized and ready and engaged to go attack the opportunity in front of us. And I think with that, we look forward to speaking with you in February and going through the full year results. So thank you very much for joining. We very much appreciate it. Thank you.

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