Good morning and welcome to the Turning Point Brand Q1 2025 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 any 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, TurningPoint's CFO.

Good morning, everyone. A short while ago, we issued a press release covering our Q1 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 the 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 first quarter results were better than expected and demonstrated continued progress against our plan. Revenue increased 28% to $106.4 million for the quarter, including $22.3 million in modern oral revenue. Adjusted EBITDA increased 12% to $27.7 million for the quarter. we reaffirm our previously announced 2025 adjusted EBITDA guidance of 108 to 113 million we are increasing full year consolidated nicotine pouch sales guidance to a range of 80 to 95 million from 60 to 80 million this includes both free 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 by nearly 10 times year over year and two times sequentially following the launch of our out supply company jv with tcn in q4 2024. we believe the white nicotine pouch space will ultimately feature four to five widely distributed brands that command most of the market analyst expectations for the size of the category differ but most believe it will exceed five billion in manufacturer's revenue by the end of the decade our q1 performance supports our long-term target of double-digit market share in that space in order to best position the company to capitalize on this multi-billion dollar opportunity we are making significant investments in the business and refining our route-to-market strategy to prioritize free and out while continuing to generate strong cash flow from our heritage brands. Key initiatives include reallocating sales and marketing resources, increasing the head count of our sales force, improving our online presence, ramping up investment in chain accounts, and exploring U.S. manufacturing to improve white pouch profitability and mitigate supply chain risk. The rest of the Stoker segment portfolio also performed well in the quarter. Overall, Stoker's revenue increased 63% to $59.2 million, reflecting a 4% increase in loose-leaf, a 10% increase in MST, and $22.3 million in modern oral revenue. During the first quarter, ZigZag revenue was up 1%. Excluding Clipper, it was up 3%. For modeling purposes, people should recall that in Q2, we will face difficult year-over-year comps due to significant zigzag segment load-in associated with our re-entry into the CIGAR category and very strong 18.5% Stoker segment growth in Q2 2024. With that, I will hand the call over to Summer to walk through the progress of our key go-to-market initiatives.

Thank you, Graham. As you mentioned, we've made exciting progress in the modern oral category so far in 2025. We continue to receive favorable consumer feedback, strong trade receptivity, including from prominent chains, and increasing reorder and repeat purchase rates in wholesale and online. This strong performance gives us confidence to invest behind the brands. Key initiatives in this space include, first, 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. Second, strategic marketing campaigns to accelerate brand awareness and consumer loyalty. For example, we have begun billboard placements along Interstate 95, where we recently started a trial with 7-Eleven, along with initiatives with other large nationally recognized chains. With regards to ZigZag, we have had some exciting recent initiatives. Most notably, we participated in Rolling Loud and the takeover of Times Square in New York City over the weekend of 420 to celebrate our heritage and promote the launch of our new hemp cones. Within the zigzag segment, we anticipate headwind from cigars going into Q2 as our expansion plans in this category included investments behind some lower-margin cigar products, which we are de-emphasizing in light of potential 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 omni-channel plan, and winning new consumers. We will continue to make strategic investments to maximize the value of our world-class brands and further strengthen our extensive distribution capabilities. Let me now turn the call back over to Andrew to go through our financial results.

Thank you, Summer. Sales were up 28% to $106.4 million for the quarter. For the quarter, gross margin was 56%, which was down 220 basis points year-over-year, but essentially flat sequentially. The change in margin is mixed-driven. Reported SG&A was $36.4 million for the quarter and up $1.8 million sequentially. The increase on a sequential basis is driven by the full quarter impact of ALP, as well as higher outbound freight charges. These costs were partially offset by lower severance costs. Adjusted EBITDA was up 12% year-over-year to $27.7 million for the quarter at a 26% margin. Going into segment performance, zigzag sales increased 1% year-over-year to $47.3 million for the quarter, despite pressure from the unwinded Clipper relationship. Gross profit for the quarter decreased 7.2% versus the prior year, but increased 2.9% from Q4. Copping a multi-year high point from last year, margin decreased 490 basis points to 54.1% for the quarter and was essentially flat sequentially. Stoker's net sales increased 63% year-over-year to $59.2 million for the quarter. Net sales for the MST portfolio grew 10% year-over-year to $26.3 million in the quarter. Share of in-store selling was up 50 basis points year-over-year to 11.2%. Stoker's Chewing Tobacco was the number one 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 TPB's volumes benefiting from consumer trade down as Stoker's volumes grew from the previous Our modern oil nicotine pouch sales, free and out, were up almost 10x year over year. Modern oil revenue for the quarter was $22.3 million. We ended the quarter with $99.6 million of cash. Recall that we typically take delivery of tobacco leaf purchases in the first quarter, but do not pay until the second quarter. Free cash flow for the quarter was $12.4 million and CapEx was $2.2 million. On to guidance and other items. As previously noted, we are reaffirming our full year 2025 adjusted EBITDA of 108 to 113 million dollars. We are increasing our anticipated total modern oral sales range to 80 to 95 million dollars from the previous range of 60 to 80 million dollars. This guidance reflects increased investment in our white pouch business as well as 5 to 7 million dollar tariff impact on our purchases of imported products, assuming a 10% tariff rate, and FX headwinds in the zigzag segment from a stronger euro. For modeling purposes, the effective income tax range is 23 to 26% on a go-forward basis. Budgeted CapEx for 2025 is $4 to $5 million, exclusive of projects related to our modern oral business. We expect to spend between $3 to $5 million for the full year to supplement are modern oral PMTAs. Now, let me turn it back over to Graham.

To conclude, we're pleased with our start to 2025. And now I'll turn it over to questions.

At this time, I would like to remind everyone in order to ask a question, press start and the number one on your telephone keypad. We will pause for just a moment to compile the Q&A. Your first question comes from the line of Eric DeLurie, Craig Halum Capital Group.

Please go ahead. thanks for taking my questions and congrats on the very strong results here um was wondering if you could comment on the distribution gains um in modern oral in the quarter um any kind of color on store accounts or online distribution gains would be helpful and then just as a kind of related question there um do you have an expectation for when you expect to roll out ALP to brick-and-mortar stores? Thank you.

Hey, Eric. This is Summer. I'll take the first part of the question and turn it over to Graham for the second part. Look, we continue to make great traction with retailers, including with high-profile retailers. I know we mentioned 7-Eleven on the call, and we're in active conversations with other top nationally recognized chains.

We have some rollouts and enhancements planned for later this year, nothing that we're quite comfortable sharing publicly yet but some exciting stuff on the come here there thank you for the kind uh the kind words there to open the call the uh the alp plan is uh you know somewhat different than uh than the free plan as we uh think about the early days of the alp distribution principally online direct to consumer and sort of leveraging the the marketing apparatus they have but you know it anticipated as we've been around the year that uh you know you'll start seeing some of that okay great um and then um could you comment on what ability

or capacity you have to produce nicotine pouches at your current domestic mst production facility um and then just any kind of broader comments on um on shoring production of nicotine pouches will be helpful. Thank you.

Yeah, Eric. Right now, we believe that our supply is adequate. We're doing a really good job of producing, so really no issues from a supply chain standpoint. In terms of onshoring, we continue to explore that option, and we're heading down that path.

Your next question comes from the line of Aaron Gray with Alliance Group Global Partners.

Please go ahead hi good morning thank you for the questions and congrats on on the nice quarter here um we'd like to pick off the big with kind of the question that eric asked just wanted to clarify here was there a big maybe timing impact um in the quarter particularly for pouches from from shipments of timing uh maybe filling the pipe for a new retailer and then just on pouches uh there's a lot of early indicators showing that there's you know good brand awareness for out relative to its pretty minimal market share so any additional color on how you're looking capitalize on that opportunity um if there's no existing awareness for alp how are you looking to maybe increase the marketing get distribution out faster than maybe you might have anticipated

you know six months go before the launch thank you yeah eric i think you've noticed uh you know alp is has i'm sorry aaron alp has sent out uh you know a number of press releases and as you can imagine um you know we're four months in as of this quarter with uh the alp launch you know the The Alp team is doing independent marketing relative to their product, and they've certainly got a route to market that is a little bit unique compared to the free brand. So, look, I think that, you know, the Alp sort of rollout nationwide, you know, is really sort of an online focus apparatus and really tapping into the marketing, you know, the support that the brand gets relative to, you know, its connection to TCN. And so it's just the model's a touch different point in time. And certainly at TPB, we're focused squarely on, you know, knocking down bricks and mortar distribution for free. And quite frankly, we're very excited about, you know, sort of the results thus far. So, you know, our head down is heads down and focused on, you know, sort of attaining that double digit market share that we talked about for the long haul.

Appreciate that, Keller. Second question from me, just on the Stoker segment gross margin, it now remained elevated for the past two quarters, despite the higher sales mix of pouches, which was expected to have a lower margin profile. So curious if you could give some color on if pouch margins continue to be higher than expected. You know, back in the book, Matt kind of implies this, you know, not too far off from some of the legacy stoker's margins, unless there was a notable uptick there. So if there's any additional color you could provide on the margin profile, that would be helpful. Thanks.

Yeah, sure thing, Aaron. So I think you're thinking about it right in terms of the margin profile of that segment. And from White Pouch, we're well within the range of what we previously discussed in terms of the margin profile for that particular product set.

Your next question comes from the line of Ian Zifino with Oppenheimer. Please go ahead.

Thank you very much. Very good quarter. Trying to understand now, and I know you kind of commented did a little bit on the growth rates of free versus out, but can you give us a little bit more color on what did better this quarter? And then as far as the guidance raised, is that pretty much even? And maybe a broader discussion, if it is even, why is it even given the go-to market strategies are very different here? And maybe any other color there. Thanks.

Hey, Ian, thanks for the question. Look, I think that we're in such early innings for the ALP launch. There's a lot of moving parts relative to both the ALP brand and how the route to market is somewhat different than the route to market for free. So you have things like, you know, different online apparatuses that we sell through with the Alp brand, you know, the different chains that may be coming on board for the free brand. So there's really just a lot of sort of kind of, you know, differences between those two products. We haven't specifically split out the difference between free and Alp, and that's really the constraints that we have with our agreement with TCN in terms of what we can disclose relative to Alp. And, you know, in terms of the long-term prospects, look, from our standpoint, we're, you know, in the early innings, we're somewhat agnostic to what's on the can as we, you know, march towards that double-digit market share and really capitalize on what we think is a massive opportunity for the company.

Okay, thank you. And then I'm just trying to bridge the guidance. I know you included the $5 to $7 million tariff, but how much is the increase in investment in white pouches to support more growth? Thanks.

Yeah. Thanks, Ian. It's Andrew. So yeah, we disclosed the tariff and there's also some FX headwinds that we're keeping an eye on. So in terms of the increased investment, we included that in our previous guidance. And as that segment grows in White Pouch, we will make incremental investment to support the growth.

Your next question comes from the line of Nick Anderson with Ross Capital. Please go ahead.

Yeah, good morning, and congrats on the quarter. First one for me, just on Modern Oral and the advertising opportunity there, with harm reduction being kind of an initiative, wondering if you're seeing maybe more relaxed advertising regulations for nicotine pouches versus other products and just how you're potentially looking to market your offering in this environment? Thank you.

Hey, thanks for the question. You know, I would say while we observe there is a bit more flexibility than the historical tobacco industry as it pertains to advertising, there are still certainly restrictions and we want to be really mindful of marketing in a responsible and thoughtful way, but we certainly have flexibility in terms of how we think about marketing and advertising across digital platforms and out of home, as you saw with our advertisements along I-95 to connect with the 7-Eleven launch.

Got it. I appreciate that, caller. Second from me on the PMTA applications, just with the FDA headcount reductions we're seeing, does that change any expectations around timing of getting these applications through? Just your sense of how the timeline may or may not shift off the back of kind of what's happening with the FDA. Thank you.

Yeah, I think with the FDA and the PMTA process, I think in terms of timing, it is really difficult to say given all the change in government. We continue to sort of monitor and assess and we hear from our regulatory folks over at the FDA from time to time. But look, there's really no change in terms of any clarity around timing at this point.

I will now turn the call back over to Graham Purdy, Turning Point CEO, for closing remarks. Please go ahead.

Thanks, Operator. I really appreciate everybody joining the call today, and we look forward to speaking with you in a few months.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.