Good morning, and welcome to the Turning Point Brands Third Quarter 2025 Earnings Conference Call. 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. 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 very small town, and the community is very tight-knit. While we're fortunate that none of our employees were directly impacted by the tragedy yesterday, it's likely that we have friends and loved ones that know somebody who was. Our heart goes out to the families of those directly impacted by the tragedy and to the UPS family as they deal with this heartbreaking situation. 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. 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 mouthfeel, 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 exclusively 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, Zig-Zag revenue was down 11% to $44.2 million and down 6% sequentially. While this decline was anticipated and performance was ahead of our expectations, we continue to think it reflects some opportunity costs related to our focus on Modern Oral. 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 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 expanded our efforts and initiatives to support the growth of FRE, focusing 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, we are 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 we are exploring other brand partnerships and collaborations that align with FRE's Own Your Edge tagline and brand ethos. Regarding Zig-Zag, we continue to execute marketing and sales initiatives that build upon our 145-year legacy and solidify our premium position across the segment. To build upon this legacy and reward our most loyal consumers while creating an opportunity for viral buzz, we launched a promotion called Zig-Zag for Life. This campaign offers an opportunity to win a lifetime supply of Zig-Zag cones to anyone who has or gets a Zig-Zag tattoo. We also relaunched Zig-Zag Studio, a collaboration with creators and musicians to build upon the brand's strong association with pop culture. These campaigns magnify Zig-Zag's identity as an iconic brand, and consumer interest has been encouraging. Of note, in the quarter, we also laid the groundwork for the launch of a new Zig-Zag product, Natural Leaf Flat Wraps, to better compete in the ever-growing Natural Leaf segment of the wraps category. Lastly, turning briefly to Stoker's. We continue to see strong performance despite category pressure. In the quarter, we launched both a new product offering, Stoker's Fine Cut Wintergreen cans, and Stoker's first-ever D2C site. Stoker's continues to be a steady heritage business with a very active and engaged consumer base. In closing, we continue to build our brands for the long term, execute against our omnichannel plan, and win new consumers. Our focus is 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 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. Moving into segment performance. Zig-Zag sales decreased 11% year-over-year to $44.2 million for the quarter but was ahead of our expectations. Gross margins increased 210 basis points to 57.5%, driven by mix shift and improved COGS pricing in certain Zig-Zag product categories. Stoker's net sales increased 81% year-over-year to almost $75 million for the quarter. MST sales increased 6% year-over-year to $27 million for the quarter, with share in-store selling up 130 basis points year-over-year to 12.1%. Loose leaf sales increased 4% year-over-year to $11 million. Our Modern Oral nicotine pouch sales, FRE and ALP, were up 628% year-over-year, achieving total revenue of $36.7 million. White pouch now accounts for 31% of our business, up from 26% in the second quarter and 6% a year ago. Moving to the balance sheet, we ended the quarter with just over $201 million of cash. Free cash flow for the third quarter was negative $1 million, including the first coupon payment on our 7.625% high-yield bond issued in February 2025. As Graham mentioned, during the quarter, we raised $100 million of gross proceeds and $97.5 million of net proceeds at an average price of $98.59 per share under our previously announced ATM program to support our white pouch growth initiatives. CapEx for the quarter was $3.8 million. On to guidance and other items. As previously noted, we are increasing our full-year 2025 adjusted EBITDA guidance to $115 million to $120 million from $110 million to $114 million and also increasing our anticipated total Modern Oral sales range to $125 million to $130 million from the previous range of $100 million to $110 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 third quarter results, and I'll now turn it over to questions.

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 that with onshoring, we'll have immediate savings in terms of inbound freight as well as avoidance around tariffs. So we should have favorability on those two items from the outset once we actually qualify the lines, which we're expecting in the first half of 2026. 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. The capacity we have in the U.S. will be additive to that, so we believe that we're in a very good position from both an inventory perspective and a capacity standpoint going forward.

That's encouraging. Could you share your insights on the in-store market share for your Modern Oral category? I understand it’s early in the rollout, but any information on initial market share would be appreciated.

Yes. We haven't publicly disclosed that information, but it is really divided at this point. You can see a national view of our market share. As we expand our distribution network, we're focusing on increasing our in-store sales share. We are very encouraged by the results we are seeing.

The next question comes from Ian Zaffino from Oppenheimer.

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, and there was some favorability around pricing. I would note that we anticipate that there are 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. 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. 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 upcoming quarters. As we look toward progressing in the next few 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 navigate the landscape given that? Or what's your overall view of how the category is going to play out over the next, call it, quarter or two?

Sure. Look, I remain bullish on the category, and one of those foundational components about my 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 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 and broader presence in the store. We really did not participate within the quarter as we saw major competitors deploy their promotional resources in the market. Long term, we see strategic opportunities for us to invest in opening up the funnel for the consumer, but we are taking a measured approach, really reading our data, and listening to what consumers are telling us within our online platforms, which gives us a distinct advantage when we have that direct touchpoint with our consumer. We'll be opportunistic in terms of the way we think about deploying our promotional dollars from a retail standpoint. But more importantly, we are focused on getting our platform right in the store because we see when we do that, we have a 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. As Summer just noted, we're pleased with our progress against chain accounts, both large and small chains. We do have an account that shares both platforms, FRE and ALP. We're excited about the results of that shared platform inside the store. There's tremendous white space for both brands, albeit a little bit more for ALP right now, given that we've focused on bricks-and-mortar distribution out of the gate while ALP has been focused on direct-to-consumer. I think there's a great marriage there as we move forward with tremendous opportunities for both brands to effectuate broad-based distribution and really screen to multiple consumer audiences 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 going to comment on our investment strategy specifically for competitive reasons. At this point in time, we've struck a healthy balance between growth and profitability, and so I think that we'll be measured in the future regarding 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 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 is that they are really taking a methodical approach to how they allocate space across their shelf and back bar area. They see the category dynamics shifting more to OST, so they are being really diligent and deliberate about how they're allocating that space across the segments in the nicotine space and thoughtfully considering which brands they are putting on shelf based on performance. 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. It’s too difficult a question to answer specifically on which products will be displaced on the shelf because there are a lot of regional preferences around different types of products that sell nationally. It’s hard to determine which could be displaced in that process, but from our standpoint, we think opening up more shelf space 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 can engage with those consumers that are loyal and coming back to purchase and interact with your brands. Those are highly valued customers. 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. That first-party data and understanding their preferences is something we are really focused on.

Yes. And look, I'd like to add to that as well. Both FRE and ALP, what we're particularly excited about 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 Q3? 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. While we are pleased with the guidance increase, we want to point out that as we work to get our products on shelves and negotiate those deals, it does affect our contra revenue. You can expect us to discuss the difference between our gross sales and net sales because of this contra revenue dynamic. That really addresses 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 mid to high 50s. 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. 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 a long-winded way of asking 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. We have a higher D2C in the Modern Oral part of that business. It’s important to keep in mind that our freight expense is actually in SG&A and not in cost of goods. 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. That's part of the driver. Also, we expect that tariffs on a go-forward basis would have more of an impact on the margins. In the short term over the next couple of quarters, I would expect to see those margins come down just a bit due to the mix of the products, but we'll still have a higher mix of D2C, which should elevate. I would expect net-net for those margins to come down 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 your near-term outlook on the category, what you expect from the promotional environment, and whether or not you expect it to 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. This category is an area that they need to win in, right? With that backdrop, as they fight for the consumer, I anticipate that the promotional environment will remain healthy, driven by the large competitors in the category. From our standpoint, we're really focused on building brand and connection with the consumer, both with our FRE and ALP properties, and being mindful of how we spend on opening up for consumers. We don’t have the same types of resources that the large companies do, but our balance sheet for our size puts us in a good position to strike in areas that make sense for our brands. We're excited about the promotional activity from the standpoint of the growth of the category. This is how the category gets to $10 billion or more by the end of the decade — by converting cigarette consumers into Modern Oral. There's no better companies to do that than the ones that own those cigarette brands. I remain bullish on the category, particularly on the large manufacturers converting consumers into Modern Oral. I'm particularly excited about our brands and the properties of our brands regarding the variety of nicotine strengths, the flavors, and the mouthfeel. When we have a consumer that tries our product, we have a good shot at converting that consumer. 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 a large company in the space that has been on promotion for well over a year now. I don’t think it's going to change anytime soon from that standpoint, but we’re bullish and excited about our opportunity to win consumers because of our brand and 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. We are really excited about our Q3 results and looking forward to talking to you as we head into 2026. Thank you so much for taking the time, and we'll talk to you all in a few months.

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