Q2 2025 Turning Point Brands Inc Earnings Call
Good morning and welcome to the Turning Point Brands. Second quarter, 2025 earnings conference call. All participants are in a listen-only mode.
All lines have been placed on mute to prevent any background noise. Should you need assistance? Please signal a conference specialist by pressing the star and the the number zero.
After today's presentation, there will be an opportunity to ask questions. 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.
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.turningpoint.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 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 Grand party.
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 neural now accounts for 26% of our total revenue.
Adjusted IAAI increased 15% to 30.5 million for the quarter.
We are increasing our adjusted ibido, guidance to a range of 110 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 to 110 million.
Up from 80 to 95 million.
This includes both free and out.
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.
And we continue building freeze presence in bricks and mortar.
During the quarter, white pouch sales increase by nearly 8 times year-over-year and was up 35% sequentially.
We Believe out is now 1 of the top D Toc pouch brands in America and is poised to expand into retail sooner than initially expected.
We believe in the nicotine pouch space.
Like most other nicotine businesses will ultimately feature 5 to 6, wides distributed Brands, the command most of the market.
Analysts expectations, for the size of the category differ.
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 multi-billion 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 and chain accounts.
And developing us 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 loose leaf a 4% increase in MST.
and as aforementioned our modern oil Revenue increased by nearly 8 times,
During the first quarter zigzag 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 de-emphasis 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
Oral category.
In 2025.
Throughout the quarter. We continue to receive favorable consumer and trade feedback reinforcing our portfolio's. Meaningful points of difference in strengths 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 the 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.
Fuse Sports delivers 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 Free's brand ethos.
We marked our debut with this partnership at the PBR World Finals 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 will continue to invest to support growing consumer loyalty.
With regards to zigzag, 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 new to follow in upcoming quarters.
As we share last quarter, we anticipate second half headwinds within the zigzag 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 are reallocation of time and resources to our nicotine pouch initiatives.
In closing, we continue building our brand through the long term, executing against our Omni Channel 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 so much. Sales are up 25% year-over-year to $116.6 million for the quarter.
57.1% which was up, 310 basis points, year-over-year and 110 basis points, sequentially, the change in margin is mixed driven
Reported sgna 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 IBA was up, 15% year-over-year the 30.5 million for the quarter.
At a 26.1% margin.
Going into segments performance.
Zigzag sales decreased 6.9% year-over-year to about $47 million for the quarter and are in line with recent quarterly performance.
Gross, margins declined, 410 basis points during primarily by product mix due to an accelerated exit from our Clipper business.
Stoker's net sales increased 63% year-over-year to almost 7 million dollars 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 number 1 chewing brand in the quarter, gaining 160 basis points are shared to 32.7%, according to msai,
Category performance was driven by larger decline in premium loose leaf with Stoker's benefiting from consumer, trade down.
Our modern oral nicotine pouch sales, free 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'll have our first coupon payment on the 3000 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 ibida, guidance to 110 to 114 million from 108 to 113 million.
And also, we are 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.
Budgeting 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 our modern oral pmta.
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.
Thank you. The floor is now open for questions if you have dialed in and would like to ask a question, please press star, followed by the number 1 on your telephone keypad.
If you would like to withdraw your question again, simply press star and the number 1.
We do request for today's session that you please limit to 1 question and 1 follow-up.
Again, press star followed by the number 1 on the keypad. We'll pause for just a moment to compile the Q&A roster.
Your first call comes from the line of Eric de Laurier. Your line is now open.
Great. Thank you for taking my questions, and congrats on a very impressive quarter here.
Um, the first question is uh, on Alp um Graham. I think you mentioned, um, plans for the brick and mortar roll out or ahead of expectations. Um just wonder if you could expand a bit on that and just uh how we should be thinking about, um the rollout of alp um, from e-commerce to Brick and Mortar thanks.
Is it kind of just started the the thought process of getting into it?
Got it. Um, and should we think of, um,
The roll out for Alp is kind of following in the stores where where free already is. Is it a bit? Is it a bit of a different team or, you know, go to market strategy there and then just kind of, um, related to all that just wondering how conversations with, um, National chains are progressing. Thanks,
Yeah, I'll take the first part of that question. Um, look, I I think that inevitably, you know, our goal with, uh, with free is to be ubiquitously distributed across the United States. So, you know, eventually there should be total overlap of those 2 Brands. I think in the early Innings, uh, you know, given the different sizes of the organizations, um, you know, it'll be a little bit hit and miss in terms of where that overlap may or may not uh exist.
And then with regards to expanding free and 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, and more to come and in short order.
Great. Your next question comes from the line of Ian zeino with Oppenheimer. Your line is now open.
Hydra, thank you very much. Um, let me just get a sense about, um, you know, the wipeouts production, um, tariffs that you might be facing, and then...
Potential to maybe move production out of India. Thanks.
Yeah. Hi Ian. Um, Andrew here. So, um, as it relates to tariffs as you, as you've seen in the news, there's a dynamic environment. And what we're doing is we're focused on controlling our controllables. So we built an inventory position, uh, around that product. So that gives us some insulation for, um, you know, from a tariff increase.
We've also been negotiating with some of our suppliers, um, across the board to get some, some reductions, in our, our cost of goods. And also, we've been looking at, um, taking some price increases in different product lines. So we're, we're managing, um, the Tariff headwind, um, as best we can. And so as it relates to India, uh, and and our production capabilities, there we've got. We've got plenty of capacity. So good news is um we're we're feeling good about that. And then in terms of the, the mitigation around, the Tariff exposure, uh, and being bringing uh, production to the US.
Uh, we continue to invest, um you'll see the capex was was around 3.9 million for the quarter. So we continue to invest in that capability here in here in the in the United States.
Okay, thank you. And then um, as a followup, would you be able to give us a breakout between, um, alpen free? Um, and then also, you know, what type of slotting fees? Um, are you facing now or or did you pay last quarter? Um, and how do we think about that going forward as far as um, you know, costs to roll out and to expand uh, distribution. Thanks.
Sure thing. Um, so as much as I would love to disclose the, um, app and and, and free split, uh, we've got and, you know, we've got a a joint venture relationship with with Al and, uh, it's, it's, um, it's just something that we're not able to provide, uh, in terms of that split in terms of slotting fees. Um, look, this is a very, um, exciting, um, segment of of the, um, of the market and it's, it's competitive. And so we've got to, uh, pay fees to get into chains and all kinds of other retailers. And so that is, is something that we have invested in, uh, and it's something that we will continue to invest in and it's reflected in our Top Line and guidance, uh, for the white pouch. Um,
Range that that we disclose this morning.
Great. Thank you.
Again, if you would like to ask a question, please press *1 to enter the queue.
Your next question comes from the line of Aaron Gray with Alliance. Your line is now open.
Um you called out and make kind of for the overall um Improvement in gross margin obviously, you know, stokers was a highlight there so there's any color, you can provide their particularly as we think about, you know, the pouches within that, you know, that's a higher mix. You know, historically pointed to lower margins, you know, from pouches but maybe better than you initially had expected.
There's a lot of dynamics moving between DCC and brick and mortar. So maybe just any color in terms of how best it takes about, you know, gross margins. Particularly as we move forward and it seems like we're going to get an increasing mix in terms of coming from brick and mortar. Thank you.
Yeah, uh, thanks for the question, Aaron look, I, I think that, uh, you know, we've got our Stoke Stoker's Heritage business, which is our MST and our our chewing tobacco Brands the margins there, remain healthy and, and expanding as it relates to Modern oral. I think you rightly pointed out there, there is, you know, you do have a mix of D Toc versus versus bricks and mortar, but I think in the early innings were were pretty excited about where the margin profile of the business is now I think that we need to underscore that, you know, as Andrew mentioned in the last, uh, you know, the last question, you know, we intend to invest behind the brand. And so, I think you can see a bit of lumpiness, um, you know, within the, the white pouch segment for us. But over the Long Haul, we have, uh, we're very bullish on on the margin, profile of of the segment.
Thank you, I appreciate that color there.
Second question for me just as we think about pouch pouches in the second half of the year. So guidance implies it'll be you know roughly flat versus first half. I know there's some volatility in terms of, you know, new distribution and you know, replenishing. So I wonder if you could provide you know some kind of terms of new distribution You're Expecting in the back half and what's embedded within that and then maybe also some some color in terms of how you're incentivizing the sales team that you're looking to double their. So any color, you can try B Hunter incentivizing because, you know, 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 your sourcing some of that sales force from thank you.
Sure. So look, I think, uh, um, as, uh, as long as it seems like it's been around, now it has only been in the market for a few quarters now. And, uh, I think that, you know, a little bit of, uh, a little bit of the guidance range is reflective of some of the unknown relative to the, uh, the bricks-and-mortar launch. Um, and then ultimately what the growth profile of both of the brand properties will, uh, will be on the DBC platforms.
You know, in terms of, uh, 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. Um, we have continued to expand our sales force. I think we, we noted in the, uh, in the call that our plan is to double the 2024 sales force, by the end of 2026. And obviously with that expanded, uh, sales footprint, you know, we would expect
Increased, you know, rates of distribution from our historical averages. Um so I think we're we're pretty excited about the way that we've resourced the brand at this point in time. You know. We're in a, you know, we're in a trench warfare format here, and I think that we feel like we're, we're moving our staffing in a direction that gives us the effective, uh, you know, capability to compete against the broader Market.
Thank you. And your next question comes from the line of Nick Anderson with Roth. Your line is now open.
Yeah, good morning, and thanks for taking the class in. Um, first 1 for me, just on the modern oral promotional environment, we saw some aggressive marketing activity in the first half of the year, uh, your growth margins. Suggest you haven't been participating in this disc counting. Just, what are you seeing out there in terms of the pricing environment and how are you planning on positioning your products? I guess. Maybe a more aggressive promotional backdrop. Thank you.
Yeah. Look, I, I think that, uh, since the the category became competitive meaning once it became, uh, you know, a, a category that was beyond just the market leader, we've seen consistent promotion from 1,
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, you know, with the current estimates, you know, now, sort of cresting the 10 billion by the end of the, uh, by the end of the decade, this is actually how it happens. As, you know, the large companies spend a ton of money in
Speaking to an adult Vapors, adult cigarette consumers. Um and so we're we're actually very excited about that opportunity.
As you've seen with the results, 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. Um, and I think we remain sort of optimistic number 1 around the, the benefits that our product, we think believe brings the end consumer relative to the mouth feel and and the satisfaction levels that we provide.
Click around to our brand. Um, but at the same time we think that we're sort of uniquely positioned in the Long Haul to be a, to be a premium brand in this category. And so that really excites us
That's great. I appreciate that caller. Um 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 offerings. Thank you.
Yeah, no plans at this point in time, and we remain committed to the current PMTA process.
Thank you.
Your next question comes from actually, this is the last question coming from the line of Gerald. Pascarelli with Nom. Your line is now open great. Uh, thanks very much. Good morning everyone. Um, I just had a question on your legacy MST business, just understanding that you're, you're going to prioritize modern oral which which obviously makes sense. You know, your legacy MST business has been incredibly consistent. It grew again on a on a very tough comp this quarter. And in the current environment, it's, it's seemingly just very well positioned as a, as a value offering, right? And so just looking forward, um, how do you think about managing growth and driving continued distribution and market, share gains in Stoker's MST with, um, you know, growing and rolling out your modern oral business, which is still very early days. So any any color on the balance? I think could be helpful. Thank you.
Yeah, I think what we've seen in the uh in the early Innings is that there's been relatively strong overlap between the modern oral stores that we've focused uh, gaining distribution in and our Stoker's MST portfolio, which is allowed us, the opportunity to cross sell in those environments. I think you're seeing a function of, of the sort of the early days Synergy. Um, that we actually are really bullish on long term as we grow out, uh, as we grow out our sales force,
And look, I think you rightly pointed out Gerald that uh you know 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 of MST is that there, there's still a large audience of committed Dippers in the US.
We believe we've got 1 of the best brands that that has incredible quality around it. Um, and we could continue to provide value to those consumers and and you know, the from a, from an MST brand standpoint, we feel great about sort of the potential opportunities that's still in front of us. There's still a lot of runway in terms of store growth that we can get into. Um, there's still pricing opportunities in the segment. Um, and so I think we're we're still bullish on on our MST business on a go forward basis. Um, and think that there's a ton of opportunity out there to harvest
Got it. Uh, super helpful. Thank you. Um, just last one for me. I know it's early obviously, but, um, if you could share any learnings that you may have had over the past two quarters, um, with both of these brands, just in terms of the consumer reception, um, or any feedback that you've had, um,
If you've had any, uh, that would be helpful. Thanks.
Yeah, sure. We continue to hear incredibly positive feedback from both consumers and retailers, as Grandma's talked about the power of the brand and the unique differences between our products relative to the 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.
Thank you.
At this time, there are no further questions, so I'd like to turn it back over to Mr. Pie.
All right. Thanks, operator. Appreciate everybody joining the call today. Um, we're pretty excited about our our Q2 results and uh, we look forward to talking to you, uh, and, uh, about 90 days or so about Q3
Thank you. This concludes today's conference call. You may now disconnect