TPB

Good morning, welcome to the Turning Point Brands first quarter 2026 earnings conference call. All participants will be in a listen-only mode. All lines have been placed on mute to prevent any background noise. Should you need operator assistance today, please press star zero. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Mr. Andrew Flynn, Chief Financial Officer. Please go ahead, sir.

Good morning, everyone. Earlier today, we issued a press release covering our first quarter results, available in the investor relations section of our website at www.turningpointbrands.com. 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 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, Graham Purdy.

Thanks, Andrew. Good morning, everybody, and thank you for joining our call. We started the year with strong momentum led by accelerating growth in Modern Oral, with gross and net sales up 167% and 133% year-over-year and 30% and 26% sequentially. These results are driven by ongoing growth in both brands' D2C platforms, FRE's early expansion into larger, higher volume chain accounts, and ALP's very early move into bricks and mortar. In the quarter, Modern Oral accounted for 42% of our total revenue, up from 21% in Q1 2025. Before we dive into details of the quarter, I want to step back and frame the opportunity in front of Turning Point Brands.

We believe we are in the midst of a greater than $50 billion generational shift in nicotine consumption, and we are positioning the business to capture a meaningful share of nicotine users in this evolving high-barrier category. We are strengthening that position through foundational investments in our sales force, marketing, and commercial capabilities. These investments are critical to building a durable growth platform that can scale into a leading player in the post-cigarette nicotine market over time. While this infrastructure will ultimately allow us to compete across the modern nicotine ecosystem, our priority today is clear: winning in nicotine pouches. We believe the nicotine pouch category is still in its nascent stages of development and can become the dominant revenue and profit driver of the company over time.

As we've said before, we expect the market to consolidate around a limited number of scaled brands, and we are increasingly confident that FRE and ALP will be among them. Our confidence is grounded in execution. We continue to see encouraging consumer response across both FRE and ALP, supported by product quality, brand positioning, and repeat purchasing behavior. Our outsized share of direct-to-consumer sales, coupled with our continued market share gains in bricks and mortar, are evidence that our plan is working in the early innings. Based on our Q1 performance, we believe our results captured mid-single-digit category share of both gross and net sales, giving confidence that we are on track to achieve our long-term goal of double-digit market share by the end of the decade. We are using that momentum to build scale across channels.

FRE continues to expand into larger regional and national convenience chains, while ALP has moved from a strong direct-to-consumer base into retail faster than we originally expected. We've had several notable chain wins, driving confidence in our growth. We expect our chain store count to increase 70% by the end of 2026 versus the prior year. As you know, we are building an operational foundation to further support scale in Modern Oral. Commissioning our Louisville manufacturing facility is an important step in localizing production, improving supply control, and reducing freight and tariff exposure over time. As we build production, we expect that work to strengthen unit economics and support margin improvement as domestic inventory moves through the P&L. At scale, we believe our margins should approach 70% in this category by the end of the decade.

We also continue to invest in the commercial infrastructure needed to support growth, including sales force expansion, chain account support, enhanced consumer visibility, and manufacturing capabilities. In 2026, we plan to continue investing in our sales force and marketing to secure chain placement, build brand awareness, and support our growing distribution footprint. Based on achieving our sales and financial objectives, we expect total sales and marketing investment for the year to range from $80 million-$105 million. Given the strong gross sales growth we have experienced, we are confident that these investments will provide attractive returns for investors over the long term. In short, we are making front-loaded investments in a category where acquiring brand-oriented adult consumers can drive repeat purchasing and strong margins over extended periods.

Over time, we believe our investments in physical execution, particularly sales force expansion, distribution support, and retail presence, will become a more important source of competitive advantage. Overall, we are encouraged by the momentum we are seeing, the progress we are making, and the platform we are building to scale profitably. 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, and good morning, everyone. I'll focus my comments on our go-to-market execution in the nicotine pouch segment. This remains our top commercial priority, and as we scale the business, we continue to benefit from the strength of our legacy distribution relationships and broader commercial capabilities. Our strategy is to build demand across both online and retail channels, with retail expansion as the key lever to scale the business. To support that effort, we are investing in sales coverage, merchandising support, and brand-building programs that help us win distribution and improve in-store execution. That includes securing the right assortment, shelf placement, and visibility to support trial, repeat purchase, and long-term performance. These investments support both near-term execution and the broader foundation we need to scale the business. In the first quarter, we made progress against that plan.

We secured new wins across critical top chain convenience stores that will expand distribution across our portfolio. Our brands are designed to resonate with distinct consumers, and we will continue to promote the expansion of both FRE and ALP into retail stores. We believe our brand credibility, market performance, and ongoing marketing support were important drivers of those wins. While nicotine pouch growth sales grew nearly 500% in 2025, we still have meaningful room to build brand awareness relative to category leaders. Our early strategy was to establish distribution first, using our existing retailer relationships to build a strong retail foundation. With the progress we made in 2025 and the additional distribution we have secured, we believe we are now at a point where increased brand investment can drive stronger returns.

Over time, that should improve consumer awareness, support retail productivity, and increase the value of the nicotine pouch opportunity. Accordingly, we are investing aggressively in brand building to support future scale. Last month, we announced a partnership between FRE and six TKO properties, including UFC, Zuffa Boxing, and PBR. This expansion is a result of the demand and brand alignment success we validated through our initial partnership with PBR, which started in May of last year. We believe this broader platform will help accelerate brand awareness and consumer engagement with adult consumers. We are off to a solid start already having executed a few events since the announcement, and we'll share more as the partnership unfolds. Building on ALP's success in direct-to-consumer, this was the first quarter that TPB sales organization started to sell ALP on retail shelves.

We began with a manageable launch and expect to incrementally add stores this year through our new chain account wins. While it's early innings, we are encouraged by the initial results. With regards to Zig-Zag, we continued executing against our core brand pillars, strengthening the core business while scaling new product innovation and expanding brand presence in target markets. We accelerated growth in new products, including Natural Leaf Flat Wraps, by expanding retail distribution through targeted merchandising programs. At the same time, we are growing brand awareness with a focus on under-indexed markets through integrated marketing campaigns and in-store activations that embody Zig-Zag's new Life's Fast, Burn Slow tagline. Overall, we are seeing encouraging early proof points across both brand building and retail expansion, and we believe that progress positions the nicotine pouch segment to become a major contributor to growth over time.

Let me now turn the call over to Andrew to go through our financial results.

Thank you, Summer. Starting with consolidated results, sales were up 17% year-over-year to $124.3 million for the quarter. Growth was driven primarily by Modern Oral. Gross profit of $68.3 million increased 14.6%, driven by Modern Oral. Gross margin was 55%, which was down 100 basis points versus last year. Reported SG&A was $55.8 million for the quarter, which was up $8 million sequentially. The increase was driven primarily by our nicotine white pouch investments, including approximately $1 million of incremental spend tied to expansion of our sales force. We also spent approximately $7 million on increased marketing investment and broader brand-building initiatives. Adjusted EBITDA was $25.9 million for the quarter at a 20.8% margin, which exceeded the midpoint of the guidance.

This was primarily attributed to accelerated growth in Modern Oral, offset by our strategy to increase sales and marketing investment and softness in Zig-Zag. Stoker's segment net sales increased 48% year-over-year to $88 million for the quarter. The Stoker's segment now accounts for 70% of consolidated net sales. Regarding Modern Oral, I want to briefly address our disclosure of gross sales. Because most contra revenue investments relate to slotting-related distribution fees, we believe both gross and net sales provide the clearest view of underlying business performance. Support of our growth investments, Modern Oral nicotine pouch net sales, FRE and ALP, were up 133% year-over-year, achieving net revenue of $52 million. Gross revenue was $69 million, up 167% year-over-year.

For the quarter, Modern Oral accounted for 42% of consolidated net sales, up from 21% a year ago. Legacy Stoker's brands net revenue decreased 3.5% year-over-year to $36 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 39% to $47 million. Gross margin decreased 350 basis points to 54%, due largely to the impact of tariffs. Zig-Zag segment net sales were down 22% year-over-year to $36.7 million for the quarter. For the quarter, Zig-Zag gross profit decreased 18% to $20.9 million, and gross margin was 57.1%, which was up 300 basis points versus last year.

First quarter free cash flow was -$27.4 million, reflective of our investments in trade and brand marketing programs, as well as working capital and U.S. manufacturing CapEx. We ended the quarter with $192.4 million of cash. Our expectation is to be approximately cash flow breakeven for the remainder of the year. Our capital allocation approach remains disciplined and aligned with the opportunity we see in nicotine pouch. As we invest behind growth initiatives, the timing of those investments and the timing of their benefits may not always align evenly within a given quarter. That reflects our effort to position the business to capture incremental share in a category with substantial long-term annuity value. Today, we are increasing full-year 2026 Modern Oral guidance.

We now expect gross sales of $280 million-$300 million, up from a previous range of $220 million-$240 million, and net sales of $210 million-$225 million, up from a previous range of $180 million-$190 million. Implied gross revenue growth at the midpoint is 83.7%. We are also introducing full-year EBITDA guidance of $70 million-$90 million, inclusive of increased nicotine pouch investments in salesforce expansion, merchandising support, and consumer marketing. For modeling purposes, we expect the effective income tax rate to be 23%-26% on a go-forward basis. Budgeted 2026 CapEx is $4 million-$5 million, excluding projects related to Modern Oral, and we expect to spend an additional $3 million-$5 million this year to support our PMTAs.

Additionally, as we focus on strengthening our market presence, we expect to spend between $80 million-$105 million to expand our salesforce and bolster our marketing strategy in 2026. As we continue to scale, we expect the overall cost structure of the business to become more efficient. Many investments we are making today, slotting-related brand building and go-to-market spend, are tied to building distribution and driving initial trial and growth of our products. As our consumer base grows, these costs should become a smaller percent of sales. Now, let me turn it to Graham.

Thanks, Andrew. We are encouraged by the momentum we see in the business and by the progress we are making against our strategy. As I said at the outset, we believe we're in the midst of a generational shift in nicotine consumption, and we believe Turning Point is uniquely positioned to capture meaningful share in that transition. Our focus remains on winning in Modern Oral by investing in the brands, commercial capabilities, and infrastructure needed to scale. We are seeing continued proof points in both consumer traction and distribution growth, and we believe that positions us well to build a meaningful and profitable business over time. With that, I'll turn it over to questions.

Thank you, sir. Everyone, if you would like to ask a question, please press star one on your telephone keypad. We do ask that you limit your questions to one initial and one follow-up. Our first question today will come from Eric Des Lauriers from Craig-Hallum Capital Group.

Great. Thanks for taking my questions. Congrats on the strong results. Very encouraging to see nicotine pouch sales reaccelerating into Q1 here. You raised guidance for Modern Oral net sales by about $30 million and then gross sales by about $60 million. Suggesting a big increase in contra revenues with these national chain wins. How did these wins announced today compare to your expectations coming into the year? Have you won more chains than initially expected? Any national chains that we should expect both FRE and ALP, or is it mostly FRE right now?

Great question. Thanks, Eric. We were really, really excited about the springtime negotiations that we worked through over the past few months. As Graham noted in his comments, we expect our store count to increase by nearly 70% by the end of the year. I think, as you know, every chain account is different, so we're currently in the process of determining the rollout schedule, and the doors will come online over the balance of the year. Where we have opportunities to bring both brands in, we will. You'll hear more about that as the year rolls out, and we're encouraged and excited about the success that we had over the past few months.

Yeah. No, certainly sounds very exciting. I guess, Summer, you touched on this in your answer there, and maybe it's just, you know, we'll see over the next couple of quarters. How should we think about the timing from these wins? When should we expect to see them on shelves? You know, how should we think about the sort of impact on gross versus net sales? Should we look for net sales to sort of pick up from these in the back half, or is that more of a 2027 thing? Thanks.

Yeah. I'll answer the first part, and then I'll turn it to Andrew to answer the second part. You'll start seeing some of these chain wins roll out over the next few weeks. As the progress of rolling out these chains requires resets of fixtures and different dynamics that they're sorting out with getting everything situated in store, it just takes time. You'll see those stores sort of fill out across the balance of the year. I'll turn it to Andrew to explain how we thought about the dollar impact.

Yeah. As we think about the net sales trajectory over the course of the year, we'd expect to see some pickup in the back half, as it relates to the Modern Oral category.

Awesome. Well, it's all very encouraging. Congrats again on the strong results.

Thanks, Eric.

Your next question comes from Ian Zaffino from Oppenheimer.

Hi, great. Thank you very much. You know, great guidance on that MO side. You know, question would be on the PMTA process. How is that going? You know, I know there's been a couple news articles about that. Any kind of change in discussions there or thoughts about getting kind of final approval? How are you thinking about the Louisville plant, you know, which because I guess they're kind of connected events. Thanks.

Yeah, great question, Ian. Look, the PMTA process is, it's a rigorous scientific process. We're not surprised by the timing, to be frank. You know, our approach is, you know, we respect the process and, you know, any additional commentary around sort of where we're at on that timeline, probably wouldn't be appropriate at this time. In terms of Louisville, manufacturing, you know, we're threading a bit of a needle here with respect to the PMTA process and in scaling our infrastructure here in Louisville. We've made really great progress relative to, you know, laying down the infrastructure to support manufacturing here in Louisville.

We've certainly got equipment, in Louisville, and we feel really good about, you know, where we're at from a, from a, you know, throughput on those machines in the early innings.

Okay. That's Thank you. Then I guess maybe a question for Summer is, you know, when you're going to market this portfolio, like, I guess you now have the newly expanded portfolio. How are you going to market? Are you going to market as far as FRE being your higher nicotine pouches and ALP being your lower nicotine pouches? Is that the strategy? Also, maybe talk about, you know, this portfolio, expanded portfolio which has significantly more SKUs, how that's resonating with retailers, bringing them, you know, incremental SKUs, and any other kind of color you can give us maybe about the synergistic effects of having those two brands together. Thanks.

Yeah, sure. I would say the retailers are consumers, and our sales organization are all very excited about us having both brands in the portfolio and in the sales bag to bring to market. What's been great about both of these brands is that they've built strong base with consumers, especially ALP. You know, they've created a really strong D2C presence, and there was some pent-up demand at retail that we were really able to start leveraging. As these brands are being put into market, we're really thinking about the end consumer. While the product itself is important, and they certainly have their differences, what's resonating with retail, what's resonating with consumers, is that these brands are really focused on two very distinct consumer bases.

There's room in this category for both brands to win, and we've seen some really encouraging early results as we've been bringing them to market.

Okay. Thank you very much.

No problem.

Next up is Nick Anderson from Roth Capital Partners.

Great. Thanks for taking the questions, and congrats on the quarter. First for me, just on the rising fuel price environment, have you seen any impact on C-store visits or consumer behavior? Tobacco is typically more resilient when it comes to higher fuel prices. Are you seeing the same trend emerge within nicotine pouches? Just any discernible changes to gas prices, that would be helpful.

You know, I think, you know, given the backdrop of our results, we feel, you know, really good about, you know, sort of where we're at today, you know, with the consumer. As Summer had mentioned in the last question with Ian, we're really focused in on, you know, building brand equities, building brand identity, and really winning on the premium front over the long haul. We view the fuel prices as transient. We think where we generally see that more so is in the heritage businesses, I think what's an interesting aspect of that, you know, historically, consumers tend to not move out of the categories. They tend to look for more value, I think we feel very well-positioned with our Stoker's heritage products, you know, with respect to, you know, spiking gas prices.

Great. That's helpful. Second for me, just on the retail landscape, with the momentum from TKO and brand awareness obviously ticking higher here, have you seen a difference in appetite from market chains to carry for you now? As brand recognition grows, I would assume your negotiations should become smoother, but any color there would be helpful. Thank you.

Great question. We are really excited about the TKO deal. As you know, we invested in PBR last year. We learned a lot. That gave us some momentum to build upon because I think having this TKO deal really has us show up as a credible partner that's investing for the long term to win with our brands. Certainly, while it's early, it has been part of the conversation with retail. We've seen some early consumer excitement. We have some events under our belts and more to come as that partnership unfolds. Encouraged about the credibility it brings to us and sort of the proof point that comes to the table of us being a brand and a company that's investing in the long term here.

Great. That's it for me. Congrats again on the quarter.

Thank you.

The next question is from Gerald Pascarelli, Needham & Company.

Hi, this is Jack on for Gerald, thanks for taking my questions. I guess for EBITDA guidance, obviously implies a decline relative to last year.

Which at this point I think is well understood, but the range is pretty wide. Could you just kinda go through some assumptions that get you to the high end versus the low end?

Sure thing. Look, what's driving the EBITDA guide is, as we discussed, we've got big investments in terms of sales force, retail distribution, as well as marketing spend. Those are the big drivers of the year-over-year change. Also, as you know, our outbound freight costs are captured in SG&A. That's also up on a year-over-year basis. What's kind of driving the range here is, one, it, the biggest driver is our ability to get that spending and what we will spend on in the future. That spending is dependent on what we see in terms of sales, because we'll be able to pivot if needed, and we're being judicious about that investment.

As we monitor it, we may make some changes. That's really the reason for the guide. There could be a real upside opportunity in terms of the TKO agreement that we just launched. This is very new. Some of these chain wins are also very new, and that could provide a very large upside for us as well.

Okay, that's helpful. For the UFC sponsorship, looks like it can be pretty transformative. It's incremental to your OpEx outlook relative to last time you presented. As we kinda look forward, is there the potential for Turning Point to enter into some more of these sponsorships? If so, can that imply another leg down on EBITDA, or do you think the low end is the floor at this point?

I'll take the first part of that question, and Andrew may wanna chime in on the dollar aspect. As you know, investing in TKO is a bet for us that we're really excited about. We are also, you know, doing other marketing activities, other consumer engagement building activities, like with motorsports and other avenues. I think to Andrew's point, we will invest prudently as we go and make changes as we may need to. Excited about the awareness opportunity this gives for the brand, and I'll turn it to Andrew on the dollar aspect.

Yeah, in terms of what that may mean for the low end of guidance, as I said before, we're gonna be judicious about our spending. If something makes sense for us to gain incremental market share, we will do that. That's really how we think about these opportunities.

Everyone, at this time, there are no further questions. I'd like to hand the conference back to Mr. Graham Purdy for any additional or closing remarks.

Thanks, operator. Really wanna thank everybody for joining the call today. Look, in closing, I think ultimately I wanna emphasize a couple of points, you know, to our investors. You know, for one, I'm been in this industry for, I'm closing in on my 30th year, and I can't tell you how excited I am about the opportunity in front of us with the generational, you know, transformation that we've spoke of, you know, earlier in the, in the script. And what, how TPB fits into that, you know, long term, I think is incredibly exciting. The Modern Oral opportunity, it's real, it's gaining momentum.

I think you're seeing early progress from our company that, you know, across our D2C platforms, progress we're making in bricks and mortar, you know, gives us a lot of enthusiasm around, you know, where we're at in terms of harvesting that long-term opportunity. As Andrew mentioned, you know, our investments in this category are gonna be incredibly disciplined and ultimately tied to our sales objectives in this category. I think lastly, the heritage business for us is still very important. It provides, you know, strong cash flows for the company, and it gives us cash flow to invest in the future and ultimately harvest the opportunity that we see in front of us. It's really exciting times at Turning Point Brands.

You know, with that, I'll sorta close by saying look forward to talk to you, talking to you all in a few months here and updating against, you know, our progress against the plan. Thank you so much for joining.

Once again, everyone, that does conclude today's conference. We would like to thank you all for your participation. You may now disconnect.

Good morning, and welcome to the Turning Point Brands Fourth Quarter 2025 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.

Good morning, everyone. Earlier today, we issued a press release covering our fourth quarter results. available in the Investor Relations section of our website at www.turningpointbrands.com. 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, Graham Purdy.

Thanks, Andrew. Good morning, everyone, and thank you for joining our call. We are pleased with how the year wrapped up and the momentum we built for 2026. Revenue increased 29% to $121 million for the fourth quarter, including $41.3 million in Modern Oral net revenue. Adjusted EBITDA increased 14% to $30 million for the quarter. We are initiating 2026 Modern Oral gross revenue guidance at a range of $220 million to $240 million in Modern Oral net revenue at a range of $180 million to $190 million. As we've stated in the past, we are ready, willing and able to increase our investment behind our white pouch brands and expect a portion of that investment to be accounted for as contra revenue under GAAP. Accordingly, we think it's valuable for us to provide transparency into difference between gross and net to evaluate our progress over time. Our focus is on building lasting consumer relationships that require front-loaded investment. Once consumers enter the franchise, we tend to see consistent repeat purchasing that supports revenue over many years. While this category is still in the early stages, we believe the average consumers with lifetime value could last decades. In addition, we expect first quarter 2026 consolidated adjusted EBITDA to be between $24 million and $27 million. We are currently working on several significant and exciting sales and marketing initiatives and investments for white pouch that make it difficult to accurately project EBITDA beyond Q1. Obviously, when looking back at 2025, we are most pleased with the growth of our white nicotine pouch brands, they're long-lasting vibrant flavor options, comfortable mouth feel and flexible nicotine levels continue to win with consumers. Both FRE and ALP have cultivated strong brand identities that resonate with their respective consumer bases. During the quarter, net white pouch sales increased by 266% year-over-year and gross sales increased 337%. We continue to make progress expanding freeze distribution to large regional and national c-store chains and 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 ALP's running ahead of schedule, and we expect to significantly expand bricks-and-mortar distribution about during Q2. We believe the nicotine pouch space, like most other nicotine businesses, will ultimately feature 5 to 6 widely distributed brands that command most of the market. Analysts expectations for the size of the category differ the most believable approach, if not exceed, $10 billion in manufacturers revenue by the end of the decade. Our Q4 performance and sales growth trajectory support 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 ]. Key investment 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, pursuing brand-enhancing partnerships, expanding to international markets and building out U.S. manufacturing for our white pouch brands. We are pleased with our progress on the manufacturing front and expect to qualify the first production lines at our new [ ruble ] factory over the next several months. We've 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. The rest of the Stroker's segment portfolio also performed better than expected in the quarter. Overall, Stoker's net revenue increased 70% to $81 million reflecting a 9% increase in our legacy brands and the [ aforementioned ] 266% increase in Modern Oral revenue. During the fourth quarter, Zig-Zag revenue was down 13% to $40 million and 9% sequentially. This decline was as anticipated and in line with expected opportunity costs with our laser 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, prioritizing FRE while also maximizing the cash flow from our legacy brands. Throughout the quarter, we continued to expand our efforts and our initiatives to support the growth of FRE, focused on sales and marketing. We remain committed to optimizing our approach to expand distribution, improving brand merchandising and ensuring adequate inventory conditions. We are seeing the early benefits of the new sales and merchandising tools referenced in prior quarters, which are enabling our sales team to secure the ideal assortment, establish shelf space and execute a premium look and feel at retail. We finished 2025 strong with our continued progress in large-scale chains and look forward to sharing further progress throughout 2026. We were grateful to have recently spent time with some of you at the sold-out Professional Bull Riding event in Madison Square Garden. These events are high octane and nationally televised providing a unique opportunity to engage with our consumer base and build brand awareness. We look forward to sharing other opportunities that we're exploring, which align with FRE's Own Your Edge, tagline and brand [ ethos ]. With regards to Zig-Zag, we continued executing product, retail and cultural initiatives that build upon our 145-year legacy and strengthen our premium position across the segment. During the quarter, we advanced the rollout of natural lease flat wraps, expanding distribution and awareness in this fast-growing tobacco segment. We also supported trial of our legacy paper products through targeted regional programs and sampling tied to major sporting weekends in key markets. We continue to advance the brand's evolution into a lifestyle platform with new apparel lines and culturally relevant brand activations that embody Zig-Zag's life fast burn slow ethos. In the quarter, we also had some exciting news from Stoker's with the launch of a new flanker brand, Stoker's Proud. Stoker's Proud offers a traditional long cut while delivering the same 100% American-made quality dip that Stoker's is known for. It's designed to attract value-seeking can consumers while insulating the broader brand from category pricing pressure. We'll share more about this expansion in coming quarters. In closing, we continue to build our brands for the long term, execute and deliver against our omnichannel plan and win consumers. Our focus is to prioritize strategic investments that maximize the value of our world-class brands and further strengthen and leverage 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 29% year-over-year to $121 million for the quarter. Growth was driven primarily by Modern Oral, while we continue to invest in sales and marketing to support that expansion. For the quarter, gross margin was 55.9%, which is flat versus last year. Reported SG&A was $47.7 million for the quarter, which was up $3.1 million sequentially, the increase is driven by our planned commitment to invest in Modern Oral related sales and marketing as well as increased outbound freight charges. Adjusted EBITDA was up 14% year-over-year to $30 million for the quarter, at a 24.8% margin. Going into segment performance. Zig-Zag segment net sales were down 13% year-over-year to $40 million for the quarter, which was in line with our expectations. For the quarter, Zig-Zag gross margin was 54.6%, which was up 40 basis points versus last year. Stoker's segment net sales increased 70% year-over-year to $81 million for the quarter. The Stroker's segment now accounts for 67% of consolidated net sales. Legacy Stoker's brands increased by 9% year-over-year to $39.7 million for the quarter, driven by continued share growth in [ MST ] that was partially offset by anticipated declines in loose leaf. Modern Oral nicotine pouch net sales FRE and ALP were up 266% year-over-year achieving total revenue of $41.3 million. For the quarter, white pouch now accounts for 34% of consolidated net sales, up from 12% a year ago. We ended the quarter with $222.8 million of cash. Free cash flow for the fourth quarter was $19.2 million. CapEx for the quarter was $3.3 million. On to guidance and other items, as previously noted, we are initiating full year 2026 Modern Oral gross sales guidance of $220 million to $240 million and net sales guidance of $180 million to $190 million. We expect first quarter 2026 EBITDA of $24 million to $27 million, inclusive of increased white pouch sales and marketing investments. For modeling purposes, the effective income tax range is 23% to 26% on a go-forward basis. Budgeted CapEx for 2026 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 to Graham.

To conclude, we are pleased with our year-end results and excited about our prospects for 2026. I'll now turn it over to questions.

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

Congrats on another very impressive quarter here. First one for me on the investment opportunity. So you mentioned you're already willing and able to invest in nicotine pouch growth this year. It sounds like you have some investments picking up in Q1 with that EBITDA guide. Just wondering if you could provide a bit more color on the sales and marketing sort of opportunities that you see in front of you right now? And just how we should be thinking about that for this year?

Eric, Andrew here. for the question. So yes, the way we're thinking about the EBITDA guide is that we are investing in sales and marketing. And we're also preparing ourselves for the launch of ALP in bricks and mortar in Q2. So we'll need to invest dollars upfront in order to have a successful launch in the second quarter.

All right. That's helpful. And then on domestic production, it's nice to hear the progress there. I think you said initial lines to be qualified in the coming months. Could you just expand on the domestic production outlook for the year, whether that's how many lines you expect to bring online? Or how do you think about the mix of domestic versus international production and how that should evolve throughout the year?

Yes. So we expect to qualify the lines in the next couple of months. And really, what we've done is we've -- in 2025, we spent CapEx dollars investments in infrastructure of the building. These are things like HVAC systems, electrical, plumbing, et cetera. We've got those lines and those lines are becoming more efficient week by week. So we're encouraged with the progress that they've made. We will have -- we will continue to use our Indian partner because both brands are growing. And so the U.S. will supplement the growth. So we think that between the 2 locations, we'll have no supply chain constraints, in terms of enhanced margins, it's going to take a while to get the inventory out of the -- in the U.S. and through our P&L. So we expect to see some green shoots in margin enhancements towards the end of the year. But one thing I will say is what we're doing to help with the margin profile is we are very much focused on freight. Our inbound freight. There are some opportunities for us to optimize there, and we've taken advantage of that.

Our next question will come from the line of Ian Zaffino with Oppenheimer.

As far as the investment and the ramp of Modern Oral, what should we expect as far as timing of all this investment? And maybe the better way to ask it is what does that investment look like exiting '26? So how much will it come down? And maybe what are your view as kind of a sustainable rate?

Yes. I think the way we're thinking about it is that the investment will be somewhat lumpy through the year as we see opportunities to invest that we think are high ROI projects, we will do that. And so to give you an exact figure in terms of investment ratio, I think it's going to be -- it's going to modulate quarter-to-quarter.

Okay. And then would you be able to give us kind of a sense of what to expect as far as the store count ramp for ALP? Should it be similar to what we've seen in FRE recently? Just maybe use that as a benchmark.

Yes. Thanks, Ian. Look, I think that we're, number one, incredibly excited about the ALP launch in Q2. We've laid some groundwork here as of late. And so we think that we're going to come out of the gate very strong there. As we think about it, we're entering 2026 with a ton of enthusiasm and a ton of excitement around both potential for FRE and ALP and really putting some investment dollars behind that to yield the strong growth. That said, we think that the store count growth will probably look similar to the sort of early days of the FRE launch. As we focus in and hone in on areas where we've gotten free distribution currently, so we can round up the portfolio inside of those particular retail stores. And we have a specific focus around fee this year with chain wins. So we're pretty excited about sort of all the above relative to both FRE and ALP.

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

First question for me, just want to piggyback off the last 1 here and maybe focus more on that free distribution, which you just alluded to there, Graham. So I appreciate the color that you provided on ALP distribution, but for FRE, which has been kind of the main horse for brick-and-mortar distribution. It seems like you still see some opportunities for wins in white space in 2026. So maybe some more color in terms of expectations there? And you mentioned some change there, so I know that can be sometimes a big step change in uncertainty in terms of the timing. So any color there would be appreciated.

Yes. Look, I think that there's still tremendous amount of store opportunity out there in both sort of the chain environment, which we view as substantial at this point in time. as well as continued growth in our independent customers. We also see green shoots relative to the level of distribution that we have in stores and specifically our share of shelf and what we see in our internal in terms of what that yields. So it's not necessarily at all times about raw store count adds. It's about the maturity of each of the stores that we get in distribution and making sure that we're winning inside those specific stores, but we do expect continued store growth this year. It may be a little bit lumpy relative to when chains come online, but we continue to expect upward trajectory there.

I appreciate the detail there. Second question for me. I just wanted to get some control of how are you thinking about innovation in the category, the need to stay ahead on that front as other large players aim to introduce new products, particularly given the FDA's new fast track PMTA program. So I know we've talked about flavors a lot, but also more it seems like that's a big initiative for some of the larger players. So how are you thinking about innovation in the category? Any color there would be helpful.

Yes. Look, I think our first focus is winning with the existing products that we have. We think we have a tremendous edge relative to our flavor profiles, our satisfaction levels within our product, our moisture level, the majority of the category today is sold in sort of the [ Montandintergreen ] environment. We feel very confident that we're sort of covered up where the biggest portion of the market is. In terms of long-term innovation, as we continue to grow our store count, we continue to grow the business, we certainly see opportunities down the road to make some investments behind additional flavor options. But at this point in time, we think we've got a portfolio with both FRE and ALP that we can win.

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

First one for me, just on nicotine pouch consumption, it looks like U.S. consumers are using more on a per day basis than they were a year ago. But that's still well below some of the more developed international regions. Just curious how you see growth evolving in this industry near term? Will it be more from existing consumers using more or new users entering the category? Any color there would be helpful.

I think the great news is both. And as you pointed out, the consumption patterns of existing consumers continues to grow as Modern Oral becomes a greater share of their nicotine requirements. And as you see the growth in the category, certainly, we're seeing consumer uptake from other tobacco products, specifically cigarettes and even vapes. So I think it's just a tremendous opportunity where sort of both provide growth vectors for the category.

I appreciate that. Second one for me on the tax landscape within Modern Oral, but we're seeing several safe considering tax hikes on nicotine pouches. Just wondering if you could provide some color on the potential for these increases this year. And just how that might impact the pricing and promotional environment going forward?

Yes. So taxes are something that the tobacco companies have dealt with for decades now. And I think the good news on the tax front is if you think about taxation in a specific state level, it impacts every product that's within that state. So there's no disadvantage for one manufacturer or another manufacturer relative to the tax landscape. We would anticipate that taxes will, over the long haul, will continue to grow and look more like sort of the existing tobacco products. But for us, that the absolute opportunity of winning inside the states where taxes are aren't at this point in time, that doesn't really matter to us because playing fields level, and we think we've got a winning product.

Our final question will come from the line of Gerald Pascarelli with Needham & Company.

Great. I know you don't provide a breakout by brand, understandable, but I was hoping that you could maybe broadly unpack for us the revenue performance between FRE and ALP this quarter. Just wondering specifically if you saw a slowdown in ALPs [ DTC ] growth or if you had better-than-expected performance in FRE, which we know is lower gross margin? So the basis of the question is just trying to reconcile some of the drivers behind the negative mix that you cited in terms of the Stoker's segment level gross margin in the quarter. So any color there would be great.

Yes. For internal reasons, we haven't split out specifically ALP in FRE. But what I can say is both brands performed within our expectation in the quarter.

Okay. And then for Graham, just I guess, a high-level question. Now that we're through year 1 of the white pouch rollout, if you could just talk about any learnings you've had where you view the biggest white space opportunities from a distribution perspective? And how you balance getting into some of these larger national chains, which are seemingly more expensive versus maybe doubling back to retail locations where you're currently present and where you've done very well historically to get more shelf space and more facings to build out your presence at some of these retail locations you're currently in? So any color there would be great.

Sure. Sort of reference prior answer here on this call. Sort of green shoots all over the place for us. When you think about the leaning into ALP and the retail distribution there as we ramp that tons of white space. It's virtually all white space for ALP out there, FRE still a tremendous amount of store level distribution opportunities. Still a tremendous amount of opportunities relative to expanding the portfolio inside of existing stores. And so we're focused on really all of the above because we think that there's so much opportunity out there. We've made a tremendous amount of investment in our sales force to really solidify sort of the ground troops to be able to go out and tackle that opportunity. You can see sort of how we're thinking about this coming year and ramping up our investment, we think that there's opportunities to invest in trade programs. There's opportunities to invest in further strategic partnerships to build out our brand profiles. And so ultimately, what we think is long term, brands are going to win in this space. And for us, we think about ALP as probably one of the leading sort of brand properties in the space given the connection there. The large [ D2C ] footprint, FRE has done a great job relative to leaning into its equities with the [ Probo Writing ] Association partnership. We think that there's other opportunities out there that we're incredibly excited to invest behind. And so I think that it's really all of the above, more stores, more facings, more product in there for both FRE and ALP. And we think as we continue to build the brand profiles that we have a winning combination and ultimately, our goal is to be a strong challenger brand in the space where we think, the combination of those two brands could achieve a #4 position in the space and maybe with a little bit of upside.

I do want to circle back to your first question about the gross margin performance in Stroker's. So one thing to keep in mind is that we had an elevated tariff rate in the fourth quarter. And so that had an impact on the Stroker's margins because of the white pouch. We did -- we had an [ add ] back in EBITDA, but that's in the adjusted EBITDA. It's not in the gross margins.

This concludes our question-and-answer session, and I will now hand the call back over to Graham for any closing comments.

Thank you, operator. Really appreciate everybody getting on the call. We feel great about how we finished 2025. And I can tell you how enthusiastic and excited we are about the opportunities in front of us in 2026. So we look forward to talking to you in a few months here, and we'll talk to you then.

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