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01/10 16:26
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The company's earnings call highlights an increase in EBITDA guidance and nicotine pouch sales, indicating strong financial performance. The Q&A section reveals confidence in capacity expansion and strategic growth in Modern Oral products. Despite some margin pressures and negative free cash flow, the company's positive guidance and strategic investments in growth areas suggest a likely positive stock price reaction.
Revenue 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 Adjusted EBITDA increased 17% to $31.3 million for the quarter.
White nicotine pouch sales White pouch sales increased 628% year-over-year and 22% sequentially. The growth is attributed to their long-lasting vibrant flavor options, comfortable mouth feel, and flexible nicotine levels resonating with consumers.
Stoker's revenue 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.
Zig-Zag revenue Zig-Zag revenue was down 11% to $44.2 million and down 6% sequentially. The decline reflects some opportunity costs related to the focus on Modern Oral.
Gross margin 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 outsized growth in Modern Oral.
SG&A expenses 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 the growing business.
Free cash flow Free cash flow for the third quarter was negative $1 million, including the first coupon payment on the 7.625% high-yield bond issued in February of 2025.
White nicotine pouch brands: Sales increased 628% year-over-year and 22% sequentially. ALP, initially expected to be exclusive D2C for 2025, started appearing on bricks-and-mortar shelves ahead of schedule.
FRE Watermelon: Launched as a new flavor in the nicotine pouch category, positioned as a first mover with a complete strength offering.
Stoker's Fine Cut Wintergreen cans: New product launched in the Stoker's segment.
Zig-Zag Natural Leaf Flat Wraps: Laid groundwork for launch to compete in the Natural Leaf segment.
International expansion: Investments in expanding to international markets for Modern Oral business.
Retail expansion: ALP nicotine pouches started appearing in select retailer tests ahead of schedule.
Sales force expansion: Ahead of schedule in doubling the size of the sales force by the end of 2026.
Manufacturing improvements: Building U.S. manufacturing to improve white pouch profitability and mitigate supply chain and tariff risks. First production lines expected in the first half of 2026.
Marketing investments: Increased investments in sales and marketing for Modern Oral products, including partnerships and collaborations.
Capital deployment: Raised $100 million in gross proceeds to accelerate Modern Oral business growth. Updated ATM prospectus and buyback authorization to $200 million each.
Focus on Modern Oral: Prioritizing FRE and ALP nicotine pouches while maintaining cash flow from heritage brands.
Supply Chain and Tariff Risks: The company is investing in U.S. manufacturing to mitigate supply chain and tariff risks, indicating potential challenges in sourcing and cost management.
Zig-Zag Revenue Decline: Zig-Zag sales decreased 11% year-over-year, reflecting opportunity costs related to the focus on Modern Oral products.
Increased SG&A Expenses: SG&A expenses rose by $4.2 million sequentially, driven by sales and marketing investments and increased outbound freight charges, which could pressure margins.
Negative Free Cash Flow: The company reported negative free cash flow of $1 million for the quarter, partly due to high-yield bond coupon payments, which could impact liquidity.
Regulatory and Tariff Impacts: Guidance reflects tariff and currency-related impacts, suggesting exposure to regulatory and international trade risks.
Competitive Pressures in Nicotine Pouch Market: The company anticipates a competitive market with five to six dominant brands, requiring significant investments to secure market share.
Focus on Modern Oral Products: The focus on Modern Oral products may lead to opportunity costs and resource allocation challenges for legacy brands like Zig-Zag.
Adjusted EBITDA Guidance: Increased to a range of $115 million to $120 million, up from $110 million to $114 million for the full year 2025.
Nicotine Pouch Sales Guidance: Full year consolidated nicotine pouch sales guidance increased to a range of $125 million to $130 million, up from $100 million to $110 million.
Market Opportunity in Nicotine Pouch Space: The nicotine pouch market is expected to approach or exceed $10 billion in manufacturers' revenue by the end of the decade. The company aims for a double-digit market share in this category.
Capital Deployment: Raised $100 million in gross proceeds to be deployed across high-return opportunities to accelerate Modern Oral business growth. Plans to update ATM prospectus supplement and buyback authorization to provide $200 million of capacity under each program.
Sales Force Expansion: Ahead of schedule in doubling the size of the sales force by the end of 2026.
Manufacturing Expansion: Plans to qualify the first production lines for U.S. manufacturing of white pouches in the first half of 2026 to improve profitability and mitigate supply chain and tariff risks.
New Product Launches: Launched FRE Watermelon flavor and plans to expand SKU offerings. Also laid groundwork for Zig-Zag Natural Leaf Flat Wraps.
Marketing and Brand Awareness: Investing in strategic marketing campaigns, including partnerships like Professional Bull Riders, to accelerate brand awareness and consumer loyalty.
CapEx for Modern Oral Business: Expected to spend $3 million to $5 million for the full year 2025 to supplement Modern Oral PMTAs.
Share Buyback Authorization: The company plans to update its ATM prospectus supplement and buyback authorization to provide for $200 million of capacity under each program. However, there are no current plans to transact under the updated authorizations.
The earnings call indicates positive sentiment with increased guidance for EBITDA and nicotine pouch sales. The Q&A section confirms a favorable revenue environment and strategic growth plans, such as sales force expansion and market share targets. Although there are some concerns, like headwinds in the Zig-Zag segment, the overall outlook remains optimistic with strong modern oral sales projections and strategic investments. The increased guidance and strategic initiatives suggest a likely positive stock price movement.
The company's earnings call highlights an increase in EBITDA guidance and nicotine pouch sales, indicating strong financial performance. The Q&A section reveals confidence in capacity expansion and strategic growth in Modern Oral products. Despite some margin pressures and negative free cash flow, the company's positive guidance and strategic investments in growth areas suggest a likely positive stock price reaction.
The earnings call presents a strong financial performance with a 28% revenue increase and a significant rise in modern oral nicotine pouch sales. Despite some declines, gross margins improved, and strategic investments in sales and marketing are evident. The Q&A section reveals positive feedback on brand reception, ongoing expansion efforts, and effective management of tariff impacts. While there are uncertainties in the brick-and-mortar rollout and some evasive responses, the overall sentiment is positive, supported by optimistic guidance and strategic initiatives. The lack of market cap data suggests a moderate positive stock price reaction.
The earnings call reveals mixed signals: strong revenue growth and positive modern oral segment performance, but declining gross margins and competitive pressures. The Q&A section highlighted management's reluctance to provide specifics, raising uncertainty. Despite strong financials, the absence of a shareholder return plan, potential tariff impacts, and supply chain challenges balance the positives. Overall, the sentiment remains neutral, with both positive and negative factors at play.
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