During today's call, we may also discuss non-GAAP financial measures, including adjusted EBITDA, which we define as earnings before interest, taxes, depreciation, and amortization, as adjusted for certain non-cash or non-operating expenses. We anticipated additional shipments of our VLN products to be minimal while the initial stocking orders were worked through, which allowed time for in-store placement, setup, retailer education, and awareness, among other activities. As a broad overview, looking at 2026, the shift for our company is now 100% focused on execution and growth. Following the rate of sale patterns that we've seen in the early stage of the VLN rollout, we believe we will see measurable growth from all the markets we are in.
On the marketing side, with our restructured balance sheet and our retail distribution expanding, we are now at the stage where we're investing in consumer marketing as the highest return on our resources. On the financial side, we are addressing the remaining low or no-margin products that we still produce. For the first quarter of 2026, net revenue was $4.1 million, compared to $3.5 million in the fourth quarter of 2025, an increase of approximately 16.1% on a sequential basis. As Larry noted, while first-quarter revenue improved sequentially, overall top-line and profitability performance still remain below where we are targeting.
Finally, adjusted EBITDA for the quarter was negative $2.6 million, compared to negative $2.4 million in the fourth quarter of 2025. While our near-term profitability metrics remain under pressure, our operating focus continues to be on scaling revenue, improving gross margin mix, and managing costs in a disciplined way as we expand the platform. Capital allocation remains disciplined, with resources directed toward distribution growth, VLN commercial support, marketing initiatives, and key opportunities for advancement of our reduced nicotine pipeline.
| Metric | Period | Current guidance |
|---|---|---|
| Retail outlets | End of 2026 | Close to target of 5,000 retail outlets |
| Distribution expansion | Rest of Q2 and Q3 2026 | Adding New York, New Jersey, and Southern California for Pinnacle (approx. 200 outlets); Southeast in Q3 for a new retailer with initial shipments late Q3/early Q4 |
| Commercial momentum | Back half of 2026 | Potential to show much stronger commercial momentum than the first half |
| Metric | YoY | Note |
|---|---|---|
| Net revenue | — | Sequential increase of approximately 16.1% to $4.1 million from $3.5 million in Q4 2025 as distribution expanded and product mix evolved |
| Gross loss | — | Improved sequentially to $0.6 million from $0.8 million in Q4 2025 on better mix |
| Operating loss | — | Widened to $3 million from $2.8 million in Q4 2025 as near-term profitability remained under pressure |
| Adjusted EBITDA | — | Negative $2.6 million versus negative $2.4 million in Q4 2025 |
| Cash and cash equivalents | — | Ended the quarter at $9.5 million with disciplined capital allocation |
| Topic | Previous mention | Current period | Trend |
|---|---|---|---|
| Strategic focus | 2025 was the transition year from restructuring to growth | Company now 100% focused on execution and growth in retail outlets, points of distribution, and consumer marketing | — |
| Consumer marketing | Limited marketing to establish a baseline at launch | Began promoting Pinnacle VLN with cross-promotions and digital fuel rewards; hiring VP of Marketing as consumer adoption is the unlock | — |
| Product mix / margins | Exiting unprofitable contracts | Addressing remaining low/no-margin products via pricing first while continuing to exit unprofitable contracts, expecting gross profit improvement as the year progresses | — |