Q1 2020 Earnings Call

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Welcome to 22nd century groups first quarter Twentytwenty earnings Conference call.

At this time, all participants are no listen only mode.

As a reminder, today's conference is being recorded.

At this time I would like to turn the call over to make well director of communications and Investor Relations. Please begin.

Thanks, Brock and good morning, everyone. We look forward to discussing our first quarter 2020 results with you today.

Joining me for 22nd century group's conference call, our might darker, our president and Chief operating Officer, and Andrew Johnston, Our Chief Financial Officer.

Before we begin we would like to remind everyone that the statements made on today's call that are not based on historical information.

Forward looking statements made pursuant to the stay safe Harbor provisions of the private Securities Litigation Reform Act of 1995.

These forward looking statements are not guarantees of future performance in all such forward looking statements involve risks and uncertainties many of which are beyond our company's ability to control.

Actual results may differ materially from those expressed or implied by such forward looking statements as a result of various factors, including but not limited to the risk factors disclosed in our company's annual report on form 10-K pretty or ended December 31st 20 night team as filed with the FCC on me.

Next 11th 2020.

22nd century does not undertake and it disclaims any obligation to update any forward looking statements or announced revisions to any of the forward looking statements.

During this call you will also disclose certain non-GAAP financial measures, including adjusted EBITDA, which we define as earnings before interest taxes, depreciation and amortization as adjusted by 22nd century group for certain noncash and non operating expenses.

All described in our company's earnings press release for the quarter ended March 31st 2020 as publicly issue today March 7th 2020, and which is available on our company's website.

I would now like to turn the call over to Mike.

Thanks Me and good morning, everyone.

Before I discuss our results I'd like to first touch on covert 19, how we're handling the situation and the impact it has had on our business.

Our first priority has been and will remain to ensure the safety and well being of our employees or corporate employees have been up operating under a work from home policy since March 20 Threerd.

And our R&D lab in Buffalo, New York has temporarily closed to comply with state orders.

The company's production facility in North Carolina is classified as in central business and remains fully operational with heightened health and safety protocols in place.

We're very proud of our team and would like to thank all of our employees for continuing their great work under these unusual circumstances with minimal disruption to normal business operations.

We will continue to monitor this rapidly evolving situation and look forward to reopening our corporate office and R&D facility.

As soon as it is legally and safely possible.

Now, let me provide an update on our first quarter results in year to date accomplishments.

Yes, I would start to 2020, driven by steady sales its first quarter revenue increased 12% over the prior year.

The cost reduction efforts, we made last year are starting to reflect in our results with operating loss improving by 23% in the quarter.

This was primarily driven by a reduction in operating expenses and costs associated with our MRT P. application.

Our solid financial results combined with the progress, we're making with the FDA on our MRT P. application as well as the head way we have made into legal have can have a space as well positioned.

Let us to continue to successfully execute against our key strategies.

We're now in the quote final action stage of our MRT P. application with the FDA.

Last month, the FDA set may 18, as the deadline for the submission of public comments tour and RTP application.

The milestone in the application review process.

Once that deadline has passed we expect the FDA to then complete its final review of our application and the public comments received.

A few years authorization of our application become anytime after the closing of the comment period.

It's important to acknowledge that in response to cope with my team some employees from Ft. A center for tobacco products has been deployed to work for the U.S. public Health service.

Therefore pandemic could impact the timing of the FDA decision about our MRT P. application.

Well, we have not received any formal notice directly from the FDA of such a delay.

The risk of a delay does exist as noted in our public filings.

Nevertheless, we see the F. yeas recent announcement of the closing date of the public comment period as a very encouraging sign that the FDA is continuing to advance our MRT p. application.

We continue to expect the positive outcome once at the age review it was complete.

The majority of her focus as would be expected is currently on our vilmain cigarettes, and the corresponding MRT P. application.

As a reminder, a P.M.T.A. authorization simply allows a new tobacco product to be sold.

The addition of an M or T. P authorization is needed in order for us to make certain advertising and marketing claims and to use the brand name feeling.

Villans labeling and marketing materials are expected to contain several reduced exposure claims most importantly, the claim of 95% less nicotine.

These claims will be what differentiates bln from all the other cigarette brands sitting alongside it on store shelves and will be instrumental in its commercial success.

Therefore.

We remain squarely focused on preparing for the authorization of our MRT P. application and on the subsequent launch of the Olin into the marketplace.

We continue to make significant headway with our R&D efforts in the first quarter and recently announced the successful completion of research field trials validating new non GMO methodologies for reducing nicotine in tobacco plants.

Research was conducted by North Carolina State universities Department of crop and Swale science.

And overseen by our R&D team.

These trials validate that non GMO methodologies can be applied reliably to reduce nicotine levels in tobacco plants by up to 99%.

The next step is to conduct additional field trials on larger and larger more extensive scale to test. These new non GM, though very low nicotine content tobacco lines in multiple locations in various environmental conditions.

This work is extremely important as these non GMO methodologies, they've already allowed us to dramatically reduce nicotine levels in widely used to bright and early tobacco varieties.

And likely will enable us to reduce nicotine levels in Oriental dark fired and many other varieties of tobacco currently used in many conventional cigarette and cigar products.

Additionally, this technology potentially opens up several international markets for violin, where non GMO products are often preferred like consumers.

We look forward to providing updates as we progress this important R&D.

Moving onto our work in the legal health, Canada space.

Last year, we entered into a strategic R&D partnership with Keiji Global Global leader in agricultural biotechnology.

And maybe an initial investment and panacea, a rapidly growing vertically integrated consumer facing company operating in the legal and CBD product space.

In March we announced the 22nd century, and key gene assembled high quality genome sequences of two cannabis lines with important traits and established a new proprietary and cannabis bio informatics platform.

The sequencing work and the establishment of a comprehensive bio informatics platform for major milestones in building the company's him candidates genetics knowledge Foundation.

Further work is underway to enhance the platform with data from additional plant lines.

We've also made significant achievements in rapid cycle breeding.

<unk> and metabolomics with both high CBD and oilseed have Canada's plant lines widely used in the industry.

Our initial investment in Panacea marks 22nd centuries first investment in the legal have Canada space.

And we'll be accelerated in Tennessee is branded CBD products business.

The second tranche of our investment in Tennessee is predicated upon certain milestones being reached in their business Panacea is performing as expected. Despite the challenging environment. They have room as they have remained open and operational continuing to manufacture and sell product.

Tennessee is led by Great management team.

In an accomplished CEO focused on making panacea, leading company in the U.S. for have thrived inevitably products and we're excited to be working with them.

We expect our partnerships with both key gene and panacea create strong shareholder returns in years ahead.

We continue to explore additional strategic opportunities in the legal and Canada space.

I would now like to turn the call over to Andrea for more detailed comments on our operational and financial performance for the first quarter 2020.

Thanks, Mike all financial comparisons in my remarks, I guess, the comparable year ago time here unless otherwise noted.

Mike discussed at the top the call our operational and financial performance is very solid in the quarter increased revenue and significant reduction to operating expenses.

The first quarter of 20 to one net sales revenue was 7.1 million dimes, a 12% increase from the prior here as a result of increased sales related to contract manufacturing cigarettes.

Operating loss for its first quarter was $1.1 million compared to a loss of 5.1 million.

This is primarily driven by reduction cost associated with our am RTP application and prior year and our efforts in expense management.

But the first quarter 2020, net loss was $4 million, representing a loss per share Lisa compared to net loss of 2.1 million or loss per share of two cents for Q1 to 29 team.

The increase losses due to change in fair value of Lorillard student decline in or worse underlying share price.

Adjusted EBITDA in the quarter was negative 3.2 million or negative two cents per share compared to a negative 4.6 million or negative four cents per share for Q1 at 29 team and an improvement of approximately 30% due to returning or contract manufacturing business.

I was just gross margin and improving the cost structure of our overall operating base.

Cash used in operating activities during the first quarter was approximately $4.7 million flat year on year, when compared to the first quarter Tony team.

The company's liquidity remained strong with cash cash equivalents and short term investment securities totaling approximately $34 million.

We believe we had adequate liquidity to sustain our normal operations and meet all of our current obligation.

And with that I'll turn the call back over to Mike for his closing comments.

Thanks Andrea.

So we feel good about our financial position as we have remained thought for managing managing expenses and maintaining a strong balance sheet, enabling the company to remain agile.

This concludes our earnings call today, if you have any questions. Please follow up with make whoa at Investor Relations at Xx.

Hi, I century dotcom.

Thank you for your interest in 22nd century, and we look forward to providing an up another update in our second quarter earnings call in August.

Thank you. This does conclude todays call you may now disconnect.

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