Q1 2024 22nd Century Group Inc Earnings Call
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Important.
And it's up to us to make account.
We are retooling, our <unk> branding and we will rollout our new branding in the second half of the year.
We're driving to make real and more visible in the store.
And the FDA data that we used to secure our MLR T. P authorization makes clear that our <unk> cigarettes can be a critical tool in the fight to reduce the harm from nicotine from smoking.
And smokers, who have used the product successfully credit vonn with playing an important part and breaking the cycle of nicotine addiction, and helping them smoke less.
When we launched our new branding, we want <unk> to be the tip of the sphere and the creation of an entire harm reduction category centered around reduced nicotine products.
We are also looking for other brands that we produce to adopting carry a V L N SKU and their product lines as well.
If successful this will give smokers, who want to pursue changes in their nicotine consumption more very low nicotine choices and make the category more visible.
The good news is.
That we have the distribution and storage to accomplish this goal in place we just need to continue our pursuit of consumer awareness and consumer acquisition.
To that end, we're focused on two aspects first.
We're rebuilding the marketing and education around V. L N using resources that I've used before and similar efforts.
As well as our branding efforts and second we're moving ahead on additional strains of reduced nicotine content tobacco to support additional blends as we go forward, which will allow us to offer customers a chance to more closely match a reduced nicotine alternative to their existing preferred brands.
Speaker Change: By engaging our audiences and potentially offering a variety of deal and skus adjacent to their existing cigarette of choice.
Speaker Change: And offering additional brand choices.
Speaker Change: We want to make it easy for smokers to recognize the concept the BLM as a choice and switch to a reduced nicotine content product.
Speaker Change: And commit to their harm reduction journey.
Speaker Change: I also want to reinforce this simple message to our shareholders government actions to push harm reduction products to the forefront could potentially help us with.
Speaker Change: We simply cannot and will not rely on government action as a part of our business plan.
Speaker Change: We must run the business within our span of control and are planning our business accordingly.
Speaker Change: We want to make smokers aware of our very low nicotine products.
Speaker Change: And have them make the choice real time to reduce their nicotine harm.
Speaker Change: This is a powerful tool in our toolkit and the market.
Speaker Change: But the government is not going to force customers to use our products.
Speaker Change: But even without government action.
Speaker Change: I believe that our U S government and the FDA want the U S population of smokers to realize the harmful and addictive nature of cigarettes and take the initiative to stop smoking on their own and solve the problem.
Speaker Change: The overarching cost in lives and healthcare and infrastructure related to smoking.
Is huge.
Speaker Change: Our bar for economic success with V. L. N remains low with 5100 retail outlets.
Speaker Change: That currently carry V L N.
Speaker Change: We just need each of them to sell nine packs per week to completely carry the entire company's overhead costs.
Speaker Change: That is essentially one carton per week per store.
Speaker Change: Some of the change the carrier <unk> and share our interests already and are developing separate in store categories focused on harm reduction products for smokers.
Speaker Change: This commitment by retailers would be a major step forward.
Speaker Change: <unk> brand awareness.
Speaker Change: As we continue working on our branding and product awareness initiatives, while we strengthened our financial capability and move towards profitability, we will increase our spending efforts with strategic retail partners getting the message to smokers.
Speaker Change: We are looking to further increase our store distribution with relevant retailers and continue to build our support with the medical and scientific community that understands the importance of <unk> brand to public health.
As far as our CMO business goes.
Speaker Change: Which is currently the bulk of our revenues, we see an opportunity to expand our reach and provide a valuable service to the industry and grow organically.
Speaker Change: Contract manufacturing is prevalent in many other industries and our team in North Carolina is equipped to take the fixed cost of direct labor and overhead.
Speaker Change: At our customer sites.
Speaker Change: And turn it into a variable cost for our CMO customers.
This relieves them of the fixed nature of the overhead behind the direct labor and overhead.
Speaker Change: And it's a much simpler model for them as they can focus on marketing and selling.
Speaker Change: We will continue to work our strategies in this area to develop a wider network of customers with the goal of full utilization of our factories capacity.
Dan: I will now turn the call over to Dan to review the financial results for Q1 as well as some excellent news, we released about our balance sheet and.
Dan: Thank you Larry Good morning, everyone and thank you again for joining our discussion today.
Dan: I'll provide further details on our fourth quarter financial results.
Dan: As a reminder, all financial results in our earnings release are presented on a continuing operations basis, which excludes our hemp cannabis business.
Net sales were $6 5 million declining slightly from $7 4 million in the fourth quarter of 2023 due to lower volume.
Dan: This is reflective of lower unit sales as a result of our ongoing reallocation and production resources at the company's nasco facilities away from lower and in some cases negative margin filtered cigars.
Dan: Higher margin <unk> and conventional cigarette products.
Dan: As Larry outlined we have certain price increases and added new volume in the second quarter of 2024, which are yielding strong results in the month of May.
Speaker Change: Gross profit for the first quarter was a loss of $1 1 million, which included one time charges related to inventory write offs of approximately 400000, and an excise tax assessment related to prior periods of 200000.
Speaker Change: Accordingly, our monthly margin loss was approximately 200000, which is a result of the initiatives Larry and I have outlined that began in the second quarter.
Speaker Change: See these losses begin to reverse and gradually gained momentum throughout the remainder of 2024.
Speaker Change: Total operating expenses were $3 3 million down from $10 4 million in the comparative prior period and sequentially down from $6 4 million in the fourth quarter of 2023.
Speaker Change: As a result of our rapid cost reduction initiatives and lean operating focus we have substantially decreased the cash needs of our business.
Speaker Change: Cash used in operations during the first quarter of 2024 declined significantly to $2 3 million as compared to the prior comparative period of $17 5 million in fourth quarter 2023, $4 8 million.
Speaker Change: Net loss for the first quarter declined to $5 6 million and adjusted EBITDA loss decreased significantly to $3 5 million.
Speaker Change: A full reconciliation table of GAAP to non-GAAP measures is included in our earnings release.
Speaker Change: Our first quarter 2020 core financial results provide an initial view of the significant transformation, primarily impacting the P&L to reduce costs that the company has undertaken since the fourth quarter of 2023.
Speaker Change: Not only are we focused on the P&L to reach profitability. We also continue on the path of restoring strength to the balance sheet.
Speaker Change: We have implemented numerous cash preservation initiatives and maintain our lean cost structure and overhead mantra.
Speaker Change: We also have a goal of quickly restoring normal balance sheet kpis for simple metrics, including positive working capital minimum standard current ratio and reversing shareholders' deficit to positive equity.
Subsequent to quarter end in April and May we have completed transactions benefitting each of our balance sheet goals, including.
Speaker Change: First we completed a registered direct offering of gross cash proceeds of $4 2 million.
Speaker Change: Which provides the company with extended cash runway moving us another step closer to being funded until we are profitable and generating cash positive operations.
Speaker Change: Second we completed multiple debt and other liability exchanges for equity transactions, resulting in a total decrease of liabilities and increase in shareholders equity of approximately $8 million.
Speaker Change: Significant components of this included approximately $2 7 million reduction.
Speaker Change: And the J G B senior secured credit facility and approximately $5 2 million reduction of the subordinated debt.
Speaker Change: As we continue to chip away at repayment of our outstanding debt obligations, we continued to sequentially lower cash interest payments and interest expense.
Speaker Change: We now also have in place a mechanism for consistent and repeatable debt to equity exchanges and have deferred the need for any minimum monthly cash amortization payments until August 2024.
Speaker Change: Collectively the progress made to date in the second quarter is remarkable.
The path to reaching our balance sheet goals by the end of 2024.
Speaker Change: Finally, we continue pursuit of our lawsuit against Dorchester insurance company based on their failure to pay any amounts toward our claim of $9 million in actual damages for business interruption insurance.
Speaker Change: With the latest hearing having occurred in federal court in Oregon in April 2024.
Speaker Change: With that we'll now open the call for questions from our analysts.
Speaker Change: Ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the number one on your Touchtone phone.
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Speaker Change: If you are using a speaker phone please lift the handset before pressing entities.
Speaker Change: Again for questions. If you have any questions for the call. Please press star one on your telephone keypad.
Speaker Change: We have no questions at this time.
We were just preparing the roster for the Q&A.
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Speaker Change: Hey, operator, if no further questions. So I can go ahead and close.
Speaker Change: Yes, since we have no further questions at this time I would now turn the call back to Larry Firestone for closing remarks.
Lawrence D. Firestone: Thank you I would like to thank everyone for joining our call today in closing I will emphasize that even though we're only five months into this turnaround at <unk>.
Lawrence D. Firestone: 22nd century, we have moved very quickly and put our company on track to becoming profitable for the first time in the company's history.
Lawrence D. Firestone: We have refocused operations slash costs reduce our cash usage and strengthen their balance sheet.
Lawrence D. Firestone: We know what to do to become profitable in the first quarter of 2025 and now it's time to execute.
Lawrence D. Firestone: We will keep our lean operating mantra going forward.
Lawrence D. Firestone: And are now looking to add growth in the business to a recipe to meet our targets.
Lawrence D. Firestone: It will come as we expand the business on the CMO side, and the rebranding and growth in distribution for V O N.
Lawrence D. Firestone: This is a long road, but we're well on our way.
Lawrence D. Firestone: We look forward to updating you again as new developments occur and in August.
Lawrence D. Firestone: And our second quarter 2024 conference call.
Lawrence D. Firestone: Lastly, I would like to thank our investors for continuing to support us with critical capital.
Lawrence D. Firestone: And our lenders for participating in our debt reductions and most importantly, our employees who are committed.
Lawrence D. Firestone: To the mission of driving twenty-second century forward. These conclude our remarks.
Lawrence D. Firestone: Okay.
Speaker Change: Ladies and gentlemen. This concludes today's conference call. Thank you very much for your participation you may now disconnect.
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