Q3 2024 22nd Century Group Inc Earnings Call
Operator: Conference call.
Operator: Joining me today are Larry Firestone, CEO, and Dan Otto, CFO.
CEO, Dan Auto CFO.
Operator: Earlier today, we issued a press release announcing our results for the third quarter 2024. The release and thank you are available in the investor section of our website at XXIIcentury.com.
Earlier today, we issued a press release announcing our results for the third quarter 2020 for the release and 10-Q are available in the investors section of our website at X X II century Dot com.
Operator: Today's call will include prepared remarks from Larry and Dan, updating you on 22nd Century's business, operations, strategy, and financial results through September 30, 2024, and subsequent.
Speaker Change: Today's call will include prepared remarks from Larry and Dan updating you on 20, <unk> century's business operations strategy and financial results through September 30 of 2024 and subsequent.
Operator: Before we begin, A few reminders for today's call. Some of the statements made today are forward-looking. Forward-looking statements are subject to risks, uncertainties, and other factors that may cause actual results to differ materially from those contemplated by these statements.
Speaker Change: Before we begin.
Speaker Change: Few reminders for today's call. Some of the statements made today are forward looking forward looking statements are subject to risks uncertainties and other factors that may cause actual results to differ materially from those contemplated by these statements.
Operator: Additional information regarding these factors can be found in our annual, quarterly, and other reports filed with the SEC. 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 and non-operating expenses, and net debt, calculated as total principal amount of debt outstanding, less cash, and cash equivalent.
Speaker Change: Additional information regarding these factors can be found in our annual quarterly and other reports filed with the SEC.
Speaker Change: 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 noncash and nonoperating expenses and net debt calculated as total principal amount of debt outstanding less cash and cash equivalents.
Operator: For more details on these measures, please refer to our press release issued earlier today.
Speaker Change: For more details on these measures. Please refer to our press release issued earlier today and with that I'll now turn the call over to Larry.
Lawrence Firestone: And with that, I'll now turn the call over to Larry. Thank you, Matt. And good morning, everyone, and thank you for joining 22nd Century's 3rd Quarter 2024 Results Conference Call.
Larry: Thank you Matt.
Larry: And good morning, everyone and thank you for joining 20, <unk> century's third quarter 2024 results conference call.
Lawrence Firestone: It's been almost a year since I joined the company in December of 2023, and I'm pleased to say we're running a much different and vastly improved company than we were a year ago with a team that's both excited and motivated. We won't be spending much time revisiting the past 11 months on this call. Dan will be covering Q3 trends and financial results.
Speaker Change: It's been almost a year since I joined the company in December of 2023, and I'm pleased to say, we're running a much different and vastly improved company than we were a year ago.
Speaker Change: With a team that's both excited and motivated.
Speaker Change: We won't be spending much time revisiting the past 11 months on this call.
Speaker Change: We'll be covering Q3 trends and financial results.
Lawrence Firestone: Suffice to say, We have changed the company dramatically in all facets, and it will be most productive on this call to walk you through the outline of our current strategy as we go forward. We now have a very simple and intuitive business model. We have a contract manufacturing business, or CMO side of the house. And we have a branded product side of the house where our VLN low nicotine cigarette products reside. You have heard me talk over my time here about the synchronicity between the two sides of our business. And this synchronicity is very important as we shape the company going forward.
Speaker Change: Suffice to say.
Speaker Change: We have changed the company dramatically in all facets and it will be most productive on this call.
To walk you through the outline of our current strategy as we go forward.
Speaker Change: We now have a very simple and intuitive business model.
Speaker Change: You have a contract manufacturing business or CMO side of the house.
Speaker Change: And we have a branded product side of the house, where are real and low nicotine cigarette products reside.
Speaker Change: You have heard me talk over my time here.
Speaker Change: How about the synchronicity between the two sides of our business and this synchronicity is very important as reshape the company going forward.
Lawrence Firestone: as we look ahead at our strategy. It helps to reinforce the market landscape of the tobacco industry. I view this as a function of TAM, or Total Available Market, and our SAM, or Served Available Market. The combustible cigarette market in the U.S. is an approximate $85 billion market annually. Big tobacco controls approximately 85% of that market. So the market that our CMO customers typically serve, and we serve with our VLN brand, is in the 15% of the remaining market, which is an approximate $12 billion market. There's plenty of room for us and the VLN category in that $12 billion slide.
Speaker Change: As we look ahead at our strategy.
Speaker Change: It helps to reinforce the market landscape.
Speaker Change: Tobacco industry.
Speaker Change: I view this as a function of Tam or total available market and our Sam our served available market.
Speaker Change: The combustible cigarette market in the U S is an approximate 85 billion.
Speaker Change: Stellar market annually.
Speaker Change: Big tobacco controls approximately 85% of that market.
Speaker Change: So the market that our CMO customers typically serve and we serve with our <unk> brand is in the 15% of the remaining market.
Speaker Change: Which is an approximate $12 billion market, there's plenty of room for us and the <unk> category in that $12 billion slides.
Lawrence Firestone: This segment is our SAM and is populated with many brands at many price points, usually in the lower tiers. known as Discount Brand. The VLN Brands are premium brands. within the $12 billion market and provide plenty of opportunity for us and you will see plenty of opportunity for our CMO customers as well.
Speaker Change: This segment is our Sam and is populated with many brands at many price points, usually in the lower tiers.
Speaker Change: One is discount brands.
Speaker Change: The BLM brands, our premium brands.
Speaker Change: Within the $12 billion market and provide plenty of opportunity for us and you will see plenty of opportunity for a CMO customers as well.
Lawrence Firestone: With that context of our targeted market, I'm now going to talk further about the CMO side of the house first. As you will see in our press release, in our 10-Q. The CMO business is the lion's share of our revenue today while we revise the strategy around VLM. As far as the CMO business model goes, we provide a superior service to our customers in the industry. Once we're under contract, we take on the responsibility for procurement, product quality, production scheduling, shipping, taxes, etc. We provide a wide range of services, regardless of whether our customers have their own retail distribution or not.
With that context of our targeted market.
Speaker Change: To talk further about the CMO side of the house first.
Speaker Change: As you will see in our press release.
Speaker Change: Our 10-Q.
Speaker Change: The CMO businesses, the lion's share of our revenue today, while we revise the strategy around BLM.
Speaker Change: As far as the CMO business model goes.
Speaker Change: We provide a superior service to our customers in the industry.
Once we are under contract we.
Speaker Change: We take out of the responsibility for procurement product quality production scheduling shipping taxes et cetera.
Speaker Change: We provide a wide range of services, regardless of whether our customers.
Have their own retail distribution or not.
Lawrence Firestone: We own the product until it leaves our back. The quality that our factory produces is paramount. and that is what we're known for. The relationships with our key customers are critical. as when they grow, we grow. In the case where our CMO customers have their own retail stores, the product we manufacture on their behalf becomes their house brand and is sold within their own retail channel. Therefore, the work we do at our factory in North Carolina is critical, not only is our reputation on the line with every pack, but our customers as well, with respect to their brand.
Speaker Change: We own the product until it leaves our factory.
Speaker Change: The quality that our factory produces is paramount.
Speaker Change: And that is what we're known for.
Speaker Change: The relationships with our key customers are critical.
Speaker Change: As when they grow we grow.
Speaker Change: In the case, where our CMO customers have their own retail stores the product we manufacture on their behalf becomes their house brands.
Speaker Change: And it's sold within their own retail channel.
Speaker Change: Therefore, the work we do at our factory in North Carolina is critical not only is our reputation on the line with every pack, but our customers as well with respect to their brands.
Lawrence Firestone: These CMO house brands in the marketplace provide us with a significant advantage and opportunity as we switch gears and talk about VLN. Our current low nicotine product is the VLN cigarette with 95% less nicotine than a traditional cigarette. This product, we believe, gives smokers a choice to control their nicotine intake. Our big brothers and sisters in the tobacco industry would like the entire population of tobacco users, both combustible and non-combustible, to stay hooked to their highly addictive nicotine content products. In fact, In the U.S., there's a sign on every door or every area where cigarettes are sold stating, and I quote, A federal court has ordered Philip Morris USA and R.J.
Speaker Change: These CMO house brands in.
Speaker Change: In the marketplace to provide us with a significant advantage and opportunity as we switch gears and talk about V O N.
Speaker Change: Our current low nicotine product as the vlan cigarette with 95% less nicotine than a traditional cigarettes.
Speaker Change: This product, we believe give smokers of choice to control their nicotine intake.
Speaker Change: Our Big brothers and sisters in the tobacco industry, we'd like the entire population of tobacco users, both combustible and Noncombustible.
Speaker Change: To stay hooked to their highly addictive nicotine content products and.
Back.
Speaker Change: In the U S. There's a sign on every door for every area, where cigarettes are sold stating and I quote.
Speaker Change: A federal Court has ordered Philip Morris USA and R. J Reynolds tobacco too.
Lawrence Firestone: Reynolds Tobacco to state Altria, R.J. Reynolds Tobacco, Lorillard, and Philip Morris USA intentionally designed cigarettes to make them more addictive. Nicotine and nicotine addiction is a huge issue. You may have seen the signs, or you may have missed them, but please look for them because they are there. In addition, literally billions of dollars are being spent annually in the U.S. on websites, TV ads, associations, etc., communicating the harm of nicotine. The world hasn't been listening to date, but maybe now the message is traveling, and with the right communication at the store level, we can help that message travel.
Speaker Change: To state.
Altria R J Reynolds tobacco, Lorillard, and Philip Morris USA intentionally designed cigarettes to make them more addictive.
Speaker Change: Nicotine of nicotine addiction is a huge issue.
Speaker Change: You may have seen the science or you may have missed them, but.
Speaker Change: So please look for them because they are there.
Speaker Change: In addition, literally billions of dollars are being spent annually in.
In the U S on websites TV ads associations et cetera.
Speaker Change: <unk> the harm of nicotine.
Speaker Change: The world Hasnt been listening to date, but maybe now the message is traveling and with the right communication at the store level, we can help that message travel we'll see.
Lawrence Firestone: We'll see.
Lawrence Firestone: in our 26-year journey developing low nicotine tobacco with the help of North Carolina State University and others. is leading the charge to give tobacco users a choice to control their nicotine through our VLN product offering.
Speaker Change: And our 26 year journey, developing low nicotine tobacco with the help of North Carolina State University and others 'twenty.
Speaker Change: 20, <unk> century is leading the charge to give tobacco users a choice to control their nicotine.
Speaker Change: Through our <unk> product offerings.
Lawrence Firestone: We offer the choice today with our VLM cigarettes, and down the road, we plan on development of other product line extensions of low nicotine products. Our VLN solution-oriented products and their synchronicity with their CMO business is critical to our growth plans in bringing 22nd Century and VLN to the forefront of the industry.
Speaker Change: We offered the choice today, whether it be on cigarettes and down the road we plan on development of other product line extensions of low nicotine products.
Speaker Change: Our <unk> solution oriented products and Theyre synchronicity with their CMO business is critical to our growth plans and bringing 22nd century and BLM to the forefront of the industry.
Lawrence Firestone: I will lay out the strategy that we've been working towards. and what has begun to take shape. In the CMO business, we have great customers who rely on us to produce their products. Our customers are introducing new products and expanding our responsibilities within their brand portfolios, and this is a critical growth engine for us. We're speaking about both domestic and export business. In addition to the growth within our existing customer base and their product expansion, we are soliciting new CMO customers who can take advantage of our talented team and the high-volume, high-quality production machine that we've built in North Carolina known as NASCO Products.
Speaker Change: I will lay out the strategy that we've been working towards.
Speaker Change: And what has begun to take shape.
And the CMO business, we have great customers, who rely on us to produce their products.
Speaker Change: Our customers are introducing new products and expanding our responsibilities within their brand portfolios.
Speaker Change: And this is a critical growth engine for us.
Speaker Change: We're speaking about both domestic and export business.
Speaker Change: In addition to the growth within our existing customer base and their product expansion. We are soliciting new CMO customers, who can take advantage of our talented team.
Speaker Change: And the high volume high quality production machine that we've built in North Carolina, and those known as Masco products.
Lawrence Firestone: or VLN. Our low nicotine tobacco is the solution. This is where the intersection of our CMO, house brands, and VLN strategy merge and provide us with a significant opportunity.
Speaker Change: For Vlan.
Speaker Change: Our low nicotine tobacco is the solution.
Speaker Change: This is where the intersection of our CMO House brands, and Beeline strategy merge and provide us with a significant opportunity.
Lawrence Firestone: Key priority of our strategy is targeting to expand our VLN SKU lineup and enter the market for VLN within our CMO customers PROC lineup. I've referred to this as Flanker Brands in the past. These are private label BLM brands in our customer's product lines. As we go, our CMO customers will carry VLN SKUs under their brands as well as our flagship brand in their stores. With this strategy, we will begin to broaden distribution and begin to build the VLM category with multiple facings in retail. Eventually, as this strategy takes hold, we will have the potential.
Speaker Change: A key priority of our strategy is targeting to expand our <unk> SKU lineup.
Speaker Change: And enter the market reveal in within our CMO customers product lineup.
Speaker Change: I've referred to this as flanker brands in the past.
Speaker Change: These are private label, the Olin brands and our customers' product lines.
Speaker Change: As we go our CMO customers will carry vlan skus under their brands as well as our flagship brand in their stores.
Speaker Change: With this strategy, we will begin to broaden distribution and begin to build the BLM category with multiple facings in retail.
Speaker Change: Eventually as this strategy takes hold we will have the potential.
Lawrence Firestone: to have a category that represents the different brands that carry VLN under their brand. within the 5100 retail outlets that currently carry our VLN products, both regular and menthol. We have significant work to do to reactivate the brand and achieve a higher rate of sale to register. You've heard me refer to the fact that we need one carton per store to break even on VLN alone. at the launch of the product in some stores. We saw rates of sale up to three and a half cartons a week for an extended period of time.
Speaker Change: To have a category that represents the different brands that carry BLM under their brand.
Speaker Change: Within the 5100 retail outlets.
Speaker Change: Currently carry RV OEM products, both regular and menthol.
Speaker Change: We have significant work to do to reactivate the brand and achieve a higher rate of sale to register.
Speaker Change: You've heard me refer to that to the fact that we need one carton per store to breakeven on Vela and alone.
Speaker Change: At the launch of the product in some of in some stores we.
Speaker Change: We saw rates of sale up to three and a half cartons are weak for an extended period of time.
Lawrence Firestone: Instead of incubating further in a very slow strategic way, we went wide in 2022 with a fast expansion up to 5,100 stores and did what I call outkicked our coverage. When that happens, you're playing catch-up, and that's exactly where we are. In addition, we sold into distribution partners large volumes of VLN. And now they have to burn through their inventories before reordering our flagship brand. That's what I refer to as a supply air pocket.
Speaker Change: Instead of incubating further in a very slow strategic way, we went wide in 2022 with a fast expansion up to 5100 stores.
Speaker Change: It did what I call our kicked our coverage.
Speaker Change: When that happens you are playing catch up and that's exactly where we are.
Speaker Change: In addition, we sold into distribution partners large volumes of <unk>.
Speaker Change: And now they have to burn through their inventories before reordering our flagship brand.
Speaker Change: That's what I referred to as a supply air pocket.
Lawrence Firestone: Simply put, the actions we're taking on the VLN side are as follows. 5100 Retail Outlets need attention from our side to refresh the brand and activate it at the store level. This will be done with signage and other retail product presentation training and programs, etc. Private Label, or Flanker VLN, will add growth and distribution, increasing the store count north of the 5100 retail outlet. Again, all this is targeted at the lower 15% of the total addressable market, or the $12 billion market. We will activate all the VLN brands, both flagship VLN and CMO, customer private label brand VLN in the same way with programs that will help educate and attract the eyes of the consumer to the product.
Speaker Change: Simply put the actions we're taking on the VL inside are as follows.
Speaker Change: 5100 retail outlets need attention from our side to refresh the brand and activated at the store level. This will be done with signage and other retail product presentation training and programs et cetera.
Speaker Change: Private label or for Linker V L N will.
Speaker Change: We will add growth and distribution, increasing the store count.
Speaker Change: North of the 5100 retail outlets.
Speaker Change: Again all of this is targeted at the lower 15% of the total addressable market for the $12 billion market.
Speaker Change: We will activate all the wieland brands, both flagship BLM and CMO customer private label.
Speaker Change: Brendan B O N.
Speaker Change: In the same way with programs that will help educate and attract the eyes of the consumer to the product.
Lawrence Firestone: Having said that, As fast as the expansion of VLN could go, we will deliberately manage the pace of expansion so that we do not repeat our past sins and outkick our coverage or expand beyond our ability to service the launch. This will build the VLN brand and allow our CMO customers. the opportunity to add a premium product into their SKU lineup.
Speaker Change: Having said that.
Speaker Change: As fast as the expansion of <unk> and could go we will deliberately manage the pace of expansion. So that we do not repeat our past sins and I'll kick our coverage for expand beyond our ability to service the launch.
Speaker Change: This will build the <unk> brand and allow our CMO customers.
Speaker Change: The opportunity to add premium product into their SKU lineup.
Lawrence Firestone: where we believe we will close 2025 is with a healthy BLM flagship distribution in the 5100 stores and growing. and a healthy growth path of private VLN or flankers. in the market, expanding the footprint and gaining customer awareness and traction.
Speaker Change: Where we believe we will close 2025 years with a healthy <unk> flagship distribution and the 5100 stores and growing.
Speaker Change: And our healthy growth path of private vlan.
Speaker Change: Lakers.
Speaker Change: And the market expanding the footprint and gaining customer awareness and traction.
Lawrence Firestone: We have other growth strategies we're vetting, and we will update our investors as they come to fruition.
Speaker Change: We have other growth strategies, we're betting.
Speaker Change: And we will update our investors as they come to fruition.
Daniel Otto: And with that, I'll turn it over to Dan to discuss the numbers. Okay. Thank you, Larry. I'll now spend some time going through the details of our third quarter financial results, which are presented on a continuing operations basis and excludes our former hemp cannabis segment. Net revenue was $5.9 million in the third quarter 2024, decreased sequentially from $7.9 million in the second quarter 2024. The revenue decline reflects several puts and takes, but overall is reflective of lower volume shipped at 439,000 cartons compared to 719,000 cartons in the second quarter. Gross profit declines are similarly impacted by the lower value shipped during a period.
Speaker Change: And with that now.
Dan: I'll turn it over to Dan to discuss the numbers.
Dan: Okay. Thank you Larry I'll now spend some time going through the details of our third quarter financial results, which are presented on a continuing operations basis and excludes our former hemp cannabis segment.
Dan: Net revenue was $5 9 million in the third quarter 2024 decreased sequentially from $7 9 million in the second quarter 2024.
Dan: The revenue decline reflects several puts and takes but overall is reflective of lower volume shift at 439000 cartons.
Dan: <unk> to 719000 cartons in the second quarter.
Dan: Gross profit declines are similarly impacted by the lower volumes shipped during the period.
Daniel Otto: We expect fourth quarter 2024 revenues to be relatively consistent with significantly less filtered cigar volume than previous quarters, offset by new export volume that will be ramping up more steadily before the end of the year. We expect to see increasing volume in 2025 across all products. with new and expanded customer contracts, including export and DLM sales.
Dan: We expect fourth quarter 2020 for revenues to be relatively consistent with significantly less filtered cigar volume in previous quarters offset by new export volume that will be ramping up more steadily before the end of the year.
Dan: We expect to see increasing volume in 2025 across all product lines, with new and expanded customer contracts, including export NGL on sales.
Daniel Otto: looking at sequential product line revenue fluctuation. Our third quarter revenue included the benefit of improved pricing on our cigarette products, even though volume declined in the short term, leading to an overall increase in revenue in this category. Additionally, it is of note that our second quarter results comparison for cigarettes benefited from an approximately $900,000 one-time order of our Spectrum product, which is our low-nicotine research cigarettes, and helped boost both top-line revenue and gross profit in that period. Moving on, the significant decline in filtered cigar revenues, primarily due to a decline in volume of 206,000 cartons compared to the second quarter of 2024.
Dan: Looking at sequential product line revenue fluctuations our third quarter revenue included the benefit of improved pricing on our cigarette products, even though volume decline in the short term leading to an overall increase in revenue in this category.
Dan: Additionally, it is of note that our second quarter results comparison for cigarettes benefited from an approximately $900000. One time order of our spectrum product, which is our low nicotine research cigarettes and helps boost both topline revenue and gross profit in that period.
Dan: Moving on the significant decline in filtered cigar revenues, primarily due to a decline in volume a 206000 cartons compared to the second quarter of 2024.
Daniel Otto: The change in revenue reflects the previously discussed transition in this portion of our business as we exited mispriced contracts that were loss generating. We remain active in negotiations with certain customers to return volume in this product line in 2025 under appropriately priced contract. Beyond filtered cigars, our new Cigarillo business contributed nicely, and last quarter reflected stocking orders. So now we're moving into a steady state of reorder. The gorillas are sold through an existing, large C-Store partner, whereby they handle the marketing, keeping our cost profile low, and also now provides us with a repeatable operating model to expand in the other tobacco product segment for our CMO customers.
Dan: The change in revenue reflects the previously discussed transition in this portion of our business as we exited mispriced contracts that were lost generating.
Dan: We remain active in negotiations with certain customers to return volume in this product line in 2025 under appropriately priced contracts.
Dan: Beyond filtered cigars are new Cigarillo business contributed nicely and last quarter reflected stocking orders. So now we're moving into a steady state of Reorders.
Dan: The gorilla are solved through an existing large G star partner, whereby they handle the marketing keeping our cost profile low and also now provides us with a repeatable operating model to expand in the other tobacco products segment for our CMO customers.
Daniel Otto: And last, VLN revenues were negligible in the third quarter, although there continues to be sell-through by our distributors with product previously shipped. As Larry discussed, we are launching new marketing and awareness campaigns to drive VLN sales, as well as working with certain of our large retail partners to develop flanker brands using recognized e-store house brands to build sales in this category going forward in 2025. As I said last quarter and echoed throughout Larry's remarks, reaching sustainable gross profit in our CMO business is critical to our success, which includes ensuring the appropriate pricing for our key customers and exiting any business where we were losing money.
Dan: And last <unk> revenues were negligible in the third quarter, although there continues to be sell through by our distributors with product previously shipped.
Speaker Change: As Larry discussed, we are launching new marketing and awareness campaigns to drive deal on sales as well as working with certain of our large retail partners to develop flanker brands using recognized piece to our house brands.
Speaker Change: <unk> sales in this category going forward in 2025.
As I said last quarter and echoed throughout Larry's remarks, reaching sustainable gross profit and our CMO business is critical to our success, which includes ensuring the appropriate pricing for our key customers and exiting any business, where we were losing money.
Daniel Otto: Our third quarter results demonstrate the transitional phase we are at in reaching this strategic goal, and we now look ahead to early 2025 with additional CMO and VLN volume. Total operating expenses for the third quarter were $2.8 million, down from $8.3 million in the prior year comparable period, which is a more consistent run rate following the cost cut and restructuring initiatives implemented over the last year. However, we do also anticipate an increase in spend in 2025 as we launch our reinvigorated sales and marketing initiatives to accompany the push of VLN and VLN flanker brands into the market.
Speaker Change: Our third quarter results demonstrate the transitional phase we are at and reaching our strategic goal and we now look ahead to early 2025 with additional CMO and beyond volume.
Speaker Change: Total operating expenses for the third quarter were $2 8 million down from $8 3 million in the prior year comparable period.
Speaker Change: As a more consistent run rate following the cost cuts and restructuring initiatives implemented over the last year.
Speaker Change: However, we do also anticipate an increase in spend in 2025, as we launch our reinvigorated sales and marketing initiatives to accompany the push of El N unveil on flanker brands into the market.
Daniel Otto: Net loss, EPS, and adjusted EBITDA for Q3 follow similar trends as the second quarter and have substantially improved from the prior year comparable period. We ended the third quarter with $5.3 million in cash on the bounce. And in October, raised an additional $5 million in gross proceeds, providing us with liquidity well into 2025 as we execute on our strategy and get to breakeven. The overall improvement year-to-date in our balance sheet is demonstrated by the significant reduction in net debt, which at the beginning of the year was $13.3 million and ended the quarter at only $3 million.
Speaker Change: Net loss EPS and adjusted EBITDA for Q3, followed similar trends as the second quarter and a substantially improved from the prior year comparable period.
Speaker Change: We ended the third quarter with $5 $3 million in cash on the balance sheet.
Speaker Change: And in October raised an additional $5 million in gross proceeds providing us with liquidity well into 2025, as we execute on our strategy and get to breakeven.
Speaker Change: The overall improvement year to date, and our balance sheet as demonstrated by the significant reduction in net debt, which at the beginning of the year was $13 3 million and ended the quarter at only $3 million.
Daniel Otto: Also, we've seen an improvement in total shareholders' equity of almost $12 million in the same year-to-date period. Finally, to allow us the runway to advance our strategic priorities in the business without the need for using significant operating cash flows to service our debt. We've amended the Senior Secured Credit Facility to reduce monthly debt amortization payments by 50% through August 2025. This also allows us time to continue advancing our lawsuit against Dorchester Insurance Company for our claim of $9 million in unpaid damages for business interruption.
Also we have seen an improvement in total shareholders' equity of almost $12 million in the same year to date period.
Speaker Change: Finally to allow us the runway to advance our strategic priorities in the business without the need for using significant operating cash flows to service our debt.
We've amended the senior secured credit facility to reduce monthly debt amortization payments by 50% through August 2025.
Speaker Change: This also allows us time to continue advancing our lawsuit against Dorchester insurance company fire claim of $9 million in unpaid damages for business interruption.
Lawrence Firestone: And with that, Larry, I'll turn it back to you for closing remarks. Thanks, Stan. I would like to thank everyone for joining our call today. We are now 11 months into this turnaround at 22nd Century. Our team has executed a major transition, and now we have a baseline platform to start the growth phase of our company. Our balance sheet is stronger. Our operating costs have been cut to the core. and are more closely aligned to our sales. Our CMO business is on a growth path, and we're building out the VLN business in a different way with a path to growth as well.
Larry: Now with that Larry I'll turn it back to you for closing remarks.
Larry: Thanks, Dan.
Larry: I would like to thank everyone for joining our call. Today. We are now 11 months into this turnaround of 20 <unk> century.
Larry: Our team has executed a major transition and now we have a baseline platform.
Larry: The growth phase of our company.
Larry: Our balance sheet is stronger our operating costs have been cut to the core.
Larry: And are more closely aligned to our sales our CMO business is on a growth path.
Larry: And we're building out the <unk> business in a different way with a path to growth as well.
Lawrence Firestone: We have begun to work on our technology roadmap to deliver new products in the future and we are still targeting to break even in Q1 of 2025. We've come through a very trying period of playing defense and offense at the same time. Shedding the past and setting up the future simultaneously is always a huge challenge. The team at 22nd Century is excited and motivated to drive our company forward to be a meaningful player in the market, generating profits and positive cash flow. I've personally seen a huge shift in the business and we are starting to build early momentum.
Larry: We have begun to work on our technology roadmap to deliver new products in the future and we are still targeting to breakeven.
Larry: Q1 of 2025.
Larry: We've come through a very trying period of playing defense and offense at the same time shedding the past and setting up the future simultaneously is always a huge challenge.
Larry: The team of 20, <unk> century is excited and motivated to drive our company forward to be a meaningful player in the market generating profits and positive cash flow.
Larry: I have personally seen a huge shift in the business and we are starting to build early momentum.
Lawrence Firestone: with our customers in the market. As we execute Q4 and Q1, we will activate the strategies we've been working on, and this will shape 22nd Century for the future. I would like to personally thank our team at 22nd Century for their tenacity and perseverance to take on the challenge of this turnaround. They're an awesome team that I am very proud to lead. We look forward to updating you again as new developments materialize, and if you have questions or would like to arrange a follow-up, please contact Matt Kreps, Investor Relations for the company. using his contact information provided on the press release.
Larry: With our customers and the market.
Larry: As we execute Q4 and Q1, we will activate the strategies we've been working on in this world.
Larry: We'll shape 20th century for the future.
Larry: I would like to personally thank our team of 20 <unk> century for their tenacity and perseverance to take on the challenge of this turnaround.
Larry: They're an awesome team that I'm very proud to lead.
Larry: We look forward to updating you again as new developments materialized and if you have questions or would like to arrange a follow up please contact Matt kreps.
Speaker Change: Mr Relations for the company.
Speaker Change: Using his contact information provided on the press release.
Lawrence Firestone: Have a great rest of your day.
Speaker Change: Have a great rest of your day.