Q1 2025 22nd Century Group Inc Earnings Call
Operator: Welcome to 22nd Century Group's first quarter 2025 conference call and webcast. At this time, all participants have been placed in a listen-only mode.
Welcome to <unk> second century group's first quarter 'twenty 'twenty five conference call and webcast. At this time all participants have been placed in a listen only mode. It is now my pleasure to turn the floor over to Matt Kreps Investor Relations for 'twenty.
Matthew Kreps: It is now my pleasure to turn the floor over to Matt Kreps, Investor Relations for 22nd Century Group. Please begin.
Century group. Please begin Hello, and walk the 22nd century <unk> first quarter 2025 results conference call. Joining me today are Larry Firestone, CEO and Dan Auto CFO.
Matthew Kreps: Hello, and welcome to 22nd Century's first quarter 2025 results conference call. Joining me today are Larry Firestone, CEO, and Dan Otto, CFO. Earlier today, we issued a press release announcing the results for the quarter ended March 31, 2025.
Earlier today, we issued a press release announcing the results for the quarter ended March 31, 2025, but really I think you are available in the investors section of our website.
Matthew Kreps: The release and thank you are available in the investor section of our website at XXIICentury.com. Today's call will include prepared remarks from Larry and Dan, updating you on 22nd Century's business, operations, strategy, and financial results through March 31, 2025 and subsequent.
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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 March 31, 2025 subsequent.
Matthew Kreps: 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. Additional information regarding these factors can be found in our annual, quarterly, and other reports filed with the SEC. Also, during today's call, we may 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 less outstanding, less cash and cash equivalents.
Before we begin a few reminders for today's call.
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.
Additional information regarding these factors can be found in our annual quarterly and other reports filed with the SEC.
Also during today's call, we may 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.
Net debt calculated a total principal amount of debt less output.
Outstanding less cash and cash equivalents for more details on these measures. Please refer to our release issued earlier today.
Matthew Kreps: For more details on these measures, please refer to our release issued earlier today.
Lawrence Firestone: And with that, I'll now turn the call over to Larry. Thank you, Matt. Good morning, everyone, and thank you for joining 22nd Century's first quarter 2025 results conference call.
Larry: I'll now turn the call over to Larry.
Larry: Thank you Matt.
Larry: Good morning, everyone and thank you for joining twenty-second century's first quarter 2025 results conference call.
Lawrence Firestone: On our 2024 Year-End Financial Results Call in March, I address our journey over the first 16 months of my tenure as CEO. which was defined as a turnaround. We're now putting 2024 in the past and are solely focused on our future. We have completely reconfigured our business and laid the tracks to drive into what we believe will be a very profitable future.
Larry: On our 2024 year end financial results call in March.
Larry: I address our journey over the first 16 months of my tenure as CEO.
Larry: Which was defined as a turnaround.
Larry: We're now putting 2024 in the past and are solely focused on our future.
Larry: We have completely reconfigured our business and laid the tracks so drive into what we believe will be a very profitable future.
Lawrence Firestone: Dan will talk about the numbers and the wins we had in the first quarter of 2025.
Larry: Dan will talk about the numbers and the wins, we had in the first quarter of 2025.
Lawrence Firestone: I would like to begin my remarks first. by talking a little bit about the turbulent tobacco market that we serve.
Speaker Change: I would like to begin my remarks first.
Speaker Change: Talking a little bit about the turbulent tobacco market that we serve.
Lawrence Firestone: And then I will describe our roadmap to success as we continue the transition of 22nd Century into a growth company. The $85 billion combustible cigarette market is showing increasing friction around price, products, nicotine delivery systems, FDA regulatory environment, and more. Right now, we see an incredible focus on nicotine that we've never seen before. Even as big tobacco remains under the pressure. to reduce the harms of smoking. Big tobacco's answer to smoking harm is to keep their consumers hooked on nicotine. by transitioning what have been their mainstream products to non-combustible products, such as nicotine pouches, which come in all levels of nicotine.
Speaker Change: And then I will describe our roadmap to success as we continue the transition of 22nd century.
Through a growth company.
Speaker Change: The 85 billion dollar combustible cigarette market.
Speaker Change: Fueling increasing friction around price products nicotine delivery systems F D, a regulatory environment and more.
Speaker Change: Right now we've seen an incredible focus on nicotine that we've never seen before.
Speaker Change: Even as big tobacco remains under pressure.
Speaker Change: To reduce the harms of smoking.
Speaker Change: Victor back Jose answer to smoking arm is to keep their consumers hooked on nicotine.
Speaker Change: By transitioning what had been their mainstream products to noncombustible products, such as nicotine pouches, which come at all levels of nicotine.
Lawrence Firestone: with some brands bragging about having the highest nicotine. to the wave of heat not burned to avoid the carcinogens, vaping, moisten up, which has been in the market for a long time. They, being Big Tobacco, flat out disregard the harms of nicotine. and drive to deliver nicotine in new ways. Nicotine addiction is their secret weapon to keep consumers addicted to their products. In fact, High nicotine and access to high nicotine is in their marketing materials and core to some of their brands and products. In addition, We have the same big tobacco companies raising their combustible cigarette prices as often as quarterly, which has the air of arrogance and lack of care for their consumer and their consumer's wallet.
Speaker Change: With some brands bragging about having the highest nicotine.
Speaker Change: So the wave of heat not burn to avoid the carcinogens vaping moist snuff, which has been in the market for a long time.
Speaker Change: Are they being big tobacco flat out disregard the harms of nicotine.
Speaker Change: And drive to deliver nicotine in new ways.
Speaker Change: Nicotine addiction is their secret weapon to keep consumers addicted to their products in fact, hi.
Speaker Change: High nicotine and access to high nicotine is in their marketing materials and core to some of their brands and products.
Speaker Change: In addition.
Speaker Change: We have the same big tobacco companies raising their combustible cigarette prices as often as quarterly.
Speaker Change: Which has the Arab arrogance and lack of care for their consumer.
Speaker Change: And their consumers wallet.
Lawrence Firestone: It seems to be almost a contest to see how far they can dig into their consumer's pocketbook before the consumer's attitude changes, and therefore big tobacco's attitude changes. The cost of a pack of Tier 1 branded cigarettes. It's competing in the consumer's wallet for consumer staple items such as gasoline and groceries and especially as prices for consumer goods are increasing steadily. It's as if they know that their customer is addicted thanks to nicotine and they could charge whatever they want for their cigarettes and they're testing that theory quarterly with their price increase.
Speaker Change: It seems to be almost a contest to see how far they can dig into their consumer's pocket book before the consumer's attitude changes and therefore big tobaccos attitude changes.
Speaker Change: The cost of a pack of tier one branded cigarettes.
Speaker Change: It's competing in the consumer's wallet, where consumer staple items, such as gasoline and groceries, especially.
Speaker Change: As prices for consumer goods are increasing steadily.
Speaker Change: It's as if they know that their customer is addicted to nicotine.
Speaker Change: And they can charge whatever they want with their cigarettes, and they're testing that theory quarterly with their price increases.
Lawrence Firestone: We look at the market differently, but changing dynamics in Tier 1 is an opportunity for 22nd Century. 22nd Century serves, and will serve, two main segments of the market. Reduced nicotine premium products. and value-focused CMO brands. Our main domestic brands are Smoker Friendly, Pinnacle, and VLM. are smoker-friendly and pinnacle CMO brands. are value brands that serve the Tier 4 market, which is roughly two-thirds of the price of a Tier 1 brand to the consumer. This is a price point that is much friendlier to the consumer's wallet. for those who want to continue to smoke a standard combustible cigarette.
Speaker Change: We look at the market differently with changing dynamics in tier one there's an opportunity for 22nd century.
Speaker Change: 22nd century serves and will serve two main segments of the market.
Speaker Change: Reduced nicotine premium products.
Speaker Change: And value focused CMO brands, our main domestic brands or smoker friendly clinical N V O N.
Our smoker friendly and critical CMO brands.
Speaker Change: Our value brands that serve the tier four market, which is roughly two thirds of the price of a tier one brand to the consumer.
Speaker Change: This is the price point, there's much friendlier to the consumer's wallet.
Speaker Change: For those who want to continue to smoke a standard combustible cigarette. So this is predominantly a value price play.
Lawrence Firestone: So, this is predominantly a value price play.
Lawrence Firestone: Then, with the relaunch of our VLN-branded products into the market, We will serve consumers who wish to take control of their nicotine consumption. There are plenty of consumers who wish to control their nicotine to either transition from a need to smoke every day or multiple times a day, and they can choose when to smoke or not need to smoke at all. This we will prove out as we make our VLN-branded products available across the U.S. and gain distribution and rate of sale.
Speaker Change: Then with the relaunch of our V O N bread branded products into the market.
Speaker Change: We will serve consumers, who wish to take control of their nicotine consumption.
Speaker Change: There are plenty of consumers, who wish to control their nicotine to either transitioned from a need to smoke everyday or multiple times a day.
Speaker Change: And they can choose when the smoke or not need to smoke at all.
Speaker Change: This we will prove out as we make our <unk> branded products available across the U S and gained distribution in rate of sale.
Lawrence Firestone: This is predominantly a health and wellness play. We believe there's a large consumer population for both Tier 4 value brands and the consumers who want to control their smoking habit with low nicotine cigarettes. This will fuel our customers' growth and 22nd Century's growth as well. Our growth will also come from wider distribution as a result of expanded domestic state approvals. But once approved within the state, we will be looking to add points of distribution and launching targeted marketing campaigns that will drive greater sale. So, as the smoker-friendly Pinnacle and VLN footprint grows throughout the U.S., our revenues will grow, as will our profitability.
Speaker Change: This is predominantly a health and wellness play.
Speaker Change: We believe there's a large consumer population for both tier four value brands and the consumers who want to control their smoking habit.
Speaker Change: With low nicotine cigarettes.
Speaker Change: This will fuel our customers' growth and twenty-second centuries growth as well.
Speaker Change: Our growth will also come from wider distribution as a result of expanded domestic state approvals.
Speaker Change: But once approved within the state we will be looking.
Speaker Change: To add disappoints, a distribution and launching targeted marketing campaigns that will drive rate of sale.
Speaker Change: So as the smoker friendly pinnacle and V. L N footprint grows throughout the U S. Our revenues will grow as will our profitability.
Lawrence Firestone: In the past, these brands have had limited approvals in the U.S., and we are opening up the opportunity to serve all 50 states across all brands. in addition to the widening footprint of our brands nationwide. We're developing, with Smoker Friendly and Pinnacle, new products which will widen the skew count in the stores where we are the manufacturer. The latest product introductions include For Smoker Friendly, which has over 350 stores and another 450 authorized dealers. is introducing smoker-friendly black label for the natural cigarette market. Containing only tobacco and water that is designed to compete directly with major names on quality and flavor profile.
Speaker Change: In the past these brands have had limited approvals in the U S.
Speaker Change: And we are opening up the opportunity to serve all 50 states across all brands.
Speaker Change: In addition to the widening footprint over our brands nationwide.
Speaker Change: We're developing with smoker friendly and pinnacle.
Speaker Change: New products, which will widen the SKU count in the stores, where we are we are the manufacturer.
Speaker Change: The latest product introductions include.
Speaker Change: For a smoker friendly.
Speaker Change: Which has over 350 stores and another 450 authorized dealers.
Speaker Change: It's introducing smoker friendly black label for the natural cigarette market.
Speaker Change: Containing only tobacco and water that is designed to compete directly with major names on them.
Speaker Change: The quality and profile flavor profile.
Lawrence Firestone: at a much more affordable price. For example... Natural American Spirit is one of the top selling brands in the market. I think it's number seven. and one of the most expensive, quite possibly number one as the most expensive. Smoker Friendly, in conjunction with 22nd Century, has launched this new natural-style cigarette in the U.S. And once we obtain additional state approvals, Smoker Friendly Black Label will be available to be offered in every state at a price point that is much more affordable compared to natural American spirit. This is an exciting growth opportunity for both smoker-friendly and 22nd Century.
Speaker Change: At a much more affordable price for example.
Speaker Change: Natural American spirit.
Speaker Change: Is one of the top selling brands in the market I think it's number number seven.
Speaker Change: And one of the most expensive quite possibly number one as the most expensive.
Speaker Change: Smoker friendly in conjunction with twenty-second century has launched this new natural style cigarette.
Speaker Change: In the U S and once we obtain additional state approvals smoker friendly black label.
Speaker Change: We'll be available to be offered in every state at a price point that is much more affordable compared to natural American spirit.
Speaker Change: This is an exciting growth opportunity for both smoker friendly and 22nd century.
Lawrence Firestone: Smoker-Friendly VLN, which is a private label presentation of our VLN. This is a new set of SKUs for our smoker-friendly relationship, and we will be available not only chain-wide, but potentially in every state as we receive state approvals and distribution. The importance of the adoption of VLN to these brands is not only the well-established distribution channels that they already possess, but also the brand equity that they carry. We believe we can build the VLN product franchise within our CMO customers' brands nicely and then move the 22nd Century branded VLN alongside as awareness expands. Our Pinnacle-branded products are sold in a Top 5 C-Store chain in the U.S.
Speaker Change: Smoker friendly V L N, which is the private label presentation of our B O N.
Speaker Change: This is a new set of Skus, where a smoker friendly relationship and we will be available not only chain wide.
Speaker Change: Potentially in every state as we receive state approvals and distribution.
Speaker Change: The importance of the adoption of V. L. N to these brands it was not only the well established distribution channels that they already possess.
Speaker Change: But also the brand equity that they carry.
Speaker Change: We believe we can build the beall and product franchise within our CMO customers brands nicely.
Speaker Change: And then move that twenty-second century branded V L N alongside as awareness expands.
Speaker Change: Our pinnacle branded products are sold in a top five C store chain in the U S with over 1700 outlets, where the retailer is looking to expand the.
Lawrence Firestone: with over 1,700 outlets, where the retailer is looking to expand the Pinnacle SKU lineup as well. This will come together in the second half of 2025 and will add additional revenue opportunities for both the retailer and 22nd Century. the year-over-year growth in the smoker-friendly and Pinnacle-branded products that we produce. continue to drive not only retail growth, but 22nd century growth. profitably as well. We believe we're in a great position to build our company on the market opportunities of the Tier 4 and the nicotine control consumer. who would be a candidate for our VLN product.
Speaker Change: The pinnacle SKU lineup as well.
Speaker Change: This will come together in the second half of 2025 and will add additional revenue opportunities for both the retailer <unk>.
Speaker Change: And 22nd century.
Speaker Change: The year over year growth in the smoker friendly and pinnacle branded products that we produce.
Speaker Change: Continue to drive not only retail growth of 22nd century growth.
Speaker Change: Profitably as well.
Speaker Change: We believe we're in a great position to build our company on the market opportunities in the tier four and the nicotine control consumer.
Speaker Change: It would be a candidate for our <unk> products.
Lawrence Firestone: The sequence of this rollout is key to understand. As none of this is an instant success. First, there's product development and brand alignment. Then state registration followed by state approval. Then once the state's approved, the SKU's ability for sale. That's when we begin the sales cycle to the various retailers in the various states. and upon successful adoption from retail. we will add distribution. Finally, once approved by the retailers, then shipment to the distributors who will then ship to the store. Then we will work on rate of sale, as the distributors will replenish the supply to the retailer after the first loaded.
Speaker Change: The sequence of this rollout is key to understand.
Speaker Change: As none of this is an instant success first theres product development and brand alignment than state registration followed by state approval.
Speaker Change: Then once the states approve the skus skus ability for sale.
Speaker Change: That's when we begin the sales cycle to the various retailers in the various states.
Speaker Change: And upon the successful adoption from retail.
Speaker Change: We will add distribution finally, once approved by the retailers that shipment to the distributors, who will then shipped to the stores.
Speaker Change: Then we will work on rate of sale as distributors will replenish the supply to the retailer after the first loaded.
Lawrence Firestone: This is a very serial process and will roll out and gain momentum over time, like starting a locomotive. We start slow and pick up steam as we go. This will be an extended growth process. that will add to the normal year-over-year growth in the same store sales of the existing distribution.
Speaker Change: This is a very serial process and will rollout and gain momentum over time like starting a locomotive.
Speaker Change: We start slow and pick up steam as we go.
Speaker Change: This will be an extended growth process.
Speaker Change: That will add to the normal year over year growth in same store sales of the existing distribution.
Lawrence Firestone: Eventually, we'd like to create a VLN category in retail. That would separate all of our VLN branded SKUs. from the standard cigarette category. This will take time and rate of sale numbers to create, but we believe this is possible. Elgrey comes from growth in same-store sales plus new distribution. Then, as we add new products, we follow the same cycle. We believe that current market dynamics, which include price pressure on consumers from big tobacco, have and will continue to create an opportunity for our high-quality branded products in the overall Tier 4 and above markets. The balance of our CMO business is high-volume, low-margin, low-mix business for domestic supply of filtered cigars and container orders for export cigarettes.
Speaker Change: Eventually we'd like to create a V L N category and retail.
Speaker Change: That would separate all of our V L N branded skus.
Speaker Change: From the standard cigarette category.
Speaker Change: This will take time and rate of sale numbers to create but we believe this is possible.
Speaker Change: Our growth.
Speaker Change: Comes from growth in same store sales plus new distribution, then as we add new products, we follow the same cycle.
Speaker Change: We believe the current market dynamics, which include price pressure on consumers from big tobacco.
Speaker Change: Have and will continue to create an opportunity for our high quality branded products and the overall tier four and above markets.
Speaker Change: The balance of our CMO business is high volume low margin low mix business for domestic supply of filtered cigars and container orders for exports cigarettes.
Lawrence Firestone: This steady volume of business consumes our machine capacity and allows us to manage our above-the-line costs while contributing to our gross profit.
Speaker Change: This steady volume of business consumes our machine capacity and allows us to manage our above the line costs, while contributing to our gross profit.
Lawrence Firestone: Now turning my attention. to other areas that our management team continues to progress with.
Speaker Change: Now turning my attention.
Speaker Change: Two other areas that our management team continues to progress with.
Lawrence Firestone: We will be launching a new 22nd Century website in the coming weeks. and a refreshed Tri-VLN resource so that once we have established distribution, Consumers will be able to find VLN products in retail locations in their markets. We are also getting ready to reactivate our social media platform within the guidelines and restrictions of tobacco advertising so that consumers can share their experiences with our branded and VLN products.
Speaker Change: We will be launching a new twenty-second century website in the coming weeks.
Speaker Change: And a refreshed try V L N resource.
Speaker Change: So that once we have established distribution.
Speaker Change: Consumers will be able to find deal in products in retail locations in their market.
Speaker Change: We are also getting ready to reactivate our social media platform within the guidelines and restrictions of tobacco advertising, so that consumers can share their experiences with our branded anvil and products.
Lawrence Firestone: on the regulatory front. The Low Nicotine FDA Proposed Rule. is midway to the completion of the comment period, which ends in September. When the comment period concludes, we can determine the FDA's direction on what could be the most meaningful and impactful tobacco harm reduction policy in a generation.
Speaker Change: On the regulatory front.
Speaker Change: The low nicotine F D a proposed rule.
Speaker Change: Is midway through the completion of the comment period, which ends in September.
Speaker Change: When the comment period concludes.
Speaker Change: We can determine the fda's direction on what could be the most meaningful and impactful tobacco harm reduction policy in a generation.
Lawrence Firestone: But I also want to be very clear, we are not waiting for the FDA to finalize their rule, and we are not dependent on the FDA's rule. We have developed an important technology in our low nicotine tobacco and VLN products. that the FDA has already approved in a certain contingent of customers. will want today that gives smokers a choice with their nicotine consumption. It's important to note that we have the only FDA-approved combustible cigarette that meets the new policy standards.
Speaker Change: But I also want to be very clear, we are not waiting for the FDA to finalize the rule and we are not dependent on the Fda's rule.
Speaker Change: We have developed an important technology, and our low nicotine tobacco and beall and products.
Speaker Change: At the F. D. A is already approved in a certain contingent of customers.
Speaker Change: We'll want today that give smokers of choice with their nicotine consumption.
Speaker Change: It's important to note that we have the only FDA approved combustible cigarette that meets the new policy standard.
Lawrence Firestone: Pulling all the pieces together, we have rebuilt the foundation of our company to what we believe is a more substantial business model. This model features a suite of our branded products. which includes Smoker Friendly, Pinnacle, and 22nd Century VLN. which now represents a wide menu of SKUs. Further, we service our standard high-volume, low-mix CMO customers. for domestic filtered cigars and export cigarettes.
Speaker Change: Pulling all the pieces together, we've rebuilt the foundation of our company to what we believe is the more substantial business model.
Speaker Change: This model features a suite of our branded products.
Speaker Change: Which includes smoker friendly pinnacle.
Speaker Change: My second century, B O N.
Speaker Change: Which now represents a wide menu of Skus.
Speaker Change: Further we service our standard high volume low mix CMO customers.
Speaker Change: For domestic filtered cigars and exports cigarettes.
Lawrence Firestone: Approaching the market with our current suite of products is a much different proposition than what we had with just the original VLM product set when I joined the company. The railroad tracks are laid. Now we have to drive as fast as the states will let us and the markets will allow us to.
Speaker Change: Broaching the market with our current suite of products is a much different proposition than what we had with.
Speaker Change: With just the original deal and product set when I joined the company.
Speaker Change: The railroad tracks are laid now we have to drive as fast as the states will lead us in the markets will allow us to.
Daniel Otto: And now I'll turn the call over to Dan to discuss the numbers.
Dan: And now I'll turn the call over to Dan to discuss the numbers.
Daniel Otto: Thank you, Larry. Good morning, everyone, and thanks again for joining our discussion today. This has really been an exciting quarter for 22nd Century. As the foundational pieces of our strategy continue to be laid and we execute growth initiatives, we are set up for success in improving financial results for the remainder of 2025. Larry and I have spoken consistently about the importance of restoring fiscal responsibility as a result of our restructuring efforts. And in our 2024 year-end results call, we expanded on those details. We've continued to make substantial progress, and although we aren't claiming victory yet, we've come a long way.
Dan: Thank you Larry good morning, everyone and thanks again for joining our discussion today. This has really been an exciting quarter for 22nd century as the foundational pieces of our strategy continue to be late and we execute growth initiatives. We are set up for success and improving financial results for the remainder of 2025.
Dan: Larry and I have spoken consistently about the importance of restoring fiscal responsibility as a result of our restructuring efforts.
Dan: And then our 2024 year end results call, we expanded on those details.
Dan: <unk> continued to make substantial progress.
Dan: Although we aren't claiming victory yet we've come a long way.
Daniel Otto: As a recap and setting the stage for today's comments, I'll cover three main pillars of our financial targets as we emerge from our restructuring and turnaround. First, achieving profitability in the P&L for the first time in this company's history in late 2025. We are ready to deliver revenue growth and margin improvement with our CMO customer contracts in 2025, and we'll begin rapidly expanding VLN points of distribution during the year. This sits on top of the much-improved operating costs and overhead structure implemented throughout 2024. Second, the restoration of normal balance sheet ratios and KPIs will occur through continued elimination of debt obligations and improvements in working capital.
Dan: As a recap and setting the stage for today's comments I will cover three main pillars of our financial targets as we emerged from our restructuring and turnaround.
Dan: First achieving profitability in the P&L for the first time in the company's history in late 2025.
We are ready to deliver revenue growth and margin improvement with our CMO customer contracts in 2025 and.
Dan: We will begin rapidly expanding VL on points of distribution during the year.
Dan: It sits on top of the much improved operating cost and overhead structure implemented throughout 2024.
Dan: Second the restoration of normal balance sheet ratios and Kpis will occur through continued elimination of debt obligations and improvements in working capital.
Daniel Otto: And third, prioritizing and securing cash runway to complete these initiatives as we will then turn our attention to improvement of the overall capitalization table.
Dan: And third prioritizing and securing cash runway to complete these initiatives because when he will then turn our attention to improvement of the overall capitalization table.
Daniel Otto: First quarter 2025 results begin to showcase how the hard work and planning is coming together to help us deliver on these priorities. Starting from the top, net revenue was $6 million in the first quarter of 2025, increased 50% sequentially from $4 million in the fourth quarter of 2024, and gross margin was a loss of $0.6 million, also an improvement of 50% from the prior quarter. These results reflect slowly rebuilding volume and normal manufacturing capacity with our CMO customers. Total cartons sold were 476,000, increased 41% versus 338,000 in the fourth quarter. The volume change is reflective of the initiatives Larry and I have discussed regarding repricing our CMO customer contracts, which initially had created a temporary decline in the later half of 2024, as customers worked off last time buys inventory, but is now beginning to reverse back to a more normalized volume.
Dan: First quarter 'twenty twenty-five results begin to showcase how the hard work and planning is coming together to help us deliver on these priorities.
Starting from the top net revenue was $6 million in the first quarter 2025 increased 50% sequentially from $4 million in the fourth quarter 2024 gross margin was a loss of <unk> 6 million also an improvement of 50% from the prior quarter.
Dan: These results reflect slowly rebuilding volume and normal manufacturing capacity with our CMO customers.
Dan: Total cartons sold were 476000 increased 41% versus 338000 in the fourth quarter.
Dan: The volume change is reflective of the initiatives, Larry and I have discussed regarding repricing, our CMO customer contracts, which initially had created a temporary decline in the later half of 2024 as customers worked off last time buys inventory.
Dan: But is now beginning to reverse back to a more normalized volumes.
Daniel Otto: We expect volume will be similar, growing again in the second quarter of 2025, with more meaningful gains in the second half of the year.
Dan: We expect volume will be similar and growing again in the second quarter of 2025 with more meaningful gains in the second half of the year.
Daniel Otto: As a function of the following three points, we also see an inflection point occurring later in 2025, whereby the gross profit deficits currently incurred will quickly be erased. First, we'll continue to see the benefits of the revised pricing structures in the new customer contracts. Second, we'll see volume ramping up and expanded shipments under those same agreements. And third, we'll begin to see meaningful sales of our higher-margin branded cigarettes, including both natural-style cigarettes and our FDA-authorized very-low-nicotine-content cigarettes. Sharing positive gross margin in the early stages of the second half of 2025 from these initiatives is integral to us reaching our break-even profitability goal.
Dan: As a function of the following three points. We also see an inflection point occurring later in 2025, whereby the gross profit deficits currently incurred will quickly be erased.
Dan: First we will continue to see the benefits of the revised pricing structures and the new customer contracts.
Dan: Second we will see volume ramping up and expanded shipments under those same agreements.
Dan: And third we'll begin to see meaningful sales of our higher margin branded cigarettes.
Dan: A leading both natural style cigarettes, and our FDA authorized very low nicotine content cigarettes.
Dan: Hearing positive gross margin in the early stages of the second half of 2025 from these initiatives as an integral to us reaching a breakeven profitability goal.
Daniel Otto: Total operating expenses for the first quarter were $2 million, compared to $2.8 million in the fourth quarter of 2024. This level of operating expense overhead is the lowest quarterly amount we've incurred since our turnaround began in late 2023. First quarter 2025 net loss from continuing operations improved to $3.3 million from $4.2 million in the preceding quarter. EPS improved to a loss of $1.89 a share compared to $10.59 a share. and adjusted EBITDA significantly improved to a loss of $2.3 million from $3.9 million in the fourth quarter of 2020.
Dan: Total operating expenses for the first quarter were 2 million compared to $2 8 million in the fourth quarter of 2024.
Dan: This level of operating expense overhead is the lowest quarterly amount we've incurred since our turnaround began in late 2023.
Dan: First quarter 2025, net loss from continuing operations improved to $3 3 million from $4 2 million in the preceding quarter.
Dan: EPS improved to a loss of $1 89, a share compared to 10 59 a share.
Dan: And adjusted EBITDA significantly improved to a loss of $2 3 million from $3 9 million in the fourth quarter of 2024.
Daniel Otto: As Larry mentioned, we're exiting the turnaround phase now and moving into growth, where our story focuses purely on execution against achieving our P&L goal. With respect to continued balance sheet improvement, we've further reduced our outstanding debt under this convertible senior secured credit facility. bringing the remaining principal balance down to $3.9 million with debt-for-equity conversions of $3.1 million that occurred during the quarter. and a contractual cash payment subsequent to quarter end of an additional $1 million. Cash used in operations in the first quarter of 2025 was $2.9 million and we remain focused on minimizing cash used by the business while also executing a rapid growth strategy.
Dan: As Larry mentioned, we're exiting the turnaround phase now and moving into growth, where our story focus is purely on execution against achieving our P&L goals.
Dan: With respect to continued balance sheet improvement, we further reduced our outstanding debt under this convertible senior secured credit facility, bringing the remaining principal balance down to $3 9 million with debt for equity conversions of $3 1 million that occurred during the quarter.
Dan: And our contractual cash payment subsequent to quarter end of an additional $1 million.
Dan: Cash used in operations in the first quarter of 2025 was $2 9 million and we remain focused on minimizing cash used by the business. While also executing a rapid growth strategy.
Daniel Otto: In late April 2025, subsequent to quarter end, we executed a capital raise through inducement of existing warrants to raise gross proceeds of approximately $5.4 million with an additional option for further exercise to raise $3.3 million. This provides us with the cash runway to execute on our strategy for the remainder of 2025.
Dan: In late April 2025, subsequent to quarter end, we executed a capital raise through inducement of existing warrants to raise gross proceeds of approximately $5 4 million with an additional option for further exercise to raise $3 3 million.
This provides us with the cash runway to execute on our strategy for the remainder of 2025.
Daniel Otto: Finally, the company remains active in our lawsuit against Dorchester Insurance Company based on their failure to pay any amount toward our claim of $9 million in actual damages for business interruption insurance. Significant discoveries taking place, and the court has set a trial date for November 2025.
Dan: Finally, the company remains active in our lawsuit against Dorchester insurance company based on their failure to pay any amount toward our claim up $9 million in actual damages for business interruption insurance.
Dan: Significant discoveries taken place and the court has set a trial date for November 2025.
Operator: That concludes our prepared remarks. I'll now open it up for any questions from our audience. We will now begin the question and answer session. To ask a question, you may press star, then 1 on a touch-tone phone. If you are using a keypad, Please pick up your handset. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. Once again, if you'd like to ask a question... please press star then 1.
Dan: That concludes our prepared remarks I'll now open it up for any questions from our analysts.
Dan: We will now begin the question and answer session.
Dan: To ask a question you May press Star then one on a touchtone phone.
Dan: If you're using a key pad.
Dan: Please pickup your handset.
Dan: If youre using a speakerphone please pick up your handset before pressing the keys.
Dan: If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Dan: Once again, if you'd like to ask a question.
Dan: Please press Star then one.
Operator: At this time, we will pause momentarily to assemble our roster.
Dan: At this time, we will pause momentarily to assemble our roster.
Andrew White: The first question comes from Andrew White with Emerging Growth Research. Please go ahead. Good morning. Thank you for taking my questions. First, I want to say these are great results, guys. You're doing a good job. I do have a couple of questions.
Speaker Change: The first question comes from Andrew White with emerging growth research. Please go ahead.
Andrew White: Hi, good morning.
Dan: Thank you for taking my question.
Dan: First I want to say these are great results guys, you're doing a good job.
Speaker Change: Are they do have a couple of questions.
Daniel Otto: First and foremost, do you still foresee a break-even of EBITDA for the fourth quarter of this year? Hey, Andy. Good morning. This is Ben. Yes, we're still on track in the later half of the year to get to break even. Okay, great. So you're seeing that CMO will continue to grow from his first quarter level and that VLN will hopefully kick in over the course of the year. Yeah, that's that's what we're currently looking at. So we have As I said in the prepared remarks, Andy, We've got the Smoker Friendly franchise on a pretty nice growth path.
Speaker Change: First and foremost on do you still foresee a breakeven of EBITDA for the fourth quarter of this year.
Dan: Hey, Andy Good morning. This is Dan Yes, we are still on track in the later half of the year to get to breakeven.
Speaker Change: Okay great.
Speaker Change: So you're seeing the CMO will continue to grow from this first quarter level and the V. L. N will hopefully kick in over the course of the year.
Speaker Change: Yeah. That's that's what we're currently looking at so we have.
Andy: As I said in the prepared remarks Andy.
Andy: We've got the we got the smoker friendly franchise.
Andy: On a pretty nice growth path, we've got the political franchise and a nice growth path and theyre going to add there actually give it had some products some skus to the lineup.
Daniel Otto: We've got the Pinnacle franchise on a nice growth path, and they're actually going to add some products, some SKUs to the lineup. and then as we get our state approvals for both of them and then state approvals for VLN and our partner VLN, we'll start to see some distribution in there. So that side of the house is beginning to percolate pretty nicely.
Andy: And then.
Andy: As we get out of state approvals for both of them and then state approvals for the deal and in our partner deal and we.
Andy: We will start to see some distribution in there so that side of the houses let's.
Andy: It's beginning to percolate pretty nicely.
Andrew White: Good to hear.
Andy: Okay.
Andy: Good to hear.
Daniel Otto: Secondarily... Looking at the balance sheet, you have a very large increase in the first quarter of accounts receivable and that impacts your net working capital, which is notable that you're almost breakeven on net working capital despite the fact that your debt facility is now listed as a current liability. That's pretty impressive. But I did want to ask, does this pretend a need for additional financial capital, whether by debt or by escrow? Yeah, after the most recent financing we just completed here, we're comfortable with the cash runway we have getting into that latter half of the year where we plan to get to break even.
Andy: Secondarily.
Andy: Looking at the balance sheet.
Andy: You have a very large increase in the first quarter of accounts receivable and that impacts your net working capital.
Andy: Excuse me, which is notable that you're almost breakeven on net working capital. Despite the fact that your debt facility is now listed as a current liability that's pretty impressive.
Andy: But I did want to ask does this does.
Andy: Does this portend a need for additional financial capital, whether by debt or by asking for share issuance.
Andy: Yeah.
Andy: Yeah Andy.
Andy: After the most recent financing we just completed here, where we're comfortable with the cash runway, we have getting into that latter half of the year, where we plan to get to breakeven.
Andrew White: As far as the receivable balance increasing, a large portion of that's a sizable contract asset, which is a result of some of the new customer agreements we've signed in the CMO business during the quarter. Over what time period do you expect to collect the accounts receivable now? It's the same terms as a typical shipment, so generally we collect when product's delivered. Do I have time to ask a couple more questions? Yeah. Okay, great.
Andy: As far as the receivable balance increasing.
Andy: A large portion of that sizable contract asset.
Andy: As a result of some of the new customer agreements were signed in the CMO business during the quarter.
Speaker Change: Over what time period do you expect to collect the accounts receivable balance.
Andy: Got it.
Andy: It's the same terms as the typical shipments so generally we would collect products delivered.
Andy: Okay.
Andy: Do I have time to ask a couple more questions.
Andy: Yeah.
Andy: Okay great.
Daniel Otto: On the warrants, over. What has been the shared issuance dilution from that and what can we still expect over the course of the year via exercise or endorsement? Yeah, I do. Current shares outstanding, as of the filing date of the document, $11.3 million. That includes the almost 7 million shares we issued under the warrant inducement offering we completed a couple weeks ago. Between the end of the quarter and now we had another $1.7 million warrants that were exercised. You know, as far as going forward. Really, I'd say our priorities still remain focused on P&L profitability.
Andy: On the the warrant.
Andy: Overhang.
Andy: What has been the third if he wants to lose something from that and what can we still expect over the course of the year via exercise.
Andy: Yeah.
Andy: Yeah Andy.
Andy: Shares outstanding as of the.
Andy: The filing date of the document 11 3 million.
Andy: That includes the almost 7 million shares we issued under the warrant inducement offering we completed a couple of weeks ago.
Andy: Between the B ended the quarter and now we had another $1 7 million warrants that were exercised.
As far as going forward.
Really I'd say, our priority still remains focused on P&L profitability.
Daniel Otto: Balance Sheet Strength. And as a function of those two coming into focus, we can continue to address the capitalization table and the warrants. But, you know, the first two priorities really are the focus area. Right, okay. So is it a fair comment to say that we're about halfway through the exercise inducement process for the warrants? Yeah, we, as part of the inducement offering we completed, we have another tranche that still has a period that can be exercised, that would be up to an additional 3.3 million of proceeds to the company, and another 4 million or so approximately shares, warrants that would be induced, that runs for a couple months yet.
Andy: Balance sheet strength.
Andy: And as a function of those two coming into focus we can continue to address the capitalization table on the warrants but.
Andy: You know the first two priorities.
Andy: Focus area.
Andy: Okay. Okay.
Andy: Is that a fair comment to say that we're about halfway through the exercise and disciplined process for the warrants.
Andy: Oh, yes it is.
Andy: Part of the inducement offering we completed.
Andy: We have another tranche that still has a period that can be exercised that would be up to an additional $3 3 million.
Andy: Proceeds to the company.
Andy: And another 4 million or so approximately shares warrants that would be induced.
Andy: <unk> for.
Andy: For a couple of months yet.
Andrew White: Okay.
Andy: Yeah.
Andy: Okay.
Andrew White: And last but not least, there have been some pretty good earnings results out from some competitors within the tobacco industry, Altria, Philip Morris, Turning Point.
Andy: And last but not least our there've been some pretty good earnings results out from some competitors within the tobacco industry are free to Philip Morris starting point I'm wondering are there any implications for 20 <unk> century group.
Daniel Otto: I'm wondering, are there any implications for 22nd Century? from their earnings reports. The firms that are driving them, yeah. Yeah.
Andy: Yeah.
Andy: From from their earnings reports.
Andy: The trends that are driving them yes.
Andy: Yeah.
Daniel Otto: I would say, you know, I spoke to some of the trends in in my prepared remarks. I think the upside for us or the place that we play would be really the advancement in the value play for us, which is a smoker-friendly and pinnacle brands. And that's a migration from the result of the price increases that have been going on in the market. The other results that big tobacco is in the middle of products like Xen, things like that, or just nicotine pouches and whatnot. But I'd say in the true combustible cigarette area, we have seen attrition from the tier one brands down to tier four, and that's where we play.
Andy: I would say I spoke to some of the trends in.
Andy: In my prepared remarks, but I think.
Andy: The upside for US are the places that we play would be really.
The advancement into value play for us, which is a smoker friendly.
Andy: Pinnacle brands and that's the migration from the result of the price increases that.
Andy: That'd be going on in the market the.
Andy: The other.
Andy: The results are big tobacco is is.
Andy: It was in the middle of their trials. So it's been things like that or just nicotine pouches.
Andy: But I'd say in the true combustible cigarette area.
We have seen attrition from the tier one brands down to tier four.
Andy: And that's where we play so that's and then of course, we're waiting for.
Andrew White: So that's, and then of course we're waiting for, not waiting, we're anticipating the launch of the partner VLNs in the market. Thank you.
Andy: But waiting we're anticipating the launch of <unk>.
Andy: With a partner <unk> in the market.
Andy: Okay.
Daniel Otto: And I guess last but not least, just to reiterate, within the CMO product line, have we seen the worst of it in 2024 past, and are we now on a growth trajectory, carton-wise, price-wise, revenue-wise? Yes, that's correct. That's correct. Good to hear. Well, those are my questions. Thank you very much, guys. All right. Thanks, Indy. This concludes our question and answer session.
Andy: And I guess last but not least is to reiterate are within the CMO product line have we seen the worst of it in 2020 for past and are we now on a growth trajectory.
Andy: Carton wise Pricewise revenue.
Andy: Yes, that's correct.
Andy: That's correct good to hear.
Andy: Well that's my question. Thank you very much guys.
Speaker Change: Alright, Thanks, Andy.
Andy: Okay.
Andy: This concludes our question and answer session I would like to turn the conference back over to Larry Firestone for any closing remarks.
Lawrence Firestone: I would like to turn the conference back over to Larry Firestone for any closing remarks. Thank you. 22nd Century is in its new business model. As I stated on the last Ernie's Call, this is the start of a new company. We have our branded lineup and our standard CMO business backing it up. Our cost structure is in line, and we believe we have the cash on the balance sheet to carry us into breakeven. That assumes the choreography of state approvals and shipments into distribution happen according to plan. and our team is excited in driving 22nd Century to profitability and beyond.
Larry Firestone: Thank you.
Speaker Change: What do you think a century.
Larry Firestone: As soon its new business model.
Larry Firestone: As I stated on the last earnings call. This is startup of a new company.
Larry Firestone: We have a branded lineup and our standard CMO business backing it up.
Larry Firestone: Our cost structures in line and.
Larry Firestone: And we believe we have the cash on the balance sheet too curious into breakeven.
Larry Firestone: That assumes the choreography of state approvals in shipments into distribution happen. According to plan.
Larry Firestone: And our team is.
Larry Firestone: He is excited and driving 22nd century to profitability and beyond.
Lawrence Firestone: I'd personally like to take a minute to thank and appreciate our team for their hard work transitioning our company in a very short period of time with very limited resources. They've done an awesome job. We look forward to updating you with press releases along the way, and again, at next quarter's earnings release time frame. I hope you all have a great day. Thank you.
Larry Firestone: I'd personally like to take a minute to thank and appreciate our team for their hard work transitioning our company in a very short period of time.
Larry Firestone: With very limited resources, they've done an awesome job.
Larry Firestone: We look forward to updating you in with press releases, along the way and again at next quarter's earnings release timeframe.
Larry Firestone: Hope you all have a great day. Thank you.
Operator: The conference has now concluded. Thank you for attending today's presentation.
Larry Firestone: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Operator: You may now disconnect.
Larry Firestone: Yeah.
Larry Firestone: [music].