22nd Century Group, Inc. Q4 FY2024 earnings call

• In late 2023, repositioned to a pure-play tobacco company by divesting GVB hemp/cannabis business, shutting down related R&D, and reducing cash burn.
• Restructured board, personnel, and expenses to reduce R&D and G&A costs.
• Repaid or settled approximately $18 million in liabilities, including subordinated debt and convertible senior secured debt.
• Focused on VLN relaunch with redesigned packaging, marketing, and regulatory approvals for 50 states. Also expanded R&D for VLN and proprietary tobacco leaf.
• In CMO, signed and shipped additional brands for export, offloaded unprofitable filtered cigar contracts, secured long-term commitment from Smoker Friendly, and worked on other key accounts.
• For 2025, plan to relaunch rebranded VLN with three SKUs, introduce partner VLN private labels, get VLN and partner VLN SKUs approved in all 50 states by end of July 2025, and launch new webpage and social media for VLN.

In the fourth quarter of 2024, net revenue was $4 million, down sequentially from $5.9 million in the third quarter. Gross margin was a loss of $1.2 million compared to $588,000 in the same period. The core contract manufacturing (CMO) business has been the lion's share of revenues in previous years, a high-volume, low-margin business. The branded business, centered around VLN products, is the growth focus. The CMO business services domestic and international customers, with domestic dependent on consumer rate of sale and international on per container shipments. The VLN product is the key growth driver, with plans for rebranding and partner VLN private labels to expand market presence.

• Aim to achieve profitability in P&L in 2025.
• First quarter 2025 volume to begin growing again, with more rapid expansion in Q2 2025 as CMO customers return.
• VLN rebranded products expected to begin shipping in Q2 2025.
• Still expect EBITDA to break even in Q4 2025.
• CMO contract reshuffling completed in 2024, with improved economics for CMO customers.

• Resistance from big tobacco to FDA regulations proposed for nicotine yield in cigarettes.
• Continued cash burn, operating losses, and debt service during the turnaround phase.
• Challenges with securing shelf space in the competitive cigarette market and achieving rate of sale for VLN products.
• Uncertainty in market acceptance of partner VLN private labels initially.

Q: Following up on what you were talking about, do you see in the first quarter of 2025 a stabilization of CMO contract terminations? In other words, is this a 2024 story and not a 2025 story? And that question goes towards the second question as well, which is, are you still expecting EBITDA to break even in the fourth quarter of 2025?

A: Dan Otto responded that the reshuffling of the CMO contracts has gone full term, and that was a 2024 story. As for EBITDA breakeven in Q4 2025, Larry Firestone stated that as of then, that was still the outlook.