22nd Century Group, Inc. Q3 FY2025 earnings call

• Strategy shift: Transitioned from legacy CMO business with low or negative margins to higher-margin branded products. Implemented manufacturing cost restructuring to improve gross margin.
• Product distribution: Newly branded VLN and Partner VLN products in market, with shipments in Q3 and store display resets. VLN products available in multiple states. Natural style cigarettes also being shipped.
• Balance sheet: Became debt-free, with $4.8 million cash on hand and $9.5 million receivable from insurance recovery. Entered into customary executive employment agreements.
• Technology: Focus on low nicotine tobacco and VLN products, plans for 100-millimeter VLN cigarettes, low nicotine tobacco strains, and filtered cigars. Positive product reviews on taste and smoking experience.

Net revenue for the third quarter of 2025 was $4 million, with total cartons sold at 517,000. Shipments of newly branded VLN and Partner VLN products year-to-date through the end of October were approximately 6,000 cartons, and natural style cigarettes added an additional 14,000 cartons. Higher-margin branded products typically have a gross profit margin of 20% to 30% after accounting for pricing promotions and other marketing dollars. VLN and Partner VLN cigarette products were in approximately 1,500 stores across 21 states and authorized in approximately 40 states.

• Expect sequential improvement in gross margin in Q4 2025 and 2026 due to strategy shift to higher-margin branded products.
• Aim for EBITDA breakeven in second quarter of 2026. Cash will be used for advancing VLN in the market, adding store count and distribution, and commencing R&D and CapEx in early 2026.
• Well-funded balance sheet to support operations and growth initiatives.

Q: What are your plans to use the cash going forward?

A: Cash will support operations, advancing VLN in the market, adding store count and distribution, and commencing R&D and CapEx in early 2026.

Q: Do you intend to use any of the cash to settle outstanding warrants? And what's the share equivalent of outstanding warrants?

A: No. Just under 7 million shares outstanding as of quarter end and on a fully diluted basis with convertible Series A preferred and common warrants, it was $23.7 million.

Q: Could you spend more time on the employment agreement and its impact on SG&A?

A: Employment agreements are customary. They will not change current G&A level, just formalizing terms for named executive officers. An at-the-market offering up to $25 million is an option for opportunistically raising additional capital if needed.

Q: Are you standing by the second quarter 2026 breakeven for EBITDA?

A: We're still driving for that, it's a line of sight.