Release Date: August 13, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Significant reduction in net loss from $21 million in Q2 2023 to $1.6 million in Q2 2024.
- Revenue growth initiatives, including adding volume to the factory and repricing key customer accounts, are showing positive results.
- Executive team has been slimmed down and rebuilt, with new additions bringing extensive experience.
- Contract Manufacturing Operations (CMO) business is providing a direct path to breakeven and has secured new contracts.
- Substantial decrease in operating expenses from $11.1 million in Q2 2023 to $2.6 million in Q2 2024 due to cost reduction initiatives.
Negative Points
- Despite improvements, the company is still not profitable and anticipates a bumpy ride to achieving positive net income.
- VLN product has not yet reached its full potential, with carton numbers still a fraction of factory capacity.
- Initial go-to-market strategy for VLN was flawed, focusing solely on c-stores without adequate support for sell-through.
- The company faces challenges in expanding volume at scale due to the regulatory environment.
- Cash burn, although reduced, remains a concern with $4.7 million used in operations during Q2 2024.
Q & A Highlights
Q: Can you provide more details on the financial turnaround efforts and the significant reduction in net loss?
A: Lawrence Firestone, CEO: We moved from a consolidated net loss of $21 million in Q2 last year to just $1.6 million this year. This was achieved through revenue growth initiatives, adding volume to our factory, repricing key customer accounts, and implementing a lean operating model and cost improvement initiatives. Our goal is to achieve net income by Q1 of 2025.
Q: What are the key strategies for the CMO business to reach breakeven?
A: Lawrence Firestone, CEO: Our CMO business focuses on producing cigarettes, filtered cigars, and distributing cigarillos for OEM tobacco companies. We aim to load our factory to maximum capacity, helping customers drive down costs and making money in this price-sensitive segment. We are also looking to penetrate larger brands and expand into import and export markets.
Q: How is the VLN brand performing, and what are the plans for its relaunch?
A: Lawrence Firestone, CEO: Our current branding and trade dress for VLN have not communicated the message effectively. We are in the process of re-blending and rebranding VLN to ensure it resonates with smokers. The relaunch will include new branding, improved product taste, and expanded distribution to drive sales velocity and brand loyalty.
Q: What are the financial highlights for Q2 2024?
A: Daniel Otto, CFO: Net revenue was $7.9 million, up from $6.5 million in Q1 2024. We saw a significant one-time order of our Spectrum product, boosting both top-line revenue and gross profit. Operating expenses decreased to $2.6 million from $3.3 million in Q1 2024. Our cash burn has declined significantly, and we are focused on achieving cash-positive operations by Q1 2025.
Q: Can you provide an update on the lawsuit against Dorchester Insurance Company?
A: Daniel Otto, CFO: Significant discovery has taken place, and the court has set a trial date for November 2025. We are seeking $9 million in actual damages for business interruption insurance.
Q: What are the key focus areas for the new sales and marketing head, Robert Manfredonia?
A: Lawrence Firestone, CEO: Robert will focus on activating our VLN brand, rolling out flanker brands for VLN, and launching our new VLN product. He brings extensive experience in new brand launch initiatives and regulated consumer products, which will help drive consumer engagement, loyalty, and repurchase.
Q: How is the company addressing the challenges in the regulatory environment for the CMO business?
A: Daniel Otto, CFO: Expanding our volume at scale to reach profitability will take time and patience. We are navigating the regulatory environment to transition production of new customers' products to our factory. Maximizing volume capacity with new business will help us achieve our gross margin profitability goals.
Q: What are the future projections and goals for 22nd Century Group?
A: Lawrence Firestone, CEO: Our primary financial goal is to achieve cash-positive operations by Q1 2025. We are focusing on growth and profitability, building out our CMO business, and rebranding our reduced nicotine content products. We aim to become a self-sustaining and profitable company for the first time in our history.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
