22nd Century Group (XXII) Conference May 21, 2025 12:00 PM ET Speaker0 Everyone next we have twenty second Century Group Inc. It trades on the NASDAQ under the symbol XXII and is the pioneering nicotine harm reduction company in the tobacco industry enabling smokers to take control of their nicotine consumption. Happy to welcome back Chairman and CEO, Larry Firestone. Welcome back to the conference today, Larry. Speaker1 Thanks Anna. Thanks for having us back and good morning everyone. So welcome to twenty ...

Financial Data and Key Metrics Changes - Net revenue for Q1 2025 was $6 million, a 50% increase sequentially from $4 million in Q4 2024 [28] - Gross margin showed a loss of $600,000, which is an improvement of 50% from the prior quarter [28] - Net loss from continuing operations improved to $3.3 million from $4.2 million in the preceding quarter [31] - Adjusted EBITDA loss improved to $2.3 million from $3.9 million in Q4 2024 [31] Business Line Data and Key Metrics Changes - Total cartons sold were 476,000, an increase of 41% compared to 338,000 in Q4 2024 [29] - The company is focusing on two main segments: reduced nicotine premium products and value-focused CMO brands [10][12] Market Data and Key Metrics Changes - The combustible cigarette market is valued at $85 billion, facing increasing price pressures and regulatory challenges [6] - The company aims to serve the Tier four market, which is approximately two-thirds the price of Tier one brands [10] Company Strategy and Development Direction - The company is transitioning into a growth model, focusing on expanding distribution and launching targeted marketing campaigns [12][20] - New product introductions include Smoker Friendly Black Label and VLN branded products, aimed at capturing market share in the natural cigarette and low nicotine segments [14][15] - The company is not waiting for FDA regulations to finalize its strategy and has developed technology for low nicotine tobacco products [22][23] Management's Comments on Operating Environment and Future Outlook - Management believes the current market dynamics present opportunities for high-quality branded products due to price pressures from big tobacco [21] - The company is on track to achieve breakeven EBITDA by Q4 2025, with expectations of revenue growth and margin improvement [25][35] Other Important Information - The company reduced its outstanding debt to $3.9 million, with debt-for-equity conversions of $3.1 million during the quarter [31] - A capital raise through warrant inducement raised approximately $5.4 million, providing cash runway for growth initiatives [32] Q&A Session Summary Question: Do you still foresee a breakeven of EBITDA for the fourth quarter of this year? - Yes, the company is on track to achieve breakeven in the latter half of the year [35] Question: Will CMO continue to grow from its first quarter level and will VLN kick in over the course of the year? - Yes, both Smoker Friendly and Pinnacle franchises are on a growth path, and state approvals for VLN will enhance distribution [36][37] Question: Does the increase in accounts receivable indicate a need for additional financial capital? - The company is comfortable with its cash runway after recent financing and the increase in receivables is due to new customer agreements [38][39] Question: What is the expected collection period for the accounts receivable balance? - The collection terms are typical for shipments, generally collected upon product delivery [40] Question: What has been the share issuance dilution from the warrants? - Current shares outstanding include approximately 7 million shares issued under the recent warrant inducement offering [42] Question: Are there any implications for twenty second Century Group from competitors' earnings results? - The company sees opportunities in the value segment due to price increases in the market and is anticipating the launch of partner VLNs [46][47] Question: Have we seen the worst of it in 2024, and are we now on a growth trajectory? - Yes, the company is now on a growth trajectory in terms of cartons, price, and revenue [48]

Financial Data and Key Metrics Changes - Net revenue for Q1 2025 was $6 million, a 50% increase sequentially from $4 million in Q4 2024 [28] - Gross margin loss improved by 50% to a loss of $600,000 from the previous quarter [28] - Net loss from continuing operations improved to $3.3 million from $4.2 million in the preceding quarter [31] - Adjusted EBITDA loss significantly improved to $2.3 million from $3.9 million in Q4 2024 [31] Business Line Data and Key Metrics Changes - Total cartons sold were 476,000, an increase of 41% compared to 338,000 in Q4 2024 [29] - The company is focusing on two main segments: reduced nicotine premium products and value-focused CMO brands [9][10] Market Data and Key Metrics Changes - The combustible cigarette market is valued at $85 billion, facing increasing price pressures and regulatory scrutiny [6] - The company aims to serve consumers transitioning from high nicotine products to lower nicotine options, capitalizing on market dynamics [21] Company Strategy and Development Direction - The company is transitioning into a growth phase, focusing on expanding distribution and launching targeted marketing campaigns [12][20] - New product introductions include Smoker Friendly Black Label and additional SKUs for existing brands, aimed at increasing market share [14][15] - The company is not waiting for FDA regulations to finalize its strategy and has developed technology for low nicotine products already approved by the FDA [22][23] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about achieving breakeven EBITDA by Q4 2025, supported by improved pricing structures and volume growth [34][36] - The company is focused on restoring fiscal responsibility and improving balance sheet ratios through debt reduction and working capital improvements [27] Other Important Information - The company has reduced its outstanding debt to $3.9 million and executed a capital raise of approximately $5.4 million [31][32] - A lawsuit against Dorchester Insurance Company for $9 million in business interruption insurance is ongoing, with a trial date set for November 2025 [32] Q&A Session Summary Question: Do you still foresee a breakeven of EBITDA for the fourth quarter of this year? - Management confirmed they are on track to achieve breakeven in the latter half of the year [34] Question: Will CMO continue to grow from its first quarter level and will VLN kick in over the course of the year? - Management indicated that both Smoker Friendly and Pinnacle franchises are on a growth path, with state approvals expected to drive distribution [36] Question: Does the increase in accounts receivable indicate a need for additional financial capital? - Management stated they are comfortable with their cash runway following recent financing and attributed the increase in receivables to new customer agreements [38][39] Question: What is the expected timeline for collecting the accounts receivable balance? - Management noted that collections occur upon product delivery, following typical shipment terms [40] Question: What has been the share issuance dilution from the warrants? - Current shares outstanding include approximately 7 million shares issued under the recent warrant inducement offering, with additional warrants expected to be exercised [42] Question: Are there any implications for twenty second Century Group from competitors' earnings results? - Management highlighted that trends in the market, particularly the migration from Tier one to Tier four brands, present opportunities for the company [46][48] Question: Have we seen the worst of it in 2024 past, and are we now on a growth trajectory? - Management confirmed that they are now on a growth trajectory in terms of cartons, price, and revenue [49]