22nd Century (XXII)2023-05-09 20:08Financial Data and Key Metrics Changes - Net sales increased 144% quarter-over-quarter to $22 million, reflecting the addition of GVB revenue [48] - Gross profit is projected to improve significantly in Q2 2023 due to a higher margin product mix and the return of production capabilities [49] - Revenue guidance for fiscal year 2023 is set at $105 million to $110 million, representing a 69% to 77% increase from $62 million in 2022 [13][53] Business Line Data and Key Metrics Changes - Tobacco revenue for Q1 remained relatively unchanged at $8.9 million, with gross profit slightly decreasing to $18,000 due to a reallocation towards higher margin products [50] - Hemp/cannabis revenue grew 85% to $13 million from $7 million, driven by strong customer demand for bulk ingredient products [51] - The company reported record cannabinoid ingredient volumes, delivering over 68,000 kilograms in Q1, four times the amount delivered in the same quarter last year [39] Market Data and Key Metrics Changes - The VLN rollout is occurring at twice the speed of a typical tobacco product rollout, with plans to expand from 500 stores to 5,000 [16][20] - The company has secured major national-scale distribution agreements, enabling rapid placement of VLN into thousands of stores across multiple states [14][20] - The hemp/cannabis business is positioned as a market leader in North America, with a focus on expanding sales and distribution capabilities [37] Company Strategy and Development Direction - The company aims to achieve cash positive operations in 2024, focusing on growth in both tobacco and hemp/cannabis business units [7][15] - Strategic initiatives include cost-cutting measures and a focus on high-margin products, with a commitment to not solely rely on cost reductions for success [8][15] - The company is enhancing consumer marketing strategies to drive awareness and acceptance of VLN, positioning it as a solution for smokers [23][24] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving revenue targets and highlighted the importance of business interruption insurance in improving financial results [9][52] - The company anticipates significant margin expansion in the second half of 2023 due to restored production capacity and new distribution agreements [13][49] - Management emphasized the importance of federal regulations and potential market opportunities arising from reduced nicotine content mandates [34] Other Important Information - The company received $5 million in insurance proceeds from the Grass Valley fire in Q1, with additional proceeds of approximately $8 million expected in Q2 [52] - The company is actively pursuing international market opportunities, with tests planned in Switzerland and Japan [30][31] Q&A Session Summary Question: Impact of shelf resets on VLN revenue generation - Management confirmed that VLN is included in retailer merchandising plans and is positioned to meet the needs of smokers [55] Question: Revenue growth expectations from tobacco - Approximately 60% to 70% of the expected revenue increase is driven by VLN, with the remainder from Pinnacle growth [57] Question: Timing and ramping of contracts with Old Pal and Cookies - Shipments from these contracts are expected to start in Q3, with significant ramp-up anticipated in Q4 and continuing into 2024 [60] Question: Price positioning of Pinnacle amidst down trading in U.S. cigarettes - Pinnacle is positioned competitively, similar to Lucky Strike, to attract consumers [63] Question: Update on VLN launch in priority states - The company is on track with plans for Arizona, New Mexico, and Utah, focusing on retailer demand and schematic changes [65] Question: Menthol market mix and marketing strategy - The company is monitoring menthol market dynamics and positioning VLN as a solution for menthol smokers [69] Question: Gross margin expectations for 2023 and 2024 - Expected gross margins for hemp could reach 20% to 30% by 2024, while tobacco margins are projected to expand significantly as VLN sales ramp up [82]