22nd Century Group (XXII) Reports Fourth Quarter 2023 Financial Results
- None.
- Net revenue decreased from $10.0 million in Q4 2022 to $7.4 million in Q4 2023.
- Gross profit saw a significant decline from $(0.1) million to $(7.8) million in Q4 2023.
- Operating loss increased from $10.2 million in Q4 2022 to $14.2 million in Q4 2023.
- Net loss from continuing operations rose to $22.1 million in Q4 2023 from $11.1 million in Q4 2022.
- Adjusted EBITDA declined to a loss of $3.2 million in Q4 2023 from a loss of $10.0 million in Q4 2022.
Insights
The financial results of 22nd Century Group indicate a strategic shift in operations, focusing on tobacco harm reduction and contract manufacturing after exiting the hemp/cannabis market. The reported net revenue of $7.4 million represents a decline from the previous quarter, which may raise concerns about the company's revenue generation capabilities. However, the substantial reduction in operating costs and the projection of decreasing cash use from $15 million a quarter to less than $4 million in Q1 2024 suggests an aggressive cost management strategy that could improve the company's financial health in the long run.
The one-time inventory write-down of $7.9 million is a significant factor in the gross profit loss. It is imperative to assess whether this is an isolated event or indicative of underlying issues with inventory management. The reverse stock split aims to address NASDAQ's minimum bid price requirement, which is a common tactic used by companies facing delisting. Investors should be cautious, as reverse splits can sometimes be viewed as a red flag for underlying financial distress.
The expansion of VLN® products across 26 states, including major markets like Texas, California and Florida, indicates a targeted growth strategy for 22nd Century's reduced nicotine content cigarettes. The increase in retail locations from 1,100 to over 5,100 is a substantial growth in market presence. The emphasis on driving brand awareness and sales for VLN® leverages the product's unique FDA MRTP authorization, which could position the company favorably in the tobacco harm reduction sector.
However, the success of this strategy hinges on consumer acceptance and the effectiveness of new customer engagement strategies. The company's goal to break even by Q1 2025 sets a clear financial target, but achieving this will require not only increased sales but also sustained operational efficiency and effective management of operating expenses.
The focus on VLN®, the only FDA authorized reduced nicotine content combustible cigarette, places 22nd Century Group at the forefront of tobacco harm reduction initiatives. This aligns with broader public health goals and could benefit from regulatory and social support for smoking cessation products. However, the public health impact and the company's role in harm reduction will depend on the adoption rate of VLN® by smokers and the product's efficacy in reducing smoking rates or facilitating quitting.
While the company's efforts may be well-received from a public health perspective, it is essential to monitor how regulatory changes and public health campaigns affect the market dynamics for reduced nicotine products. These factors will ultimately influence the company's ability to capitalize on its unique position and achieve its financial and operational goals.
Mocksville, North Carolina--(Newsfile Corp. - March 28, 2024) - 22nd Century Group, Inc. (NASDAQ: XXII), a tobacco products company focused on nicotine harm reduction, today reported results for the fourth quarter ended December 31, 2023, and provided an update on recent business highlights.
Fourth quarter results and recent business activities included:
- Net revenue from continuing operations in the fourth quarter of 2023 was
$7.4 million , - Exited hemp/cannabis operations to fully focus on tobacco harm reduction and contract manufacturing activities,
- Substantially reduced operating costs through efficiency initiatives and the hemp/cannabis business sale,
- Began new initiatives to increase sales, improve gross margin and increase operating profit in 2024, and
- Commenced developing new customer engagement strategies to drive additional sales growth in the FDA authorized VLN® products available in more than 5,100 stores across 26 states.
Said Larry Firestone, Chairman and CEO: "Our turnaround is progressing rapidly, after restructuring a significant portion of the business over the last 120 days as part of our mandate to produce stronger future financial results. Most importantly, cash use has declined rapidly, from a peak run rate of approximately
"We now have two primary areas of focus, both directly pertaining to our tobacco market assets. In the short-term, we will evaluate and profitably grow our contract manufacturing business to cover our operating expenses and mission critical initiatives around 22nd Century's very low nicotine content cigarette technology. We will also invest in and grow the VLN® brand through sales, customer awareness and capitalizing on a positive regulatory and social environment. With success in these efforts, we believe that 22nd Century can break even by the first quarter 2025.
"With VLN® being the only FDA authorized reduced nicotine content combustible cigarette in the industry, market awareness of the positive impact that a low nicotine cigarette has on adult smokers is the key to our success. VLN® is currently available in 5,100 stores across the country, and we will be adding distribution as we continue to drive brand awareness for this important new category in the fight to reduce the harms of smoking."
Recent Business Highlights
- Strengthened the availability of VLN® through a presence in 26 states, including the three largest markets: Texas, California, and Florida.
- Increased VLN® retail locations to over 5,100 sites, compared to approximately 1,100 stores as of June 30, 2023, including a number of widely known regional and national convenience and drug store chains.
- The Company is now refocusing VLN® sales and marketing efforts to drive awareness among smokers and their influencers of a new category of tobacco harm reduction, among other actions intended to drive sales of this unique, FDA MRTP authorized harm reduction product.
- Reorganized the tobacco contract manufacturing business to drive improved margins and operating performance.
- The Company is now seeking additional manufacturing opportunities to enhance volume and further cover its corporate operating overheads through the existing business lines.
Corporate Updates
- On November 29, 2023, the Company appointed Larry Firestone as Chairman and CEO.
- On December 22, 2023, closed the sale of the Company's GVB hemp/cannabis assets.
- On February 13, 2024, the Company announced a reduced board compensation program, targeting a cost savings of more than
$1 million annually, beginning in 2024.
Fourth Quarter 2023 Financial Results
All figures reported below reflect continuing operations, excluding discontinued operations related to the sale of its hemp/cannabis franchise.
- Net revenues for the fourth quarter of 2023 were
$7.4 million , down from$10.0 million in the prior year period and$7.9 million in tobacco related product sales in the third quarter of 2023. - Gross profit for the fourth quarter of 2023 was
$(7.8) million , as compared to$(0.1) million in the prior year period.- Gross profit included a one-time charge of
$(7.9) million for certain inventory write down adjustments.
- Gross profit included a one-time charge of
- Total operating expenses for the fourth quarter of 2023 were
$6.4 million , compared with$10.2 million in the fourth quarter of 2023.- The Company continues to focus on further reducing operating expenses, including its previously announced reduction in board compensation and other efforts underway intended to provide additional benefit opportunities in 2024.
- Operating loss for the fourth quarter of 2023 was
$14.2 million , compared with$10.2 million in the fourth quarter of 2022. - Net loss from continuing operations for the fourth quarter of 2023 increased to
$22.1 million or$0.66 per share from$11.1 million or$0.77 per share in the fourth quarter 2022. - Adjusted EBITDA for the fourth quarter 2023 declined to a loss of
$3.2 million or$0.10 per share, from a loss of$10.0 million or$0.69 per share in the fourth quarter 2022. Please refer to the tables included in this release for a reconciliation of Adjusted EBITDA (a non-GAAP measure) compared to net loss.
Reverse Stock Split
The Company announced that it will effect a reverse stock split of its outstanding shares of common stock, par value
Balance Sheet and Liquidity
As of December 31, 2023, the Company held
Conference Call
22nd Century will host a live webcast today at 8:00 a.m. E.T. to discuss its fourth quarter 2023 financial results and business highlights. The live webcast will be accessible in the Events section on 22nd Century's Investor Relations website at https://ir.xxiicentury.com/events-and-presentations/default.aspx. An archived replay of the webcast will also be available shortly after the live event has concluded.
About 22nd Century Group, Inc.
22nd Century Group, Inc. (NASDAQ: XXII) is an agricultural biotechnology company focused on tobacco harm reduction, reduced nicotine tobacco and improving health and wellness through plant science. With dozens of patents allowing it to control nicotine biosynthesis in the tobacco plant, the Company has developed proprietary reduced nicotine content (RNC) tobacco plants and cigarettes, which have become the cornerstone of the FDA's Comprehensive Plan to address the widespread death and disease caused by smoking. The Company received the first and only FDA Modified Risk Tobacco Product (MRTP) authorization for a combustible cigarette in December 2021. 22nd Century uses modern plant breeding technologies, including genetic engineering, gene-editing, and molecular breeding to deliver solutions for the life science and consumer products industries by creating new, proprietary plants with optimized alkaloid and flavonoid profiles as well as improved yields and valuable agronomic traits.
Learn more at xxiicentury.com, on Twitter, on LinkedIn, and on YouTube.
Learn more about VLN® at tryvln.com.
Cautionary Note Regarding Forward-Looking Statements
Except for historical information, all of the statements, expectations, and assumptions contained in this press release are forward-looking statements, including but not limited to our full year business outlook. Forward-looking statements typically contain terms such as "anticipate," "believe," "consider," "continue," "could," "estimate," "expect," "explore," "foresee," "goal," "guidance," "intend," "likely," "may," "plan," "potential," "predict," "preliminary," "probable," "project," "promising," "seek," "should," "will," "would," and similar expressions. Forward-looking statements include, but are not limited to, statements regarding (i) our strategic alternatives and cost reduction initiatives, (ii) our expectations regarding regulatory enforcement, including our ability to receive an exemption from new regulations, (iii) our financial and operating performance and (iv) our expectations for our business interruption insurance claim. Actual results might differ materially from those explicit or implicit in forward-looking statements. Important factors that could cause actual results to differ materially are set forth in "Risk Factors" in the Company's Annual Report on Form 10-K filed on March 28, 2024. All information provided in this release is as of the date hereof, and the Company assumes no obligation to and does not intend to update these forward-looking statements, except as required by law.
Investor Relations & Media Contact
Matt Kreps
Investor Relations
22nd Century Group
mkreps@xxiicentury.com
214-597-8200
22nd CENTURY GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(amounts in thousands, except per-share data)
| December 31, | December 31, | |||||
| 2023 | 2022 | |||||
| ASSETS | ||||||
| Current assets: | ||||||
| Cash and cash equivalents | $ | 2,058 | $ | 2,205 | ||
| Short-term investment securities | - | 18,193 | ||||
| Accounts receivable, net | 1,671 | 1,363 | ||||
| Inventories | 4,346 | 7,270 | ||||
| Insurance recoveries | 3,768 | - | ||||
| GVB promissory note | 2,000 | - | ||||
| Prepaid expenses and other current assets | 1,180 | 1,928 | ||||
| Current assets of discontinued operations held for sale | | 1,254 | 13,646 | |||
| Total current assets | 16,277 | 44,605 | ||||
| Property, plant and equipment, net | 3,393 | 3,692 | ||||
| Operating lease right-of-use assets, net | 1,894 | 943 | ||||
| Intangible assets, net | 5,924 | 7,212 | ||||
| Other assets | 15 | 3,417 | ||||
| Noncurrent assets of discontinued operations held for sale | | - | 54,782 | |||
| Total assets | $ | 27,503 | $ | 114,651 | ||
| LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||
| Current liabilities: | ||||||
| Notes and loans payable - current | $ | 543 | $ | 689 | ||
| Current portion of long-term debt | 5,848 | - | ||||
| Operating lease obligations | 231 | 252 | ||||
| Accounts payable | 4,445 | 2,051 | ||||
| Accrued expenses | 1,322 | 766 | ||||
| Accrued litigation | 3,768 | - | ||||
| Accrued payroll | 883 | 2,662 | ||||
| Accrued excise taxes and fees | 2,234 | 1,423 | ||||
| Deferred income | 726 | 688 | ||||
| Other current liabilities | 1,849 | 349 | ||||
| Current liabilities of discontinued operations held for sale | | 3,185 | 4,138 | |||
| Total current liabilities | 25,034 | 13,018 | ||||
| Long-term liabilities: | ||||||
| Operating lease obligations | 1,698 | 711 | ||||
| Long-term debt | 8,058 | - | ||||
| Other long-term liabilities | 1,123 | 344 | ||||
| Noncurrent liabilities of discontinued operations held for sale | - | 4,603 | ||||
| Total liabilities | 35,914 | 18,676 | ||||
| Shareholders' equity (deficit) | ||||||
| Preferred stock, $.00001 par value, 10,000,000 shares authorized | ||||||
| Common stock, $.00001 par value, 66,666,667 shares authorized | ||||||
| Capital stock issued and outstanding: | ||||||
| 43,525,862 common shares (14,349,275 at December 31, 2022) | ||||||
| Common stock, par value | - | - | ||||
| Capital in excess of par value | 370,297 | 333,900 | ||||
| Accumulated other comprehensive loss | - | (111 | ) | |||
| Accumulated deficit | (378,707 | ) | (237,814 | ) | ||
| Total shareholders' equity (deficit) | (8,410 | ) | 95,975 | |||
| Total liabilities and shareholders' equity (deficit) | $ | 27,503 | $ | 114,651 | ||
22nd CENTURY GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
(amounts in thousands, except per-share data)
| Three Months Ended | Year Ended | |||||||||||
| December 31, | December 31, | |||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||
| Revenues, net | $ | 7,357 | $ | 9,951 | $ | 32,204 | $ | 40,501 | ||||
| Cost of goods sold | 15,186 | 9,995 | 40,900 | 38,654 | ||||||||
| Gross (loss) profit | (7,829 | ) | (44 | ) | (8,696 | ) | 1,847 | |||||
| Operating expenses: | ||||||||||||
| Sales, general and administrative | 4,005 | 9,331 | 31,064 | 32,231 | ||||||||
| Research and development | 493 | 1,169 | 2,644 | 3,578 | ||||||||
| Other operating expense (income), net | 1,905 | (328 | ) | 2,527 | (327 | ) | ||||||
| Total operating expenses | 6,403 | 10,172 | 36,235 | 35,482 | ||||||||
| Operating loss from continuing operations | (14,232 | ) | (10,216 | ) | (44,931 | ) | (33,635 | ) | ||||
| Other income (expense): | ||||||||||||
| Realized loss on Panacea investment | - | (748 | ) | - | (2,789 | ) | ||||||
| Other income (expense), net | (170 | ) | (223 | ) | 334 | (366 | ) | |||||
| Loss on transfer of promissory note | (895 | ) | - | (895 | ) | - | ||||||
| Interest income, net | 18 | 102 | 219 | 313 | ||||||||
| Interest expense | (6,788 | ) | (29 | ) | (9,366 | ) | (55 | ) | ||||
| Total other expense | (7,835 | ) | (898 | ) | (9,708 | ) | (2,897 | ) | ||||
| Loss from continuing operations before income taxes | (22,067 | ) | (11,114 | ) | (54,639 | ) | (36,532 | ) | ||||
| Provision (benefit) for income taxes | 1 | - | 47 | 21 | ||||||||
| Net loss from continuing operations | $ | (22,068 | ) | $ | (11,114 | ) | $ | (54,686 | ) | $ | (36,553 | ) |
| Discontinued operations: | ||||||||||||
| Loss from discontinued operations before income taxes | $ | (6,809 | ) | $ | (13,020 | ) | $ | (85,634 | ) | (23,703 | ) | |
| Provision (benefit) for income taxes | 455 | 2,148 | 455 | (455 | ) | |||||||
| Net loss from discontinued operations | $ | (7,264 | ) | $ | (15,168 | ) | $ | (86,089 | ) | $ | (23,248 | ) |
| Net loss | $ | (29,332 | ) | $ | (26,282 | ) | $ | (140,775 | ) | $ | (59,801 | ) |
| Deemed dividends | (9,061 | ) | - | (9,992 | ) | |||||||
FAQ
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