Good afternoon, and welcome to the SenesTech, Inc. Fourth Quarter and Fiscal Year 2018 Financial Results Conference Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Robert Blum with Lytham Partners. Please go ahead.

Thank you very much, Phil, and thank all of you for joining us today to discuss SenesTech's year-end financial results for the period ended December 31, 2018, and corporate update conference call. With us on the call representing the company today are Dr. Loretta Mayer, Chair, Chief Executive Officer and Co-Founder of SenesTech; and Tom Chesterman, the company's Chief Financial Officer. At the conclusion of today’s prepared remarks, we will open the call for a question-and-answer session. [Operator Instructions]. Before we begin with prepared remarks, we submit for the record the following statement. Statements made by the management team of SenesTech during the course of this conference call may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements describe future expectations, plans, results or strategies, and are generally preceded by words, such as may, future, plan or planned, will or should, expected, anticipates, draft, eventually or projected. Listeners are cautioned that such statements are subject to a multitude of risks and uncertainties that could cause future circumstances, events or results to differ materially from those projected in the forward-looking statements, including the risk that actual results may differ materially from those projected in the forward-looking statements as a result of various factors and other risks identified in the company’s filings with the Securities and Exchange Commission. All forward-looking statements contained during this conference call speak only as of the date on which they were made and are based on management’s assumptions and estimates as of such date. The company does not undertake any obligation to publicly update any forward-looking statements, whether as a result of the receipt of new information, the occurrence of future events, or otherwise. With that said, let me turn the call over to Dr. Loretta Mayer, Chief Executive Officer and Co-founder of SenesTech. Loretta?

Thank you so much, Robert. Really appreciate everyone joining us for the call today. 2018 was, without a doubt, one of our major strategic growth years and is totally setting us up for our 2019 movements. What I'd like to do is I'd like to give a little background color and highlight some of the key accomplishments that we have achieved this last year, and what they -- cast them in light of where they add to our strategic plans. Probably the first one that everyone is thinking about is Washington, D.C. And at the end of 2018, we actually began shipping product for that project. Our colleague and professional pest manager distributor, Pestmaster, won the 2018 bid for the city of New York using ContraPest, and that's a 4-year project. And in that bid, they had asked us to start with 4 wards. There are actually 8 wards in Washington, D.C. We shipped our first stocking order of 5,000 units on December 18. That was a big win. It tested our successful manufacturing updates, our shipping processes and our ability to meet these large government contracts. That project have its predeployment site meeting on February 21, and we were a little bit surprised when they announced to us that they want to rapidly expand into all 8 wards instead of just the first 4. Their deployment schedule that they're working with our technical teams on is to begin the first ward deployment, which they did 2 Mondays ago, on March 18. As they deployed the product, we're keeping track of how long it takes them, any complications, what their successes are. And then very shortly, they will initiate the second ward. They're going to establish a periodic time frame for expanding into all 8 wards of Washington, D.C. We…

Thank you, Loretta. As most of you out there already have a copy of the earnings release, I will limit my comments to allow time for some additional perspective from Loretta as well as your questions. As you saw in today's press release, revenue for the year was $297,000, which is approximately 6x higher than last year's revenue. While we're obviously starting from a low base, we are making measurable progress in establishing our business, as you've heard from the number of new deployments that Loretta talked about. We continue to firmly control operating costs as our operating cost during the year ended December 31, 2018, were just $11,936,000, which is an improvement of almost $400,000 from the expenses during the same period in 2017. We also continue to be more efficient within our cost of goods sold, with gross margins of 18.9% for the 12 months ended December 31, 2018, compared to 13.5% for the same period in 2017. It should be noticed that the 18.9% for the year included an unusual scrap amount for the third quarter that we do not expect to be recurring. Thus, it is still our expectation that at scale, we should be able to drive gross margins in excess of 50%. For the year, we posted a net operating loss of $11,880,000 compared to a net operating loss of $12,316,000 in 2017. Adjusted EBITDA was $8.0 million compared to $8.2 million loss in 2017. As we talked about last quarter, during the third quarter, we completed the rights offering. The yielded net proceeds to the company of approximately $5.1 million. We ended the year with a cash position of $4.9 million and minimal long-term debt of approximately $261,000, which evidences our commitment to manage operating costs. As we enter the new year, we are in a solid position to continue to execute on our strategic business plan while retaining tight cost control. With that, let me turn the call back to you, Loretta, for any further comments.

Thank you, Tom. These last comments are really talking about activities that are the foundation of our strategic plans going forward. I've really spoken about the RUP in depth. The strategic impact of that is that it is increasing our total addressable market for us because it is increasing our outreach in sales beyond the professional pest management industry. Many users, and I will say again, I talk a lot about California because we have spent a great deal of time there and it is the fifth largest economy in the world. But in California, you have areas, say, in Ventura County, Malibu, where most of the pest management placement is done by landscapers. And so by listing this RUP, it completely allows us to go into the distribution markets, which provide landscaping products. The other thing you'll want to be looking for in this next year that we're focusing on is communications and messaging. Our goal is to increase the voice of the customer to us firsthand. We want to hear that mayor say, "I don't want to be a ratty city." We want to hear that city government official say, "I don't know what I'm going to do with this poor district." Because when we hear those kinds of comments, then they told us what they need, we can then go forward and customize for them. But most importantly, we can message to them exactly what their needs are. This opens up a lot of direct corporate and government customers for us. Our website is being upgraded, and I will tell you that's going to launch on April 1. And give you a little preview, we're adding pages. One of the things that we've heard from our investment community is they very much like to keep track with…

Yes. Thanks, Loretta. Phil, if you could instruct the listeners on the live line how to queue up?

[Operator Instructions]. The first question comes from Kevin Ellich with Craig-Hallum.

Loretta, just wanted to get an update on the number of states that have approved the label change. I think you made reference to another state even today. So are we currently at 24? And I guess, how long will it take to get the remaining states?

Good question. Yes, we are at 24. And that's accepting I'm in a different time zone and so I have no idea where you are. And what they're coming in is roughly 1 to 3 a week. And again, I think we'd be looking at having all states and, of course, the big one is Florida, has already come through. But looking at all states being in, probably by the end of Q2 this year.

Great. That's helpful. And then great progress on the Washington, D.C. deployment. And I appreciate the color you gave on second deployment. But wondering if you could give us a little bit more on potential size for the second deployment, will that be at least the same size as the first? And I guess, maybe a little bit more on the timing for that.

Well, you ask very good questions. Our first deployment was a guess, and so we looked with the city of Washington and said, all right, if we start in ward 1, you'll need maybe 5,000 units to get started. We don't know because we don't know how many rats you have. If they're like Dupont Circle who have their own Yelp site, then probably you're going to need a great deal more than that. The other thing is we can't predict because they are expanding more rapidly than we thought. What I can say is the next orders, the stocking orders, will continue to grow over the -- this first year of the four year contract. And I don't -- I just can't tell you, but that's why we're going to put that thought on our website so you can see how Washington is growing. As we learn, you learn.

Sure. That makes a lot of sense. And then just flipping over to Tom. I've got two quick one's for you. Gross margin, we saw a nice improvement this quarter. Maybe could you talk about your comment about gross margin in excess of 50%? Just wondering at what point you think you'll get there or is there a revenue number that you have in mind to achieve those types of margins?

Yes. I don't think it's -- I don't want to put a specific time line on it and it's not specifically tied to revenue, although that's part of it. We have instituted bulk pricing on some of the materials we bring in, some other things like that. So we are trending towards that. I'm pretty confident that we will make it there early enough in the year to make a difference. But I think it would be premature to put a specific time on that.

Got it, got it. and then just one quick one to Tom. So in the press release, you said $137,000 revenue this quarter versus $110,000 last quarter. Was there a restatement? I thought you guys had $105,000 last quarter. Not a big a deal, I just want to get it right.

I'm sorry, you broke up a little bit on that. Could you repeat?

Yes. In Q3, last quarter, you reported a $105,000 of revenue, and that sort of keeps us wondering if it still $105,000 or if there was a restatement to the $110,000 that was in this quarter's press release.

No. There was no restatement, must been a typo.

Okay. Great, great. And then just wondering, Loretta, great to see some trials in the poultry production in Central California. Can you give a little bit of expansion on when we could actually see that move forward? And I guess, how big of an opportunity that is?

Sure. The opportunity in poultry in the United States is approximately $88 billion. That's their production and that's the size of the market we're addressing. We will start expanding in California in late Q2. We're going to use some new strategies for [bidding] [ph] which is exciting for me. But in our broiler facilities located elsewhere in the United States, we're in our 6 month up there. So we will be expanding into poultry facilities. You also must remember that pig facilities, pork production is another very high market for us. So look for the end of Q2 to see this expansion in food production.

Now I would like to turn the call over to Robert for any email and webcast questions.

Thanks so much, Phil. We have a series of questions here, Loretta and Tom. We'll try to get to as many of these as we can. The first one here is, was the D.C. order booked in Q4 or will it be booked upon deployment, furthermore is D.C. expanding to all boroughs this year?

I'll take the revenue question. In terms of the -- because Pestmaster is acting as a distributor here, the revenue is booked as it leaves our dock and it gets shipped to them. So it was in the fourth quarter for that first order. There will be continuing orders, restocking orders, et cetera but -- and those will come in the first quarter and in the second quarter, et cetera. In terms of the deployment to the full year -- to the full city, that is what we understand they have a very aggressive plan. We'll be working our technical teams. We're working with them, as Loretta mentioned, to understand it better and we'll try and put as much of an update as we can onto the website.

All right. Next question here is with the recent rise in the share price, have any warrants been exercised?

Yes. We have seen some. We will be actually filing our 10-K probably tomorrow morning. And there will be some -- an update in there. But we do see that the activity has begun in terms of the warrant exercises, and we expect it to continue to increase as the stock price continues to increase.

All right. And our next question here is how long is the shelf life of ContraPest?

Well, I can tell you that the functional shelf life of ContraPest is in excess of one year. We will be providing our official shelf life to the EPA at the end of this year so we won't be putting that on our label until later.

Okay. Our next question here, this surrounds second-generation anticoagulant resistant rodents. This person indicated that they read many articles pertaining to rodenticides being ineffective to new generations of rats. Can you expand upon this and the role ContraPest would play in the scenario?

Sure. I think i touched upon that a little bit earlier but the new generations of rats, for those rats that are coming from breedings resistant animals, and so the ones clearly that were susceptible to the poison or death, they don't reproduce. We are also looking at how that breeding pool is favored, and we also will be looking at how our product impacts that. Right now, it's looking as if using contraception, we could actually get ahead of and maybe turn around these resistant pools as they're growing. I think the other thing is that the problem for these second generations is the best practices for the industry is to have their customers or PMPs rotate their products. The products, however, have the same active ingredient or similar active ingredients. So what you're doing is just expanding the resistant space. So yes, it is something we are extremely concerned with. I will tell you, our European colleagues are hard at work with us on that right now.

Okay. And the next question here is what is the approximate selling price of a ContraPest big unit?

So I think it's important understand, the ContraPest is a product that's typically bundled with a service, and so we don't always have visibility as to how the pest management professional is pricing it. We do know that the distributors offer a replacement tank for between $40 and $50 from their website. And we've heard anecdotally that some of the pest managers will market up 50% to 100% and might even add a special servicing fee. From our perspective, our base undiscounted selling price is $30 per tank for a 400-milliliter tank that fits in an EVO Express Bait Station. And $35 per tank for a 550 milliliter tank that fits in JT Eaton Fortress Bait Station. Each station holds 1 to 2 tanks and the label mandates that at least monthly servicing. So although actual consumption in the field could even require as often as weekly servicing, depending on the level of the infestation.

Okay, thanks, Tom. And the next question here again that around the warrants. If I assume the $1.15 warrants are well into the money, could the company force conversion? I know this can be done with convertibles but can it also be done with equity?

Yes. The $1.15 warrants actually have a whole provision that effectively forces exercise of the stock price rises to $2.87 for 5 days in a row. So we would anticipate that their warrants would probably all be exercised before that point.

Okay. And then the next question we have here is, obviously, the relationship with Pestmaster is going along well. This begs the question of how you're doing with Univar and Target, any thoughts?

That's yours, Tom.

Well, yes. So Univar and Target are both large nationwide distributors that take orders on and sell thousands of products. And they also sell lots of other products to pest managers. So there is no way they can provide the same level of expert and focused sales that we can to end users, particularly to corporates that are in focused right now. So it's really a question of pull. The distributors have their place in the industry, and we welcome their participation, but we really cannot rely on them to be the same kind of partner, the same kind of involved partner and dedicated, committed partner as Pestmaster and potentially others like Pestmaster as that develops.

All right. Our next question here, we'll try to get to a couple of more. Can you provide any details regarding possible global expansion efforts?

Yes, I can. So first and foremost, we are focusing on building our strong business here in the United States. As I've mentioned, however, we cannot turn at that year to our international colleagues, and so we will be expanding globally if we have partners that will carry the load. For example, many of you have probably seen the article on Bermuda, in which a very forward-thinking government official decided to bring ContraPest to the island and found it to be extraordinary. And then I believe his comment was something like, "I want to see this in every garden in the country." So they have a very lofty desire to expand this to the entire country of Bermuda, which is 27 square miles. But in this particular case, I want to point out, they were clearly allowed to do that as the government official has the ability to bring the product into the country. It's a British protectorate, but the country has sovereignty over these. And so I think these are the things you'll see. And clearly, many of our international projects with conservationists on other islands will include the hospitality and industry and many of those are separate governments. So yes, we will definitely be looking at global expansion. It has always been one of our objectives. But right now, we're doing it primarily with self-sufficient partners.

All right. Thank you, Loretta. And then the next question here, maybe time for just a couple more. What is the result of the November 13 meeting with the EPA on whether to add mice to the existing label or create a new mice EPA label? Is the end of your 2019 still a good target for the EPA to approve ContraPest for mice?

I would never answer for a government agency's approval in this climate. But what I can tell you is Cheryl was the lead on that meeting and she, of course, took the concept of adding mice to the label. There would be 2 suggestions. You could either add mice to the label or you could create a separate product just for mice. I can tell you, adding mice to the label is the easiest path to get out there to our customers. We'll be taking that path. And I'm very optimistic that will be a painless label amendment. Having said that, I'm sure I will eat those words. But we're looking good.

All right. And next question here, are we going to see ContraPest in the mainstream media more? The word gets out fast when people know we spread the word, but is awareness marketing a part of a plan?

Yes. That is what you'll call earned market share and the social media is drawing the light to that. Much of this comes from the individual consumers. For example, in Washington, D.C. on our last visit there, their communications officers met with us and let us know that they were planning their own release because, again, they're very proud of what they're doing and it's something new. In the city of St. Louis, they continue to have their own news releases. I can't say much about California because we're now just starting to complete some of those major relationships. But yes, I think you will see it state-by-state, and then of course, who couldn't pass a up a good rad story? My gosh. I'm sure it will expand.

All right. Looks like we're closing in on the 60-minute mark here. There was submitted web comment here that says, "This is not a question but a comment." Dr. Mero [ph], is an Investor. I would like to thank you sincerely for your diligence fiscal responsibility and leadership. You have not let us down yet. I feel your leadership will take us to amazing heights and I'm thankful to have you at the helm of this organization. So no, there's not a question there but maybe on that comment, I'll turn it over to you for any closing remarks that you might have.

Well, I'm absolutely stunned by that comment. Sometimes, your nose is to the grindstone and don't look up too much. But I think it confirms what we have always believed here at SenesTech, and that is it is our investors, our customers, our citizens and the entire global community that support us and keep us going everyday. And when you got that kind of support, you have no chance but success. And with that, I thank all of those people and SenesTech will continue to be dedicated to sell science and effective solutions. Thank you again, and have a wonderful evening.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.