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SenesTech, Inc. (SNES)

Q3 2021 Earnings Call· Wed, Nov 10, 2021

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Transcript

Operator

Operator

Good day, and welcome to the SenesTech Third Quarter Fiscal Year 2021 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note that this event is being recorded. And I would now like to turn the conference over to Robert Blum. Please go ahead.

Robert Blum

Analyst

All right. Thank you very much, and thank you all for joining us today. On today’s call, we will discuss SenesTech’s third quarter 2021 financial results for the period ended September 30, 2021. With us on the call today are Mr. Ken Siegel, the company’s Chief Executive Officer; Mr. 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. 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 risks 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 company’s filings with the Securities and Exchange Commission. All forward-looking statements contained during this conference call speak only as of the date, which they are 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 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 Ken Siegel. Ken, please proceed.

Ken Siegel

Analyst

Thanks, Robert. Good afternoon, and thank you all for joining us today. As you saw in the press release, we issued after the close, the third quarter of 2021 showed continued improvement in the adoption of ContraPest with revenue more than double that from last year and up 14% from the most recent second quarter. This is another record revenue quarter for SenesTech. On a year-to-date basis, we’re up 133% from the year ago period. The record quarterly and nine month results are being driven by growth in each of our targeted market verticals, including agribusiness, such as poultry farms, municipalities, such as our deployments in Hartford, San Francisco, Washington, D.C., and another one we recently announced in the Boston suburb of Newton. Zoos and sanctuaries, where we now have deployed ContraPest to more than 50 locations. Commercial applications, where we are primarily selling through distributors to a variety of end markets. And finally our direct-to-consumer offerings where we sell through our online store at ContraPestStore.com. By the end of the quarter, we were finally able to fully integrate all of the efforts we’ve been working on for the past two years to fully commercialize ContraPest. These included enhanced sales and marketing tactics to drive awareness and recognition of ContraPest, new advertising and public relations initiatives through our Operation Rat Race campaign; development of a new website and branding; the launch of our ecommerce site, ContraPestStore.com; completion of compelling real world long-term studies across key market segments; and enhanced strategic partnerships and collaborations with key distributors and pest management professionals. As we previewed on our last call, the highly anticipated launch of our multi-channel sales and marketing blitz with the internal code name, Operation Rat Race launched late in the third quarter and is now in full swing. The campaign…

Tom Chesterman

Analyst

Thank you, Ken. As a reminder to our investors, the press release is available on our website in the investor relations section. Further, we expect to file our 10-Q on Friday. So, I will just touch on some of the high points today. Revenue during Q3 was approximately $183,000 compared to approximately $77,000 in a third quarter of 2020. This represents gross of 138% more than doubling the revenue in Q3 of 2020. This revenue included grant revenue of 24,000. Excluding the grant revenue growth was still 106% maintaining our doubling sales trend for another quarter. We are beginning to see the positive effects of Operation Rat Race and our effort in the agriculture segment, both of which commenced late in the quarter and both of which we expect to drive continued success in the fourth quarter and in 2022. Gross profit for the quarter was approximately $77,000 or 42% of total revenue for the quarter compared with approximately $36,000 or 47% of total revenue for the third quarter of 2020. This was negatively impacted by sales discounts and manufacturing inventory adjustments. We expect that the cost of manufacturing itself will continue to approach 50%, but that we will continue in the near term to offer discounts selectively, to attract and retain customers. Net loss for Q3 2021 was $2.3 million compared with a net loss of $1.9 million for Q3, 2020. Adjusted EBITDA loss, which is a non-GAAP measure of operating performance for Q3 2021 was $2.0 million compared to $1.7 million in Q3 2020. It should be noted that operating expense was negatively affected by a free shipping promotion during the quarter, an expense that shows up in OpEx rather than cost of sales. Adjusted EBITDA loss, sometimes referred to as burn rate is likely to continue in the short term at a rate equivalent to $7 million to $8 million per annum, as we continue to invest in operating expenses that should drive customer and revenue growth. Cash at the end of the quarter was approximately $11.1 million with continued fiscal discipline. This cash should be sufficient to fuel our growth strategy for over a year. That said, we do intend to file an S3 for a renewal of our shelf capacity, which expired earlier this year. A shelf or an S3 is an SCC provision to register a new issue of shares without having to sell the offering at once, but instead to offer portions of the issues selectively over a three year period, that is our intent to be selective about capital raises, balancing the need for resources with shareholder interests. With that, let me open the call to questions. Tom, could you do so.

Operator

Operator

[Operator Instructions] And the first question comes from Avi Fisher with Long Cast Advisors. Please go ahead.

Avi Fisher

Analyst

Hey Ken and Tom, thanks for the update. I just had a quick question regarding the Liphatech collaboration that was announced in March, if you said something about it, I missed it. I apologize, but you provide some sense of how that’s moving?

Ken Siegel

Analyst

We are still working through the formulation issues Avi. So, we have managed to combine the ContraPest actives with their product. We’re now assessing stability ultimately with a view toward doing a feed and breed product, but right now we’re still going through the stability testing. So probably have more to talk about that in the next quarter call.

Avi Fisher

Analyst

And I mean, Tom talked about, the expected annual burn rate. And I have to assume that the expectation is, a year and a half from now, your plan you expect to at least be breakeven. How do you model this non-liquid opportunity? Is it bigger than a liquid opportunities is the same size?

Ken Siegel

Analyst

We’re – it’s interesting. We think that obviously the liquid is extremely compelling due to the, the needs of rodents to consume 10% of their body weight every day in water. What we’re looking at and what we’re still assessing is how valuable the solid product will be in some consumer applications and in familiarization with the best management community that likes to deploy wax-blocks in the light. So, we think it could be a very big market. But we think right now, even with the liquid product, we’ve got enormous runway.

Avi Fisher

Analyst

I agree and appreciate the work you’ve been doing and thanks so much.

Ken Siegel

Analyst

Okay.

Operator

Operator

[Operator Instructions] The next question comes from George Park, who is a Private Investor. Please go ahead.

George Park

Analyst

Hello gentlemen, how are you doing?

Ken Siegel

Analyst

Doing good.

Tom Chesterman

Analyst

Very well. Thanks.

George Park

Analyst

Good, good. Very pleased with the results this, this quarter. I think the growth in customers is the real statistic that should be looked at. And I was going to ask about the pebble, the dry formulation as well, but I think I understand where you’re at with that. How about the market in Australia? I had spoke with one of you earlier about that. Has there been any change in the opportunity there and I’ll show you what the rat problem they’re experiencing?

Ken Siegel

Analyst

And George, we continue to try to work with the government in Australia. We were working to see whether or not they would give us emergency authorization to go in, and essentially, what their response is. And you can imagine this is the government at the end of the day. They think that what the onset of seasonal change that the problem was going to abate. So they’re not prepared to allow us to go on an emergency basis. So, we’re working on putting together the various international data submissions that we need to do, not just for Australia, but for other countries around the world, but it’s not, right now.

George Park

Analyst

With the United Nations, have some sort of program that would be kind of worldwide that you could apply to?

Ken Siegel

Analyst

No, unfortunately it’s country by country. And we run into this situation periodically, but what we’re doing more and more is we’re trying to see whether or not, we can get local agencies to attempt to bring us in on an emergency basis. We’ve thus far been, come up dry in Australia, but we’re looking at that as vectors in other countries that are, not quite as bad as Australia with the rat problem, but are having growing rat issues.

George Park

Analyst

Good. Well, final question would be, how about word of mouth? You indicated that you are having a fairly good repeat customer rate. Wasn’t quite clear on what it is, but I’m assuming the 4% churn means that a lot of your customers are repeating orders.

Ken Siegel

Analyst

Yes.

George Park

Analyst

And among the agriculture and cities and oftentimes word of mouth is a very, if it works for one city, they’re, happy to share it with others, are you able to utilize that in, are you having success? Are you getting recommendations from existing successful customers?

Ken Siegel

Analyst

We’re starting to. The good, interesting piece, so this was the interesting factor in the, recent Newton placement, which actually came off of the Hartford deployment that we did in the late spring, early summer, and what we’re now seeing since Newton aggressively publicized the fact that they were doing that. We’re now starting to see a bunch of inbound inquiries, not necessarily from the governments, but from the constituents. So, we’re starting to see the community associations, the neighbor associations, the plant committee’s now beginning to reach out because they’re seeing successful deployments in the cities similar piece, mostly right now in direct-to-consumer, we have sort of a rabid enthusiast base, if you will, that are talking up, talking us up a lot on social media, which is driving more of the consumer traffic. We’re early in the campaign now around agriculture. So, we expect to see more word of mouth coming in the next couple of quarters as we get more deployments under our belt.

Operator

Operator

This concludes our question-and-answer session. I’ve now let turn the conference back over to Ken Siegel for any closing remarks.

Ken Siegel

Analyst

Thanks. So again, thanks all of you for joining us today. I think as you’ve seen, and I mentioned probably a couple of times in the script. The pieces have finally come together. And I think the final piece, which is really giving us, the power behind the overall commercialization strategy is the new marketing advertising campaign and the robust way that we are promoting ContraPest. So look forward to updating you more as the campaign gains traction. Remember, it’s only a few weeks old, but hopefully we’ll have a lot more exciting things to talk to you about in the full year call early next year. So again, thank you for your attention and look forward to talking to you again next quarter.

Operator

Operator

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.