0:05 Good day, and welcome to the SenesTech Fourth Quarter and Fiscal Year 2021 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. 0:38 I would now like to turn the conference over to Mr. Robert Blum with Lytham Partners. Please go ahead.

0:44 All right. Thank you very much, operator and thank you all for joining us today to discuss SenesTech’s year end 2021 financial results for the period ended December 31, 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. 1:12 Before we begin with prepared remarks, we submit for the record the following statements. 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. 1:42 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 our filings with the Securities and Exchange Commission. 2:21 All forward-looking statements contained during this conference call speak only as of the date on 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 as the result of the receipt of new information, the occurrence of future events or otherwise. 2:40 With that said, let me turn the call over to Ken Siegel, Chief Executive Officer of SenesTech. Ken, please proceed.

2:48 Thanks, Robert. Good afternoon, and thank you all for joining us today. As you hopefully saw in the press release, we finished the year on a strong note with a continuation of the revenue growth trends we had throughout much of the year. Overall, total revenue for 2021 more than doubled compared to 2020, with product sales growth of 123%. Importantly and while I don't want to give specific guidance, we believe we can continue these trends in 2022 as well. As we sit here today, I believe we will once again see more than a doubling of revenue in the first quarter of 2022 compared to the first quarter of 2021. And Tom will have more to say about this later. 3:33 The growth we are achieving is being driven by accelerated penetration of ContraPest in both existing markets as well as an expansion into a number of new market verticals. Key to the growth we experienced in 2021 has been the deployment of a number of sales acceleration tactics designed to increase awareness and recognition of ContraPest, including enhanced marketing techniques, new advertising and public relations initiatives through the Operation Rat Race campaign, development of a new website and branding, the launch of an e-commerce site ContraPestStore.com, completion of compelling real-world long-term studies across target market segments and enhanced strategic partnerships and collaborations with influential distributors and pest management professionals. 4:25 And as a number of these initiatives came online at various points during the year, we expect to see their full effect in 2022. In addition to these sales acceleration tactics, we are also seeing tailwinds from favorable legislative changes, growing environmental sensitivity and an emerging preference for clean tech choices. As we've touched upon in the past, a key component of this has been California's…

14:10 Thank you, Ken. A reminder to our investors the press release is available on our website in the Investor Relations section. Further we have filed our 10-K today. So here, I will just touch on some of the high points right now. Revenue during 2021 was approximately $600,000 compared to approximately $282,000 in 2020, an increase of 113%. Excluding the effects of grant revenue, product sales grew 123% for the year. This fourth quarter revenue was also more than double the revenue in the fourth quarter of 2020. This doubling trend has been sustained now for over a year. And as Ken mentioned, we see the trend continuing into the first quarter of '22. I would go so far as to say we consider this doubling to be the baseline beyond which we can grow even further and faster in 2022. 15:05 Gross profit for the year was approximately $244,000 or 41% of total revenue compared with $1,000 or 1% of total revenue in 2020. The gross margin improvement is driven by the fact that we had a high level of scrap and manufacturing and inventory charges in Q4 of 2020. This is also in line with our efforts to bring the cost of manufacturing below 50%. Net loss for 2021 was $8.3 million compared with a net loss of $8.4 million for 2020. Adjusted EBITDA loss, which is a non-GAAP measure of operating performance for 2021, was $7.8 million compared with $6.9 million in 2020. 15:51 In 2021, we invested heavily in marketing and customer acquisition costs. We are continuing to invest in customer acquisition, though we carefully monitor the specific programs for efficacy and cost-effectiveness. For example, we are curtailing the free shipping promotions as rising shipping costs defeat their effectiveness. We would therefore expect adjusted EBITDA…

18:28 We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Sameer Joshi with H.C. Wainwright. Please go ahead.

19:00 Yes. Thanks Ken and Tom [Indiscernible] question. And congratulations on a good year. Of course, the Operation Rat Race has been a good, big success for you. Do you have any plans to continue it to the next year? And what is the budget for that?

19:26 Hi Sameer. Thanks for the call? Yes, we are continuing rat race. It is plan to run through the balance approved 2022. I will defer to Tom on -- on budget discussions. But go ahead Tom.

19:47 Yes. We expect to manage this basically at the same level of overall cash burn as we have had in the past. So we're going to be carefully monitoring it, both the growth of the revenue as well as the efficacy of the program, to make sure that we do not surge beyond that $7 million to $8 million EBITDA loss that I mentioned.

20:09 Right, right. So when you mentioned $7 million to $8 million in EBITDA loss, I'm surmising that you will have higher gross profit dollars, and that way, you can use more of those dollars for other expenses, and adjusted EBITDA will be $7 million to $8 million loss. Is that how we should look at it?

20:36 Yes, we view it as really an investment in growth as we continue to invest as we can back into the customer acquisition and growth of the business.

20:48 Got it. And then you reiterated -- I think you had mentioned during the third quarter call as well that e-commerce sales are roughly 1/3 of year 2021 revenues. Is that on an annualized basis? Or from May to now, it has been roughly $200,000, overall, about $600,000?

21:19 Yes. Actually, it's -- that is a full year effect. We're seeing a lot more e-commerce success early on, and we continue to see that growing strongly. As I think we've mentioned before, it was a little bit of a surprise that we did not expect quite as much do-it-yourself business as we've been getting. But we've also noticed that some pest management professionals and other end users are deciding to order through the e-commerce site rather than going through one of our salespeople. So there's a little bit of slop in there and a little bit of crossover between the segments.

22:00 Yes, yes. And then around those -- on that same topic, I think -- did you mention that the subscription customers were around 10% of the customers -- of the e-commerce customers you have? Or is it that -- and then how does that relate to the 4% churn? Just trying to understand exactly.

22:28 I actually don't have handy right here exactly how many of the e-commerce customers on a subscription, and we're getting more new subscriptions. But as we look at the subscriptions, one of the key things in fact is on our subscription. And that's one where we're seeing approximately a 4% per month churn, which is reasonably good as we would expect to run about that for the foreseeable future.

23:02 Yes. No, certainly, 4% is good. In terms of the total customer count, if you will, I think it was around 1,200 at the end of third quarter, which was significantly up from around 500 in the second -- end of second quarter. Do you have a number for that now? Or are you not giving that number anymore?

23:29 Yes. I don't have that number handy right now. And in fact, I think we need to relook at that because I don't think we were very clear about what a current customer was defined as. And so as we're continuing to increase this, we need to look carefully and make a clear definition so that everybody can understand what that is. So we'll be coming out with that information a little bit later.

23:55 Okay. And then just one last one on the newest addition to your portfolio. How -- I think you did mention that it would be around a year before you actually have meaningful sales from that. But what is the size of that market? And how large a portion, say, two years from now you expect that product to be as a portion of your sales, the elevate product?

24:31 So let me start first, and then Ken can jump in if he wished. It's really unclear and very difficult to separate out what is the market for the Elevate system versus what is the market for the traditional ContraPest bait station product. Because they really split out roughly in which of brown rats or Norwegian rats and which ones are roof rats because roof rats do tend to spend more time aloft. So a little bit of it's going to be what's the split between those, but also, there are some customers that have a deployment strategy that may incorporate both. So I don't think it's really possible to prospectively say how much of the market is going to be one product or another. They're both ContraPest, and they both have the effectiveness of ContraPest. So we really still are looking at what is the overall market for ContraPest. We do know that rodenticides in general are being -- we're spending about $1 billion per annum in the U.S. So we know it's a big, big market as people want to begin to incorporate ContraPest into that. But splitting out between the different modalities and different delivery systems is probably a little difficult at this time.

25:56 Yes. No, and that is fair. I was just wondering if you had something. And again, I said it was going to be the last question, but I just have one more, if you will. You mentioned that there was the RFP from the L.A. County, one so far. And you also have mentioned that your product is the only one that is approved for use there. So should we consider this a win or eventual win that you're fairly confident about?

26:34 Yes, I think we can consider it a win, Sameer. It -- we're really the only one that they can use.

26:42 Got it. Okay, thanks. And good luck for a good 2022.

26:47 Thanks much.

26:52 [Operator Instructions] The next question comes from Avi Fisher with a Long Cast Advisor. Please go ahead.

27:06 Hi, thanks for the update, Tom and Ken. I appreciate it. Ken, just a quick question. You said -- talked about the heavy lifting, and I just wondered if you could clarify that. I mean in my mind, until you're shipping hundreds of thousands or even possibly millions of units, there's still a lot of heavy lifting. So what did you mean by that? What did you think -- what do you think about that opportunity getting there?

27:35 Well, Avi, no, I hear you. And I think that's a fair point. I mean we have an awful lot of lifting to do to actually drive sales. And what I was talking about the heavy lifting was finally having a commercial organization in place. I think as you and I have talked about a couple of times, when I came on board, this was an R&D company. Did not have a sales organization, did not have data to support how the company operated or how the product operated in the field. So an awful lot of lab data. We were very weak in terms of list generation, of marketing preparation, of all the things that you really need to do to finally commercialize the product. And we had no dedicated sales force. We also had to relocate and upgrade the manufacturing facility, get that ready to scale and bring in a more professionalized manufacturing organization. So all the basic pieces, I think, are in place now to actually really begin to aggressively sell the product. 28:50 And to your point, yes, there's an enormous amount of lifting to go. We've got a lot of runway and a lot of ramp to get to the numbers that I think that we can get to, and I know that our investors are counting on to get to. But I really wanted to make clear that at least the basic things necessary to finally have a viable commercial organization are in place and functioning and ready to go.

29:13 Yes. Fair enough. You've done a lot of work getting those pieces in place. Just on the manufacturing side, Tom, you mentioned the high level of scrap a year ago. I wonder if you could talk about sort of or quantify the reduction in scrap and kind of where you are in the manufacturing side? And sort of just to give me a realistic notion of kind of if you're shipping 100,000 units, say, or some level of unit, where you can get the unit cost down to and how -- like relative to kind of the more traditional offering.

29:57 Yes, sure. So the scrap I'm talking about that we've done, part of it has to do with the discontinuation of one of the bait box formats that we had, the JT Eaton bait box format, which really has been -- is not very popular anymore. So we discontinued that. Unfortunately, the nature of buying plastic tanks is you have to buy them by the thousands and thousands. So discontinuing that meant we had to recycle a whole bunch of plastic. The other thing is that occasionally, some of our ingredients, typically not the active ingredients because they're very stable, but some of the other ingredients do have expiration dates. So for example, as we look at the end of the year, we might have some of our oil that we use for the manufacturing process that needs to be -- so these are the types of scraps. And as we get better and better and as the -- actually the volume increases, it becomes easier to manage those sorts of things. 30:59 Taking all of that together, I believe it's quite achievable in the near term to achieve 50% cost of manufacturing. And that's with the -- all of the direct costs included. There'll still be a little bit else going into the cost in terms of cost of sales, discounts and such. So our gross margins may not be quite at 50%. They were 41% this time. I think that we could maybe improve it a little bit. But the improvements we're going to be doing in the near term in terms of cost of manufacturing, we probably will continue to reinvest into customer acquisition in the short term.

31:46 And then I mean I think this is generally viewed as a premium product versus traditional poisons, which you could buy poisons for $0.10. What's just -- I'm just trying to understand and gauge kind of where your cost of manufacturing could be at a higher level of scale, not where they are today but at a higher level of scale relative to that poison and therefore where this can be in terms of a price point that might be more attractive to clients down the road if you're aiming for more ubiquity across markets and stuff like that?

32:25 Well, the first thing is that the cost of poisons or the rodenticides is quite variable. You're right, the simplest of the rodenticides are extremely cheap, and we're priced at about 6x that amount. Some of the more advanced and more progressed, like rodenticides like Liphatech soft bait, are much more expensive than that and they come closer. And then if you look at the overall cost of other lethal means like traps and the like, some of them are actually more expensive than ContraPest. So there is a wide variety in terms of the cost of the integrated pest management pieces. But getting back to your question, which is how much more room is there in cost of goods sold for improvement, it is true, as you -- we begin to buy particularly the active ingredients, we would expect the price to go down. With these particular active ingredients, I don't have a forecast as to that sort of thing. But having done this before, I would say that you should be able to continue to reduce the cost at scale by another 20% or 30% potentially. 33:41 Now they would then have breakthrough ideas about how to dramatically rescale the manufacturing process, and they could take it further. So I don't think there's an end to how much better we can get at manufacturing. It is going to be an evolutionary process. That's what I've seen before, but I also don't think that there's a specific goal to say that that's as far as we can get and we can't go any further.

34:08 Great. And just -- just two more quick questions. Are you having any issues, getting the materials you need for the product?

34:16 No, we're not at this point. We've taken a fairly conservative approach as -- and I think we've disclosed before, one of the ingredients is sourced from overseas. Because of that, we tend to order way ahead of time and we tend to stockpile. So we want to make sure that we have at least six months, if not a full year's worth of supply just because of disruptions in shipping and weather and political issues. So at this point, we're sitting very good in terms of our supply.

34:51 Awesome. And then finally, one last question. And Ken, it's not quite guidance, but you did talk about your expectations for this quarter. But if you just sort of think about the step function of growth, right, you've kind of stepped it up a level from where we were a year ago. And as we get deeper into '22, I'm just curious about your ability to continue to step it up another level, kind of if you could talk about that either generally or with -- quantify sort of what kind of conversion rates you need to have to step it up yet another level, but you're going to have to do eventually, but I'm just thinking, is that a 2022 event?

35:33 Yes. Avi, you know that my CFO is going to step on my microphone shortly, but we're excited about the first step. Obviously, I would say, beyond hope, but we are looking to see how much further we can ramp it in '22. We're excited about Rat Race. We're excited about the addition of the additional salespeople. We're excited about Elevate. And while Tom said specifically, we can't figure out quite what percentage of the market it's going to take, it really opens roof rats for us in a way that we hadn't seen before. So there's a lot positive things. I'm sorry, go ahead.

36:24 But when does elevate sort of come to market?

36:28 So Elevate will be clear, we believe, of most of the state registrations by mid-April. We are doing a soft launch now from a marketing campaign. It really is expected to start to begin to ramp at the end of Q2, but we're going to do everything we can to pull that forward as much as we can. And that's a big -- it's both an opportunity and uncertainty right now. It's a unique deployment capability. And as I mentioned in my comments, there's nobody that's really cracked the code on deploying for roof rats. So we've actually got something that can be deployed. It's pop in, pop out. It's a different bottle size. So it could be the big change for us. But we'll have more to say about it probably at the end of Q2, but it's -- these are the various factors that give me some faith there's more upside here than maybe we're seeing right now, awesome.

37:42 Thanks again for the update. Really appreciate it. Keep up the good work.

37:46 All right. Thanks, guys.

37:52 This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Kenneth Siegel for any closing remarks.

38:01 All right, well, again, thank all of you for the support of the company. Hopefully, as you can see every time we do one of these, we score these quarters, you can begin to see the momentum building, you can continue to see the excitement to see the new things that are coming online and a growing sense of optimism about the company. So I look forward to talking to you again and at the end of Q1, and I hope to continue to talk to you about the great progress we're making. But again, thank you for the support and we'll talk to you again in a few weeks.

38:37 The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.