SenesTech, Inc. (SNES) Q1 2022 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the SenesTech Reports First Quarter Fiscal Year 2022 Financial Results. 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 that this event is being recorded. I would now like to turn the conference over to Robert Blum with Lytham Partners. Please go ahead, sir.

All right. Thank you very much, Cole. And thank you all for joining us today. As Cole mentioned, to discuss SenesTech’s first quarter 2022 financial results for the period ended March 31, 2022. With us on the call today, 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 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. 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. 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. So with that said, let me turn the call over to Ken Siegel. Ken, please proceed.

Thanks Robert. Good afternoon. And thank all of you for joining us today. As you saw in the press release, we started 2022 where we left off in 2021 with another quarter of record product sales, which more than doubled from the same quarter last year. We have now had nine consecutive quarters of annual quarterly revenue growth, eight of those at 2x or greater since I took over as CEO. Importantly, the monthly sequential trends in the first quarter show continued acceleration of growth in our e-commerce business with sales in the month of March, up more than 80% compared to February. There are a number of reasons why we think this enhanced ramp is occurring, which I'll get into momentarily. But needless to say, we think it bodes well for a continuation of the recent sales growth trends. The other key development this month is the launch of our novel Elevate Bait System with ContraPest or what we're generally calling Elevate, which will begin shipping next week. We discussed during our March conference call the approval we had recently received from the EPA and are excited to announce today the formal commercial launch of the system. I believe the introduction of Elevate will be a defining moment where innovation enables us to accelerate our penetration into a number of key markets, particularly agriculture. I'll spend a few moments later in the call talking through our commercialization approach. As I believe Elevate has the capability to be a game changer for us in this market. So with those general highlights of strong sales acceleration and new product introductions, let's dive into a few more specifics. As I mentioned, sales for the quarter were up 122% compared to the year ago first quarter and up sequentially by 15%. This was a new quarterly product sales record for SenesTech. We continue to significantly ramp up our customer acquisition efforts led by our Operation Rat Race campaign, which has helped to drive a 438% increase in active customers during Q1 2022, compared to Q1 2021 and up 46% sequentially compared to the year end numbers. As we stated in the past, we are taking a very analytical approach to our marketing efforts to ensure we are driving down our customer acquisition costs and increasing the lifetime value of our customers. Considering we are still very early in the maturation cycle of this product launch. We expect to see some significant leverage to both of these data points in the future. We're also making continued improvements in our overall sales and marketing approach, including the pickup of some significant press coverage that has driven customers to our website. For instance, in March, we saw a nice spike in the state of Maine due to press coverage that we received there. The article in the Vanguard daily news titled rat birth control could combat annoying rodent infestations, highlighted the benefits of ContraPest. And we saw an increase in orders from the region. Similarly, we were featured in the San Francisco Chronicle two weeks ago and saw an immediate tick up in our e-commerce business in Northern California. And while the e-commerce pickups are encouraging, we believe they were also an early indicator of growing pull through demand. As end user customer awareness begins to drive purchases by PMPs and distributors. We're also expanding our digital marketing approach nationally compared to the regional approach we've taken thus far. Initial results are very encouraging. Generally when you increase the geographic scope and spend of the campaign, you see a decrease in engagement and a higher bounce rate. As you dial in your targeting to find your customers. Ours remain flat, and that's a strong sign that we have a broader customer base than we may have originally anticipated but also clearly indicated that our product is relevant to a wide segment of the pest control market and is not just attractive in areas that have restricted rod genocide use like California. And now with the launch of Elevate, we're adding industry-specific targeting to our digital footprint through trade publications, through associations and through targeted search. We're launching our first large scale exposure to food processing and storage as well as the broader agricultural space. And we're increasing our visibility with PMPs. Further in March, we went live with our Instagram shopping experience, customers can now learn and shop inside the social platform, keeping them captive at a time of interest versus relying on them to search for us on the web. Also, we recently added a popup on our contrapeststore.com to buy now, which is assisted in generating additional sales. Customers can now begin ordering ContraPest with a single click rather than scroll through multiple pages. To further enhance the customer experience, we'll be launching a new e-commerce site later this month, so called contrapeststore.com, but with a new look and feel to better match our successful campaign aesthetics. The team has done a great job on the e-commerce front. As we continue to hit new monthly goals for a number of customers, as well as number of subscriptions. March in particular was a record month for subscription revenue with minimal churn. And we believe this will increasingly become a more and more important part of the business going forward and a metric we are keeping a close eye on. From a market vertical standpoint, we continue to see strong adoption by zoos and sanctuaries, which accounted for about 18% of our first quarter sales. One very influential customer in this space, The Miami Zoo has credited the use of ContraPest enable them to finally gain control of their rat population around their aviary, resulting in the recent birth of chicks to birds that hadn't reproduced in over three years. To build off this momentum, on April 1, we launched a new contract program specifically designed to target the zoos and sanctuaries vertical and designed to help with the initial cost of a ContraPest deployment. As I've stated in the past, secondary exposure from poisons has become a growing concern in these types of environments or non-target animals or wildlife reside. I believe we are increasingly being recognized among influencers within this segment as ideal for addressing the concerns of rat infestation due to both ContraPest effectiveness and the lessened risk to non-target and predatory animals. As I touched on a moment ago, we're also starting to see PMP growth begin to accelerate. During the quarter PMPs accounted for about 16% of our sales. Our awareness campaigns are generating pull through demand from end user customers, as well as interest from PMPs who have challenging accounts and are looking for ContraPest as a solution. We have new customers taking our product to zoos, grain facilities, correctional facilities, animal rescue facilities and residential areas just to name a few. As pressure on the use of second-generation anticoagulants continues to grow, we're also seeing interest from PMPs looking for new solutions as their normal go-to products are being challenged. Elevate has also generated inquiries from PMPs battling roof rats, who are eager for a new tool in the fight. And we're anticipating expanding sales in the poultry and agricultural markets as the product begins to ship next week. As I mentioned in March, we're now seeing growing interest for major PMPs, including some of the largest players that were previously committed to their old solutions. And we're now working on product demonstrations with them in real world situations. We believe this will lead to adoption as the results are verified in the next few months. I touched on this a bit during the March call, but since they were first quarter events, I believe it bears repeating that on the government front, we've announced a number of key deployments in various locations. Clearly more and more cities, counties and government customers are recognizing the growing success of ContraPest through various media reports and our sales and marketing efforts. These positive deployments and the media coverage around them are having a bit of a clustering effect. For instance, following the recent successful deployments in Newton, Massachusetts and Hartford, Connecticut, we now have a growing number of governmental entities and communities in New England reaching out for additional information. The same is occurring around Columbus, Ohio, San Francisco, and elsewhere, where we're continuing to work hard to convert these inquiries into paying customers. Also during the first quarter where California-based sales were approximately 23% of our overall product sales, Los Angeles County specify the use of fertility control and one other request for proposal. Given California's move away from second-generation anticoagulants pursuant to the Ecosystem's Protection Act, we expect this trend will continue in future RFPs. And as I've stated in the past as the only EPA registered product available for fertility control in male and female rats, this puts ContraPest in an excellent position for further penetration of the government market. Before I turn the call over to Tom to review the financials in a bit more detail, let me just explain – let me just expand upon the Elevate system and how we're approaching the commercialization efforts for this new product. While our experience with agricultural applications demonstrates the efficacy and economic value of ContraPest, our customers have been requesting an additional baiting option to target rats where they often live specifically in rafters and other above ground locations. In response to this feedback, we developed Elevate. The novel suspended bait station we created is easily accessible by rats, but out of the way of people, pets, livestock, food stores, et cetera. And we're particularly excited about the use of the Elevate system to control roof rats. Given the frequent difficulty of deploying traditional rodenticides in the areas they inhabit. In preparation for the EPA submission for Elevate, we conducted extensive trials to prove the effectiveness of the system. This real world study information is critical as we've discussed in other market verticals and it should aid in providing potential customers the necessary data to make informed purchasing decisions and ultimately accelerate adoption of the Elevate system. It's important to note that Elevate with its suspended bait station is revolutionary within the pest control industry. There simply is no other effective product on the market like it expressly designed for above ground deployment for the control of roof rats. The industry is typically utilized traditional bait boxes to deliver pesticides and other products. And the design of the system is such that it permits easy drop in and replacement of new 8 ounce bottles of ContraPest, reducing both servicing time and cost. We filed for patent protection for the system in April in recognition of both its uniqueness and its effectiveness. As I stated on last quarter's call following the EPA’s approval, we needed individual state registrations. Elevate is now available in 48 states and the district of Columbia with the remaining states, Oregon and California requiring a little bit of additional time to review submissions. At the end of the day, we believe Elevate is the critical tool that allows for ContraPest’s potentially explosive growth in the agricultural segment. We will be shipping the product next week, and I look forward to providing updates on the progress for this product on our next call. So to summarize with growing market awareness and adoption for ContraPest, which is highlighted by record quarterly sales, coupled with the introduction of the Elevate system, we're off to a strong start in 2022. I believe ContraPest is the right product for pest control with significant growth potential based on its efficacy, environmental and regulatory requirements, as well as social trends. And while we look forward to continuation of the recent trends in the quarters to come, excuse me, we have in place the necessary elements to accelerate growth even more. And with that, let me turn it over to Tom for information on the financials.

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 tomorrow. So we will – I will just touch on some of the high points right now. Revenue for the first quarter was approximately $195,000 compared to approximately $88,000 in the first quarter of 2020, an increase of 122%. This is the ninth consecutive quarter of growth with eight of those quarters representing a doubling or more of revenue. We believe this trend will continue and even accelerate with the launch of the Elevate Bait System. Gross profit for the first quarter was approximately $90,000 or 46% of total revenue compared to approximately $38,000 or 43% of total revenue in the first quarter of 2020. Our progress on gross margins continues as we seek to bring the cost of manufacturing below 50%. Net loss for the quarter was $2.3 million compared with a net loss of $1.8 million for the first quarter of last year. Adjusted EBITDA loss, which is a non-GAAP measure of operating performance for the first quarter was $2 million compared to $1.6 million in the first quarter of last year. We are continuing to invest in revenue generation, although we carefully monitor the specific programs for efficacy and cost effectiveness and main strict control over other aspects of the business. In the second quarter, for example, we have restructured our pricing and incentives across the board. We would therefore expect adjusted EBITDA loss to continue at approximately our current pace. Cash at the end of 2021 was approximately – at the end of the quarter was approximately $7.2 million. With continued discipline this cash should be sufficient to fuel our growth strategy for the rest of the year. That said, as mentioned previously, we have filed an S-3 for renewal of our shelf capacity, which expired earlier last year. A shelf for an S-3 is an SEC provision to register a new issue of shares without having to sell the offering at once. But instead offer portions of the issue 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. Cole, could you please open it up?

[Operator Instructions] Our first question today will come from Tucker Andersen with Above All Advisors. Please go ahead.

Good afternoon.

Good afternoon.

Hi. Two questions. First, if you are success – congratulations on the progress you've made both on the sales front and more important on Elevate because I like you, I'm excited about that. If you are successful and your sales continue to ramp at this pace and perhaps even if we're all fortunate and do what we hope accelerate. Are there any constraints on the production capacity for the prospect? And I noticed you have a fair amount of inventory, but I don't know whether that's finished goods inventory or whether there would be more processes that needs to be done. But just in a world where supply chain constraints seem to be continuing to hurt people. I was just wondering if there would be any you would encounter.

Tom, why don't you take that, since it all rolls up to you.

Sure. Yes, so we have a long stockpiling raw materials that are hard to source quickly, so we have quite a sufficient stockpile of are two actives, for example. The other things that are necessary to meet demand, we have pretty carefully structured the supply chain so that we can meet a surge in demand, whether it be for the traditional ContraPest tank or for the Elevate Bait System. So we really don't see any constraints at this point on the supply chain.

Great, fantastic. The other question is a general question that you touched upon in your final comments and that is the cash burn versus the cash available. And are you – as you understand, we're in a much different market, which is much less forgiving of companies who are funding growth, while they remain unprofitable. And while you have sufficient cash for a reasonable period of time, you obviously want to keep a cushion. And clearly at these prices, issuance of common stock would be incredibly dilutive to current stockholders. So I'm just wondering how you balance all these factors and if there are other methods of financing you're thinking about and that sort of thing.

Well, I think that we certainly do not want to be raising money at these prices any more than we absolutely have to. And we don't have to immediately, we've got a good cash supply now and certainly through to the end of the year. That said, you're right, we do need to be very vigilant and very careful about opportunistically accessing the capital markets. That's why we have an S3 in place that allows us to opportunistically move as the stock moves. We also have a number of warrants and we've been fairly successful in the past at either inducing or finding people exercising their warrants at times during the year. So that would be another area, which would be certainly, it is dilutive, but the warrant overhang is also a concern for a lot of investors. So perhaps there's not as much of an issue with that.

Yes. Congratulations on your progress. And I hope maybe the next time I get to your area to come by and say, hello. Good luck on your continued progress, especially with Elevate.

Thank you much, definitely be keeping you posted.

And it appears there are no further questions. So this will conclude our question-and-answer session. I'd like to turn the conference back over to management for any closing remarks.

Great. Thanks Cole. Again, good quarter for us, as you've seen, we continue to – at the revenue ramp that we've been talking about for a couple of quarters, as Tom and I both said, we think there's hopefully more to that to come in the near future. We are extraordinarily excited about Elevate. Again, it starts shipping next week. The materials are all in supply. We're ready to go and look forward to updating you on that as well as a bunch of other things that we have in the pipeline as soon as we can. But again, thank you for your attention. And I look forward to talking to next quarter, if not before.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.