Good afternoon, and welcome to the SenesTech Reports Fourth Quarter and Fiscal Year 2023 Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded. I'd now like to turn the conference over to Robert Blum with Lytham Partners. Please go ahead.

All right. Thank you very much, Anthony, and good afternoon, everyone. Thank you for joining us today, as Anthony mentioned, to discuss SenesTech's 2023 financial results for the period ended December 31, 2023. With us on the call today are Joel Fruendt, the company's Chief Executive Officer; and Tom Chesterman, SenesTech'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 provision 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 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 in 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 the result of the receipt of new information, the occurrence of future events or otherwise. With that said, let me turn the call over to Joel Fruendt, Chief Executive Officer, SenesTech. Joel, please proceed.

Good afternoon, everyone. Thank you all for joining us today for our year-end conference call. During 2023, we executed several key initiatives that will be the foundation to drive growth for SenesTech into the future. Most notable was the development of Evolve, our all-new soft bait fertility control product that was launched at the end of 2023. As a reminder, Evolve has similar efficacy to ContraPest. However, Evolve has three distinct benefits to end users, a 1-year shelf life that allows for extensive distribution opportunities. It comes in a solid form that is more familiar to technicians and consumers and easier to deploy and is offered at a competitive price to traditional rodenticides. This has dramatically increased our reach in terms of markets and geographies. It is evident from the initial response that Evolve is what retailers and distributors have been looking for from SenesTech. One major proof point is our recent approval as a vendor for a leading network of hardware stores, a network comprising over 4,500 locations. In just the first few weeks after Evolve's introductions, they have become the first of many major retailers that will carry our products to target the do-it-yourselfer and broader consumer market. We expect more to come on board in the months to come. To penetrate the retail market quickly, we are in final negotiations with the manufacturers rep firm that specializes in retail relationships to represent us with these major national and regional retailers in hardware and home supply, industrial supply and agricultural supply. Another major advancement has been an agreement with a global leader in irrigation solutions for a sustainable open field agriculture. Open field agriculture presents unique challenges to rodent pest control. Poisons cannot be broadcast, traffic is expensive and of limited efficacy. Evolve Soft Bait with its minimum…

Thank you, Joel. A reminder to our investors, the press release is available on our website in the Investor Relations section as will be a recording in this presentation. Further, we have just filed our 10-K, so I'm just going to touch on some of the high points right now. Revenue during the year was $1.2 million, an increase of 17% compared to the $1 million in 2022. For the quarter, revenue was $295,000 compared to $297,000 in the year ago fourth quarter. During the quarter, we saw a pullback in our e-commerce sales. To some extent, this was caused by customer distraction with the Evolve soft launch limited to key customers. As Joel mentioned, this needs to be an area of focus and we can use the expertise of an industry-leading online distributor of pest control products tuned to outsource our e-commerce capabilities. Gross profit during 2023 was approximately $539,000 or 45% of total revenue compared to approximately $464,000 or 45% of total revenue last year. For the fourth quarter, gross profit was $129,000 or 44% of total revenue compared to $116,000 or 39% of total revenue in the year ago fourth quarter. The gross profit margin excluded the impact from new product introductions and -- was 49%. That's an increase of 10 points over the year. One important note I want to put out there is that due to the success of Evolve, we have had to expand our manufacturing capabilities. As a point of reference, we were initially manufacturing about 200 pounds per day of Evolve. Today, we are at about 1,000 pounds per day and plan to double again in the coming months to meet demand, and that's with a single shift. To this point, Evolve is offered in 6- and 12-pound pails. However, we are…

[Operator Instructions] Our first question will come from Amit Dayal with H.C. Wainwright. You may now go ahead.

Thank you, guys. Congratulations on all the progress you've made this year. With respect to sort of growth expectations for 2024, I know you commented 80% year-over-year growth so far in 2024 compared to 2023. Could this potentially accelerate with the consumer offering? Just any color on how we should think about modeling for 2024 with all of these distribution agreements now in place and this new -- I guess, the consumer market for Evolve also coming into play for you?

Yes, great question, and I can expand on that. This is Joel. One of the key things with our product is that we have to get the states -- registration state approvals. So right now, we have 30 states that we can sell in. In the United States, we expect to have all 50 sometime in the second quarter, hopefully by the end of the second quarter, for sure. So we started out and we're not able to sell everywhere. So that's one factor. Certainly, the consumer market and the retail space is a huge opportunity. That market is estimated at $250 million to $300 million for rodenticide products. So just being able to step into that marketplace is very significant in itself. So you can see that with those two things lining up and with our international expansion, getting six exclusive distributors in the span of, really, 60 days here leads us to believe there are a lot of others that will follow in behind over the next six months. So you combine all those three things together, and yes, there's a major upside with the fact that we now have a product that can be going through distribution on a significant level. So we have distributors that we're working with domestically and certainly those internationally. So we have the product. We have -- we know its efficacy. And we have a lot of expertise that's out there now with the product. So we're really excited about the upside potential.

On the margins front, Tom commented about expecting a little bit of a dip in the near term as you sort of expand your presence in the market? But by the end of the fourth quarter, do you expect to be higher than 2023 or similar levels?

Well, we certainly expect it to be higher. As Tom had mentioned that the margins for Evolve are probably 1,000 basis points higher than what they are for ContraPest. And we got to ramp it and get it up there and some of the start-up costs we've had. But yes, by the fourth quarter, we expect to see margins that are closer to the 60% than to the 50%.

Understood. Just one last one from me, guys. Your comments about the e-commerce side of the distribution. Did I hear this correctly that you are sort of outsourcing it to your distributor? If you could just clarify how you are setting up the e-commerce effort going forward.

Yes. So basically, what we're doing is we're outsourcing some of the assistance that we need to really make it expand using some of their resources that they have that we just don't have in-house right now. So they approached us with a proposal on how we could do the e-commerce better. And we think that we can double our e-commerce business, but we've got to have the right resources behind it, and we think that they can provide the right resources so that we can grow the business on the e-commerce side as well.

But this doesn't mean sort of any exclusivity with this entity, right? I mean this is just a service provider for was more than any other sort of exclusivity.

Yes. Yes. That's right.

Okay. Understood. Thank you. That's all I have. I appreciate it. Thank you so much.

Thank you.

[Operator Instructions]

Anthony, this is Robert Blum here. I've got a few questions while we wait to see if there are additional people that are interested in queuing up here that I'd like to make sure get addressed. First question here, been a flow of distribution agreements coming in, several of which have had annual minimums. But can we get some clarity on the size of these orders? Are the required minimums in sort of the tens of thousands of dollars, hundreds of thousands? Any sort of average contract size or minimums that you could provide would be greatly appreciated.

Yes. So each of those agreements that we have represent in different territories, different potentials. But typically, for us to get involved in an exclusive arrangement is we want to have a local source of product available sooner rather than later. And so our initial orders require a one pallet minimum order, which is about $10,000 roughly and then we have annual minimums that we set up as well and those start at $100,000. So really, what we're doing is we're wanting to put distributors in place that feel really strong about the product and about the market and are willing to bring the product in. So we're looking to do that in a number of different situations and really help them grow over time.

All right, perfect. Next question here. It seems that several of these new contracts are contingent on regulatory approval. Has SenesTech experienced any hurdles getting Evolve approved in any countries? If so, what is the plan to overcome those hurdles?

Not really. No. I think the initial distribution that we've signed up the distributors themselves are very familiar with the regulatory process in their countries and are confident that they can move that forward. So the key is being able to partner with distributors who know how to navigate the regulation and they take the lead. We work with them on getting the approvals. And if there are a few countries out there that we've just put on the back burner because they have some really onerous regulatory processes, and initially, we've targeted the markets that we feel very comfortable of getting the product approved and subsequently being used.

All right. Great. Next question we have here, does SenesTech have the manufacturing capacity today to fill these orders? If not, what does the manufacturing time line over the next few quarters look like?

Tom, why don't you take that one?

Sure. Yes. Yes, we have the capacity. We were confident that the demand would be there for Evolve and would grow quickly. So we design our processes to be very easily scalable. So we don't have any worries there.

Okay. Great. Two more questions here. SenesTech raised a few million dollars through warrants recently. And sort of as you hope to enter this rapid growth phase this year and next, does the company plan to raise capital by continuing to issue stock warrants? Or will there start adding debts to the balance sheet?

Yes. Maybe I'll take that one, too. It may be a bit early for cash flow-based debt, but we're already using asset-based financing for our production equipment requirements. In addition, the financing we recently did had $5 million worth of short-term warrants, which have to be exercised in about a year or they expire. We have found that these short-term warrants are an excellent source of cash without having to do other deals.

Okay. Great. And final question here. Has any competition with Evolve involving the active ingredients enter the market? Anything you can discuss on that topic.

No, we haven't seen anything -- any companies, any other products enter the market. We have a patent pending on Evolve. ContraPest has issued patents around it. So we don't believe that there will be any competition in the near term, for sure.

All right. Fantastic. That's the question we have here on this side. Anthony, operator, I'll turn it back over to you.

This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Sure. Thank you. Our goal for 2024 is really all about sales execution, while remaining innovative through the introduction of new and innovative products to the market, such as the mouse product we talked about. My excitement is as high as it has been since I joined the company. I believe we have the right mix of product offerings and team member enthusiasm to fully attack the large and growing rodent control market, market that is desperately in need of innovation. And fertility control is that innovation and SenesTech is clearly leading the way. So we thank you for all your continued support.

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