SenesTech, Inc. (SNES) Q4 2024 Earnings Report, Transcript and Summary

Good day, and welcome to the SenesTech Fourth Quarter and Fiscal Year 2024 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, today’s event is being recorded. I’d now like to turn the conference over to Robert Blum with Lytham Partners. Please go ahead.

All right. Great. Thank you so much, and thank you all for joining us today, as the operator mentioned, to discuss SenesTech’s fourth quarter and full year 2024 financial results, and this is for the period ended December 31, 2024. With us on the call representing the company today is Mr. Joel Fruendt, 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. If you dialed into the call through the traditional teleconference line as the operator indicated, please press star then one to ask a question and if you are listening through the webcast player and would like to ask a question, you can submit your question through the Ask a Question feature in the webcast player. 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 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 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 a result of the receipt of new information, the occurrence of future events or otherwise. All right. With that said, let me turn the call over to Joel Fruendt, Chief Executive Officer. Joel, please proceed.

Thank you, Robert, and good afternoon, everyone. Thank you all for joining us today for our fourth quarter and year-end conference call. So let’s jump right into it. As you saw in the press release, we concluded a truly transformational year for SenesTech with record financial results across the board, including quarterly revenues which were up 70% and quarterly gross profit margins of 61%, which when coupled with our improvement in our operational efficiencies through cost reductions, resulted in our smallest quarterly adjusted EBITDA loss in company history as we advance our progress towards profitability. On top of the record results and efficiencies already implemented to date, we are also implementing additional initiatives effective immediately, which are set to further reduce cash burn by $2 million on an annualized basis. These new savings coupled with the higher gross margins from Evolve, are anticipated to reduce the revenue threshold for cash flow breakeven to $7 million annually compared to $12 million historically. I will ask Tom to expand more on some of these new initiatives to lower costs in a moment. But let me state upfront that our goal is to achieve cash flow breakeven in the near term, which we believe serves as a significant inflection point for the company. To that end, as Tom will touch on momentarily, we believe the strategic financing we just completed this week will provide us the capital necessary to accelerate our progress to cash flow breakeven. But first, back to the dramatically improved financial results announced this past quarter and the progress it highlights towards that goal of cash flow breakeven. The improvements are being driven almost entirely by the introduction of our Evolve soft bait fertility control solution, which was launched a year ago. Its improved form factor, economical price point, proven efficacy and lengthy shelf life have allowed us to expand distribution into new retail customers and end markets. Evolve continues to be a game changer for SenesTech as well as for the industry. As we have communicated to you for a few quarters now, we have identified a number of key growth objectives that will allow us to continue the positive trajectory we are on. Let me take a moment to walk through the updates on each of these. First, during the year, we successfully launched Evolve Rat and Evolve Mouse on numerous online retailers, including amazon.com, walmart.com, tractorsupply.com and diypestcontrol.com. Inclusive of the company’s online store at senestech.com, overall e-commerce sales increased 206% during this year’s fourth quarter compared to last year’s fourth quarter and represented 55% of Q4 2024 revenue. We are still in the early stages of reach here with tractorsupply.com coming on in just the last few weeks. We also have seen a nice uptick in our municipal programs. As we discussed briefly last quarter, the New York City Council has approved a bill to implement a rat contraception pilot program. I'm pleased to confirm that we received an order from New York City in December 2024 for Evolve Rat, and that will be shipped in April. The product is initially expected to be deployed in a few locations throughout the city and expand from there based on success parameters being met. Beyond the New York City government deployment, we also signed an agreement with Bug Off Pest Control in New York City as we work directly with customers to implement contraception into their IPM programs. And beyond New York, in January of this year, the City of Baltimore joined other major cities on the rattiest cities list, such as Los Angeles, by integrating Evolve into their integrated pest management strategy. The city placed a substantial initial order for Evolve and is currently deploying the product this quarter as part of its integrated pest management program. Programs have also just begun and orders received in Chicago and the Boston area. While everyone loves to talk about the municipal orders, there are a number of other end market customers that can be significant growth drivers for us going forward. One of these is the warehousing and distribution sector. Just last week, we announced the shipment of a substantial order of Evolve to one of the largest warehousing and distribution companies in the Midwest. As you might imagine, the warehousing in the United States is huge. Controlling rodent infestations in facilities that store food supplies present unique challenges as the use of traditional poisons is often not feasible due to safety concerns. Evolve offers a humane and effective alternative, ensuring the integrity of stored products while maintaining compliance with industry regulations. We are excited to expand into this exciting new vertical. Another key area for us has been to expand our reach internationally. Again, Evolve with its soft bait form factor has permitted this to occur. To date, we have signed distribution agreements in 10 separate countries to distribute Evolve, including a letter of intent signed with SMark corporation in India just a few weeks ago. As we have communicated in the past, international distribution often requires country-specific registrations efforts. To date, we have obtained approval and shipped product to Hong Kong, the United Arab Emirates, the Netherlands and the Maldives. Our distributors in Australia, New Zealand and India are in the final stages, with large orders already set to be shipped upon approval for both countries. Others continue to work through the registration process, and we expect further approvals during the remainder of the year. Another key initiative we have been working on has been brick-and-mortar retail chains. During the year, we launched Evolve in Ace Hardware stores and brought on manufacturers' representative agencies targeting retail, co-op and big box chains to inventory Evolve in their stores. The process is largely driven by longer purchasing cycles by retailers with initial e-commerce proof points considered key determining factors. We just returned from events for Mid-States Distributing, Ace Hardware and Orgill Hardware distribution. We saw enthusiasm and orders from individual stores, but more importantly, we are finalizing plans with both to stock their warehouses as a standard product. Our progress on e-commerce and the individual store orders positively influenced these discussions. So those are the key drivers that led to the rapid growth this past year, in the fourth quarter in particular, growth in e-commerce, expansion into municipal markets, expansion into new end markets and expansion internationally. Our team continues to aggressively pursue each of these areas and others to bring our Evolve solution to the market. And as I stated at the beginning, as this growth continues, which when coupled with higher gross margins and lower operating expenses, it positions us well to achieve our goal of cash flow breakeven. With that, let me turn the call over to Tom Chesterman, who's going to review the financials in more detail. I will then wrap up with a few closing comments before taking questions. Tom?

Thank you, Joel. We will be filing our 10-K shortly, but let me hit the financial highlights. But start with what Joel mentioned at the beginning was the strategic financing that we completed this week. It doesn't look like much at first glance, a warrant repricing at the market that raised $1 million but we also included $4 million of short-term warrants. We've had great successful warrants historically raising capital with much more lower dilution than public offerings. To some extent, this can be seen as an alternative to a $5 million public offering priced at the money instead of at a discount. With this cash along with our existing cash in our ATM facility under which we've already raised $1 million during the first quarter as well as for the efficiencies mentioned, we can confidently pursue the initiatives discussed by Joel on our pathway to profitability. I should note that we do not reprice warrants without careful consideration. We do everything we can to execute our initiatives such that warrants are exercised naturally. Now to the numbers. For the fourth quarter, revenue increased 70% to a record quarterly record of $501,000. For the year, revenue increased 56% to $1.9 million. As Joel touched on, quarterly growth was driven by the market acceptance of our Evolve products and growth in e-commerce. Breaking it down by product, Evolve Rat was 52% of Q4 sales, Evolve Mouse represented 24%, while our historical ContraPest product was the remainder. For the year overall, Evolve Rat was 53% and Mouse 12%. From a product growth perspective, Evolve Rat was up 365% in Q4 from a year ago period, while there were no sales in Evolve Mouse in the year ago fourth quarter as it was just launched in May of 20214. ContraPest was down 51% as customers convert to the Evolve solutions. Looking at revenues by channels, e-commerce represented our largest channel at 55% of our Q4 sales. This was followed up by pest management professionals and international distributors. As Joel mentioned, e-commerce growth has been extremely strong lately with Q4 e-commerce sales up 206% from the year ago fourth quarter. With the addition of TractorSupply.com and hopefully others, we expect these screen trends to continue. As we said in the past, our Evolve product line represents a higher margin opportunity for SenesTech and it is proving this out. Ever improving manufacturing operations give us both pricing and margin flexibility. Gross margin for this quarter was 61% compared to 44% in the year ago fourth quarter. From a dollar standpoint, gross profit dollars increased 136% in Q4 2024 compared to Q4 of last year. As I mentioned last quarter, we're also increasing production capacity to meet future demand. We have secured a newer, larger facility in Phoenix that will allow us to meet the next five years of increasing demand without dramatically increasing our facility costs. We expect to move to this location during the first half of this year. As you saw from the results, we continue to hold the line on OpEx as well, but are implementing a new series of optimization initiatives to further reduce expenses. The first is pausing new product development to focus exclusively on the commercialization and growth of Evolve Rat and Evolve Mouse. Second, we are bringing marketing, regulatory and intellectual property functions in house to reduce reliance on external consultants. And finally, we are optimizing our direct sales efforts shifting to a more proactive approach focused on high value customer acquisition in key customer segments such as e-commerce and retail and focusing on commission only models such as distributors and manufacturer representatives. All told, we believe we will cut our cash burn by about 30% from $1.5 million per quarter to about $1 million per quarter. These savings coupled with the higher gross margins and the operating efficiencies gained on manufacturing, we expected to move our cash flow breakeven level to a little over $1.5 million per quarter. As we've discussed, this can be achieved very quickly with one or two big box sales, rapid expansion of brick and mortar, retail or municipal or large scale agriculture or international sales. We have any number of shots on goal coming up. With the revenue growth plans we have, higher gross margins, lower OpEx and a strategic funding completed that can provide the funds necessary to achieve cash flow breakeven. I believe we have reached that inflection point that many companies and investors are looking for. There is still execution work to be done, but the pathway is clear. Let me turn the call back to Joel. Joel?

Thanks, Tom. Just a couple of closing comments. We are committed to executing a focused strategy that positions SenesTech for sustainable long-term success by concentrating our most impactful growth areas, improving the cost efficiencies and streamlining operations, we are taking decisive steps to achieve profitability. This is the inflection point everyone has been looking for and we are on the pathway to achieving it. As the only manufacturer of U.S. EPA registered and accepted products for the reduction of reproductive capacity in rodents, we have a tremendous opportunity ahead of us to change the game of how the pest control industry, municipalities, agriculture, warehousing and consumers in general address the problem of rodent infestations. With Evolve in its improved form factor, economical price point, proven efficacy and lengthy shelf life, we have addressed all the key product attribute requirements communicated to us by the industry. Our financial results are highlighting the progress made and with initiatives in place to continuing driving rapid adoption of our innovative solutions, I believe we are in a great position as we enter 2025. Thank you to everyone for their time today. Operator, let's open the lines for questions.

Yes, sir. Thank you. [Operator Instructions] Our first question today comes from Sameer Joshi with H.C. Wainwright. Please go ahead.

Hey, thanks. Good afternoon, Joel, Tom. Congrats on all the progress and the new initiatives for reducing [ph] costs, optimizing costs looks good.

Thank you.

Just a few questions. The opportunity in New York, you're shipping your first initial product for the pilot in April. Do you have some sort of visibility into how big it could get and what over a period of time say six to eight to nine months?

Yes. So they're laying out the – they want to start the project April 27. There's two ten block areas that they're going to focus on. Our technical people will be there with them, helping them assess where the base station should be placed and the product placement. And then they're going to monitor those areas. And then as they see progress, they may add additional areas. So while it's hard to predict how much it could spread, we think that getting it on the ground floor in those areas, which will require some significant product usage itself, that we could see some really good opportunities there for growth by adding sections to it.

Yes. No, that is a significant opportunity. But I think you also highlighted the e-commerce – sorry, the warehouse and distribution channels as well in addition to the online efforts. For warehousing, like what are your sales effort look like?

Well in the warehousing sector, wherever there's food supplies, food production, right, there's the issue of how are you going to control rodents there, because rodents actually like to go to the – where the food is. But really there's not an opportunity to use a lot of the leaf holes there. So, we had in September and October, some good field tests that were done at some of the warehousing facilities. And now we're moving into where they're starting to order pallets of material to deploy the product there. So it's a huge marketplace with warehousing and distribution. And we see opportunities across the board in those areas, not only in food production, but in storage of other types of products as well.

Understood. On the e-commerce front, I think more than 50% of your sales are coming from those platforms. Is this just word-of-mouth like a pull or is there any – are you spending any ad dollars or awareness dollars on this?

Yes, we have ad dollars we spend for Google Ads and a lot of online search engine optimization and pay per clicks. And so really starting to hit our stride there. And Amazon sales were recorded their largest increase in quarter-over-quarter recently and we're excited about that and just getting started on tractor supply. And we do have some programs on walmart.com to help us gain traction and gain customers there in the short-term.

Understood. One clarification question, Tom, I think described the reduction from $1.5 million to $1 million on a quarterly basis. Was that the cash burn or was that the OpEx? I may have missed this. Sorry.

That was cash burn – or adjusted EBITDA.

Understood. Got it. And then one last one. I think in the press release you mentioned the Lure bait dispenser. Is there anything, any visibility on how that offering is going and what kind of contribution do you expect from that?

It's a great accessory item because it allows our product to be used in areas that would be hard to put a bait box. So, if you're going to hang it in the attics or want to put it on a fence post, put it out in a garden. So, while not a high revenue item, because it's relatively inexpensive, it allows access to other areas that will allow more of our product to be used in those areas. But we just got back from some of these shows and we've had a lot of interest in an unexpected amount of orders for the Lure product in order to hold the product. So – the hold the Evolve product. So we're really excited about that.

Yes, no, I think the dispensing technologies become more important than the product itself many times. So, it's good to see that you're seeing that traction as well.

Yes. And we have, with our ContraPest product, we have the Elevate system. And so this is the Evolve equivalent of the Elevate system and has really gotten the attention of those customers that want to put the product in unique areas.

Yes. No, and I think even retail customers might find this attractive and easy to use. So sounds good. Thanks a lot for taking my questions.

Always good to talk to you.

Thank you. [Operator Instructions]

All right, operator, looks like no questions on the live call at the moment, so we'll jump over to the webcast. Joel, Tom, I've got a series of questions here. I'll just sort of start working through them. First one here and touched a little bit on this, but there's been a number of significant contracts signed in late 2024 and early 2025 here. Sort of talk about how long it is expected for these to sort of contribute to meaningful revenue growth. And is there any sort of a revenue forecast that you have for 2025?

Well, being a regulated product, the difficulty is how are you going to get state approval? How long does it take to get state approvals, local approvals? Sometimes when you get approvals, then they want to do field trials. So, I think what you're seeing here is the results of work that we did in early and mid-2024 to get our product out in the hands of field personnel and regulatory personnel do the necessary legwork in order to get it approved. And then once we get the product approved, then show the customers that want to use it within those marketplaces that it works and they like to put their hands on it. So while I don't want to give a revenue forecast for the rest of this year, what I will say is that, we were working really hard all of last year so you're starting to see some results from the things that we were doing a year ago. And we'll continue to see that because we had a lot of progress that was made in the middle and the end of 2024 which should bode well for us going forward.

Okay, great. Next question here. And you think talked a little bit about this in your prepared remarks but talk about some of the traction within the big box retailers here.

Well, we've had, Ace Hardware was really the first one that we talked with and said yes, we think that our stores and dealers would really like this product. And so that was a little less than a year ago and we've gotten to the point where now we're under consideration to be put into their warehouses at their recent market that they have twice a year. The number of orders we got from this market over the other one was up about 1000%. So, there we're in a really good spot there as we move forward. I think some of the dot com e-commerce will lead to us getting into the brick-and-mortar stores and looking at both TractorSupply and Walmart.com. the other big thing is that, as I mentioned in the remarks, we have some really well tied in rep agencies that are representing us at all of the big retailers. And so, we're hoping to have some really good news on some developments there going forward in the near future.

Okay, great. Next question here it says the review, case studies and empirical evidence are all extremely positive for Evolve. It seems it's only a matter of getting the word out. Now is this also what you are seeing on your end and how do you plan to deploy capital to increase awareness and sales?

Well, as Tom mentioned earlier and we've had some improvements that we think we're making. We're streamlining some things. I think that what you see is we have a really good marketing plan for the year. So, we're going to continue on with our marketing plans being able to reach more of the end markets that we pursue. I mentioned municipality certainly when we start deploying in New York City. And recently we just got an order from one of the areas within Chicago. You're going to see some good public relations campaigns built around those because we think one of the most important things is that we got to be able to get the word out there on where it is working and how it's going. And once we do that, then we start. You can start to see the landslide of others that are interested in it. So, we're going to keep up our plans to get the word out. We're on social media. We're going to continue to do the things necessary to drive business both to the e-commerce sites as well as through our distribution channels. And we're set up well in the distribution channels. And that, once again, is from the work that we did in 2024.

All right, again, just a quick reminder to everyone on the webcast player. If you have a question, you can type it into the question box there. [Operator Instructions]. A couple more questions here for you, Joel and Tom. With a 60% gross margin now, can you lower the price of your products and increase sales enough to cover the lower margin? Talk sort of about the elasticity of demand.

Absolutely. So, we're at a price point where we're right in line with competitive products that are within the industry. But we are looking at really ramping up revenue. So that may involve some discounts for larger orders from some of our distribution channels. And we think that once we get a regular cadence moving within our manufacturing facility, that we're going to be able to reduce the price out in the field as well as lower our cost and be able to hold those margins steady.

All right, and that last point there, I think, dovetails into what may be the last question here. Are there any limitations or constraints to being able to manufacture and supply product for continuing these significant revenue increases? Are there cost savings to higher production levels?

Tom, you should take that one.

Okay, I would love to. So – I there first. No, we don't have the constraints. We built our supply chain management and our manufacturing processes to be able to expand seamlessly into larger demand. As for the efficiencies, yes, absolutely we've been working on that. The manufacturing team here in Arizona has done a very, very good job of, increasing batch size, reducing waste. They're always making improvements to the process. And as we move to our new location, we expect to be doing more and more of that. One of the things that is out there is that the larger you get in terms of your manufacturing process, the more automation options there are as well. And these are relatively low investment improvements to the process and is to be honest, it is explicitly in the goals and objectives for the manufacturing team to find these efficiencies and find the – automation and move forward to an ever improving manufacturing process.

All right. Fantastic. I am showing no further questions. So, Joel, maybe I'll turn it over to you for any closing remarks.

Well, thanks once again for being online and listening to our story. We're excited about where we're at. We're excited about all the work that we did in 2024 that is going to pay off for us in 2025. And we feel that our future, our near future is very, very bright and we look forward to telling you all about it on our next conference call.

Thank you. This concludes today's presentation. You may now disconnect your lines and have a wonderful day.