SenesTech, Inc. (SNES) Q1 2025 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the SenesTech First Quarter Fiscal Year 2025 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Robert Blum with Lytham Partners. Please go ahead.

All right. Thanks so much and thank you all for joining us today to discuss SenesTech’s first quarter 2025 financial results for the period ended March 31, 2025. With us on the call today are Joel Fruendt, the company’s Chief Executive Officer and Tom Chesterman, the company’s Chief Financial Officer. As the operator indicated, at the conclusion of today’s prepared remarks, we will open the call for a question-and-answer session. [Operator Instructions]. 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 in Section 21E of the Securities Exchange Act 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 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 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 first quarter 2025 conference call. As you all can see from the press release, we continue to make remarkable strides transitioning and expanding customers towards our high margin Evolve product line, including both our rat and mouse products. During the quarter, Evolve revenue grew 40% compared to the year ago period, driven by success in our ecommerce platforms, improved adoption by pest management professionals and deployments in major U.S. cities. Perhaps more important though is that gross margins increased to nearly 65% during Q1 compared to just 33% last year, resulting in gross profit dollars increasing by an impressive 132%. Evolve continues to change the game for SenesTech and Evolve is changing the game in major U.S. cities. As we see deployments ramping significantly across the United States, after the quarter closed, we announced deployment of Evolve Rat in the Wicker Park, Bucktown special service area of Chicago. The new deployments in Wicker Park has crews installing bait boxes with Evolve Rats in alleys behind several major thoroughfares in the Chicago neighborhoods. As many of you have seen, the deployment has garnered extensive media coverage and we actually have a dedicated informational website for the residents and business owners to see where deployments have occurred. Visit our website at www.evolverodentbirthcontrol.com/wickerpark to see our interactive map. Also in April, we began deployment in New York City following the approval in September of last year by the City Council to launch a rat contraceptive pilot program. Our team was in New York two weeks ago supporting the initial deployment and it is going very well. Beyond New York and Chicago, we have also received orders from the City of Baltimore, Los Angeles County, mainly in the Boston area in Waukesha, Wisconsin. Expanded deployments in these municipalities should be key contributors to growth for us going forward. And finally a major development, our pest control partner Pestec just started a large deployment in San Francisco. Our team was out there recently to help with the deployment and it is a substantial opportunity. We are just now turning the quarter on these large municipal opportunities and it’s very exciting news for us. Beyond the municipal deployments, we also continue to gain significant traction through our ecommerce platforms. In just the past 12 months, we have expanded our ecommerce presence from selling exclusively on our SenesTech family websites to offer Evolve on amazon.com, walmart.com and tractorsupply.com. During Q1, ecommerce driven sales have increased by more than 107% due to these added locations. Enhanced website functionality on our own websites, as well as targeted marketing strategies. Evolve’s improved form factor, economical price point, proven efficacy and lengthy shelf life have allowed for this to be much more conducive to ecommerce compared to our historical ContraPest product line. As our presence continues to expand, we will see ecommerce continue to substantially grow moving forward. With strong growth in municipal deployments, our ecommerce and international markets during Q1, which we expect to continue in the future, another key driver we expect to contribute to growth later this year is our international operations. We believe we are tracking for a strong second half of the year with shipments planned for a number of new countries. To-date, we have signed agreements for distribution of Evolve in 12 separate countries and territories, having just signed exclusive agreements in Indonesia and the Philippines. Approval and commercial product shipments have occurred in Hong Kong, the United Arab Emirates, the Maldives and the Netherlands. We expect reorders for these in the coming quarters as well. Additionally, we have deployments expected for later this year in key markets including Australia and New Zealand following expected regulatory approvals there. Again, international has regulatory processes that need to be worked through, but when orders are placed, they are typically for larger container size orders that can significantly drive our growth. While strong progress has been made in municipal, ecommerce and internationally, one area where we’re not gaining as much progress as quickly as I hoped is brick and mortar retail. The process is lengthy to achieve shelf space and often such as the case with Walmart, they want to see how your product performs online before committing to placing it in the store. So growth in ecommerce can actually be the proof point for brick and mortar retails in some ways. Progress is being made though. With ACE hardware, we began selling to individual stores. Recently though, we have been getting orders from their regional service centers, also known as distribution centers, intended for sale in an ACE network. We are also getting orders from retailers’ warehouses for use in the warehouses themselves. Let me come back to the topic of gross margins and gross profit dollars. As I mentioned at the beginning, our business has been truly transformed by Evolve. Evolve inherently carries gross margins higher than ContraPest, which has dramatically increased our blended margins to a new record of 65% during the current quarter. With a focus on achieving profitability, this is a key component. And beyond the gross margin and profit improvements, we continue to improve our overall operational efficiencies. As we announced in March, we have implemented additional initiatives designed to further reduce expenses by $2 million on an annualized basis. As the initiatives were implemented in late March, the financial improvement should be more evident during the quarters to come. 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. Put differently, we made revenue of just over $1.5 million quarterly to reach breakeven. A few large municipal or international orders coupled with the continued growth we have seen in ecommerce certainly puts that within our site. With that, let me turn the call over to Tom to expand on the financials in more detail. I will then wrap up with a few comments before turning it over to questions. Tom?

Thank you, Joel. Let me take a moment to expand on the numbers in the press release and a few of the points Joel mentioned in his earlier remarks. On the revenue line, total revenue for the first quarter was $485,000 which was an increase of 17% from Q1 of last year. Breaking that down further, Evolve revenue increased 40% and accounted for 79% of our first quarter sales. ContraPest, which we have deemphasized in recent quarters as we focus on our higher margin Evolve product decreased approximately 40% and accounted for 21% of our Q1 sales. By the way, we do not expect ContraPest to go away. There are still a number of loyal ContraPest customers and there are still a couple of states where Evolve is not yet approved. Looking at it from our vertical breakdown, ecommerce is clearly our largest contributor coming in at 61% of our overall Q1 sales. Overall, ecommerce was up 107% compared to Q1 of last year. Amazon is going well and is the predominant ecommerce channel right now. Municipal sales, while still a relatively small percentage of total sales, saw sevenfold increase from the year ago quarter. As Joel touched on, with new deployments in Chicago and New York and others in Q2, we think we can continue to grow this market vertical. We did not recognize any international sales during Q1 as we await follow on orders from a few markets which ordered at the end of last year. As a reference point, we had more than $50,000 in international shipments in Q4. As Joel mentioned, we have a few potential significant orders pending regulatory approval, which we expect will be key drivers for us later this year. Other contributors during Q1 were in the areas of agribusiness, commercial, pest management professionals, zoos and sanctuaries and a small enough brick and mortar retail location so far. Turning to gross margin and gross profits as a whole, for the first quarter, gross margins were 64.5% compared to 32.5% in Q1 of last year. Looking at it sequentially, gross margins also improved compared to 60.9% in Q1 of last year. You can see we are continually improving our gross margins. Looking at it from a gross profit dollar perspective, gross profit was $313,000 compared to $135,000 in last year’s Q1, up 132%. It also was up sequentially. The driver here is Evolve, which has higher margins than ContraPest. As I mentioned last quarter, we’re also increasing production capacity to meet future demand. We have now officially moved into our newer, larger facility in the Phoenix area that will allow us to meet the next five years of increasing demand without dramatically increasing our facility costs. On the OpEx line, operating expenses were basically flat from a year ago quarter, but up slightly from Q4. As we announced in March, we implemented a new series of optimization initiatives to further reduce expenses, which included severance costs for those individuals whose positions were eliminated. These initiatives included the pausing of new product development to focus exclusively on the commercialization and growth of Evolve Rat and Evolve Mouse, bringing marketing, regulatory and intellectual property functions in house to reduce reliance on external consultants and optimizing our direct sales efforts, shifting to a focus on high value customer acquisition in key customer segments and commission only models. The benefit of these initiatives should be evident in the quarters to come on the operating expense line. All told, these sales, coupled with higher gross margins and operating efficiencies gained on the manufacturing, are expected to move our cash flow breakeven level to a little over $1.5 million per quarter. As we continue to move closer to that inflection point that many companies and investors are looking for. There is still execution work to be done, but the pathway is clear. On the balance sheet, we completed a strategic financing during Q1 for a warrant repricing at the market that raised million dollars. The warrant inducement also included the issuance of $4 million of short-term warrants. We had great success with warrants historically, raising capital with less dilution than fully marketed public offerings. To some extent, this transaction can be seen as an alternative to a $5 million fully marketed public offering priced at the money instead of at a discount. We also were able to bring in approximately $1 million through the use of our ATM. We continue to have capacity under the ATM, and we just filed a renewal S3 last week to cover it as it is required periodically. With the true financial results coupled with the short-term warrants as a potential source of cash, along with the additional capacity on our ATM, we believe we will not have to go back to the markets with a larger underwritten public offering in the near future. Let me turn the call back over to Joel. Joel?

Thanks, Tom. So just a couple of closing comments. We have now completed nine consecutive full quarters of year-over-year revenue growth since I took over as CEO in 2022. The launch of Evolve has changed the game for us not only from a revenue perspective, but also from a gross profit perspective as you can see. The gross profit during the first quarter was the highest in the company’s history, which when coupled with operating optimization initiatives we touched on puts us on a pathway to achieve our goal of profitability. Beyond the numbers, so as I take a step back, I see more clearly today than at any point since I took over the opportunity we have to revolutionize the way the pest control industry has dealt with rodents. Municipalities are increasingly understanding the need as you can see from deployments in some of the largest cities in the country. And to be clear, these are very small areas being deployed at the moment with potential expansion of these across the entire cities, this could lead to millions of dollars in opportunity for SenesTech going forward. And importantly, less rodents that are damaging infrastructure in transmitting disease to humans. The opportunity doesn’t stop in municipal applications. Agriculture is a huge opportunity, both domestic and international. Zoos and other animal sanctuaries where you cannot easily deploy poisons are a huge opportunity for us. Residential applications, especially in large apartment complexes is a huge opportunity for us. Commercial buildings and warehouses are also a huge opportunity for us and we are just beginning to penetrate these areas. I believe we will gain significant traction in each of these areas shortly. To get to the long-term, we need to execute in the near-term and that is our focus, be effective yet efficient. I’m pleased with the recent financial results and activities accomplished to expand adoption moving forward. As always, I thank you all for your interest in SenesTech. And with that, I am happy to open the call to questions. Operator?

We will now begin the question-and-answer session. [Operator Instructions]. Q - :

Showing no questions, this concludes our question-and-answer session. I would like to turn the conference back over to Joel Fruendt for any closing remarks.

Thank you and thank you all for being here. We appreciate your support. We are in an exciting time as our company is now moving into marketplaces that are substantially large that are showing a great acceptance for our Evolve product line and we look forward to success in the near-term and the long-term. Thank you.

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