SenesTech Q2 2023 Earnings Call Transcript

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Provided by Quartr
August 10, 2023

There are 6 speakers on the call.

Operator

Good afternoon, everyone, and welcome to the SenesTech Inc. Reports Second Quarter Fiscal Year 2023 Financial Results Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask Please note that today's event is being recorded. And at this time, I'd like to turn the floor over to Robert Blum with Lytham Partners.

Operator

Sir, please go ahead.

Speaker 1

Great. Thanks so much, Jamie. Thank you for joining us today to SenesTech's Q2 2023 financial results for the period ended June 30, 2023. With us on the call today are Joel Freund, the company's Chief Executive Officer and 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.

Speaker 1

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 1933 as amended and Section 21E of the Securities Exchange Act 1934 as amended and such forward looking statements are made will or should, expected, anticipates, draft, eventually or projected. Listeners are cautioned that such statements

Speaker 2

are subject to a multitude of

Speaker 1

Including the risks, net 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 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 Fruent, Chief Executive Officer, SenesTech. Joel, please proceed.

Speaker 3

Good afternoon, everyone. Thank you all for joining us today. We are pleased with the progress we made across the enterprise during Q2. During the quarter, we continued to grow our revenue and customer base with record quarterly revenues up 31% sequentially. We also made significant progress reducing our adjusted EBITDA loss, which was the best it has been in 2 years as we brought efficiencies to many aspects of the organization and we set in place key initiatives which are now showing results.

Speaker 3

Growth has since accelerated into the Q3 with July 2023 monthly sales growing 120 percent compared to the year ago period, driven by the initiatives we have undertaken to drive sales, improve product quality, Expand product options. Growth is clearly accelerating. While growth is important, profitable growth is paramount, especially in today's We have put in place key initiatives for both our field sales and e commerce channels to improve the return on our sales and marketing investments. Within our field sales operation, we have redeployed and refocused our direct sales efforts to enhance our customer acquisition capabilities, while also putting sales reps closer to the customers to focus on the numerous large opportunities that are available for our unique fertility control product. Further, we have also expanded our field sales organization, each deployed by a geography with leadership in both the eastern and western half of the U.

Speaker 3

S. This strong regional focus on new customer acquisition through an expanded commercial team and new depths of vertical industry knowledge To get in front of decision makers is all designed to tighten the sales cycle and ultimately drive revenue. Evidence here is the significant increases we are seeing within the government vertical driven by deployments in California and New England and our Our traction within zoos and animal sanctuaries continues and ContraPest is now a major IBM component in 4 out of the top 10 zoos in the U. S. And accounts for 14% of our revenues.

Speaker 3

In the agribusiness vertical, we initiated shipments to major companies in grain and poultry. It's clear that rodent population control is becoming an increasingly important focus for pest management professionals in this vertical, especially where the risk exposure to lethal rodenticides is critical. On the e commerce side, we have reconfigured our marketing spend And have added additional products and options to our e commerce site such as a 12 month prepay subscription for e commerce customers along with convenience items. July was our largest e commerce revenue month of the year. All of these to increase sales penetration are translating to the income statement.

Speaker 3

A quick look at the 2nd quarter results will show that decreased our SG and A by more than $500,000 but saw an increase in revenue. With this improved ROI being demonstrated, Coupled with the strong growth out of the chute in the 3rd quarter, it is clear our initiatives are taking hold. In addition to our domestic selling efforts, we also commenced our international expansion having entered into an agreement with PES of South Africa for the fertility control and ContraPest in particular. They have committed to recommend ContraPest to private Pest Terminators has secured import approval and has placed their order for the first deployment of over 150 stations, which we are shipping this week. They have subsequently placed another order due to their demand projections and the interest in our new product options.

Speaker 3

Well, I'm certainly pleased with the growth we are seeing, especially in the first half of the third quarter. We all know that the objective here is to steepen the curve. One of the ways we plan to do that is to continue expanding our product options for consumers. To that end, we recently launched a new delivery System for ContraPest, the isolate bait system, which has an integrated tank tray unit designed for ease of use, Catering to both professionals in the do it yourself market. It is important to note that the design of the Isolate Bait comes directly from customer requests who wanted to maintain the efficacy of ContraPest that make the deployment and servicing quicker and easier.

Speaker 3

The design combines the tank and tray into 1 unit and the deployment and setup is done through a simple placement and peel off seal With users showing up to an 80% reduction in time and effort, we believe the introduction of Isolate should further accelerate the adoption of ContraPest by both professionals and do it yourselfers. We are accepting orders for Isolate delivery starting next week And we have over 1500 isolate preorders and we expect delivery of orders before the end of the month. Taking a step back, when we first introduced ContraPest, we needed to convince the pest control market of 2 things. 1, the value of fertility control as a means of Fertility Control as part of Integrated Pest Management and there is still resistance from pest management companies to alter their established practices of utilizing non liquid products. To address this resistance, we are in the final stages of releasing a softbait formulation, which provides unique attributes of proven fertility control In an industry familiar softbait format demanded by many, including big box retailers, key e commerce channels and leading Pest Management Professionals.

Speaker 3

When I first took over as CEO, Edson Estechnik, softbait was one of the key items I quickly identified as a need for us to Steepen the curve. I believe its introduction in the coming months will be transformative to our business. We expect to be announcing some exciting news on this topic soon, but let me state this, we expect to have this on the market by the Q4. Finally, on the last imperative to make better products. I mentioned the last quarter This last quarter, but when I took over as CEO, during the Q3 of last year, our customer complaints peaked at 35 complaints per month, Not that high, but we were doing an adequate job, but I knew we could improve it.

Speaker 3

During the Q2, even amidst Higher volumes, our complaints average less than 5 per month. Concurrent with the introduction of ISOLATE, we have implemented an enhanced formulation of ContraPest that should improve product quality and a wider variety of environmental conditions. I believe we have made great strides in the area of continuous improvement. But as I have stated since I took over as CEO, this is a results business. We know that.

Speaker 3

We need to steepen the adoption curve of ContraPest. We spent the 1st part of the year building the base and now we are seeing rapid growth we all know is going to get better and better. With that overview, let me turn it over to Tom to review the financials. Tom?

Speaker 4

Thank you, Joel. 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 either later today or early tomorrow, so I will just touch on some of the high points right now. Revenue during the Q2 was a high of 305 dollars compared with $277,000 in Q2 of 2022, an increase of 10%. Sequentially, revenue was up 31% compared to Q1 2023.

Speaker 4

Sales growth during the Q2 was led by growth in the government vertical, driven by deployments in California and New England as well as continued traction within zoos and animal sanctuaries. As Joel mentioned, July 2023 sales were up 120 Gross profit during the Q2 was approximately $142,000 or 46 percent of total revenue compared to approximately $136,000 or 49% of total revenue in Q2 of last year. Excluding costs related to the introduction of the ENHANZE formulation and the isolate Just mentioned by Joel, I estimate the gross profit would have been in excess of 50%. Net loss during the Q2 2023 was $2,000,000 compared to a net loss of $2,260,000 for Q2 of $3,000,000 was $1,700,000 compared to $2,300,000 in Q2 of 2022. Our current goal has been to take $1,000,000 out of the annual cash expenses and we're well underway to achieving that goal.

Speaker 4

I look back and can recall when the company was burning well over $10,000,000 of cash annually And we brought that down to a run rate of under $8,000,000 cash burn annually, all while growing the business, introducing new products and expanding our reach. Cash at the end of 2023 was $2,200,000 As I'm sure you all are aware, we have filed an S-one with the SEC to raise a little With that, let me turn it back over to Joel for any closing market remarks and then we will take your questions.

Speaker 3

Joel? Thanks, Tom. Before we turn it over to any potential questions, I think it's important to note what a significant opportunity we have to create something truly special at SenesTech. We are addressing one of the world's oldest and most challenging problems, rodent control, through a completely different way than has ever been done before. By addressing the root cause of the problem, reproduction.

Speaker 3

We have all heard the statistics of how 2 breeding rats given sufficient food, water and harborage Can produce up to 15,000 descendants in their lifetime. This is a truly incredible statistic that cannot be ignored. The existing solutions effectiveness poisons are limited by the rats reproduction rate, resistance and aversion, as well as the enhanced social and political limitations on the use of poison. As communities increasingly look to deploy Sustainable, effective solutions, ContraPest fits right in with that objective. Products that can be paradigm changing Don't come along very often, but when they do, they have an opportunity to change the way things have been done for generations.

Speaker 3

I believe ContraPest is that type of product and I believe we have that type of opportunity. This is why I joined the company. Thank you all for your continued support. And with that, operator, let me now turn it over for any questions.

Operator

Ladies and gentlemen, at this time, we'll begin that question and answer session. Our first question today comes from Amit Dayal from H. C. Wainwright. Please go ahead with your question.

Speaker 5

Thank you. Good afternoon, everyone. With respect to the SoftBank launch in the Q4, can you talk a little bit about distribution Strategy for this, what channels are you going to use to reach end customers?

Speaker 3

Yes, absolutely. So we're really excited about the launch. We think that softbait has been a product that's been out there and other solid baits that are through the retail channels for consumer use, as well as through the pest management professional channels. So we're really going to focus on A big box retail, a launch plan as well as a pest management professional plan And of course, the international distributors that we have set up in addition to still relying on our field sales people to be in Touch with the end users to pull that through.

Speaker 5

Okay. Thank you. And then in relation to the S-one filing, And your financing needs partly which may go towards launch for SoftBank. I mean timing wise, Can you provide any color on how you are going to manage the financing needs over the next 2 quarters?

Speaker 4

Yes. Unfortunately, with the pending S-one, we cannot comment on timing. That's not allowed as we understand the rules from the SEC, so but we do intend to access the capital markets. I mean that's our obvious Of choice at this point. I would note there are also warrants outstanding.

Speaker 4

We've always sought To see if we can get financing from the warrants. In fact, some of them will be expiring soon. So hopefully, we can make them Induce them to exercise as appropriate.

Speaker 5

Understood. And just last one, With respect to sort of sales mix, it looks like the government side, you guys are doing pretty well. You have user base with Zoos and those types of customers as well. How are you bringing other customers like maybe Farms, etcetera, is that in the pipeline? Can you talk a little bit about pipeline for sort of non government type customers?

Speaker 3

Yes. The most exciting part of our business, I believe, is in the agriculture side. We're seeing Increased business in the poultry and grain sectors, as I had mentioned earlier, we have some great expertise In that area in our field sales team who have come over from that vertical. And we are expanding that On a daily basis, we're starting to see good reorders. One example is from a large grain export company, And we're starting to see more and more reorders from them, as well as One of our leading customers this year is a poultry house that has had 3 different reorders now.

Speaker 3

So very excited about

Operator

Our next question comes from Tucker Anderson from Above All Advisors. Please go ahead with your question.

Speaker 2

Hello, Joel and Tom, and congratulations on the progress you've made. I guess my first question is sort of a follow-up on the last Questioner and that is, how can you achieve more rapid mind share Among potential customers of what I agree with you Joel, is a paradigm shift. And paradigm shifts, as you know, proceed slowly until suddenly they gain a critical mass.

Speaker 3

Yes, absolutely. And I think that's one of the things that we're seeing is We're out there, we're doing the field work that's necessary of working with the customers, doing the field tests. And once you start seeing the field test have success, then you start seeing the business start to flow. So I think that's one of the reasons that we've Had success in the zoos and sanctuaries. We got out there.

Speaker 3

We did the legwork. We showed them that it worked. And then you start seeing the repeat orders come in. So With the expertise that we've added in our field sales team, as I mentioned on the agriculture side, but also on the pest management professional side, What we're doing is really focusing on the pest management professional side, both in the Smaller companies as well as the larger companies and we've got some real exciting discussions that are taking place with some of the Larger companies, especially as it relates to our softbait introduction.

Speaker 2

And, the fact that you now have some Customers that appear very satisfied in certain markets like the zoo market and poultry market and the grain market, Does the fact that you have reference accounts really help your salesmen as they go and try to get new accounts?

Speaker 3

It absolutely does. One of the things that we face on a daily basis is no one wants to admit they have a rat problem. So Once we get past that and we're allowed to use them as a reference, what we've seen is that that accelerates The activity in that vertical. And we've got some really good field trials going Right now, both with our liquid product and with our softbait product. And as I mentioned, we expect to have some Really good news to report in September.

Speaker 2

We're looking forward to it. The last question would be As you penetrate the municipal market, and the soft patent market comes on, it seems to me sort of obvious that In large municipalities, especially there should be an obvious link between what the municipality is doing And the fact that homeowners and office buildings and things like that should be made aware of these products. Has there any sort of been educational program developed that would link the rollout in the municipalities with The education of the other potential buyers in the markets?

Speaker 3

The one that comes to mind that we use as a reference Jags, next thing, the county is actually specifying the product into their request for proposal. And they were getting a lot of questions about why don't can't we just use poisons instead? And they said, no, what we want is we want to have Fertility control, so that we can reduce the population, which is the first step to a successful Program to face up to what is happening out there. And then once that started happening, we're certainly Being used on more projects, they're starting to do some outreach programs to different communities, HOAs, Property management company is about here's something that you should look at doing because it's effective and it really is a sustainable product And reduces the reliance on lethal poison. So we're really getting some good traction there.

Speaker 3

The other one is Santa Clara County. So we moved Northland, California and Santa Clara County did their field work, said this is the product we want. And now you're seeing it going into cities Who are using it? The cities are putting articles into newspapers about what they're doing and offering outreach to the consumers and the homeowners. So We're starting to see that traction that you mentioned and I appreciate your observation on that take hold.

Speaker 3

And as we start getting into Other areas such as Boston and some of the larger cities we're starting to see that there as well. So that's a real exciting component of it.

Speaker 2

Yes. And as I said, it seems to me it really is timed perfectly for your introduction of the SoftBank in terms of ease of handling and that sort of stuff. My last question It is an optimistic question. That is, if the progress you've seen and especially the acceleration Of the progress you've seen in July early August and your sales sort of expand exponentially, Is your logistical system in place to handle success?

Speaker 4

Yes. I think that's a great question and it's It's one that we certainly hope is going to come to pass, but yes, we can handle that. One of the things that occasionally People ask is why do you have such a high burn rate? Well, one of the reasons we have that is we have the infrastructure to grow very rapidly, Both in terms of manufacturing, in terms of logistics. So yes, we are planning for that.

Speaker 4

We are expecting that to occur. Exponential is exactly what we hope for.

Speaker 2

Well, as I said, congratulations on perhaps reaching the tipping point.

Speaker 3

Thank you. We appreciate that.

Operator

And ladies and gentlemen, at this time, we'll be ending today's question and answer session. I'd like to turn the floor back over to management for any closing remarks.

Speaker 3

Thank you all for attending today. We enjoy these quarterly get togethers and keep you posted on our progress. And

Operator

And with that, ladies and gentlemen, we'll be concluding today's conference call and presentation. We thank you for joining. You may now disconnect your

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Key Takeaways

  • During Q2, SenesTech reported record quarterly revenues up 31% sequentially and 10% year-over-year, with July Q3 sales accelerating 120% versus last year.
  • Improved profitability driven by operational efficiencies led to the best adjusted EBITDA loss in two years and a >$500K reduction in SG&A while revenue increased.
  • New product introductions include the Isolate bait system with 1,500 preorders and a softbait formulation slated for Q4 launch to enhance ease of use and market adoption.
  • Expanded field sales organization and targeted vertical focus fueled growth in government (e.g., California, New England), zoos (4 of top 10 US zoos), and agribusiness (grain and poultry) segments.
  • International expansion commenced with a South Africa partnership for ContraPest stations, while an S-1 filing to raise capital supports ongoing cost reduction (annual cash burn under $8M) and growth.
AI Generated. May Contain Errors.
Earnings Conference Call
SenesTech Q2 2023
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