SenesTech Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 8, 2024

There are 4 speakers on the call.

Operator

Please note this event is being recorded. I would now like to turn the conference over to Mr. Robert Blum, Lytham Partners.

Operator

Please go ahead.

Speaker 1

All right. Thank you so much, Rachel, and thank you all for joining us today to discuss SenesTech's Q2 2024 financial results for the period ending June 30, 2024. With us on the call today are Mr. Joel Fruent, the company's Chief Executive Officer Mr. Tom Chesterman, the company's Chief Financial Officer.

Speaker 1

At the conclusion of today's prepared remarks, we will open the call for a question and answer session.

Speaker 2

As possible.

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 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 risk 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 in which they were made and are based on management's assumptions and estimates as of such date.

Speaker 1

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. With that said, let me turn the call over to Joel Fruent, Chief Executive Officer for SenesTech. Joel, please proceed.

Speaker 2

Thank you, Robert, and good afternoon, everyone. I'm speaking with you all from the floor of the Ace Hardware fall buying market, where we are exhibiting the EVOLVE product line to over 7,700 participants, representing over 5,000 stores, as well as over 400 buyers from ACE's wholesale business who sell to over 700 non ACE stores. So far, the response from buyers has been dramatic, exceeding our initial expectations. Some of the reactions we have received include such comments as, this is a perfect alternative for my customers. I have a lot of demand for more earth friendly alternatives, and I am so happy that there are now alternatives to poisons.

Speaker 2

I look forward to sharing more with you in future calls on the progress you are making with ACE. But let's get to the results. 2nd quarter results highlighted yet another quarter of record top line sales with 62% growth year to date versus the same period in 2023, as well as strong operational improvements across numerous key metrics, which have helped to reduce our cash burn as we look to achieve our near term objective of profitability. Tom will touch more on the financial progress in a moment. Let me focus my discussion on our progress and accomplishments and what that means for the near future.

Speaker 2

First, on the product development side, we launched EVOLVE, a revolutionary fertility control product formulated for the control of rat pests, otherwise known as rat birth control at the beginning of the year. EVOLVE is designated by the EPA as a minimum risk product exempt from federal registration requirements, but still subject to state regulations. I'm pleased to report that EVOLVE is now approved for sale in 44 states. This past quarter, we completed an efficacy trial of the product at an Arizona University demonstrating efficacy and sustainability of EVOLVE. This study was required by some of the states and international jurisdictions.

Speaker 2

The results were better than expected showing an initial 61% reduction in litter size after just one breeding round and a 90% reduction over the course of 12 months. Remember, 2 rats or mice can become 15,000 in just 1 year. So this represents a substantial reduction in population. Some of our early customers are now conducting 3rd party field trials, including a trial in the Florida sugarcane fields, a university trial in a large housing area and a California DPR funded study on sustainable alternatives to rodenticide use. Also on the product development side, we launched Evolve mouse, a product using the same active ingredient, but specifically for mice.

Speaker 2

It is currently available for sale in 32 states. As with the rad product, some states require an efficacy obtainable market. Moving from product development to commercialization, we have pivoted our selling efforts to a distribution model where we target larger orders and a lower cost of selling up. The EVOLVE product line allows to shift in a way that ContraPest could not through a substantial shelf life, ease of use and lower installed costs. We are continuing to expand into the international market, which also only possible with the EVOLVE product line.

Speaker 2

Let me walk you through our progress in these areas, which will build on our success in the second and third quarters. Starting with the international front, we have active agreements in 11 countries. And 4 of them, we are either in pivotal trials to gain full registration in those countries with our distributors working extensively with government agencies or actually on the market. To remind you, for our international distribution agreements, we require an upfront purchase and increasing annual sales in order to maintain exclusivity. Moving now to agribusiness, which is one of the largest markets we are pursuing, interest from ag companies is increasing, both through direct discussions with very large agricultural operations as well as ag distributors.

Speaker 2

We currently have 4 stocking national distributors in this area and are on boarding 2 more. We continue to sell directly to larger agricultural customers, especially in California. An example of this would be a large almond producer who now has expanded its deployment into additional growth. Next to discuss is pest management. This is a rapidly changing vertical as we pivot from reliance on direct sales to pest management focused distributors.

Speaker 2

We are live with 3 of the top 5 national multi location distributors and are on boarding a 4th. We have 4 more we are pursuing and expect to on board them this quarter. This market requires a distribution model as our direct sales team works extensively with the industry's top distributors to rapidly expand scale and coverage. Retail is next for discussion and very much on my mind right now. This is a market that takes a while to penetrate as the buyers here have long buying decision cycles.

Speaker 2

This also is an area we tackle this is also an area we tackle on loan. We need experts. We now have agreements with 5 sales agencies with over 50 reps in the field and selling to 23 retail co op and big box chains, representing over 50,000 locations. These accounts include the largest of the retailers, warehouses and big box operators, including the one who's buying show I'm currently speaking from. Transitioning now to e commerce, currently we have our own website and we are live on Amazon, the largest online marketplace on the planet.

Speaker 2

We are also on diypestcontrol.com. Many of the retailers addressed above also have their own e commerce platform and make their stocking decisions separately. So the same rep agency selling to retail and industrial also sell to these 3rd party e commerce platforms. We have agreements to onboard 2 of the largest this quarter, including tractorsupply.comandwalmart.com and have targeted 6 more. These efforts of the past quarter will turn into revenue this quarter and next.

Speaker 2

To summarize, we are ideally positioned to see accelerating growth due to the initiatives we put in place throughout the first half of twenty twenty four, including the launch of EVOLVE for rats with key online retailers, launch of our new EVOLVE mouse solution, ramp ups of recently secured distribution agreements, new product packing options and perhaps most importantly, the potential adoption of Evolve by some of the nation's largest brick and mortar retailers with whom we have recently engaged. Placement by 1 or 2 of retailers could result in our immediate transition to profitability. Let me turn it over to Tom now for a discussion of the numbers. Tom? Thank you, Joel.

Speaker 3

We'll be filing our 10 Q later today, but let me hit the financial highlights. Revenues grew 50% for the quarter and 62% year to date. Revenues for the 1st 6 months of 2024 were $874,000 compared to 538,000 for the same period in 2023. This growth was driven by the EVOLVE product line, which was launched at the beginning of the year and is already 59% of total sales. The e commerce channel with both our own website and Amazon and distributor sales represented over 65% of sales.

Speaker 3

As Joel mentioned, we anticipate the growth of these 2 more cost efficient sales channels as well as the retail channel will fuel ever increasing growth for the next quarters. Cost of goods sold and gross margin have been steadily improving month over month since we launched Evolve. Gross margin for this quarter was 54%, up from 47% for the same period last year. In fact, June represented a record high gross margin for SenesTech at 67%. As we said in the past, our EVOLVE product line represents a lower cost and higher margin opportunity for SenesTech and it is proving this out.

Speaker 3

Ever improving manufacturing operations give us both pricing and margin flexibility. We are also increasing production capacity to meet future demand. We have enough capacity to meet the current demand, including

Speaker 2

all of

Speaker 3

the demand Joel has discussed. However, our leases at our headquarters and our manufacturing facility are up at the end of the year. Anticipating that and with a clear view of meeting future demand, we are in final negotiations for a newer, larger facility that will allow us to meet the next 5 or more years of increasing demand without dramatically increasing our facility costs. We continue to hold the line on OpEx as well. In fact, with growing revenues, solid gross profit and disciplined operating expenses, we have cut our cash burn in half.

Speaker 3

Our adjusted EBITDA or how we measure cash burn historically was more than $1,000,000 a month. The first half of the year, our adjusted EBITDA was about $500,000 a month. With these trends, adding in the near term potential Joel mentioned, we definitely see the potential for cash flow breakeven next year. I would even go so far as to say early in the year given the reaction at the ACE show so far, the growth of potential e commerce and the potential order sizes of the big box and warehouse retailers with whom side, we have put in place an ATM or at the market equity facility. This allows us to sell small amounts of stock over time directly to the market opportunistically at times that do not disrupt the market.

Speaker 3

This is a lower cost way of raising capital and one that does not involve warrants. In addition, we are currently negotiating credit facility that will allow us to finance raw material inventory purchases at favorable rates. We have already begun using debt more. Most of our manufacturing capacity investment this year has been using debt, as will be detailed in our 10 Q. While the first half of the year has been great, the second half of the year promises to be even better, much better.

Speaker 3

Rachel, let's open the line for questions, please.

Operator

We'll now begin the question and answer session.

Speaker 2

All

Speaker 1

right. Rachel, this is Robert here. While we wait to see if any questions come in via the traditional teleconference line, We have a couple of questions here offline that I wanted to go ahead and post to the company. The first one for Joel and Tom here is could you comment on any recent large city orders?

Speaker 2

Yes, certainly. I'll take that one. We recently received a large order for EVOLVE from Hartford, Connecticut. In the past, they had successfully deployed some ContraPest and they switched over. And we expect an order shortly from Newark, New Jersey on some of the work that they had done on their request for proposal.

Speaker 2

And then furthermore, one of our distributors just placed a large order for a group of Boston area municipalities. So we can see the trend heading with the big cities.

Speaker 1

All right, great. Next question here is can you elaborate on your advances in packaging?

Speaker 2

Yes. So currently we offer EVOLVE for rats in 1.5 and 3 pound pouches as well as 6 pound and 12 pound pails. And we also offer EVOLVE mouse in 1.5 pound to 3 pound pouches. We're trying to transition more to pouches as opposed to pail. So we're launching here at the A Show an economy size 6 pound pouch for each product.

Speaker 2

It offers a convenient larger size and represents an 87% reduction in plastic packaging, part of our overall sustainability and operational goals.

Speaker 1

All right, great. That's helpful. And again, I'll just on 1 or 2 big orders that you mentioned that could take you to profitability?

Speaker 2

Let me just give an example of that. So thinking about warehouse stores. So just use round numbers, say 500 stores, ordering 1 pallet per store, which our product is about 10,000 dollars per pallet, that's $5,000,000 that could be delivered and booked as revenue for a 2025 campaign, So very substantial. Another example, if you take a big box retailers, say those another 500 stores that order 1 case per month, roughly $300 per case. That's an annual rate of over $4,000,000 So as I mentioned earlier, we are pitching to 23 such potential customers, multi location customers and the total of those represents over 50,000 locations, so very substantial.

Speaker 2

All right, great.

Speaker 1

That's again, I think very helpful. Last question I have here for the moment is why don't we see results from these retailers and other deals you have announced?

Speaker 2

Well, certainly we all would like to see results immediately. Sometimes it takes a little bit longer. Each of these buyers, they have their own specific processes and buying patterns. So ACE, for example, agreed to put us in their purchasing system, but it was a complex process and that took months to get everything the way that they wanted it and we wanted it. Costco on the other hand, they plan everything at least 6 months in advance.

Speaker 2

So we are pitching them for next spring sales and into later on in 2025. Walmart, a little bit different. They start with some of their stores, stock them with a small amount of product and then expand their base on demand. So every product, every customer and how they buy their products is different, which is why it is so important to work with these manufacturers' rep agencies. They know their buying patterns.

Speaker 2

They know when we have to be in front of them and when we have to pursue placement in their stores.

Speaker 1

Okay, great. I am not showing any further questions here at this moment. So Joel, I'll turn it back over to you for any closing remarks.

Speaker 2

Thanks, Robert. Just to conclude, very excited about the progress we've made. I think we're just starting to hit the point where a lot of the work we've done over the past 9 months is really going to start taking hold across these different channels that we talked about, and we should have more really good news to report out going into the balance of this year. So thank you for your time.

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Key Takeaways

  • The company delivered record revenue growth with 50% Q2 and 62% YTD increases, halved its cash burn and sees potential for cash flow breakeven early next year.
  • It launched EVOLVE products—rat control approved in 44 states and mouse control in 32 states—with trials showing a 61% reduction in litter size after one breeding and 90% over 12 months.
  • SenesTech has onboarded major distributors in agribusiness, pest management and retail, securing representation in over 50,000 locations and goes live on e-commerce platforms like Amazon, TractorSupply.com and Walmart.com.
  • Gross margin rose to 54% in Q2 (with June at a record 67%) thanks to improved manufacturing and product mix, and the company is negotiating a larger facility to cost-efficiently meet growing demand.
  • Management established an ATM equity facility and is negotiating a credit line to finance inventory purchases, providing a lower-cost, non-dilutive capital option.
AI Generated. May Contain Errors.
Earnings Conference Call
SenesTech Q2 2024
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