Senestech Inc (SNES) 2022 Q2 法說會逐字稿

Good afternoon, and welcome to SenesTech, Inc. Reports Second Quarter of Fiscal Year 2022 Financial Results Conference Call. (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 second quarter 2022 financial results for the period ended June 30, 2022. With us on the call today are Mr. Ken Siegel, 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.

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 our filings with the Securities and Exchange Commission.

All forward-looking statements contained during this conference call speak only 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 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 Ken Siegel. Ken, please proceed.

Thanks, Robert. Good afternoon, and thank you all for joining us today. As you saw in the press release, the second quarter represented another quarter of record sales, with sales up 72% compared to the year ago second quarter. Even more impressive perhaps is that we saw a strong sequential sales growth of 42% from the most recent first quarter. Adding one more layer to that, June was our highest revenue month ever as we continue to see month-over-month compounding sales growth.

Sales growth during the quarter was led by increases in our e-commerce solutions, continued traction within the zoos and Animal Sanctuary segment, deployment of ContraPest to 2 campuses of a major Silicon Valley technology company and the launch of our novel Elevate Bait System with ContraPest. On that last point, Elevate was available for just 9 business days towards the end of the quarter, and we saw very strong initial demand from customers. This should bode well for us for the rest of the year.

During the quarter, we shipped 1,500 units, which accounted for approximately $32,000 in sales, which again came from being available for just 9 days. Elevate continues to generate significant interest and growing demand. And while we're not likely to see the demand stay at the initial weekly level of sales, it's not too early to declare Elevate a success.

For those who aren't already familiar, the Elevate system we created with its suspended bait station is revolutionary within the pest control industry. There simply is no other effective product on the market like it expressly designed for aboveground deployment for the control of root rats. The industry has typically utilized traditional bait boxes to deliver pesticides and other products. And the design of our system is such that it permits easy drop-in and replacement of new 8-ounce bottles of ContraPest, reducing both servicing time and cost. We filed for patent protection for the Elevate system in April in recognition of both its uniqueness and its effectiveness.

Initial focus for us with Elevate is agriculture. And while our experience with agricultural applications demonstrates the efficacy and economic value of ContraPest, our customers have been requesting an additional baiting option to target rats where they often live, specifically in rafters and other aboveground locations.

As I mentioned last quarter, in preparation for our EPA submission for Elevate, we conducted extensive trials to prove the effectiveness of the system. As we've discussed with other market verticals, this real-world study information is critical, and we believe it is aided in the initial demand for the product in providing potential customers the necessary data to make informed purchasing decisions. Importantly, Elevate was developed with the assistance of Agricom, a major player in biosecurity and sanitation, and they are extremely passionate about the efficacy of their product and its impact on food security. Not having strong endorsements from the mainstream industry had been an issue for us in the past.

So with Agricom's enthusiastic support, we're optimistic about accelerated adoption across the pest control space. Just as an aside, our partners in the trials are now buying, deploying and expanding the use of the Elevate system, and they're seeing good consumption. So we're obviously very excited about the traction of Elevate in just the first 9 days of its launch, and that was without California being in the mix.

As you hopefully saw, we received approval of the system by the California Department of Pesticide Regulation at the end of July. Elevate is now available in all 50 states and the District of Columbia. With California being a major agricultural sector and frequently representing about 1/3 of our overall quarterly sales, this should only enhance the growth of Elevate going forward. I'm certainly excited by this key development and look forward to speaking with you all again next quarter on Elevate's progress.

Now as we talk about the Elevate introduction, we also had another product innovation launched. Just within the past weeks, we introduced a new trade design for our bait station delivery system. This trade features some key improvements in the design that address suggestions from our customers and will improve performance, particularly in warmer weather. We continue to monitor progress performance in -- product performance in the field, and we'll continue to introduce improvements.

Let's talk about our e-commerce platform. which continues to be a key driver of growth for us. Our second quarter e-commerce solutions grew 55% sequentially compared to the first quarter of 2022. The sales to California up more than double during that time period. The growth in this vertical continues to be driven by our marketing initiatives, including our Operation Rat Race campaign, which has driven strong increases in traffic. If you haven't seen the campaign, I highly encourage you to check out one of our social media channels.

Campaign takes a different tack from traditional pest control advertising in order to highlight ContraPest's different approach to test management. It targets each of our key market segments, including agribusiness, household, municipality, commercial, professional and zoos and sanctuaries. And additionally, treats California as its own market segment in light of the opportunity created by the recent AB1788 legislation. The campaign includes conventional and digital advertising, paid and earned media, targeted e-mail messaging to a significantly expanded list of high potential targets and concentrated field sales efforts.

In addition to our Operation Rat Race campaigns, we've added increased website functionality, which has been a key driver to e-commerce growth. A complete design of our -- a redesign of our e-commerce site, ContraPestStore.com has resulted in a steep increase in engagement and inbound inquiries across all segments.

As we've stated in the past, we're taking a very analytical approach to our marketing efforts to ensure we are driving down our customer acquisition costs and increasing the lifetime value of our customers. Furthermore, many distributors in the structural PMP space that have been historically reliant on brick-and-mortar and outside sales teams to service customers are now launching and growing e-commerce platforms. As these industry changes continue, we believe there is further room for growth within e-commerce.

We continue to see net benefits from incremental investment in marketing and advertising in this channel and have increased our spend this quarter to drive further growth.

During the second quarter, we saw a 264% increase in active e-commerce customers compared to the second quarter of 2021 and that's up 21% sequentially compared to the first quarter of 2022 numbers. Churn has also improved, as has the number of subscription-based customers we have.

I'm pleased with the job the team has done to continue driving growth in our e-commerce business and expect to see further growth going forward.

So I talked a bit about our agriculture market vertical at the beginning. So let me expand on a couple of additional areas. First, zoos and sanctuaries. This vertical continues to be a key early adopter for ContraPest. Over the past 12 months, the vertical has seen sales grow more than 300%, and we now have nearly 70 current customers. ContraPest has been shown in multiple independent deployments to be effective when used alone or in conjunction with other Integrated Pest Management, or IPM tools, with efficacy improvements of up to over 90% over the use of traditional IPM methods. This makes ContraPest a logical choice for deployments in zoos and sanctuaries, where traditional methods are falling short and where there's a heightened risk of nontarget species exposure.

Let me share a recent observation in this area. A world-class zoo, one of the top 5 largest in the United States developed a significant rat problem in their free-flight aviary in 2019, when a hole was discovered in the perimeter mesh that allowed rats to access to habitat. Despite the zoo's best efforts, the rats flourished in the aviary and began to negatively impact the health and well-being of the birds, devouring any eggs they could find. The zoo started using ContraPest in December 2021. Within 4 months, they saw a dramatic decrease in the rat population. They no longer saw juveniles or obviously pregnant females on their camera traps and they found less evidence of rodent activity in areas that had previously accumulated droppings. Most importantly, they started to see successful breeding of the birds.

This spring marked the first time in years that they were able to recover eggs from nests and successfully hatch those of interest. As the water fell and ground laying birds begin their breeding cycle this year, they expect to recover even more eggs that would previously have been lost to the rats.

This success is important not only to the birds in the aviary but is a demonstrated tool that can contribute to the conservation of threatened species. So recently, we've developed customized programs for zoos and sanctuaries, with targeted advertising and sales efforts and we expect the addition of Elevate to accelerate growth into this vertical going forward.

Another area that we've been working hard to communicate the benefits of ContraPest to is what I call the large environmentally focused corporations.

During the quarter, we deploy ContraPest at 2 campuses of a major Silicon Valley technology company. As you can imagine, we're not able to speak specifically to the customer's name, but it's highly gratifying to see the types of corporations that are increasingly recognizing ContraPest as a key to corporate sustainability initiatives and as a successful component of an integrated pest management strategy.

We're optimistic this will be a springboard to other similar developments in Silicon Valley as well as other large corporations across the country. Related to this, we have also recently started working with local authorities to address the unique challenges of treating infestations in and around homeless in cabins. Initial deployment of just our EVO stations on the ground is showing immediate signs of good consumption and the customer is now adding the Elevate bait system to their order, expanding deployment in the coming weeks.

And so while it's early on, we're encouraged as we focus on improving efficacy while also reducing the risk of harm to the inhabitants. This builds, of course, on our overall push into municipalities and counties with growing success with those government entities who have a commitment to innovation, environmental awareness and most importantly, to results. Our existing customers are continuing their deployments and we're attracting new ones.

So before I turn it over to Tom, I think it's important to take a step back and recognize the opportunity we have in front of us. Rat infestations have been exploding both in the U.S. and around the world. The trend isn't new and has been going on, in fact, for decades, if not centuries. Despite us spending $1 billion per year on poisons and other lethal treatments for rats, it's just not working.

I stated this in some of my industry presentations, but it's worth repeating. Rodent problems are a product of 2 factors: the birth rate and the death rate. Up to now, solutions have only focused on the death rate and ContraPest changes that. You all know the numbers by now that a single pair of rats can be responsible for up to 15,000 descendants in their 1-year life spans. They simply can't eliminate them fast enough to overcome that birth rate. Only by controlling rat reproduction, can you do that? And we have the only solution. Not only that, but we do this in a sustainable way.

As we are all well aware, society continues to focus on reexamining the tools and methods we use to see if they are truly the best we can do. Concerns about the residual effects of introducing increasingly toxic poisons into pest control and the potentially deadly effects they have on kids, on pets and on the many animals who feed on rodents are becoming mainstream issues. The characteristics of ContraPest yield themselves well to the move towards sustainability. And with deployments like the one we had this quarter at the large Silicon Valley campus, where they are increasingly concerned about the impact of poisons, we think this move towards sustainability will be a key factor in the future growth of ContraPest.

So with a product that works, that fits nicely into an integrated pest management approach and that does so in an environmentally sustainable way, we just feel we have the right product for the right time in history.

One more thing. It's with pleasure that I announce the addition of Dan Palasky to the SenesTech executive team as our Chief Technical Officer. Dan joined SenesTech team with years of experience in leading technical teams through product development and aggressive growth strategies. Dan will oversee the R&D, regulatory, quality and field development departments in his new role and will provide the strategic vision for the scientific arm of the company.

In his most recent position, Dan held the title of Vice President, Research and Development at PLZ Corp, a manufacturer of chemical consumer products. Then with the technical expert for their entire product portfolio, which included many EPA registered products, including pesticides, disinfectants and germicidal cleansers. Dan joins the team at a great point, and we all look forward to working with him to take ContraPest and SenesTech to the next level.

So before turning it over to Tom, let me quickly summarize. We had another quarter of record sales, which grew 73% year-over-year and 42% sequentially. Elevate has been launched, and the early results are highly encouraging, which should only enhance our presence in key agricultural markets. Our e-commerce platform is growing at an accelerated rate accounting for approximately 50% of our overall sales during the second quarter.

We continue to gain traction within zoos and sanctuaries and are seeing the beginnings of what we hope is large-scale deployments within environmentally focused corporations. And finally, with a full quarter of Elevate ahead of us, including the recent ability for us to sell in California, we're optimistic that we will once again see strong growth in the third quarter. So thank you, as always, for your continued support of the company.

And let me now turn it over to Tom for a review of the numbers. Tom?

Thank you, Ken. 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 within a day or 2, so I will just touch on some of the high points right now.

Revenue during the second quarter was approximately $277,000 compared to approximately $160,000 in Q2 of 2021, an increase of 73% and compared to approximately $195,000 in Q1 of 2022, a sequential increase of 42%. This is again a record quarter for us with 8 of the last 10 quarters at or exceeding 2x growth. We are still seeing 2x as our minimum goal for 2022 for all the reasons that Ken mentioned previously.

Gross profit during the second quarter was approximately $136,000 or 49% of total revenue compared to approximately $41,000 or 26% of federal revenue in Q2 of 2021. Our gross margin is trending well and in line with expectations. Our goal is to be at or above 50%.

Net loss during the second quarter was $2.6 million compared with a net loss of $1.7 million for Q2 of 2021. Adjusted EBITDA loss, which is a non-GAAP measure of operating performance for Q2 was $2.3 million compared to $2.1 million in Q2 of 2021. This reflects the restructuring of our pricing and incentives that I mentioned on our last call. We expect that the trend for the third quarter will be similar.

Cash at the end of 2022 was approximately $5 million. With continued fiscal discipline, this cash should be sufficient to our growth strategy for the rest of the year.

One additional note, we continue to have what NASDAQ refers to as a bid price deficiency. Our bid price for our common stock has been below $1 a share. We have until August 29 to regain compliance. To regain compliance, the closing bid price of our common stock must be $1 a share or more for a minimum of 10 consecutive business days at any time before August 29. If we do not regain compliance by August 29, we may be eligible for an additional 180 calendar day compliance period at which time we may need to contemplate a reverse split. We will be working with NASDAQ over the coming days to address this. I will say though that we have been and continue to be focusing on the execution of our business plan and prefer to regain compliance through success.

With that, let me open the call to questions. Operator?

Our first question will come from Tucker Andersen with Above All Advisors.

Can you hear me?

We can.

Okay. Good. Congratulations on your progress and especially on the introduction of Elevate. You have no need to convince me of the necessity of the use of your project, especially as somebody who rides in New York subway several times a week. And I hope at some point, you really crack this metropolitan market.

My question is very simple, that given the fact that this is in a market in which investors are now demanding not only growth but profitability. Could you talk about your thoughts of how you bridge the way to cash flow breakeven, that obviously, your sales growth has been impressive. But at the current gross margins, your sales would have to be about 20x what they are to cover your current operating expenses. And so while you have enough cash for the immediate future, I think, the fact that people are looking at your cash position is one of the reasons why your stock is where it is and you're going to have trouble regaining compliance.

Tom, I'll go off on tangent, so you want to take the first shot?

Sure. I'll take the first shot.

I'm happy to listen to tangents.

Well, I mean, again, as I said in my remarks, we want to regain compliance. And in fact, we want to reach our profitability point through success. Our growth rate has been impressive. It's been starting from a low base, but that growth rate is quite impressive. And as more and more of the market recognize that it's expected that, that will be reflected in our market cap, which makes using such things as the shelf registration a lot easier than it would be right now.

So again, it's a matter of executing the plan that we have. We have, as you said, right now in the market, there is a rush towards profitability and towards safe investments. That said, there's also a lot of money being held on the side, looking for good returns. And we need to market ourselves and introduce ourselves to those people so that they can ride the elevator to the top with us.

Yes. I agree with that, but you're in the unfortunate position what I would term being a public venture capital investment. And therefore, when you go to investors, you are at the mercy of the current stock price. You can say we'll win a lot more, but you're starting from this position. And I think any serious investor who would want to bridge or a group of investors who would want to bridge the gap to profitability or at least cash flow breakeven would want a pretty specific outline of the question I asked, and I'm saying that's somebody who's been in the investment business for 60 years.

So I don't know whether you want to address it in any more detail because as I said, we're talking about with no increase in operating expenses and your current gross margins, your sales have to be 20x what they are to be a cash flow breakeven. And unless you were looking at them growing exponentially, you are going to have to bridge that with additional funding and everybody would want that funding to be as minimally dilutive as possible.

Completely agree Tucker.

That's fine. I've had my say and as I say, I congratulate you, and I'm waiting for the product to be adopted right here on the East Coast.

Yes. We're working hard with in the city. We're trying to get traction again with MTA. So hopefully, you'll start to see us in the subway at some point in the near future. But you know the politics in your city. So nothing is...

Yes. And I understand, but one big reference account like that could make all the difference for you too, as you know.

Absolutely. Yes.

There are no further questions. This concludes our question-and-answer session. I'd like to turn the conference back over to management for any closing remarks.

Well, again, thank you much for your time and attention, for your support of the company. And I say it at the end of every quarter, but this one is truly meaningful. I really look forward to reporting on the results in the third quarter, particularly as we get to see a full quarter's worth of sales of Elevate and the continued adoption of the product around the country. So thank you again, and we'll talk to you again in -- after the third quarter.

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