SenesTech, Inc. (NASDAQ:SNES) Q4 2023 Earnings Call Transcript

SenesTech, Inc. (NASDAQ:SNES) Q4 2023 Earnings Call Transcript February 23, 2024

SenesTech, Inc. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon, and welcome to the SenesTech Reports Fourth Quarter and Fiscal Year 2023 Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded. I'd now like to turn the conference over to Robert Blum with Lytham Partners. Please go ahead.

Robert Blum: All right. Thank you very much, Anthony, and good afternoon, everyone. Thank you for joining us today, as Anthony mentioned, to discuss SenesTech's 2023 financial results for the period ended December 31, 2023. With us on the call today are Joel Fruendt, the company's Chief Executive Officer; and Tom Chesterman, SenesTech'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 provision 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 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 Fruendt, Chief Executive Officer, SenesTech. Joel, please proceed.

Joel Fruendt: Good afternoon, everyone. Thank you all for joining us today for our year-end conference call. During 2023, we executed several key initiatives that will be the foundation to drive growth for SenesTech into the future. Most notable was the development of Evolve, our all-new soft bait fertility control product that was launched at the end of 2023. As a reminder, Evolve has similar efficacy to ContraPest. However, Evolve has three distinct benefits to end users, a 1-year shelf life that allows for extensive distribution opportunities. It comes in a solid form that is more familiar to technicians and consumers and easier to deploy and is offered at a competitive price to traditional rodenticides. This has dramatically increased our reach in terms of markets and geographies.

It is evident from the initial response that Evolve is what retailers and distributors have been looking for from SenesTech. One major proof point is our recent approval as a vendor for a leading network of hardware stores, a network comprising over 4,500 locations. In just the first few weeks after Evolve's introductions, they have become the first of many major retailers that will carry our products to target the do-it-yourselfer and broader consumer market. We expect more to come on board in the months to come. To penetrate the retail market quickly, we are in final negotiations with the manufacturers rep firm that specializes in retail relationships to represent us with these major national and regional retailers in hardware and home supply, industrial supply and agricultural supply.

Another major advancement has been an agreement with a global leader in irrigation solutions for a sustainable open field agriculture. Open field agriculture presents unique challenges to rodent pest control. Poisons cannot be broadcast, traffic is expensive and of limited efficacy. Evolve Soft Bait with its minimum risk, its reasonable cost and its proven efficacy provides a new tool for this widespread market. Our partner has selected one of their preferred customers for the initial deployment, a dairy and almond producer in California. Their stated goal is to ultimately expand their offering of Evolve to their customers across the globe as they learn more about Evolve's potential. Agriculture is a huge underserved market. We have another potential customer in sugarcane production.

They have over $10 million in annual losses to rat activity destroying sections of their fields and choose not to use poisons in their field. They will start working with Evolve, broadcasting it throughout their fields, reducing the population significantly and thus cutting down those economic losses. Also in the agricultural space, we entered into an agreement with Poppe Enterprises, a distributor and pest management firm focused on the grain management market, serving the upper Midwest. Grain storage operations have unique challenges when it comes to rodent pest control. Again, poisons are highly regulated and are tricky to use without contamination, and traps alone are expensive and time-consuming to maintain. The non-poison Evolve Soft Bait provides a new tool for this widespread market.

And in combination with some traps will establish an effective non-poison IPM program. Another key proof point on how Evolve expands our market opportunity is the rapid number of new international distributors we have brought on board over the past few months for geographies outside the U.S., including Hong Kong, Macau, UAE, Singapore, Australia, New Zealand and the Netherlands. Importantly, these agreements typically include initial orders and annual minimums for geographic exclusivity. In fact, our first pallet shipments have just arrived in Hong Kong and Singapore. A big question I know a lot of investors have been asking us, what will all of this mean for sales and reducing our burn rate? What I can report is that in 2024, as of mid-February, total revenues for SenesTech has grown more than 80% compared to the same period in 2023.

This is being driven by orders for Evolve which represented more than 50% of year-to-date 2024 total revenue and includes international revenue for the first time in the company's history. It is increasingly clear that Evolve is a game-changing product for SenesTech that will be a key driver of our sales growth in 2024. Transitioning the conversation a bit. We have laid out a few key imperatives to drive growth. One was to offer the customers more choices, which Evolve clearly does. Another was to sell better. In some cases, this means improve the infrastructure we have. In other instances, it means bringing an experts in areas where we need additional skills. The manufacturers rep agency I mentioned is an example. In another example, we are exploring ways to increase our e-commerce capabilities and reach.

Scientist in a lab working on a research project, focusing on biotechnology and healthcare advancements.

To that end, we are in discussions to expand our e-commerce offerings with an industry-leading online distributor pest control products in an agreement expected soon. We want to be proactive in addressing this channel and believe that partnering with a dedicated online retailer will be an efficient way to boost revenue going forward. Due to the early success of Evolve for rat fertility control, it is becoming clear that there is a need to develop a product for fertility control of mice. We see this as the substantial opportunity that is equal in market size to the rat market. Our product development team has been hard at work and is currently enhancing the form factor and dosing of the unique soft bait contraceptive for mice and have indicated that a product should be ready to market by mid-2024.

We brought Evolve for rats to market in less than a year and now to follow that up with a unique mouse product required a major shift in strategy, a sense of urgency and improved utilization of resources. We have been up to the challenge. Again, I look forward to sharing more with you on our upcoming calls. Looking back at 2023, we have made some great progress in several areas, which I believe set the stage for future growth, namely our product development process and the launch of Evolve. We also made significant improvements to many of the processes and procedures to drive efficiency across the organization. To give you more detail on that and on the financials, let me turn the call over to Tom. Tom?

Tom Chesterman: Thank you, Joel. A reminder to our investors, the press release is available on our website in the Investor Relations section as will be a recording in this presentation. Further, we have just filed our 10-K, so I'm just going to touch on some of the high points right now. Revenue during the year was $1.2 million, an increase of 17% compared to the $1 million in 2022. For the quarter, revenue was $295,000 compared to $297,000 in the year ago fourth quarter. During the quarter, we saw a pullback in our e-commerce sales. To some extent, this was caused by customer distraction with the Evolve soft launch limited to key customers. As Joel mentioned, this needs to be an area of focus and we can use the expertise of an industry-leading online distributor of pest control products tuned to outsource our e-commerce capabilities.

Gross profit during 2023 was approximately $539,000 or 45% of total revenue compared to approximately $464,000 or 45% of total revenue last year. For the fourth quarter, gross profit was $129,000 or 44% of total revenue compared to $116,000 or 39% of total revenue in the year ago fourth quarter. The gross profit margin excluded the impact from new product introductions and -- was 49%. That's an increase of 10 points over the year. One important note I want to put out there is that due to the success of Evolve, we have had to expand our manufacturing capabilities. As a point of reference, we were initially manufacturing about 200 pounds per day of Evolve. Today, we are at about 1,000 pounds per day and plan to double again in the coming months to meet demand, and that's with a single shift.

To this point, Evolve is offered in 6- and 12-pound pails. However, we are launching a new 3-pound pouch for the consumer market, which we plan to begin shipping in March. To account for the initial source of raw materials and finished goods, we have expanded our warehouse space in Phoenix. This may result in a dip in margins in the near term, but we would expect to ramp as capacity becomes more optimized. Ultimately, whereas ContraPest brings in gross margin of about 50%, Evolve has the potential to earn 60% or more. Operating expenses for the year were $8.2 million, a decrease of nearly $2 million compared to the $10 million in 2022. We made numerous changes in our operating structure, bringing OpEx for the year down from $10 million in 2022, and this resulted in a $1.6 million improvement for the year in our adjusted EBITDA.

The company remains committed to driving operational efficiencies with the goal of removing another $1 million out of annual operating expenses. Net loss during 2023 was $7.7 million compared to a net loss of $9.7 million in 2022, an improvement of $2 million. Adjusted EBITDA loss, which is a non-GAAP measure of operating performance, for 2023 was $6.9 million compared to $8.5 million in 2022, an improvement of $1.5 million, as I mentioned. The quarterly adjusted EBITDA loss was the smallest in company history as we strive to achieve our goal of achieving positive operating cash flow as soon as possible in the coming quarters. Cash at the end of December 2023 was $5.4 million. We improved the balance sheet through a $5 million public offering of common stock and warrants in November of 2023, of which we saw $1 million of -- in warrants exercised so far.

We're optimistic that as we continue to execute our business plan that the remaining warrants will be a source of cash over the coming quarters. With that, operator, let me now turn it over for any questions. Anthony?

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