Earnings Transcript for SNES - Q1 Fiscal Year 2023

Operator: Hello, and welcome to SenesTech's First Quarter 2023 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.

Robert Blum: Great. Thank you so much, MJ, and thank all of you for joining us today to discuss SenesTech's first quarter 2023 financial results for the period ended March 31, 2023. With us on the call today are Joel Fruendt, 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. 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, drafts, 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 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. Following my appointment as CEO a few months ago, it is my clear goal and objection to accelerate and steepen the adoption curve of ContraPest. We were doing many things well, but there were also areas for improvement. When I first started, I articulated three imperatives

Tom Chesterman: Thank you, Joel. 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 today, so I will just touch on some of the high points right now. Revenue during the first quarter was $233,000 compared to $195,000 in Q1 of '22, an increase of 19%. Sales growth during the first quarter was led by growth in the company's e-commerce platform, which made up approximately 45% of Q1 2023 product sales as well as continued traction with zoos and sanctuaries, and pest management professionals. As Joel mentioned, though, weather-related issues put a damper on sales during the quarter, especially in California. Gross profit during the first quarter was approximately $92,000 or 40% of total revenue compared to approximately 90% or 46% of total revenue in Q1 of last year. Excluding costs related to the scrapping of defective inventory no longer used in our products, gross profit margin would have been 58% in Q1 of 2023. Net loss during Q1 2023 was $2 million compared with a net loss of $2.3 million for Q1 of 2022. Adjusted EBITDA loss, which is a non-GAAP measure of operating performance, for Q1 2023 was $1.8 million compared to $2.0 million in Q1 of 2022. Cash at the end of March 2023 was $2.7 million. Subsequent to the end of the quarter in April 2023, the company closed on a registered direct offering priced at the market under NASDAQ rules for gross proceeds of $1.5 million. While this does improve our runway, we will continue to assess the capital markets for further financing. With that, let me turn it back over to Joel for any closing remarks, and we will then take your questions. Joel?

Joel Fruendt: Thanks, Tom. I joined SenesTech due to my passion and commitment to sustainable effective solutions to vector and pest control challenges. ContraPest fits right in with that passion. Beyond that, I joined because I felt I could leverage my 15 years of executive leadership in the vector and pest management industries where help drive large commercial adoption of EPA-registered control products, just like ContraPest. I'm instituting what I believe to be tried and true sales strategies to accomplish the goal that we all desire, which is to accelerate and steepen the adoption curve of a truly revolutionary product. Having now had the opportunity to be entrenched with the team for a few months, my excitement is higher today than when I joined. Thank you all for your continued support. And with that, operator, let me now turn it over for any questions.

Operator: [Operator Instructions] Seeing no questions in the queue, I would like to turn the call back over to management for closing remarks. Oh, pardon me, it seems we have [Jonathan Berg], Private Investor. Go ahead with your question.

Unidentified Analyst: Yes, I have a couple of questions. Thank you. First off, how far along is TriptoBIO in developing the synthetic triptolide?

Tom Chesterman: Yes. This is Tom. So TriptoBIO is -- has, at this point, developed at the laboratory scale the process necessary. They're moving now to the pilot scale, and as they move to that, we're working with them to assist in the EPA registration batches necessary for the EPA. So they're still a year away but making very good progress.

Unidentified Analyst: So when you say a year away, does that mean that to get through the EPA, if they're successful, is one year from now? Is that it?

Tom Chesterman: No, they're a year away from being able to produce at the production level at least.

Unidentified Analyst: And when will the EPA pass and finish evaluating the product?

Tom Chesterman: The EPA process, which will start sometime during the year, usually takes about a year or less.

Unidentified Analyst: Okay. So next, I guess, Joel was talking about bait stations. And I'm curious, a bait station would generate about how much revenue per month?

Joel Fruendt: I'm not sure what you mean by bait station.

Tom Chesterman: You mean internal revenue per bait station?

Unidentified Analyst: Yes. Joel mentioned there are so many bait stations that are just out or resulting. And so when you get a new customer and they put out 100 bait stations, how much revenue would you expect to get per month of that? I understand it's a ramp time. But about how much would you expect in terms of revenue from one bait station or 100 bait stations?

Joel Fruendt: Well, it depends on consumption, right? If they're using it, every month is a refill, is $30 to $40 per refill, depending on what. So you could get 6x to 12x for each bait station every month.

Unidentified Analyst: I see, so about $30 a refill? I'm sorry?

Joel Fruendt: Yes. So $30 to $40 per refill and then depending on how many refills you have with the bait station. We typically see that they're doing it every month or every two months.

Unidentified Analyst: One refill?

Joel Fruendt: Right.

Unidentified Analyst: Per every month to two months. So when we're talking about a bait station being out in the field, we can expect that 20 -- maybe $40 a month would come in. Is that correct?

Joel Fruendt: Per bait station, yes.

Unidentified Analyst: Yes. Okay. And the bait station itself costs how much initially? In other words, I show up and I get one from my building here in New York, and I get a, whatever it is, a -- one tank filled. That costs you how much to get out the door?

Joel Fruendt: Yes. So we have like a starter kit that's on our e-commerce site, and that's $79. And that will give you the bait station plus two tanks. I think it is to get you started. The good news is we're also working with some of the other bait station manufacturers to come up with a lower-cost bait station that can be used to attract more of the residential-type customers who are not wanting to spend as much on the initial starter kit.

Unidentified Analyst: Okay. So do you make a profit on that $80 starter kit?

Joel Fruendt: We do.

Unidentified Analyst: Can you give me an idea of what it cost you to put that together?

Joel Fruendt: Well, our objective here and what we've been trying to do and you can see what Tom was reporting on is that it's -- less those extraordinary items, we were at 57% or 58% gross profit in this quarter. That's certainly our objective, is to stay up in that range.

Unidentified Analyst: Got it. Okay. All right. Well, thank you very much for your time and keep going guys. We need to get these rats under control.

Tom Chesterman: I'll just add a plug here, Jonathan. Contrapeststore.com, it's all you need to know to get your own bait stations.

Unidentified Analyst: We have plenty of rats vertical here in the city. Heading for brunch. Bye.

Tom Chesterman: Thank you.

Operator: Thank you. This concludes our question-and-answer session. I would now like to turn the call back over to management for closing remarks.

Joel Fruendt: Thank you, everyone, for attending. It was great to report this quarter, and we're looking forward to reporting again on Q2.