Earnings Transcript for SNES - Q4 Fiscal Year 2022

Operator: Good afternoon and welcome to the SenesTech, Incorporated Fourth Quarter and 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.

Robert Blum : Thank you very much, Gary, and thank you all for joining us today to discuss SenesTech's fourth quarter and fiscal year 2022 financial results for the period ended December 31, 2022. 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 statement. 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 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. While I was briefly introduced on the third quarter conference call, I am excited and honored to get a chance to speak with you all today for really the first time. Following my appointment as CEO just about 4 months ago now, I have taken quick and decisive steps to build off the considerable progress the company made during 2022, highlighted by breaking $1 million in product sales, up 77% from the year ago period, as ContraPest was deployed in a number of key market verticals and the product line extension launch of the unique and innovative Elevate Bait System. We need to build off this momentum to take ContraPest to the next level. So how do we do that? First, my experience is anchored with extensive executive leadership in the vector and pest management industries, where I gained expertise in the development and manufacturing of EPA-registered chemical control products, commercialization and sale of those products and leading large sales and service organizations. Developing and commercializing ContraPest is a natural extension of that experience. Further, I have always had a passion and commitment to sustainable, effective solutions to vector and pest control challenges. Clearly, ContraPest fits right in with that passion. It was one of the key drivers that attracted me to SenesTech as we look to provide an exciting, sustainable solution for management of animal pests in a stand-alone or Integrated Pest Management program. As I said at the beginning, tremendous progress was made last year, but we need to accelerate and steepen the adoption curve. The first initiative we have undergone has been the redeployment and refocusing of the company's direct sales efforts to enhance our customer acquisition capabilities while also putting reps closer to the customers to benefit from the surge in acceptance of ContraPest during the past year. We have named a Chief Revenue Officer as a key step in that process. We have expanded our field sales organization to 7 reps, each deployed by geography with leadership in both the Eastern and Western half of the U.S. Last year's revenue was largely driven by growth within existing customers, which speaks to having an effective product that delivers value. Going forward, we are placing a strong regional focus on new customer acquisition through an expanded commercial team and new depths of vertical industry knowledge, get in front of decision-makers, tightening the sales cycle and ultimately driving revenue. We are also enhancing the customer experience by increasing product options, awareness and education. Product options are extremely important. That's why we introduced the Elevate system last year

Tom Chesterman: Thank you, Joel. Let me add my welcome and excitement to have you join the team here at SenesTech. 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-K shortly, so I'll just touch on some of the high points right now. Revenue during 2022 was $1 million compared to $600,000 in 2021. Product sales, which exclude grant revenue, were up 77%. During the fourth quarter, 2022 revenue was approximately $297,000 compared to approximately $193,000 in the year ago period, an increase of 54%. Again, product sales, which exclude grant revenue, were up 76%. And please note that the year ago period had approximately $24,000 in grant revenue. That first $1 million is a milestone for any start-up, and it is particularly gratifying. The growth rate has been excellent as well, but we see the current trajectory as the minimum performance and are acting to accelerate our growth to 2x, 3x or even more. Sales growth during the year and the fourth quarter led by strong performance in the company's e-commerce platform, which made up approximately 46% of 2022 product sales as well as continued traction within zoos, animal sanctuaries and pest management professionals, which both increased more than 100% during the fourth quarter. The sales into agriculture was significantly slowed by the avian bird flu as much of our initial efforts in this sector were focused on poultry. While still waiting for the poultry market to recover, we have now also moved many of our resources to grain and protein production. We have seen that begin to bear fruit in this quarter, and we expect it to continue. Gross profit during 2022 was approximately $464,000 or 46% of total revenue compared to 42% of total revenue in 2021. Net loss during 2022 was $9.7 million compared with a net loss of $8.3 million for 2021. Adjusted EBITDA loss, which is a non-GAAP measure of operating performance for 2022, was $8.5 million compared to $7.8 million in 2021. Again, looking at the fourth quarter, adjusted EBITDA loss was $1.6 million compared to $2.2 million in Q4 of 2021. And finally, cash at the end of December 2022, and was approximately $4.8 million. Now we do expect to be accessing the capital markets in 2023. To do so, we have a shelf registration on file to allow opportunistic financing. We also have $5 million in warrants that will expire if not exercised this year. These tools, along with revenue growth and careful expense management, should be sufficient for us to execute our plans this year and beyond. With that, let me turn it back over to you, Joel, for any closing remarks, and then we'll take your questions. Joel?

Joel Fruendt : Thanks, Tom. Let me just say that every day, there is more validation of ContraPest as effective, sustainable and easy to use. Academic studies, field studies and customer feedback all agree

Operator: [Operator Instructions] Our first question is from Avi Fisher with Long Cast Advisors.

Avi Fisher : With the general-use label in New York state, how is that going to change the way you're marketing, notably in New York City? And I ask because I could envision all these co-ops ringing Central Park being amenable to and open to and wanting to use this product because it's safe for the birds in Central Park, et cetera. I wonder if you have any sense of targeting them.

Joel Fruendt : Absolutely. We believe that the general use, as it has in other areas of the country, is really going to open the market up to us simply because now we don't have to rely on those that have the certifications and the credentials for restricted use. So we have a marketing campaign that is specifically directed at not only in New York City but the whole state of New York because there's a lot of things in the agriculture business that we've been not been able to tap into there. So that campaign has kicked off, and we're already seeing some really good feedback from it.

Avi Fisher : So within New York, you're focusing, at this point, primarily on the ag space, not so much changing on the residential city space?

Joel Fruendt : No, no. We're focusing on New York City and the residential and the HOAs. And I was just mentioning that in addition, people forget that there's ag business in New York that we haven't been able to do. And of course, agriculture is one of our biggest markets out there. But yes, we're going full force forward with New York City and giving them everything that they need in order to make a decision on using our product.

Avi Fisher : And what about this evaluation with the New York City rat czar? Any -- do you have any expectation on the timing of when you'll hear from them?

Joel Fruendt : Nothing that we really can report on. We do know that they were inquiring about it in other areas of the country where ContraPest has been used for a longer period of time. So we are waiting to hear something from them on how to move forward.

Avi Fisher : I think -- personally, I think there's a lot of flex and opportunity in marketing directly to co-ops that ring the park. They are the homes of many power brokers in the city, and I think you'll find an audience there. And just finally, on TriptoBIO, it sounded like in your commentary this is not a 2023 event. But I just want to confirm, is this -- how soon can you start sourcing from them? And how much flexibility does it give you on price?

Joel Fruendt : There's a lot of legwork to do with the EPA registration. But we look at it as a '24 product. And we're confident that we're going to be able to lower our cost of goods by using it.

Avi Fisher : Can you sort of estimate how much or too soon to say?

Joel Fruendt: It's just soon to say right now. There's a number of things that are in play, but it will be substantial. We wouldn't want to do this if it were just a small percentage.

Operator: [Operator Instructions] Showing no further questions, this concludes the question-and-answer session. I would like to turn the conference back over to Joel Fruendt for any closing remarks.

Joel Fruendt : Thank you all for being here today and for questions and for listening. That's all I have right now. Tom, anything from you?

Tom Chesterman: No, nothing for me. Thank you all very much. We'll talk to you next quarter.

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