SenesTech, Inc.
Q1 2024 Earnings Call Transcript

Published: 10 May 2024

[Operator:]

Good day and welcome to the SenesTech Inc. Reports First Quarter Fiscal Year 2024 Financial Results Conference Call. All participants will be in a listen only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [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:]

All right. Thank you very much Chad and thank you to everyone for joining us on today's call. As the operator indicated for SenesTech's First Quarter 2024 financial results for the period ended March 31, 2024. With us on the call today are Mr. Joel Fruendt, 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. [Operator Instructions] 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 oof 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 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 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 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 Fruendt, Chief Executive Officer; for SenesTech. Joel, please proceed.

[Joel Fruendt:]

Thank you, Robert. Good afternoon, everyone. Thank you for joining us today for our Q1 conference call. I certainly couldn't be more pleased to be speaking with you today, given all the positive developments going on with the company. So let me jump right into it. During the first quarter, we reported record revenue of $415,000, an increase of 78% compared to the first quarter of last year. This was also a 41% increase sequentially from the fourth quarter of 2023. Key driver has been the introduction of Evolve, our all-new soft bait product launched in January of this year, which has quickly become the company's biggest selling product contributing more than 50% of first quarter revenue. As a reminder, Evolve is an EPA designated minimum risk product and brings three key benefits to the marketplace

[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 of this presentation. Further, we expect to file our 10-Q, later today, so I will just touch on some of the high points right now. Revenue during the first quarter was $415,000, an increase of 78%, compared to $233,000 in Q1 of 2023. As Joel mentioned, the key driver was Evolve, which represented more than 50% of our first quarter sales. Looking at it by our distribution verticals, we saw a significant increase in sales and pest Management Professionals as well as Commercial Customers. I mentioned this last quarter, but I'll remind everyone again, that due to the success of Evolve we have had to expand our manufacturing capabilities. Today we have the capacity for about 1,000 pounds per day soon to be 2,000 pounds with a clear path to 4000 pounds per day, more than enough to keep up with the current demand. To this point, Evolve is offered in six and 12-pound pails, which are optimal for the professional market and 1.5 pound and three-pound pouches for the consumer market which we began shipping in March. To allow for the increase of raw materials and finished goods, we have expanded our warehouse space in Phoenix. Cost of sales in the first quarter of 2024 was impacted by the higher cost of a key ingredient in our new Evolve product, due to a supply chain issue. We corrected this issue as quickly as possible, but we were forced to use higher cost ingredients in the first months of production. We finished that transition at the end of the first quarter. To give you an example of the impact if we had used the intended raw materials during the first quarter, which we are now, our gross profit would have been 52%. And as immediate confirmation, our preliminary gross margin in April was 58%. Going forward, we now have a reliable supply chain process, which will ensure that this does not recur. Ultimately, whereas ContraPest brings in a gross margin of about 50% Evolve has the potential to earn 60% or more. Operating expenses for the quarter were $2 million, a decrease of 8% compared to the $2.1 million in the comparable period of 2023. We made numerous changes in our operating structure. The company remains committed to driving operational efficiencies with a goal of removing another $1 million out of annual operating expenses in 2024. Net loss during the quarter was $1.8 million compared to a net loss of $2 million in Q1 of 2023, an improvement of $200,000. Adjusted EBITDA loss, which is a non-GAAP measure of operating performance for Q1 of 2024 was $1.7 million compared to $1.8 million in Q1 of 2023. The quarterly adjusted EBITDA loss was the smallest in company history as we strive to achieve our goal of achieving positive operating cash flow. Cash at the end of the quarter was $3.6 million. We have approximately 3.1 million shorter-term warrants still outstanding after last financing, and we are 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, Chad, please let me turn it over to you for questions.

[Operator:]

Thank you very much. We will now begin our question-and-answer session. [Operator Instructions]

[Robert Blum:]

Chad, this is Robert. I'll go ahead and jump in while we see if anyone comes in on the dial in and ask some questions through the website. Again, to any listening on the website, feel free to type your question and through the prompt, the question prompt box there on the webcast player. Joel and Tom, we have a question here in terms of your sales outlook for the mouse product, what should we expect in the coming quarter?

[Joel Fruendt:]

Yes. So as with our first product, there are certain states which accept the EPA minimum risk designation right away and other states, which will have additional questions or requirements. This may go more quickly than our first product. But we should assume that Evolve mouse will gain state approval gradually, and we'll build up to a good portion of our Evolve sales probably in the 15% to 25% range over the course of the year.

[Robert Blum:]

Okay. Great. [Operator Instructions] It looks like we have one more question here. Do you expect the Amazon store to cannibalize sales from your own website? Or do you think it's a different customer?

[Joel Fruendt:]

We have some great customers on our site, and I'm sure they will continue to purchase there. Amazon is a powerful channel. And there may well be many customers that prefer it, but there are also many customers out there that prefer to deal directly with the company. So in any case, whether they want to buy on our site or buy in Amazon or pricing strategy is somewhat neutral. So we just believe that the power of the Amazon channel is going to really come on strong.

[Robert Blum:]

All right. Fantastic. It looks like we have another question here. What will it take to get a distribution agreement with the major pest control companies?

[Joel Fruendt:]

So we're in contact with the major pest control companies, and we do have some of their locations that are using it. So we think that as we get further along here with Evolve and it's proven out in the field that the pest control companies, along with the distribution companies that service the pest control major companies are going to be willing to take a look at some type of supply agreement going forward. We're really confident in that.

[Robert Blum:]

Okay. Great. Looks like we don't have any further questions here. So Joel, I'll go ahead and turn it over to you for any closing comments.

[Joel Fruendt:]

Thanks, Robert. Thank you all for your attention here today. This is shaping up to be an outstanding year for SenesTech, and I look forward to sharing our success with you in the coming months. Thank you.

[Operator:]

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