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spk04: Good day and welcome to the Senate's tech Inc reports fourth quarter and fiscal year 2020 financial results conference call. All participants will be in a listen only mode. Should you need assistance, please signal a conference specialist by pressing star then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would like now to turn the conference over to Robert Bloom with Lithum Partners. Please go ahead.
spk01: All right. Thank you very much, Matt, and thank you all for joining us today to discuss the Synestec's fourth quarter in fiscal year 2020 financial results for the period ended December 31, 2020. With us on the call representing the company today are Mr. Ken Siegel, Synestec'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 SNES Tech 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, anticipate, 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 risk 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 Ken Siegel. Ken, please proceed.
spk02: Thanks, Robert. Good afternoon, and thank you all for joining us today. As you saw in the press release we issued after the close, we made good progress in 2020 in building awareness and adoption of ContraPest, as evidenced by a 97% year-over-year increase in revenue. We're obviously still operating from a relatively small revenue base, but we are making progress. While the pandemic has created hurdles for us in terms of visiting with potential customers face-to-face, we did manage to make progress on the six key areas of focus we have discussed in recent call. As a reminder, those include obtaining compelling real-world data, focusing our sales and marketing efforts towards high-value targets, launching an e-commerce platform, repositioning ContraPest as part of an overall integrated pest management strategy, focusing our R&D efforts on product improvement and enhancements, and maintaining fiscal discipline. Although we advanced in all six areas, the most significant progress was on point number one, as we recently concluded key studies for contrapest in both agricultural and urban settings with overwhelmingly positive results in reducing rat infestations and their enormous economic impact. So let's discuss the agricultural data first. As many of you are aware, rats in poultry facilities cause significant damage and can be hazardous to the health of flocks due to disease transmission, equipment impairment, pullet or chick predation, loss of grain, and in severe cases, production interruptions. In the first deployment, a West Coast egg farm, ContraPest was added to the existing integrated pest management program. The rat populations were surveyed monthly for over a year, using cameras to measure the reduction in rat activity throughout the ContraPest treatment. The final results confirmed that ContraPest cut the rat population in half within three months and produced a sustained 90% decline in rat activity over the 12-month study. In the second deployment, an East Coast pullet farm, again, ContraPest was added to the existing integrated pest management program. The staff tracked consumption rates and economic impact caused by the rats before and after the introduction of ContraPest. The staff reported an 88% improvement in pullet survival after reducing their rat population with ContraPest. The annual benefit projected by the customer of adding ContraPest to their pest management plan is over $600,000 in increased revenue and decreased costs. This is exactly the type of data we needed to show customers the unprecedented efficacy and cost effectiveness of ContraPest in real-world settings. And while these results were from deployments at poultry facilities, the results are immediately applicable to many other situations. Anywhere there is grain or feed, there is the potential for rat infestation. And ContraPest is now proven in the field to dramatically reduce those infestations. reduce their negative economic impact, and improve overall food security. Let's talk about urban deployment. We discussed this back in November after we had initial four-month data, but with the results now finalized and having 12 full months of data, we're even more gratified by the success of ContraPest in reducing rat populations. As we described in our recent press release, This urban city takes a comprehensive, integrated approach to rodent control and added ContraPest to their current program about a year ago. They deployed 139 bait stations at 13 different locations as an initial step. The goal was to determine the effectiveness of ContraPest at reducing the number of juvenile rats over time by preventing reproduction, which simultaneously lowers the growth of the population. Two of the baiting locations were monitored by Synestec using cameras to measure rat detection, counts, and age demographics during the 12-month period of the program. Data collected at month 12 from cameras showed that Site A had a 94% reduction in rat activity and a 98% decline in juvenile rats being detected since the start of monitoring. Site B had a 99% reduction in rat activity and 100% decline in juvenile rats being detected during the same period. If you recall, after our four-month study, these numbers were 51% to 88%. These results clearly showed that ContraPest was effective at lowering the rat population and limiting the number of juveniles born, thereby significantly enhancing the results of the city's rodent control program. As a reminder, the reduction in juveniles signifies that contraception is working. In effect, few, if any, rats are being born. As soon as the limitations from the pandemic ease, our field sales team will be able to share these results in more detail with governmental entities in person, including those in California who now face additional challenges with the implementation of legislation limiting or eliminating the use of common road innocence. We'll talk about California more in a moment. And while we're laser-focused on ramping adoption of ContraPest in commercial settings, we also have an eye toward the future. As I've stated in past calls, our R&D efforts have been largely focused toward making the product more user-friendly and available for use in increasing numbers of applications. In the past, I've talked about three current efforts in this area, including the addition of mice to the label, new dispensers, and finally, a non-liquid bait. On that final point, yesterday we announced a collaboration with LIFATEC to develop a new non-liquid formulation of contrapest. While our current liquid format is highly effective in a wide variety of applications, there are certain circumstances in which a non-liquid formulation might be preferable, such as locations that experience excessive heat or cold. In addition, Having a non-liquid formulation will give pest management professionals the option to use ContraPest in a familiar format, such as Leafatech's First Strike product line. Leafatech is a natural partner for us with their history of innovation in pest control. They recognize that ContraPest is a game-changer for the industry, and we look forward to working with Leafatech to develop this additional formulation for ContraPest as it opens up new addressable market opportunities for the company. So transitioning back to our commercial efforts. Clearly, products that have widespread market adoption for years have been able to continue selling throughout the pandemic. While those at earlier stages of their product commercialization cycles, such as Contrabest, have faced additional challenges. Mind you, we were able to grow revenues at 97% year over year. but we believe there was and is opportunity for accelerated growth from this point. So in addition to the trial data mentioned, which we believe is critical to our commercial efforts in 2021, we've also made progress on the following. First, we've put in place key market awareness campaigns to increase sales qualified leads using both digital and traditional outreach methods. Frequent advertising on Google and social platforms is driving traffic to our site. Targeted email and phone campaigns to highlight our outstanding field data results and the role of ContraPest in programs is creating word of mouth among customers and overall market awareness. Second, working with PMPs on product positioning, especially in light of the new prohibitions on commonly used rodenticides in California. PMPs are licensed to apply rodenticides in all our market verticals. Our overall positioning is ContraPest will increase their customer satisfaction, and thus the PMP's business. As a contraceptive, ContraPest requires continual deployment, albeit at reduced levels, increasing customer stickiness. Unlike traditional lethal products that have no long-term efficacy on rodent populations, PMPs are beginning to accept the value of our positioning that ContraPest can reduce and maintain low rat populations, and that our data shows this. ContraPest also benefits PMPs in their accounts that prefer a limited use of lethal control methods or with stubborn to control rat populations. Third, we've ramped up our e-commerce capabilities. We've streamlined the buyer's journey in the Synestec online store by creating targeted product bundles for residential and professional customers, simplified the checkout process, and developed an online chat box to rapidly address customer needs. We have also established relationships with online distributors to promote and sell our products on their sites, thus enhancing our reach. And finally, we've repositioned our field sales personnel. We are deploying two field sales reps to California, where opportunities are highest in our targeted markets of agribusiness, municipalities, and the PMPs that service those businesses. A third rep services the center of the country, and a fourth field sales rep manages key targets east of the Mississippi River. We also have a number of amendments to our label in progress that will improve reach into the important agricultural markets and that will require additional sales support later this year. With the light at the end of the tunnel from the pandemic, we're optimistic about our prospects in 2021. Operationally, we've taken significant steps to better position Semestec for the future. We've driven efficiencies in our operating structure, which significantly reduces our break-even point. We're utilizing cash more efficiently at approximately $1.6 million for just for the just concluded quarter. And we completed a $10 million private placement in February and a $4 million financing in March. This capital provides us with as much visibility as we've ever had to successfully drive adoption of the business. That said, we will continue to spend money wisely as we drive to reach profitability. So in closing, we're laser focused on commercial execution. The moves by California to ban the ESCAR should be a tailwind for us. The long-term study data were key events that we believe properly equip our sales personnel with the tools they need to confidently sell ContraPest in agricultural, commercial, and urban settings. We've restructured key messaging around the product, refocused our sales force, expanded our online direct-to-consumer channels, and continue to efficiently manage the business with a significantly enhanced balance sheet. Obviously, we still have a lot of work to do, but progress is being made and our optimism for 2021 is high. So with that, let me turn it over to Tom to review the financials.
spk00: Thank you, Ken. As a reminder to all, if you have not yet seen our earnings press release, you can get it on our website, in the investor relations section. Also, we expect to be filing our annual report on Form 10-K in a day or two, so this is just a summary. Revenue for the year was approximately $282,000 compared to approximately $143,000 in 2019, an increase of 97%. This continues our trend of growth, fourth quarter 2021 over fourth quarter 2020, and year over year. The fourth quarter revenue was $97,000, which did include $24,000 of grant revenue received. However, this is not the $660,000 PPP loan. We are still carrying that as a loan until the forgiveness for which we've applied is granted, hopefully by the end of April. We do not, as most of you may recall, provide forward-looking guidance. I will say, though, that so far the first quarter looks pleasing from our perspective. Revenues continue to be a mix of distributor sales, PMP, direct and direct-to-consumer. I should note that we can't really always tell the difference between PMP direct and direct-to-consumer as PMPs order from both the website directly as well as from distributors. We believe that sales were much slower than might have been due to the continuing effects of the pandemic, but we cannot confirm or calculate a precise effect. Cost of goods sold continues to improve on an operating basis. However, the reported 281,000 was negatively impacted by 119,000 inventory reserve for the plastics associated with an older bait station format, the JT Eaton, that just doesn't seem to be selling much anymore. Our customers have moved almost completely over to the newer format based on the EVO bait station design. Adjusting for that reserve, cost of goods sold would have been $162,000 for a 42% gross margin, up from 29% last year. Our move of the manufacturing plant from Flagstaff to Phoenix is now complete, and full commercial production has resumed. The move to Phoenix allows us to both save some money on rent and operating expenses, but also to access a broader manufacturing talent pool. Operating expenses also improved significantly in 2020. OpEx was $7.9 million in 2020 versus $10 million in 2019. As we mentioned previously, our goal was to remove $1 million from the expense structure, and we have done that. The pandemic also reduced OpEx as there were COVID-19 impacts on headcount and travel, but at least $1 million of the reduction was due to operational improvements that should be sustainable. We will release further detail in the 10-K. I am confident we'll be able to sustain much of the cost structure improvement in the coming quarters. On a GAAP basis, net loss for the year was $8.4 million, compared with a loss of $10 million in 2019. We believe, however, that adjusted EBITDA loss, which is detailed in the press release, is a better measure of overall operating performance. For 2020, adjusted EBITDA loss was $6.9 million versus $8.2 million in 2019. Cash at the end of 2020 was $3.6 million. This does not, however, take into account financings that we closed after year end. In February 2021, the company closed a private placement priced at the market under NASDAQ rules, which resulted in net proceeds of approximately $9.2 million. And in March, the company closed a shelf offering priced again at the market under NASDAQ rules, which resulted in net proceeds of $3.5 million. As will be disclosed further in the 10-K, we have also begun to see again warrant exercises. So far in the quarter, these have brought in an additional $1.2 million in additional cash. So taking this first quarter financing activity into account, our pro forma cash was approximately $17.5 million. Now, arithmetically, using last year's cash burn, this implies that we have enough cash through 2022 or further. I would also like to note that the shelf offering I mentioned now exhausts our shelf capacity under the shelf registration statement filed back in 2018. I do anticipate that we will eventually file another S3 shelf, as that is prudent and common practice, but we are not in a hurry. We can now focus on growing the business and not on the capital structure. With that, let me have the operator open the lines for questions, please.
spk04: We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then two. At this time, we will pause momentarily to assemble our roster. Our first question will come from Amit Daya with HC Rhinewright. Please go ahead.
spk03: Thank you. Hi, Ken. Hi, Tom. Thank you for taking my question. With respect to the commercialization strategy going forward now, it looks like you have an opportunity on the agricultural side as well as on the urban front. Where is the focus going to be, and what sort of strategies are you implementing? If you could provide any color on that, it would be helpful. Thank you.
spk02: Sure, happy to. Key focus geographically is going to be California, particularly with the adoption of the Eco-Persistent Protection Act. That's one of the reasons why we've doubled up on the sales team there, and we're actually looking to recruit additional people. Similarly, California, because the municipalities are one of the areas that are subject to the limitations of the statute, will be a primary of focus. So we're currently reaching out to as many municipalities as we can. As you might imagine, given the situation with COVID in California, we're still having difficulty scheduling an in-person meeting. So as soon as that begins to crack open, we'll have our people out in the field meeting with the various municipalities. Agriculture, is broader. Again, there's significant potential in California because of the law and because we had the positive results in the industry. But we're also looking in the southeast and we're also moving up the food chain. And as I mentioned before, essentially, you know, the critical issue in in the research we did, wasn't necessarily that it involved poultry, wasn't necessarily that it involved grain, that it involved eggs or chicks. It was the grain. It was the feed. And if you think about it, that grain makes its way through the entire food chain. So we're looking not only at, you know, farm, we're actually looking at as the grain is aggregated in storage, in transport, working all the way into retail. So right now everything is critical, a critical area of our focus. The other way that we're approaching it though is we've now begun outreach to major regional distributors of the product. We're tending to stay away from the national distributors because we really can't get their attention, we can't get the shelf space. And so we're partnering up with the regional distributors to get access to not only them but to their PMPs. We're using the data that we've gotten both from the urban markets and from the poultry studies to directly engage with the PMPs. We've created new handout collateral that they can use to market to their own customers. So the idea here is that we're going to attempt to leverage the existing system to get people out there and selling. multiple different efforts, but really with a high level of focus on the areas where we think we're most likely to generate revenue in 2021.
spk03: Right. Do you think you could be more aggressive as the sort of year progresses in terms of your marketing efforts now that you have a pretty strong balance sheet?
spk02: Absolutely. You know, part of this is, you know, part of the aggression simply is, you know, now being able to get people out there and being able to, you know, physically meet. The other piece is we can ramp up advertising. We can look into, you know, different channels, et cetera. But the key piece of this thing is, you know, as COVID abates, as now that we are, you know, well-armed with cash, you know, we think that we can be very, you know, very strategic in how it is we deploy the money to best drives. by sales throughout the year. Right, understood.
spk03: And maybe this one is for Tom. The year-over-year increase, I mean, it's still a small base, but it's a pretty healthy jump. Was it driven by your online contribution, online e-commerce contribution, or was there something else that drove the top-line growth in 2020?
spk00: Well, no, it's not really just the online portal. And as I mentioned, the online portal is a bit of a mix between direct-to-consumer and pest management professionals who prefer to order direct instead of working through distributors. So we can't really tell as precisely which segment of the buying population it is. But we've had a lot of direct sales where our sales force is beginning to see a lot of action in terms of direct orders. We are continuing to see normal orders growing from the various sundry distributors that we have. As Ken mentioned, a little bit more bias towards regional distributors lately, but that channel is certainly increasing.
spk03: Are the order sizes growing too, Tom, or is it just getting more orders from more distributors, or are the order sizes bigger too?
spk00: We're significantly increasing the number of customers that are ordering. There are some specific PMPs that we can track anecdotally that we know that they're increasing the deployment into other customers as they see the success of ContraPest. So it's a mix of that.
spk03: And Tom, can you remind us what the share count is after the recent financing and the warrant exercise?
spk00: On a pro forma basis, using all of those different, all the finances that we had in the first quarter, I think the share count comes out at approximately 12.2 million.
spk03: Okay. Thank you. Just one last one for me, I guess. You know, in terms of milestones for 2021, what should we be looking for? Is it just potential execution against the data that we have produced and now deploying this capital? Or are there any other milestones that we should keep in mind?
spk02: The key milestone really is execution. We should be looking for revenue growth, discussion of backlogs, And then we'll update you as to progress of the various initiatives that we have going on with EPA, which we'll start seeing in subsequent quarters. So the product improvement and expansions is running through EPA, but the critical milestones is how we do over the next couple of quarters in revenue.
spk03: Okay, great.
spk02: Thank you, guys. That's all I have. Appreciate it. Terrific.
spk04: This concludes our question and answer session. I would like to turn the conference back over to Ken Siegel for any closing remarks.
spk02: Great. So, again, thank all of you for joining us this afternoon. You know, frankly, I hope the sense that you got from the call is we're upbeat. We're optimistic about the year. The various things that we've taken close to a year and a half to put in place are finally clicking. And, you know, we've got an energized sales team. We've got an energized marketing function. And we have cash in the bank, you know, so that we're not constantly worrying about that thing. So, again, hopefully you'll be hearing good things from us over the next several quarters. Look forward to talking to you again at the end of, you know, at the end of Q1. Thanks all.
spk04: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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