SenesTech, Inc.

Good day and welcome to the SNES Tech first quarter fiscal year 2021 financial results. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one. Please note that this event is being recorded. I would now like to turn the conference over to Joe Diaz with Lifeline Partners. Please go ahead.

Thank you, Cole, and thanks to all of you joining us today. On today's call, we will discuss the NSTEC's first quarter 2021 financial results for the period which ended March 31, 2021. With us on the call today are Ken Siegel, 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 to the record the following statement. Statements made by the management team of Semestec 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, strategies, results, 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 made 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 may, excuse me, 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 filing, the Security and Exchange Commission. All forward-looking statements contained during this conference call speak only as of this date and are based on management's assumptions and estimates such as of today's 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 or the occurrence of future events or otherwise. With that said, let me turn the call over to Ken Siegel. Ken, please proceed.

Thanks, Joe. Good afternoon, and thanks to all of you for joining us today. As you saw in the press release we issued after the close, we continued the positive traction achieved last year with a strong first quarter, growing revenues 138 percent compared to a year ago. The groundwork I've talked about on the last few conference calls to obtain real-world usage data of contrapest, particularly in urban and agricultural settings, has been a key driver. The data is resonating well with potential customers who understand now the economic benefits of adding contrapest fertility management into their pest management programs. That said, we're cognizant that we are still a long way from our potential, and there's plenty of work to be done. However, I am pleased with the progress to date. So let's dive in a bit more on the progress we've made on our core areas of focus. To remind you, those include obtaining compelling real-world data, focusing our sales and marketing efforts towards high-value targets, getting our sales team back out on the road as COVID abates, launching an e-commerce platform, repositioning ContraPest as part of an overall integrated pest management strategy, focusing our R&D efforts on product improvements and enhancements, and finally, maintaining fiscal discipline. While I talked about this in some length during our year-end call, the conclusion of key studies for ContraPest in both agricultural and urban settings with overwhelmingly positive efficacy and economic results did in fact occur during the first quarter of 2021. This was clearly one of the most significant progress events during the quarter, and I expect it to be a driver for sales expansion in the future. I won't go into all the details again like I did last time, but to briefly remind you of some of the specifics. On the agricultural data first, in two separate studies, one in a West Coast egg farm and the other in an East Coast pullet farm, contra pest was added to the existing integrated pest management program. At the West Coast egg farm, the rat populations were surveyed monthly for over a year, using cameras to measure the reduction in rat activity through contra pest treatments. The final results confirmed that contrapest cut the rat population by over half within six months and produced a sustained 90% decline in rat activity over the 12-month study. And remember, these results were incremental to any reductions achieved through the farm's other pest management methods. On the East Coast Pullet Farm, the staff tracked consumption rates and economic impacts caused by rats before and after the introduction of contrapest. 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 was over $600,000 in increased revenue and decreased cost. And once again, these are incremental benefits and results. Rats and poultry facilities cause significant damage and can be hazardous to the health of flocks due to disease transmission, equipment impairment, pullet predation, loss and contamination of grain, and in severe cases, production interruptions. As I stated last quarter, this was exactly the type of data we needed to show customers the unprecedented efficacy and cost effectiveness of ContraPest in real-world settings. I'm pleased to add that both customers, East Coast and West Coast, continue to deploy ContraPest. And the PMP who work with us on the West Coast deployment is expanding the use of ContraPest to other customers and sites. In our urban deployments, we finalized 12 months of population monitoring data at two different locations. Data collected at month 12 from cameras showed that one site had a 94% reduction in rat activity and a 98% decline in juvenile rats since the start of monitoring. while the other site had a 99% reduction in rat activity and 100% decline in juvenile rats during the same period. These results clearly showed that ContraPest is effective in lowering populations and limiting the number of juveniles born. Again, these results were incremental to the city's existing protocol and thus significantly enhanced the city's overall rodent control program. With this data in hand, we've immediately commenced marketing to agricultural locations and urban locations across the U.S. We recently got confirmation that we received an order from a large eastern U.S. city for an implementation of ContraPest within that city. This is an exciting development so quickly on the heels of our data completion, and I hope foreshadows things to come in urban deployments. Further, we're aware of a pest control bid in a west coast county that specifies ContraPest, and another bid for a large southwestern state park. We also expect that fertility control will become increasingly specified in locations in California as the effects of AB 1788 become more widely known. Because ContraPest is ultimately deployed by pest control professionals, we don't always have insight into every large bid that is ongoing, but some will bring us into the process and we are happy to help our PMP customers achieve success. Beyond data, a key component to our commercialization strategy has been the creation of partnerships and collaborations with key distributors like Agriturf Distributing, Thesaurus, which used to be part of Univar, BWI companies, and other key pest management professionals. The goal is to improve customer satisfaction through the addition of contra pest fertility management into their pest management programs. As an example, We expanded our distribution agreement with Agriturf to include joint marketing and sales initiatives. We will have dedicated technical field sales staff co-call on accounts with Agriturf, and the marketing teams are developing targeted awareness campaigns to meet the growing demand for ContraPest. Agriturf has deep experience in the pest management industry, particularly in the California market, which I'll touch on in a moment. In connection with our enhanced commercialization activities, we also launched a corporate rebranding. If you haven't already done so, please visit our websites at synestec.com or contrapeststore.com and take a look. The new branding and campaign is called the Pest Control Difference, featuring ContraPest. In addition to the partnerships and collaborations, as well as the websites, we are also creating a loyalty and rewards program to allow customers the opportunity to earn rewards for purchases or referring their friends. On the website, we further ramped up our e-commerce capabilities. We've streamlined the buyer's journey in the online store by creating targeted product bundles for residential and professional customers. We've simplified the checkout process and have developed an online chat box to rapidly address customer needs. We also established relationships with other online distributors to promote and sell our product on their sites, thereby expanding our reach. The rebranding and the associated initiatives I just mentioned, such as partnerships and collaborations, are extensions to many of the initiatives we've been putting in place in the last few quarters. If you recall, last quarter we discussed the implementation of key marketing awareness campaigns to increase qualified sales leads using both digital and traditional outreach methods, frequent advertising on Google and social platforms to drive traffic to our site, and targeted email and phone campaigns to highlight our outstanding field data results. If you recall, when I took over as CEO, there was a lot of work that needed to be done to transition Synestec from a science-based research company to a solutions-based, environmentally responsible commercial company. There's still work to be done, but a lot has been accomplished and I want to thank the team within the organization that has worked so hard to bring us to this point. So let me turn to California for a moment. As most of you are aware, effective January 1, 2021, AB 1788 prohibiting the use of the four major second generation anticoagulant rodenticides went into law. To date, we've seen good growth in California with nearly a third of our revenue during the quarter coming from that state. This is expected to continue, further enhanced by the fact that ContraPest is no longer a restricted use product in California. This allows us to sell directly to more customers. Previously, in California, we could only sell ContraPest to specially licensed pest control companies. Now, since we're no longer an RUP, we can sell into the complete spectrum of customers as we can in most of the U.S. That includes pest control companies, lawn and yard maintenance companies, end-user customers, and even residential do-it-yourselfers. The only restriction remaining in California is that ContraPest can't be deployed at K-12 schools. and we're working on removing that restriction. We're deploying additional field sales reps to California where opportunities are highest in our target markets of agribusiness, municipalities, and the PMPs that service those markets. Working with firms like Agriturf and others, we feel good about our enhanced approach in California and look forward to improved traction going forward. Before I turn it over to Tom, let me just hit on the final point I've reiterated on the last few quarterly calls, operating with fiscal discipline. While solid progress is being made on the top line, as evidenced by our 138% growth during the quarter, we don't want to get ahead of ourselves in the near term. We've reallocated resources to focus on one thing and one thing only, driving sales growth. Overall, we've driven inefficiencies out of our operating structure and have significantly reduced our break-even point. During the most recent quarter, our cash operating expenses were $1.6 million. This streamlined operating structure, coupled with a balance sheet that had more than $15 million on hand at the end of March, and most importantly, growing sales should position us well to execute on our strategic plans going forward. So in turning it over to Tom, let me just reiterate a few highlights. Number one, we are laser-focused on commercial execution. We're putting together the necessary components to achieve sales growth. We now have definitive real-world data that we can share with potential customers. This will empower our sales team to more effectively convert prospects into customers, and we've created an efficient infrastructure for our customers to obtain contrapasses and deploy it effectively. Second, I believe there are key tailwinds in our favor right now. Clearly, the move by California to ban escars is one, but more importantly, the move by organizations and municipalities in the U.S. and around the world towards eco-friendly tools is one that I believe will play in our favor in the long run. As always, we have a lot of work to do, but progress is being made. And with that, let me turn it over to Tom to review the financials.

Thank you, Ken. As a reminder to all, if you have not seen our earnings press release, you can get it on our website in the Investor Relations section. Also, we expect to be filing our Form 10-Q in a day or two, so this is just a summary. Revenue for the quarter was approximately $88,000 compared to approximately $37,000 in the first quarter of 2020. This represents an increase of 138%, continuing recent trends and growth. This does not include more than $20,000 of backlog, late orders that were not fulfilled during the first quarter but were fulfilled in the first days of April and will be included in the second quarter numbers. It's worth noting, as was mentioned before, that nearly a third of our revenue for the quarter was from California for reasons that Ken mentioned previously. Now that we are no longer a restricted use product in California, and as pest management professionals continue to implement alternatives to the second-generation anticoagulants that have been restricted, we should see continued growth in this area. Operating expenses were down again year over year, coming in at $1.8 million for the first quarter of 2021 versus $2.3 million in the first quarter of 2020. You'll note that R&D went up. This is a reflection of increased regulatory effort as we continue to provide additional data to the EPA and improve our label and claims for ContraPEST. On a gap basis, net loss for Q1 2021 was 1.8 million compared to net loss of 2.7 million for Q1 of 2020. The adjusted EBITDA loss, which is a non-gap measure of operating performance for Q1, was 1.6 million versus 2.1 million in Q1 of 2020. This reflects the reduction of operating expenses, largely speaking. Cash at the end of Q1 was approximately $15.2 million. As we reported on our last conference call, this cash reflects a couple of financings. In February 2021, we closed a private placement priced at the market under NASDAQ rules, which resulted in net proceeds of approximately $9.2 million, And in March 2021, we closed a shelf offering price at the market under NASDAQ rules, and that resulted in net proceeds of $3.5 million. Also during the quarter, some warrant exercises have started. These have brought in an additional $1.2 million in additional cash. At our current burn rate, this implies that we have enough cash through 2022 or further. 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. Cole?

And we will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you're using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Once again, that is star then one to ask a question. And at this time, we'll pause momentarily to assemble the roster.

Ken, this is Joe. While the queue gets filled up, let me ask you, in your prepared remarks, you mentioned that the West Coast chicken farm, and you mentioned the success of that test. Is that chicken farm still buying product, and do you feel that there will be expanding the contra pest deployment going forward?

Well, as was mentioned a little bit, both poultry facilities are still deploying ContraPest to our knowledge, but one buys through a distributor and the other one through a PMP. So we don't have direct knowledge. Looking at the overall market though, we do know that the PMP that we worked with on the West Coast is continuing to expand ContraPest deployment throughout his other customers. And then even looking larger, the poultry market is very large and very diverse. in the millions by itself, but the target is really much bigger for us throughout what we call the grain vector, that it would be all of the sources and uses of grain in agriculture. So it is a very large market, and the reason why having this data, we are focusing on that market as a key vertical.

Yeah, sorry, I was on mute when you asked the question, Joe. But the other piece, picking up on Tom's point on the grain vector, The one thing we are aware of is the East Coast farm is actually looking now to deploy the contra pest in grain storage. So we're looking forward to moving forward with that. So the whole notion of following grain across protein production, transport, et cetera, is beginning to get traction.

As it relates to your roster of customers, who are your top five largest customers, if you feel you can comment on that.

Tommy, you want to take that?

Sure. We don't typically name specific customers, but the top five are a rather diverse group. Two distributors, which makes sense since they sell on to a wide variety of end users. One East Coast City, the one that just ordered, per Ken's comments earlier. We have another a large project going, a collaboration with Island Conservation that we've talked about before. They're a large customer. And finally, on the top five, it's actually a tie between a zoo and a property owner who has begun to deploy at properties that he owns or manages.

And California, obviously, One would consider it to be a very big market now that they've banned the S-cars. What's the opportunity for Genestec going forward? How big is the market? How do you plan to work there?

So let me start on that one. So based on what we heard in the hearings for 1788, the market – at least $100 million was being spent on the escars that are now being banned or limited. So how long it will take for us to penetrate that market is a more difficult question. The Act doesn't specifically ban the use of escars in all situations, but limits their usage. And at the outset, I think PMPs are going to be looking at us and also at other alternatives. So our key challenge is we need to work with the industry. We need to get awareness out to see how best we can get the pest management professionals, that we can get end users to incorporate ContraPest into their integrated pest management things. So, you know, we're really optimistic about it. The other piece, you know, that both Tom and I mentioned is ContraPest is now no longer restricted use in California. So we can present it more broadly. Essentially, it doesn't have to go through PMP. It can go through the do-it-yourselfers. It can go to direct end users. So we're looking at how it is we market to and through all of those different vectors. So pretty exciting.

Paul, are there any questions in the queue?

No, sir. And this will conclude the question and answer session. I'd like to turn the conference back over to Ken Siegel for any closing remarks.

Well, again, thank all of you for joining us this afternoon. I think as you can see, you know, we've made significant progress on the various things that Tom and I have been laying out over the past several quarters. We are now fully ramped and engaged on sales and marketing. I think we have now established a fully capable commercial organization. And, you know, hope to continue to show accelerating progress to to all of you over the next several quarters. So again, thank you for joining us and have a pleasant evening.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.