SenesTech, Inc.

Good day and welcome to the CinesTech Incorporated Report's third quarter of 2022 Financial Results Conference Call. 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 on a touch-tone phone. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Robert Bloom with Slessom Partners. Please go ahead.

All right. Thank you very much, Betsy, and thank you all for joining us today to discuss Synestec's third quarter 2022 financial results for the period ended September 30th, 2022. With us on the call today are Ken Siegel, Chief Executive Officer, Joel Fruent, the company's incoming 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 27 of the Securities Act of 1933 as amended and Section 21 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 and our filings with the Securities 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.

Thanks, Robert. Good morning, everyone, and thank you all for joining us today. I'm pleased we get a chance to talk with you today as we report another quarter of strong revenue growth, but also my retirement from the company at the end of the year and the appointment of Joel Fruin as our new chief executive officer. Over the past three and a half years, it's been my objective as CEO to lay the groundwork for the successful commercialization of ContraPest, and I think we've achieved that goal. When I took over, we were a science-led organization with no commercial experience. Prior to my taking over, as the company embarked on its initial commercialization efforts, it found itself constantly pivoting from a distributor-led model to a PMP-led model to a replacement for rodenticide model to a green model to an animal-friendly model with many iterations in between. In certain instances, it had chosen to fight the industry that we would depend on for our long-term success. And that last point is one I will come back to in a moment because it leads us to Joel's appointment. We also didn't have the data to show how ContraCast worked in real-world situations or to demonstrate both its long-term efficacy and cost effectiveness. We have since completed the necessary long-term studies and fieldwork required by high-value customers particularly within agricultural and urban settings. As I mentioned a moment ago, we didn't truly have a commercialization strategy, and we certainly didn't have an e-commerce platform. Since then, we have launched a highly effective e-commerce platform that allows us to sell directly to customers. This has the dual effect of providing better service to customers and also providing some price discipline in the market. Further, through our collaboration or through the collaboration of some incredible people within the organization, we created and launched our award-winning Operation Rat Race campaign, which has driven strong increases in traffic. Today, about 50% of our sales are derived from the e-commerce platform. As my conversations with customers in the early days were occurring, it was obvious that we needed to create a delivery system that allowed for above-ground deployment of ContraPest for use in the agricultural segment and for the control of roof rats. In response, we created Elevate. There is simply no other product on the market quite like it, and I believe it will be a key driver to the future success of the company. Prior to coming on board, we also had the opportunity or actually the propensity to chase shiny objects. Over the past few years, we've streamlined our sales and marketing efforts to address key market verticals in which we have the greatest opportunity for success, including zoos and sanctuaries, municipalities, and agriculture. We've made great progress in each of these areas with key deployments in each. We've also focused our research development on attainable near-term product improvements. But coming back to the beginning, perhaps one of the most important things we needed to accomplish was to repair our relationship with the pest management industry. From a positioning standpoint, we recognize that attempting to position ContraPest as an exclusive solution to pest control was alienating our potential PMP customers and other major players in the industry because sustainable control requires the use of multiple pest management tools. We've since emphasized the important role that ContraPest can play as part of an integrated pest management or IPM solution. It can dramatically improve the effectiveness of other tools and generate sustained results. And because ContraPest is a contraceptive and not a sterilant, PMPs can improve their business models by providing a long-term solution that enables them to substantially reduce their servicing costs. In just the past year, we have started working more closely with PMPs, such as Renekil Terminex, Massey Services, and Agricons, who are now offering ContraPest as part of integrated test management, as well as continuing our joint development efforts with LeafaTech. With our e-commerce platform showing strength and growth, Tom will hit on all the numbers in a moment, but we did have a 173% increase year over year from our e-commerce platform. Our next focus area needs to be on further penetrating the test management professional vertical, and that's where Joel comes in. I'll let him expand a bit on his background, but I think as a company, we have tremendous opportunity to now take ContraPest to the next level, given the groundwork that has been laid over the past few years. Clearly, this is bittersweet for me. I have thoroughly enjoyed the opportunity to work with such amazing people and interact with many of you investors. I truly believe ContraPest is an industry-changing product. And set against a world backdrop of sustainability, it has the potential to reduce the tremendous infrastructure costs caused by rats, the destruction of the global food supply that is lost every year to infestations, the diseases that are spread through rats, which pose a dangerous risk to public health and safety, and the reduction of poisons from the environment, which impacts wildlife and humans alike. I will continue through the end of the year as an executive member of the board of directors, aiding Joel in the transition. I thank all of you for the opportunity to be CEO these last three and a half years and look forward to the tremendous future I believe is ahead for the company.

And with that, let me turn it over to Joel Fruin. Joel?

Ken, thank you very much. I am extremely excited and honored to lead to NASDAQ going forward. As Ken mentioned, ContraPest is an effective, sustainable, and earth-friendly tool that has the ability to revolutionize the way pest management is conducted. There simply is no other product in the world like ContraPest, and that is where I think the true opportunity lies. My background is anchored with 15 years of executive leadership in the vector and pest management industries, where I was the vice president and general manager of Clark Environmental, a leading vector and pest management products and services company. From Clark, I bring extensive 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. My primary skill set, though, has always been on growth initiatives, how to grow the top line, how to grow the bottom line, and how to grow the organizations. I've had successes in a variety of industries and will now focus on how best to profitably grow Synestec. In conclusion, I have always had a passion and commitment to sustainable, effective solutions to vector and pest control challenges. And ContraPest fits right in with that passion by providing an exciting, sustainable solution for management of animal pests in a standalone or IPM program. I'm very excited about this. With that, let me turn it over to Tom Chesterman.

Thank you, Joel. Let me add my welcome and excitement to have you join the team here at Synestek. As a reminder to our investors, the press release is available on our website in the investor relations section. Further, we expect to file our 10Q later today, so I will just touch on some of the high points right now. Revenue during Q3. was approximately $250,000 compared to approximately $183,000 in Q3 of 2021, an increase of 36%. Please note, though, that the year-ago period had approximately 24,000 in grant revenue. So excluding grant revenue, product sales increased 57% compared to last year. The real driver of growth was our e-commerce platform, where sales increased 173% compared to the year-ago period, and represent more than 50% of all sales during the quarter. The e-commerce growth is being driven by the marketing initiatives, including the award-winning Operation Rat Race campaign, which is driving consistent increases in traffic as well as increased website functionality. We also saw continued traction within our zoos and sanctuaries market vertical, with sales up 32% year over year. And the launch of Elevate helped drive a 27% year-over-year increase in our agribusiness vertical, as well as new and existing customers add the system to their pest management programs. As mentioned in the press release, sales were impacted during the quarter by the outbreak of avian influenza, or bird flu, which has impacted poultry operators across the US and thus delayed expected deployments with certain customers during the quarter. While the bird flu has impacted poultry farms, We did have success in other agribusiness areas where we recently deployed contrapests such as in our first pork protein production facility. Gross profit during the quarter was approximately $122,000 or 52% of total revenue compared to approximately $77,000 or 48% of total revenue in Q3. Our gross margin is trending well and in line with expectations. Our goal is to continue to be at or above 50%. Net loss during Q3 22 was $2.6 million compared to the net loss of $2.3 million for Q3 2021. Adjusted EBITDA loss, which is a non-GAAP measure of operating performance for Q3 was 2.5 million compared to 2.0 million in Q3 2021. Cash at the end of September 22 was approximately $2.8 million. With continued fiscal discipline, this cash should be sufficient to fuel our growth strategy for the rest of the year. I should note that we have filed a registration statement on Form S-1 for an offering of approximately $8 million, and we also have an S-3 shelf registration available to us. On August 26th, we announced the distribution of Series C preferred stock to holders of our common stock. This was a mechanism to make sure that our shareholders have a representative way of expressing their will, pure and simple. Various regulations sometimes make that difficult, and especially difficult when, as a retail stock, the stockholders are diverse and do not always vote their shares. The preferred emphasizes the votes that are cast, pro or con, so that statutory minimums can be reached and a shareholder decision can be made. In connection with that, on October the 12th, we held a special meeting of stockholders whereby our stockholders approved a reverse stock split of the outstanding shares of our common stock by a ratio of not less than 1 for 5 and not more than 1 for 20 shares, with the exact ratio to be set at a whole number within this range by our Board of Directors in its sole discretion. This was done primarily to ensure that we meet NASDAQ's mid-bid price deficiency. I want to conclude by expressing my appreciation to Ken for his contributions to SNESDAQ. I likewise believe we have made tremendous progress over the past three years, which has resulted in a 13-fold increase in revenue compared to the quarter when Ken assumed the role of CEO. But more importantly, I believe we have a tremendous foundation in place to build a truly great company going forward. Thank you, Ken.

With that, let me open the call to questions. Betsy?

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone 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 then 2.

At this time, we will pause momentarily to assemble our roster. The first question today comes from Amit Dayal with H.C. Wainwright. Please go ahead.

Thank you. Good morning, everyone. Pardon me, Amit.

Your line is open. I believe you might have some connection issues.

Can you guys hear me? Hello? Go ahead, Amit. Hey, sorry. Can you guys hear me? Now we can. Yeah, there you are.

Good luck to Ken on the next phase of his career, and congrats to Joel on the new appointment. I just wanted to start with, you know, just this bird food list, the impact on the quarter, any color on how this could have been. We were modeling for sequential growth, obviously, you know, because of this, you probably didn't come to sales this quarter.

Yeah, I'm sorry, you broke up again there. Could you repeat the question?

And it appears we have lost connection with Amit today.

If I could jump in here, Tom, it's Robert. I think he was discussing the bird flu and just, you know, any sort of discussion surrounding that perhaps, if that could be expanded upon.

Yeah, the bird flu, as many have read in the paper, was hitting the avian industry across the nation, starting on the east and moving towards the west. We did have a slowdown in that our existing customers could continue to order from us, but we were not allowed onto the property of any of the bird farms, if you will. And so we really were not able to do the... any sort of marketing sales activity out to new customers until they were able to open up the farm gates and let people in. That has now begun to abate, and we've actually seen strong pickup in that area as we begin to, particularly as Elevate gets introduced to that industry.

Ken, anything more you want to add to that?

Yeah, thanks, Tom. One of the bigger issues is we learned in talking to the pest management professionals that service that industry is essentially with the flu, as Tom points out, the farms essentially locked down and sole focus was really on dealing with the outbreak. They had critical issues of whether to cull their flocks. There was a significant effort there. So really any effort other than directly related the dealing with influenza essentially stopped. And so what we're expecting now is as the flu abates, the things that they had really neglected during the crisis will now come back and accelerate. So pest control, which was largely off the list for the past several months, should become a critical consideration for them going forward.

Okay, great. Thank you for addressing that. Operator?

This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks.

This is Joel, and I think in closing, thank you for your attention. As I mentioned, we are entering a new phase of Synestex growth, and I am excited to be part of it and to be sharing it with you all today.

Good day.

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