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spk01: Good afternoon and welcome to the SNES Tech Reports Third Quarter Fiscal Year 2023 Financial Results Conference Call. All participants will be in 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 your telephone keypad. To throw 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 of Lithium Partners. Please go ahead.
spk03: All right. Thank you very much. And thank you all for joining us today to discuss Synestec's third quarter 2023 financial results for the period ended September 30th, 2023. With us on the call representing the company today is Joel Fruent, 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 Synestec 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, planned 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 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 at 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 Fruent, Chief Executive Officer, Synestek. Joel, please proceed.
spk05: Good afternoon, everyone. Thank you all for joining us today. The results of the third quarter highlight the progress we have made on the various initiatives implemented to drive sales, improve our product quality, and expand our product options. Specifically, we accelerated our growth trajectory during the third quarter with a strong 44% year-over-year growth in revenues, coming in at a new all-time quarterly record of $360,000. Sales growth during the third quarter was led by increases in nearly every key vertical market, including agribusiness, zoos and sanctuaries, and commercial. Lately, in addition, we have been seeing a surge in demand from residential homeowners associations. This revenue growth, coupled with a number of operational improvements, such as improvements in our return on marketing investment within our e-commerce platform, helped lead to an improvement of nearly $700,000 in our net loss and adjusted EBITDA loss compared to the year-ago period. However, this is just the beginning, as I believe our growth will further accelerate following the launch of the revolutionary Evolve softbait product. Evolve is our all-new soft bait product that has similar efficacy to ContraPest, but in a format that is easier to deploy, that customers can use more efficiently in their integrated pest management programs, and is offered at a competitive price to traditional rodenticides. As with ContraPest, Evolve targets the root cause of pest problems, rats' ability to rapidly reproduce. The solution controls the population by controlling the fertility of rats, in other words, the birth rate, rather than relying solely on trying to keep up with the growing numbers of an infestation by solely managing the death rate. Evolve's active ingredient, Gossopol, is derived from cottonseed and has a well-documented record of efficacy affecting fertility in rats. Compound interferes with the reproductive mechanisms in both male sperm count and motility and longer estrous cycles and reduced follicles for females. thereby controlling their population. Similar to Contrafest, the low gospel levels in Evolve are designed for the body mass of rats, so larger mammals would need to repeatedly ingest a substantial amount over several weeks to see any effects. Birds appear to be more tolerant of gospel as they have different intestinal tracts and modes of digestion. It's important to point out the tremendous job our team has done in the development of this product. Our chief technical officer, Dan Pulaski, and his team were able to develop EVOLVE under the EPA's minimum risk rules, also known as a 25B exemption. By leveraging this expedited pathway, we have been able to bring this innovative product to the market at a fraction of the time and investment it took to develop ContraPest. Dan and his team have published a white paper summarizing key data on our website, as well as continuing to perform field tests and further feed and breed laboratory tests. The results are impressive. Evolve can be used anywhere rats are found. Simply place two to 12 pieces per location and update based on rat activity levels. We recommend that Evolve be secured in tamper-resistant bait stations in areas where there's potential exposure to children, pets, wildlife, or other non-target species. Due to its soft bait format and label, Evolve offers convenience and application option and can be broadcast in areas such as agricultural fields and complexes. Another key differentiator for Evolve is that it is priced competitively to rodenticide alternatives. As many of you know, ContraPest is a premium-based product that is often priced two to three times over rodenticide. Let's take a step back. Why a soft bait product? When the company first introduced ContraPest, we needed to convince the pest control market of two things. One, the value of fertility control as a means of population control, and two, the applicability of a liquid bait into their procedures. At this point, there's growing acceptance of fertility control as part of integrated pest management, but there's still resistance from pest management companies to alter their established practices of utilizing non-liquid products. The current contra-pest delivery solutions we have in the market Ultimate, isolate, and elevate are all currently delivered in a liquid form. As rats need to consume about 10% of their body weight in water every day, it is palatable to the rats and keeps them coming back for more. However, only about 5% of the current rodenticide market is a liquid formulation, if even that much. The remaining 95% is non-liquid baits. At this point, we believe the launch of the Evolve solution is expected to be a significant step in expanding Synestec's reach within key market verticals, including big box retailers, key e-commerce channels, and leading industry pest management professionals. We have already received a number of pre-orders and expect to start shipping product next week. and we are in negotiations with big box retailers and key e-commerce providers with a goal to develop partnerships that will dramatically increase the adoption of the Evolve solution. For example, we have initiated the process with Amazon. With respect to big box retailers, we already have shelf space for Isolate at a group of Ace Hardware stores, so we expect to move quickly into big box with Evolve. With a competitive price point and a format they are accustomed to, We believe we have a recipe that will set Synestec up for tremendous success in the future. The introduction of Evolve continues Synestec's recent string of innovative products offerings that were designed to provide customers with the effectiveness of fertility control in the format that fits their needs. In July 2023, the isolate bait system was launched as a more efficient and easier to use bait system, which integrates both the tank and tray as a single unit. At present, Isolate represents nearly a third of all unit sales despite only being introduced in late August. Last year, the company introduced Elevate, an easily deployed system for mounting in the rafters of barns, greeneries, attics, lofts, and storage and manufacturing facilities. Year-to-date, nearly 5,500 Elevate systems were deployed in various agricultural settings. Product innovation is key to our future success. and I am pleased with the tremendous progress we have made on this front. To wrap things up before I turn it to Tom to run through the financials, we continue to execute on the three key imperatives I have outlined to drive success in Synestec with the goal of steepening the adoption curve. One, we're delivering to our new and existing customers flawless products that work every time while providing more product options that fit their needs. With Isolate recently launched, evolve shipping shortly, and a product development team that is already at work with over 25 potential development projects in progress, we are certainly achieving our objectives. Two, we will penetrate and grow our targeted markets with a structured sales force, enhanced e-commerce platform, and improved distribution relationships. These distributors are focused on providing customers and partners value as part of their effective integrated pest management programs. And three, we will make better products. Concurrent with the introduction of Isolate, we have implemented an enhanced formulation that continues product quality in a wide variety of environmental conditions, making great strides in the area of continuous improvement. I believe we are successfully executing on these imperatives, which should help steepen the adoption curve of Synestec products and drive long-term value in Synestec. With that overview, Let me turn it over to Tom to review the financials. Tom?
spk02: Thank you, Joel. As 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 10Q later today, so I'll just touch on some of the high points right now. Revenue during the third quarter was a new quarterly record of $360,000 compared to $250,000 in Q3 of 2022. an increase of 44%. Sequentially, revenue was up 18% compared to second quarter 2023. Sales growth during the third quarter was led by increases in nearly every key market vertical, including agribusiness, zoos and sanctuaries and commercial applications. Gross profit during the third quarter was approximately $176,000 or 49% of total revenue compared to approximately $122,000 or 49% of total revenue in Q3 of last year. Net loss during Q3 2023 was $1.9 million, compared with a net loss of $2.6 million for Q3 2022. Adjusted EBITDA loss, which is a non-GAAP measure of operating performance, for Q3 was $1.7 million, compared to $2.4 million in Q3 of 2022. Our current goal is to take $1 million out of the annual cash expenses and we're well on our way to achieving that goal. Cash at the end of September 2023 was $2.1 million. As I'm sure you all are aware, we have filed an S-1 with the SEC to raise up to $7.5 million. In addition, we have warrants that are near enough the money that we may be able to raise cash through the exercise of warrants. Our goal is to raise enough cash to confidently execute our commercial plans, including the launch of a soft bait for a year or more. With that, let me turn it back over to Joel for remarks, and then we will take your questions. Joel?
spk05: Thanks, Tom. How humanity is currently responding to too many rodents is not working. With many decades of effort and traditional responses, the public health concerns and risks keep rising. There's also a growing realization that there's too much collateral damage in this war on rodents, as evidenced by California's adoption of the Ecosystems Protection Act, which banned under many circumstances the four major second generation anticoagulant rodenticides commonly used in rodent pest control. These tailwinds are all in our favor. And most importantly, we are executing. We are delivering against our success imperatives by selling better, improving our products, and offering the customers more choices. As was stated last quarter, products that can be paradigm changing don't come along very often. But when they do, they have an opportunity to change the way things have been done for generations. I believe we have the type of opportunity by leading the way in fertility control for animal pest populations. I thank you all for your continued support. And with that, let me now turn it over for any questions.
spk01: We will now begin the question and answer session. To ask a question, you may press star, then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press Start then 2.
spk00: At this time, we will pause momentarily to assemble our roster.
spk04: Amy, this is Robert here.
spk03: While we wait to see if there's any questions from the live dialers here, we did have one emailed question that I wanted to make sure we could pose to management, I guess to Joel or Tom here. The question is, congratulations on your new product. It sounds like you are very excited by it, but from an investor standpoint, how big is it really?
spk05: I'll take that one, Tom. It is quite literally a game changer. For one, most of the pest control market prefers a non-liquid product to best fit in their workflow, but they understand the need to add fertility control to their service offerings. Two, this is truly a consumer-friendly product and can be sold on the shelves of your local hardware store, agricultural supply store, or your favorite e-commerce portal. Three, Evolve may start with rats, but follow-on products for other species can be pursued immediately. And then finally, many other countries have similar expedited approvals to the EPA's 25B. For example, we can start the process in Canada immediately. This is particularly timely. British Columbia has recently banned the use of second-generation anticoagulant rodenticides, as did California. And they definitely need a fertility control to fill the gap. So from an investor standpoint, this means more press, more revenue, and a realistic shot at profitability by 2025.
spk04: Perfect, Joel. Thank you for that. Amy, I'll turn it back over to you.
spk00: As a reminder, to ask a question, you may press star then one on your telephone keypad. This concludes our question and answer session. I would now like to turn the conference back over to management for any closing remarks.
spk04: Thank you all for attending and we look forward to our Q4 results after the first part of the year.
spk00: Office is now concluded. Thank you for attending today's presentation. You may now disconnect.
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