Q2 2020 Senestech Inc Earnings Call
Good day and welcome to the Senestech Inc. second quarter fiscal year 2020 financial results all participants will be in listen only mode should you need assistance. Please signal coffee, especially for personal sarkouhi followed by <unk>.
After today's presentation, there will be an opportunity to ask questions to ask a question. Your press Star then one on your question.
The draw your question. Please press Star then too.
That is being recorded I'd now like your turn the conference ever to Robert Watson Partners. Please go ahead Sir.
Thanks for school and thank you all for joining US today on today's call. We will discuss in South, Texas second quarter 2020 financial results for the period ended June 32020.
With us on the call today are Mr., Ken Siegel, the company's Chief Executive Officer, Mr., Tom Shusterman, the Companys Chief Financial Officer.
At the conclusion of today's prepared remarks, well open the call free question answer session.
Before beginning with prepared remarks, we submit for the record a following statement.
David made by the management team of Snuff Tech during the course of this conference call may contain forward looking statements within the meaning of section 27 eight of the Securities Act of 1930 Threes amended infection 21. He of the Securities Exchange Act or 1934 as amended in such forward looking statements are made pursuant to the safe Harbor provision.
Oh, the private Securities Litigation Reform Act of 1995.
Forward looking statements describe future expectations plans results first strategies and our generally preceded by words, such as May future plan or planned wheel 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 the forward looking statements, including the risk that actual results may differ materially from those projected the forward looking statements as a result of various factors and other risks identified in our filings with the secured.
These exchange Commission.
All forward looking statements contained during this conference call speak only as of the date and 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 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 CAD Siegel Chief Executive Officer of stuff Tech Ken. Please proceed.
Great. Thank you Robert.
Good afternoon, everyone. Thanks for joining us I hope you are all doing well in these and these very trying times.
Despite the severe headwinds caused by cobot 19 in the economic downturn.
So that's that continues to make slow and steady progress.
Tom will discuss the numbers with you shortly.
But I'm pleased to say that we continued to show quarter over quarter growth.
Despite the economic strain in our commercial and governmental verticals.
Second quarter marked our highest revenue quarter over the past six quarters. Although the numbers are still small we are seeing continued expansion in new accounts and gradual acceptance of our monthly subscription model.
Second quarter marks the end of my first year at Senestech I want to share with you some of my learnings over the past year.
Hopefully give you some perspective on the challenges, we faced and how we've addressed them over the past 12 months.
I think you'll see that in many ways, you're now looking at a completely different company than the one that was founded some years ago.
As a reminder of the challenges we faced.
First off we were a science led organization with no commercial experience.
As the company embarked on its initial commercialization efforts. It found itself constantly pivoting from a distributor led model.
So a PMP led model to a replacement for Rodenticides model to a green model to an animal friendly model there were many iterations in between.
In certain instances, we even chosen to fight the industry that we would depend on for a long term success the pest control industry.
We also tried to address every possible industry segment and shiny object without a focused approach.
Perhaps most importantly, we had no commercial level data on long term effectiveness.
And on the value of contract pest.
We simply had lab in short term field day.
Simply put.
When I arrived Senestech had a failing commercial strategy.
However, we did have the most important thing.
A product that worked.
If only we could prove that real world settings.
So what are we done since then.
First we began a crashed program to obtain the data necessary to show how contra purse work contract best worked in real world situations and to demonstrate both its long term efficacy and its cost effectiveness.
Second.
We will refocused our sales and marketing efforts to drive pull through demand and focused our efforts on a set of target verticals that would be most likely to see the benefits of the product and we see the highest value from results.
I'm going to expand on that more and a little bit.
Third and as part of our marketing efforts, we launched an E commerce platform that would allow us to sell directly to consumers.
Allowing us to get our product to individuals and companies that were happy to play Contra best without a PMT.
But also creating another source of demand from BNP.
Fourth we reposition contra passed as part of an overall integrated pest management strategy.
We emphasized that while contra pest could certainly be used as a single solution in environmentally sensitive situations.
It was even more highly effective as part of an integrated approach.
Next we refocused our R&D efforts towards making the product more user friendly and available for use in increasing numbers of applications.
Finally.
We stop chasing every shiny object that came along and concentrated on those areas and opportunities most likely to bring near term success, while maintaining fiscal discipline.
So where we now.
We've launched several long term projects that effectively demonstrate the efficacy of contract pest in real world applications.
As we previously announced our program in Washington, D.C. demonstrated reductions are between 50 and 87% in red populations, but those reductions continuing to be sustained overtime.
Do you see will be deploying contract best on a widespread basis as their budget permits.
Facilitate this we've arranged the donation of over $100000 of product as a thank you for their support and to enable them to head off a significant increase in the road and population as restaurants and other sources come back online after kogut.
As DC returns to normal operations and their product is depleted we could see annual sales of between 50 and $100000 or more.
As we announced this morning.
Our project in San Francisco is showing similar results with a 65% reduction as a key part of an environmentally sensitive pest management program.
Keep in mind.
But these are incremental reductions they are above and beyond that being achieved by conventional programs before the use of contract best.
As we previously discussed our long term project in the poultry industry is also showing 50% to 87% reductions and road and populations with an average sustained reduction of 61%.
This project has also enabled us to test a more efficient and easier to use dispensing system that we're also testing in other locations.
This new Super tubes structure will shortly be submitted to the EPA for approval.
Thus, giving our customers another way to address the road and problems.
We believe that this new dispenser will be highly desirable and addressing roof rat infestations and consider Nick significantly expand the usability of contra pest in many locations.
We hope for EPA approval later this year.
Our data shows that in poultry applications, the amount going to the bottom line of an average farm.
Approach a million dollars per year.
Of annual revenue to us for each location exceeding $50000.
We've completely redesigned our sales and marketing approach under the leadership of Steve Crouse to accelerate new account growth and physician emerging field efficacy results for sustained growth and key market verticals.
We have created a field sales team reassigned to existing staff members based in Phoenix to cover the Western region.
And began recruitment for two additional reps in the eastern region with one expected to start next week.
Overall.
Weve implemented three core strategies to meet revenue targets.
Acquire retain and growth.
Our acquire strategy, which we launched in March 2020 to acquire new customers primarily in the residential consumer.
And service provider segments has shown strong results.
2019, Senestech added 63, new accounts.
2020 through July we have sold to 208, new accounts and that number has accelerated each month since March.
We are using a number of tactics to add new potential leads into the marketing and sales funnel.
Where the leads are assessed for sales opportunity.
Revenue and profitability of success in our Salesforce CRM program.
All account touch points or documented in salesforce to improve account management customer success and staff Resourcing.
This will become increasingly valuable as our field sales reps begin hitting the road with the eventual decline in coated risk.
Our retained strategy is how we retain customers through subscription and win back program.
In July and nearly 14% of customers bought contra pass through subscription.
Win backs or customers, who haven't bought in six months and now they are reactivated through senestech outreach by a dedicated team.
Our growth strategy cuts across all customer for Sonus.
For individuals and residential customers, we ensure that the appropriate amount of contra pes is deployed by each account.
For National distributors MPM piece, we are building an evidence based content.
Hi that we've discussed before to demonstrate contract as value to them and to their customers.
The same time, our new ecommerce platform has enabled us to tap the direct to consumer market.
Although this segment is still small it is showing significant month to month growth.
There's also been relatively impervious to the code that downturn.
At the same time, we're in a crash program to dramatically improve our website and communications platforms to address this important new revenue source.
Ecommerce platform also strengthen pricing discipline around or product.
And we've added over 200, new accounts to our database since March.
From a positioning standpoint, we recognized last year that attempting to position Contra passed as an exclusive solution to pest control was alienating our potential PMP customers and other major players in the industry.
This is because sustainable control requires the use of multiple pest management tools.
Since then we had been strongly emphasizing the important role the contract pest can play as part of an IP M. solution.
It can dramatically improve the effectiveness of other tools and generate sustained results.
And because contract Pes is a contraceptive and not a sterilants MPS can improve their business models by providing a long term solution that enables them to substantially reduce their servicing costs.
We are finalizing real world business cases that our sales and marketing team can use to demonstrate to both PMP is an end users.
Hi value of including Contra passed as part of their ITM programs.
In addition to the work to create new dispensers. Our R&D team is focused on another of key improvements to the product as well as completing the studies necessary to expand the usability of country pest.
At the top of the list is completing the EPA studies necessary to expand the permitted outdoor uses of contra past and that's targeted for completion by year end.
More ambitious and with longer cycle times is work on solid in semi solid formulations to address those situations in which our liquid formulation may not be the optimal solution.
We're also acutely focused on reducing the cost of our product and of tripped Allied.
One of our key active ingredients.
We are so we are actively looking for alternative molecules with similar effectiveness as well as new ways to synthesize the compound.
Results or a year or more away, but we are constantly thinking about how to improve the product and expand sales [laughter].
Isn't it.
Equally importantly, and as Tom will describe in a minute we have been acutely focused on our near term economic health.
Since January we have slashed our expenses by over 200000 per month.
In addition, we were able to raise nearly $650000 and PPP funds under the cares Act.
And we are hopefully hopeful that we will qualify for 100% forgiveness.
Subsequently, we were able to tap the capital markets in April bringing in another 4.3 million in cash to fund operations.
Finally, we learned recently that California is a b 17, 88 has been reactivated and sent back to committee.
While we're not sure what this means yet it could potentially bring positive news in the future.
So at some takeaways from the second quarter.
In addition to growth in revenue, we also advanced key pilot programs for the municipal and poultry industries.
Made progress in the positioning of Contra past is a highly effective tool when included as part of an integrated pest management strategy.
Created our direct to consumer online crack platform.
And advanced making the product more user friendly and available for use in an increasing number of applications.
Despite the challenges I'm pleased with the efforts made by the entire organization.
So as you hopefully heard this is a new and radically different senestech.
And we're confident that the aggressive actions that we've taken over the past 12 months, we'll begin to show in our economic performance in the near future.
And with that let me turn it over to Tom for look at the numbers.
Thank you Ken.
We have posted the press release, it's available on our website. If you don't have a copy of the handy.
Thats, you'll see the revenue for the quarter was $71000 compared to 24000 in the second quarter 2019, and 37000 in the first quarter 2020.
A couple of notes with respect to these revenue numbers.
First the revenue for the quarter now includes a service component historically, we did not build for general technical services.
But with the increase in request for technical services the level of service provided by our technician.
And the recognition by our customers of the value These services add to an effective deployment.
We have now implemented service fees on large installations.
This is as yet a small component, but hopefully one that will grow.
Second for the first six months of the year total revenue was 108000.
Revenue for the first half of 2019 was 43000.
So while obviously starting at from a small base that is still 150% growth year over year, and 90% growth sequentially from the first quarter.
A lot of the growth is from our ecommerce channel boast to do it yourself offers and smaller pest management professionals, who prefer to buy direct.
We think that revenues, particularly to the PMP community might have been even higher if not for the restrictions that cobot 19 placed on their operations, but that is difficult from a calculation.
Moving to costs and expenses.
Cost of goods sold has improved significantly over last year. This trend has been driven by a variety of initiatives less scrap larger batch sizes and improve raw material handling.
We expect an are working towards even better gross margins has sales volumes increased.
Well on manufacturing I would also like to point out that we have secured new manufacturing space in Phoenix and have begun the relocation to this facility.
This new space is higher quality more efficient lower costs and the Phoenix location provides us access to a much wider pool skilled talent and streamlined logistics.
We will be completely out of the flagship location for all operations by the fourth quarter. This year.
Operating expenses dropped quarter over quarter to 1.7 million in the second quarter versus 2.3 million in the first quarter. This year.
A lot of this this decrease was driven by reductions in reaction to the cobot 19 pandemic.
Early on we made both staff reductions executive salary reductions and expense reductions in areas like travel.
As the restrictions east we have.
Resumed field operations and we have offered reemployment to some of those that we had to lay off.
Before the onset of Coca 19, we had 34 employees.
At the end of the second quarter, we had 28.
Our adjusted EBITDA, which we think as a useful measurement of net operating performance.
It was 1.5 million 1.4 million loss for the second quarter 2001.
Versus a 2.2 million loss for the first quarter.
The positive trend that we hope will continue.
As we continue to focus on expense control and revenue growth.
We also had a busy quarter in terms of financing first we availed ourselves a pandemic relief in the form of the TPP loan for $646000.
It was essential really for us and we have every reason to believe that will be it will be forgiven under the current guidelines, but we will carry it as alone until that forgiveness is a shirt.
Second taking advantage of quite unique circumstances later, we were able to close the S. One public offering that we had pending and raised $4.3 million net proceeds.
With both of these financings, we closed the quarter with 4.7 million in cash.
While this is enough for now we will clearly need for the capital at some point.
To reiterate our priorities we continue to believe the best way to raise money is through the natural exercise of warrants because of a rising stock price.
In addition, we will continue to monitor them the market for shelf dropdown opportunities and we will continue to balance the need to avoid a financing overhang with a desire to not.
To not overly dilute.
With those remarks, let me go ahead and suggest operator could you. Please open it for questions.
And we will now begin the question and answer session to ask your question that started in one of your touch sensor.
If you're using a speakerphone please pick up your handset perfecting the keys.
So withdraw your question. Please press Star then too.
Interpret question today will come from Ian Gilson with Zacks investment Research. Please go ahead.
Spoken often they give him a it's not a.
Moving.
In the right right [laughter] you had a now.
Well, we expanded deployment in San Francisco Recreation pumps component.
Correct.
But you didnt announce anything about the size of the longevity goals realize that implementation all right.
Can you give us a little bit more color.
Oh, yeah, it'll have to wait a little bit we're waiting for.
For clearance from San Francisco.
To be able to announce some of those details.
The.
So as soon as we have that will issue a release.
No that's right.
Let's go down and thought on that note for the fiscal year.
Hi state.
<unk> federal.
Maybe 17 88.
So that was dormant and.
Really there is no great. There this time to reintroduce that bill.
And if it is we introduced the problem the idea that Paul thing.
Without being change.
It seems to be low.
I know you on not direct the him a involved.
In writing that bill.
But.
There is really.
So the.
[laughter] scuttled Bago room is running around in Sacramento as to why it was so.
I'm very doable.
Now the window.
We've got calls into.
All of our various contacts.
Have not gotten information yet what I will tell you is.
The amendments gave.
The authorities the ability to create.
Exemptions from the prohibitions.
Hi, which I think was.
Intended to mollify some other concerns of the traditional industry.
So from my standpoint, again, and this is really surmise it's.
They are moving it into direction that they think would be more likely to be acceptable.
But again, we haven't gotten direct insight from the folks in Sacramento to be sure. So.
Our purpose was really just to point out that its lives again.
But we're not sure what the future prospects are.
Okay.
When the until June there is going to be some sort of.
Department Government Department. So that leads is that still a the real issue of the details of the bill or issue all the amendment.
Is that correct.
That's correct they actually they published.
The amended form.
[music].
I can actually are well have somebody internally send that to you. So you can see with the actual test Texas.
Oh, great Great I'd appreciate that Sam.
You mentioned that once we get a better handle on quite a bit 19.
Your headcount with move back call.
I.
So to visit the draw the heavy on the.
The income statement.
Why does it have to appoint country so stabilizes.
Until you get pose a cash breakeven.
Yeah, Tom Let me, let me handle that one at the outset now I'll turn it over to you you know what we what we would be adding would be revenue producing positions.
So the the additions would be to bring in the sales reps that I mentioned.
You know, where we're going to try to avoid adding anything to to.
General administrative.
So we would not intend to add anybody that wouldn't contribute more than his or her salary.
That's really the direction.
Well good good thank you very much definitely <unk>.
Great.
And this will conclude or a question and answer session I'd like to turn the conference back over to kids Eagle for any closing remarks.
Great. Thanks, Thanks called again, thank you all for.
For attending the call. Thanks for your attention I appreciate your support of the company.
And really do look forward to the next call and hopefully be at the beginning of the end up coated.
So that we can begin to take more advantage of the opportunities that we identified in in this conference but again.
The well stay safe and look forward to talking two and a few months.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.