Q3 2020 Senestech Inc Earnings Call
Good day and welcome to the Senestech Inc. reports third quarter fiscal year 2020 financial results all parties.
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Please note. This event is being recorded I would now like to turn the conference over to Robert Blum with with some partners. Please go ahead.
Thank you very much call and thank all of you for joining us today on today's call.
Scott Smith Teck's third quarter 2020 financial results for the period ended September 32020 with us on the call today are Mr., Ken Segal, the company's Chief Executive Officer, and Mr., Tom Chesterman, the company's Chief Financial Officer.
At the conclusion of today's prepared remarks, we will open the call.
We will go 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 stuff that during the course of this conference call may contain forward looking statements within the meaning of section 27, a of the Securities Act 1933, as amended and section 21 E.
One of the Securities Exchange Act 934, 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.
Paul Huet your 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 for.
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 Exchange Commission.
All forward looking statements contained during this conference call speak only of the date, which they were made are based on management's assumptions and estimates.
Our lives such state company.
Company does not undertake any obligation to publicly update any forward looking statements whether as a result of the receipt of new information the occurrence of future events or otherwise with.
With that said, let me turn the call over to Ken Segal, Ken. Please proceed.
Thanks Robert.
Good afternoon.
Thank all of you for joining us today.
Before I talk about the operating results, let me start with our most recent announcement.
We've added three members to the board.
It was an interesting an extremely encouraging process. We had intended to recruit only two new board members to replace our former chairperson and to accommodate Julie.
Julie Williams desire to take a more passive role.
But in the recruitment process unique and complementary individuals were identified.
And in the end, we decided to expand the board to accommodate an additional director.
These three have very specific skills to best support the company.
And our current commercial growth strategies.
Ill share a passion for business and recognize the unique value of contract test as an effective and sustainable solution to an age old problem.
Still grandinetti is founder and chief customer officer of with it a growth leader in wearable tech accessories with prior executive sales experience.
GSM products and language.
Phil brings a deep background in the commercialization of innovative customer consumer products and a track record of leaving leading exponential growth.
Kevin as the Chief Communications Communications Officer at Bacardi.
With prior executive communications experience at Starwood hotels and resorts.
Casey has particular expertise in messaging.
Including strategic brand and product messaging, taking complex messages and making them understandable and exciting.
Jack Micenko is the Chief Technology officer at Dexcom, a leader in glucose monitoring technology and known for.
Arent technology with an exceptional user experience.
This pairing of technology and user experience is expected to have direct relevance to the commercial development and deployment of contract.
Although Julie Williams is stepping down from our board role she will continue to provide our expertise and assistance as a director.
Preparedness and board Observer.
As you saw from our press release, we continued to achieve traction during the third quarter and the awareness and deployment of contract test, which resulted in a 114% increase in sales over the prior period.
Albeit still from a small base. This is the second highest revenue quarter.
Her and we've achieved over the past seven quarters as we showed growth on both a sequential and a year over year basis.
I believe the strategies, we are developing to expand the adoption of contract test are beginning to work.
And as the impacts from Covance begin to subside, we will see that begin to even be more recognized.
In our financial results.
Clearly the biggest thing that happened during the quarter was the passage of the California ecosystems Protection Act of 2020.
Otherwise known as a B 17 88.
Which will prohibit the use of the four major second generation anti coagulate rodenticides or scars.
Commonly used in rodent pest control under many circumstances.
Signed by the Governor the Bill will become law effective January one 2021.
As many of you are aware we've been discussing the potential passage of this bill for some time now the.
The Bill is intended to address the vulnerability of wildlife.
The Spalletti and environmental persistence of these escobar's used for rodent control.
But it also creates a challenge to pest management professionals or PMP use.
Who incorporate these esque ours and their integrated pest management programs.
Absent the use of these s. cars pest managers will have to rely on other lethal and non lethal.
Tools.
Clearly contra best can be that alternative and complimentary non lethal approach to managing rodents with its proven effectiveness in the field.
As has been stated and various public testimony, it's estimated that the current use of rodenticides, but these s. cars being a large share.
It's worth Approx.
Maximally $100 million of product per year in California alone.
So clearly this is a very large opportunity for sonesta.
So what are we doing to make sure a contract best can gain adoption in the state of California.
As we stated in our press release in late September we have launched a multi prong initiative to drive adoption of.
Contract best in California.
First we're engaging with the PMP industry on how contract past can be beneficial to their pest management business as they adapt to the removal of escalators.
The first movers in California were in Los Angeles, and San Francisco.
And we have seen expansion of deployment there.
But much of that.
That actually predated the passage of 80 17 88.
Since the passage what we have seen is growing number of inbound inquiries and responses to our outreach efforts are PMPM, who are now facing the reality of integrated pest management without as cars.
We certainly saw it at a recent virtual industry conference the conference.
We see it in response to our E mails, and our social media posts and our field salespeople are seeing it in the increased interest from prospective customers when they call.
Contra Peskin, clearly help fill the gap and integrated pest management.
As we've stated.
An extensive field studies contract past has been shown to reduce road.
Certain populations, 60% to 90% beyond conventional means alone.
As PMP is adapt their protocols and practices to the Bill we will work with PMP is the best incorporate contract test as they eliminate or limit the use of the NAV prohibited as cars.
We believe that PMT is we'll also see that contract test can be it.
Economically and practically beneficial to their entire practice not just that affected by the bill.
Second we're expanding our market awareness campaigns to the broader residential consumer commercial and agribusiness customers and other basins.
This starts with the redesign of our web site and our recon.
First platform to make it more consumer friendly.
When we launched the E Commerce platform last year. It was not really optimized for direct to consumer and now it's clearly needs to be this.
This will then be further supported by targeted social media and E mail campaigns.
Along with the passage of 80 788 Contra pest.
Comps added to the reduced risk pesticides list in San Francisco, which now permits control pests expanded use in the city.
The integrated pest management ordinance of San Francisco mandates of pesticide band and only allow select pesticide products to be used on city owned properties.
The San Francisco reduced risk pesticides lists.
So it was catalogs those pesticide products approved for use.
The San Francisco Department of the environment performs extensive evaluations when deciding what products to except to the list focusing on factors such as efficacy and environmental impact.
Products on the list are required to be used within integrated pest management strategy.
The passage of AB 17, 88, and the addition of contract tested to reduce risk Pesticidal list.
Alone are not windfalls, but rather opportunities.
There is still lot of work that needs to be done our opportunity will be to use these events to reach more and more PMPM and end user customers and show them the contract best as a viable substitutes.
Yeah.
And then continue the discussion to have contract best as a valuable addition to all integrated pest management scenarios.
I can assure you that we are hard at work to leverage this opportunity.
Okay. One other comment on this before I transition.
As many of you are aware many other states tend to follow.
Below Californias Lee so while this is clearly a very large opportunity. The reality is that this potential banning of scars may spread across the country.
Again that in of itself Doesnt create a windfall as there are still other alternatives to treatment.
But it does allow for the potential acceleration of the adoption of contract past.
And we're going to be all over it.
Well, California is obviously very important our key themes for the long term success that I laid out for the past few quarters remain the same so.
Let's spend a minute just touching on each of these and provide updates where I can.
First we began a crash.
This program to obtain the data necessary to show how contract has worked in real world situations and to demonstrate both its long term efficacy and cost effectiveness.
As we discussed last quarter, we have launched several long term projects that effectively demonstrate the efficacy of contract best real World application.
As.
As we previously announced our program in Washington, DC demonstrated reductions of between 70 and 87% in rat population.
With those reductions being sustained overtime.
You see will be deploying contra best on a widespread basis as their budget permits.
We also observed a significant.
Reduction in the ratio of juveniles to adults, which in population biology is considered the harbinger of a population crash.
We have similar data, though not as large as scale from other locales.
We can now package this data for sales efforts to other municipalities and governmental engine entities as clear.
And compelling proof that contract test works in the real world and the Nitty gritty urban environment.
Our challenge however is that these potential customers are the hardest hit budget wise from the pandemic.
We'll have to wait for the budget pressures to lessen before we'll able to make complete inroads into this vertical.
Again as we also previously discussed our long term project in the poultry industry is also showing a 50% to 87% reduction in rodent populations with an average sustained reduction of 61%.
This project is also enabled us to test a more efficient and easier to use dispensing system that we are also testing another location.
This new Super Twod structure will shortly be submitted to the EPA for approval as giving our customers another way to address their road and problems.
We believe that this new dispenser will be highly desirable and addressing root roof rat infestations and can significantly expand the usability of contract pest in many other locations.
We hope for.
Approval later next year.
Our data shows.
That in poultry applications, the amount going to the bottom line of an average farm could approach $1 million per year with annual revenue to us exceeding $50000 per location.
But this isn't the only application and agriculture.
There are many other markets in what we refer to as the Green Victor.
Those agricultural applications, where grain loss from rodents is a significant cost of operations.
Second.
We refocused our sales and marketing efforts to drive pull through demand and focused our efforts on the set of target verticals that would be most likely to.
To see the benefits of the product and would have the highest value from results.
As we discussed last quarter, Steve Kraus is now restructured re staffed and redirected outside sales to accelerate new account growth and position emerging field efficacy results for sustained growth in key market verticals.
We now.
Four regional sales professionals fully trained and now fully targeted within their regions.
Third.
And as part of our marketing efforts, we launched an E commerce platform that will allow us to sell directly to consumers, allowing us to get our product to individuals and companies that were happy to deploy contra best without a PMP.
Hi.
While also creating another source of demand to pm piece.
This continues to be a growing channel for us and one that we will continue to invest in selectively and prudently.
Fourth.
We reposition contract test as part of an overall integrated pest management strategy.
We emphasize.
We empathize that.
Emphasized that well control pest could certainly be used as a single solution and environmentally sensitive situations.
It was even more highly effective as part of an integrated approach.
From a positioning standpoint, we recognized last year that attempting to positions contract past as an exclusive.
Solution the 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.
Since then we have been strongly emphasizing the important role that contract test can and does play as part of an IPO and solution.
It can dramatically improve the effectiveness of other tools.
And generate sustained results.
And because contract best as a contraceptive and not a sterile and PMP is can improve their business models by providing a long term solution that enables them to substantially reduce their servicing costs.
We're now final.
Hi, using real world business cases that our sales and marketing team can use to demonstrate to both MPS and end users the high value, including contract past as part of their IP and programs.
Fifth.
We refocused our R&D efforts towards making the product more user friendly and available for use in increasing numbers of applications.
Finally, we currently have three efforts in this area.
First the addition of mice to the label.
We have begun the submission process with the EPA and expect assuming approval to be able to take a revised label to the states tend to the markets by midyear next year.
Second new dispensers.
This was a key learning.
From the poultry product than a new dispenser was necessary.
We now have finished the design of one that works well and we will be submitting it to the EPA shortly.
Third non liquid bait.
This is something that we hear a request from potential customers and we've talked about it before.
It may not be.
Nothing that we can do or should do alone. We are in discussions with a more experienced partner non liquid formulas and hope to be able to announce progress in this area within the next quarter.
Finally.
We stop chasing every shiny object that came along and concentrated on those areas and opportunities most.
Most likely to bring near term success, while maintaining financial discipline.
Tom will talk about that more in his remarks.
Okay. So in closing.
While we are increasingly focusing efforts within California, we continue to make progress on other key initiatives set forth at the beginning of the year.
To drive long term adoption of contracts.
Those include finalizing datasets within key industries, including poultry and municipal areas driving.
Driving pull through demand through a refocus sales and marketing program.
As well as direct sales efforts through our E commerce platform and.
And we continue to efficiently manage the business.
As budgets become less encumbered by the effects of COVID-19, we believe these efforts coupled with our repositioning of contract best as a component of an overall integrated pest management strategy.
We'll increasingly gaining traction.
And with that let me turn it over to Tom for a look at the numbers.
Thank.
You can.
Just as a reminder, for our listeners and investors, we will be filing our 10-Q within a day or two with all the detail. So right now, we'll just limit ourselves to the summary numbers.
Revenue for the quarter was $77000 compared with 71000 last quarter and 36000 in the third quarter.
2019.
As activity in this industry tends to be seasonal this.
This represents an impressive growth rate of over 100%.
But from a small base of course.
Over a third of the revenue is coming in from California, right now, which we expect to continue or grow with the passage of the bill.
Quarter, as Ken mentioned and our current sales focus.
Revenues continued to be a mixture of distributor sales PMP direct and direct to consumer.
I should note that we can't always tell the difference between PMP direct indirect consumer as the Pnp scan and do order from the website just as consumers do.
We think that revenues, particularly to the municipal customers might have been higher if not for the budgetary issues cobot nineteens placed on their operations, but it's very difficult to confirm or calculate precisely.
Moving to costs and expenses cost of goods sold have improved.
Significantly over last year.
This trend has been driven by a variety of initiatives less scrap larger batch sizes and improved raw material handling.
Our goal is to get to a gross margin of 50% or better.
And we are on track to achieving that.
Well on manufacturing our relocation to our new space in Phoenix is nearly.
Finally complete.
We probably won't get to full production there until the end of the year, but we have restarted limited production already.
Operating expenses were $1.9 million in the quarter a.
A significant reduction versus $2.6 million in the third quarter of 2019, and a fairly insignificant increased.
Freeze over the second quarter.
As we've discussed our goal was and is to take a million dollars out of opex compared to last year.
While still spending as needed to support top line growth.
As of the year to date, we have achieved that with a nine month opex down $1.3 million.
Our adjusted EBITDA, which we think is a useful measurement of net operating performance.
It was a 1.7 million loss for the quarter up slightly from the second quarter, but still much improved year to date versus last year due to the reduction in Opex I just mentioned.
Moving onto another central topic cash.
We had a significant subsequent event of a financing earlier. This month, we had a significant warrington distant within existing investor.
In this we raised a net $2.6 million.
When added to cash at the end of the quarter. This implies total cash on hand of $5.3 million.
At our current burn rate this provides us the needed capital to or beyond mid year next year.
While this is enough for now I will reiterate that we still need.
Further capital at some point we.
We will continue to assess the capital markets and act opportunistically as needed and appropriate.
With that let me open up the lines for questions.
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And our first question today.
I'm from Pete Enderlin with Matt M-.
Maisie partners. Please go ahead.
Okay.
Thank you good afternoon.
But really I just have one sort of.
Big question, which is you've talked a lot about the change strategically shifting from.
Copper passed as a replacement for.
Are you might call the PMP is legacy programs.
Two.
And whereas you mentioned that they saw a contra pets does it as a competitive threat to contact or passed as a part of the their integrated pest management programs.
We'll go to the question I have that I don't fully understand that this quarters, how will the PMPM.
Combine contractors with the other tools.
As Ken mentioned them and what are those are the tools that they are going to continue to use in combination with contra past.
Okay.
Hi, Greg Great question, so the other.
Some extra horse on mute the.
There are several different modalities for years, there are lethal modalities, which include traps also includes poisons and alike. There is exclusion, which is a common thing just to make sure that they don't come.
Okay.
And various ancillary methods that are included.
One.
Thing that we are essentially saying to them is they can continue to use their existing methods and their existing methods will achieve some level of knockdown of the population, particularly if they continue to use and deployment.
About allergies.
Well, we can demonstrate to them though is.
Once they get to that level of knockdown.
And they can deploy contra past either simultaneously work or immediately after and contract past will take the knockdown down the incremental.
60% to 90% that we're seeing.
And the critical piece of it is it'll keep it down.
And so as opposed to having their historic issue that the DMP his experience and that end users' experiences that because.
The traditional methods don't work over a long term period, you achieving knockdown and then three to six months led to the population is back again.
So with this does is it achieves the knockdown.
And takes it down further and keeps it there.
Doesn't eliminate the rodents entirely nobody can ever do that but it takes it down to a.
Very low level.
And its sustained where we also then state of the PMPM as oppose.
Those to having your episodic deployment, which is your comment on month, one and then six months later you come back and do it again he.
Hey, guys contract test is a contraceptive.
Sterilant.
A way to maximize efficacy is continued deployment. So they end up with a model now that as opposed to.
Destroying their business, which was their fear.
It enhances the business by essentially creating a recurring revenue stream with the continued deployment of contract pest, albeit at a lower level because you have less mice now can mice and rats now consuming it but.
But also you have a happier customer because it's not coming back.
And because of the fact that you're not doing a major knockdowns and major clean outs et cetera, you have a significantly lower.
Service costs low.
Labor cost so we think it's it's pretty compelling.
And then when you couple it with the fact that some other tools are being taken away. It moves from just compelling now.
Can necessity, but the idea here was there were there were fearful of it for two reasons one of which is.
They thought it would require a total return.
Do have their overall business practices, and we've said that it doesn't do that and the other part about it is as they became convinced that if we succeeded.
Eliminating the rats population.
They wouldn't have any business and what we've done is we've demonstrated on both of those things it fits within your programs. It enhances the programs and in fact.
And enhance your business model. So we think it's okay.
So thanks for that and and.
Under.
Another California 17 88.
So are there are still other rodenticides not.
The anti coagulate type, but others that they know that they can continue to use.
So let me turn that over to Tom has more of our California expert, but go ahead Tom.
Yes, there are other other rodenticides that they can use there are certainly first generation anticoagulants Theyre also others that have a different mechanism of action some.
Some of which are.
Known to be less effective and some of which are actually known to be more dangerous. So there are some other.
Possibilities that they can use and that's one of the reasons why we really have to usage see this as an opportunity to show.
The advantages of Contra pest as they also look at those other alternatives right, but then how do they achieved the initial knocked down there you know some of these other rose.
Gross debt decides or less.
Effective or maybe more dangerous in some ways I mean, you could still have scavengers and predators eating dead.
Dead rats with with poison in them.
Yes that is very definitely an issue.
And some of them will actually move to trap tracking which is and to other.
Paul Strapping like activities that can also achieve that.
The disadvantage of that is that they are more labor intensive and.
And so it really Dan behooves them to put as much controversy in as possible to achieve.
Augment those and bring down those labor costs.
Susan.
Do any of those.
Very active P M P's in California use <unk>.
You know the the dry ice method of eliminating them out to an initial go round or is that sort of not always.
Is that typically only used in New York City.
We have anecdotal.
Information from one GNP that they have looked at it but they don't find it to be particularly effective in their practice.
We really have not heard a whole lot about its widespread use anywhere else.
Okay and then.
Can you can you sort of slipped his advice and then rats, but then obviously raises the question of.
Applying.
CP to other species mice or something beyond that what's the outlook for that going forward.
So we have submitted to EPA the amendments to add mice to the label and so they are currently in the process of reviewing it so.
Yes.
And I.
I would tell you that the normal process is in the six month plus or minus we've had.
Doesn't have experiences with the UK in the past so we're hopeful that.
By mid next year, we'll be adding mice and then we've already demonstrated that its highly effective in.
Cost control. So how are you thinking about that for 2021.
Thank you very much.
You're welcome thank you.
And this will conclude our question and answer session I'd like to turn the conference back over to management for any closing remarks.
Well, thank you for your attention.
We if you have any questions. We would encourage you to send them to us via the contact US section of our website or call us at nine to 87794143. We appreciate your continued interest and support this concludes our call good day.
Thanks, Eric references, noting the coverage.
It is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.
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