Q4 2020 Senestech Inc Earnings Call
Good day and welcome to the Senate Tech, Inc. Reports fourth quarter and fiscal year 'twenty 'twenty financial results Conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero. After today's presentation, there will be an opportunity to ask questions to ask a question you may have.
Press Star then one on a touchtone phone to withdraw your question. Please press Star then two please note. This event is being recorded I would like now to turn the conference over to Robert Blum with Lytham partners. Please go ahead.
Alright, Thank you very much Matt and thank you all for joining us today.
You discussed the snuff Tech's fourth quarter and fiscal year 2020 financial results for the period ended December 31, 2020 with us on the call representing the company today are Mr. Ken Siegel.
<unk>, 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 on some Aztec during the course of this conference call may contain forward looking statements within the meaning of section 27, a of the Securities Act of $19 33, as amended and section 21 E of the Securities Exchange Act from $19 34, as amended and such forward looking statements are made pursuant to the safe Harbor provision.
Of the private Securities Litigation Reform Act of $19 95 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.
Essentially 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.
The 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 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 a 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 afternoon, and thank you all for joining us today.
As you saw on the press release, we issued after the close we made good progress in 2020 and building awareness and adoption of Contra pests as evidenced by a 97% year over year increase in revenue.
You're obviously still operating from a relatively small revenue base.
But we are making progress.
While the pandemic has created hurdles for us in terms of visiting with potential customers face to face we did manage to make progress on the six key areas of focus we have discussed in recent calls.
As a reminder, those include.
Obtaining compelling real world data.
Focusing our sales and marketing efforts towards high value targets.
Launching on E Commerce platform.
Repositioning contract test as part of an overall integrated pest management strategy.
Focusing our R&D efforts on product improvement and enhancements.
And maintaining fiscal discipline.
Although we advanced on all six areas. The most significant progress was on point number one as we recently concluded key studies for <unk> and <unk>.
Both agricultural and urban settings, with overwhelmingly positive results and reducing rat infestations, and there are enormous economic impact.
So let's discuss the agricultural data first.
As many of you are aware rats, and poultry facilities caused significant damage and can be hazardous to the health of flocks due to disease transmission equipment.
Equipment impairment, Poland or Chick predation.
Loss of grain.
And in severe cases production interruptions.
And the first appointment of West Coast Egg farm country Best was added to the existing integrated pest management program.
The rat populations were surveyed monthly for over a year using cameras to measure the reduction in rat activity throughout the contract that's treatment.
The final results confirm that contract has cut the ret population in half within three months.
And produced a sustained 90% decline in wrecked rat activity over the 12 months study.
And the second deployment and East Coast Pullet farm.
Again contract pest was added to the existing integrated pest management program.
The stat track consumption rates and economic impacts caused by the rats before and after the introduction of controversy.
Staff reported an 88% improvement in Poland survival after reducing the rat population with country past.
The annual benefit projected by the customer of adding <unk> to their pest management plan was over $600000 in increased revenue and decreased costs.
This is exactly the type of data we needed to show customers, the unprecedented efficacy and cost effectiveness of contract test in real world settings.
And while these results were from deployments of poultry facilities. The results are immediately applicable to many other situations.
Anywhere there is a greener feed there is the potential for rat infestations.
On your contract versus now proven in the field to dramatically reduce those infestations reduce their negative economic impact and improve overall food security.
So let's talk about urban deployment.
We discussed this back in November after we had initial four months data, but with the results now finalized and having 12 full months of data, we're even more gratified by the success of Contra pass on reducing rat populations.
As we described in our recent press release.
This urban city takes a comprehensive integrated approach to rodent control.
And added contract test to their current program about a year ago.
They deployed 139 base stations at 13 different locations as an initial step.
The goal was to determine the effectiveness of controversy at reducing the number of juvenile rats overtime by preventing reproduction.
Which simultaneously lowers the growth of the population.
Two are abating locations were monitored by sonesta, accusing cameras to measure at detection.
<unk> and age demographics during the 12 month period of the program.
Data collected at month 12 from cameras showed that site day had a 94% reduction in rat activity.
And a 98% decline in juvenile rats been detected.
Since the start of monitoring.
<unk> had a 99% reduction in rat activity and a 100% decline in juvenile ratcheting detected during the same period.
If you recall after a four month study these numbers were 51% to 88%.
These results clearly showed that contract customers effective at lowering the rat population and limiting the number of juveniles born.
Thereby significantly enhancing the results in the city's rodent control program.
As a reminder, the reduction in juveniles signifies the contraception is working.
[noise] affect few if any rats are being born.
As soon as the limitations from the pandemic is our field sales team will be able to share. These results in more detail with governmental entities in person.
Including those in California, who now face additional challenges with the implementation of legislation limiting or eliminating the use of common with the datasets.
Talk about California more in a moment.
And while we're laser focused on ramping adoption of contract best in commercial settings. We also have an eye toward the future.
As I've stated in past calls our R&D efforts have been largely focused towards making the products more user friendly and available for use in increasing numbers of applications.
In the past I've talked about three current efforts in this area, including.
The addition of mice to the label.
New dispensers and finally on non liquid bait.
On that final point yesterday, we announced a collaboration with <unk> to develop a new non liquid formulation of controversy.
While our current liquid format is highly effective in a wide variety of applications. There are certain circumstances in which a non liquid formulation might be preferable.
Such as locations that experience excessive heat or cold.
In addition, having a non liquid formulation will give pest management professionals the option to use contra passed in a familiar format.
Such as leaf attacks first strike product line.
<unk> is a natural partner for us with their history of innovation in pest control.
They recognize that contract is a game changer for the industry.
And we look forward to working with <unk> to develop this additional formulation for contract sales.
It opens up new addressable market opportunities for the company.
So transitioning back to our commercial efforts.
Clearly products that have widespread market adoption for years have been able to continue selling throughout the pandemic.
All of those at earlier stages of their product commercialization cycles, such as controversial who faced additional challenges.
Mind, you, we were able to grow revenues at 97% year over year.
We believe there was is opportunity for accelerated growth from this point.
So in addition to the trial data mentioned, which we believe is critical to our commercial efforts from 19 2021 excuse me in 2021.
We've also made progress on the following.
First we've put in place key market awareness campaigns to increase sales qualified leads using both digital and traditional outreach methods.
Frequent advertising on Google and social platforms is driving trapped traffic to our site.
Targeted email and phone campaigns to highlight our outstanding field data results and the roll off contract test and programs is creating word of mouth among customers and overall market awareness.
Second.
Working with P. M. P is on product positioning, especially in light of the new prohibitions on commonly use rodenticides in California.
Pnp's or license to apply rodenticides in all of our market verticals.
Our overall positioning is.
<unk> will increase their customer satisfaction.
Excuse me and.
And thus the Pmt's business.
As a contraceptive contract burst requires continual deployment, albeit at reduced levels incur.
Increasing customer stickiness.
Unlike traditional lethal products that have no long term efficacy on rodent populations.
Pes are beginning to accept the value of our positioning the contract best can reduce and maintained low rat populations and that our data shows this.
Contract test also benefits tmp's and their accounts that prefer a limited use of lethal control methods or with stubborn to control that populations.
Third.
We've ramped up our e-commerce capabilities we.
We've streamlined the buyer's journey in this domestic online store by creating targeted product bundles for residential and professional customers.
Simplified the checkout process and developed an online chat box to rapidly address customer needs.
We have also established relationships with online distributors to promote and sell our products on their sites, thus enhancing our reach.
And finally, we've repositioned our field sales personnel.
We are deploying to field sales reps to California, where opportunities are our highest in our targeted market markets of agribusiness.
Municipalities and the Pmt's that service those businesses.
A third Rep services the center of the country.
On our fourth field sales Rep manages key targets Eastern Mississippi River.
We also have a number of amendments to our label in progress that will improve reach into the important agricultural markets and that will require additional sales support later this year.
With a light at the end of the tunnel from the pandemic, we are optimistic about our process prospects in 2021.
Operationally, we've taken significant steps to better position <unk> for the future.
Driven efficiencies in our operating structure, which significantly reduces our breakeven point.
We're utilizing cash more efficiently at approximately $1 $6 billion from just could the just concluded quarter.
And we completed a $10 million private placement in February.
$4 million financing in March.
This capital provides us with as much visibility as we've ever had to successfully drive adoption of the business.
That said, we will continue to spend money wisely as we drive to reach profitability.
So in closing we're laser focused on commercial execution.
The moves by California to ban the eschar should be a tailwind for us.
A long term study data where key against that we believe properly equip our sales personnel with the tools they need to constantly sell contract first and agricultural commercial and urban settings.
We've restructured key messaging around the product.
Focused our sales force expanded our online direct to consumer channels and continue to efficiently manage the business with significantly with a significantly enhanced balance sheet.
Obviously, we still have a lot of work to do but progress is being made and our optimism for 2021 is high.
So with that let me turn it over to Tom to review the financials.
Yeah.
Thank you Ken.
As a reminder to all if you have not yet seen our earnings press release, you can get it on our website in the Investor Relations section.
Also we expect to be filing our annual report on form 10-K on a day or two so this is just a summary.
Revenue for the year was approximately 282000 compared to approximately 143000 in 2019, an increase of 98%.
97%.
This continues our trend of growth fourth quarter 2021 over fourth quarter 2020 and year over year.
The fourth quarter revenue was 97000, which did include 24000 of grant revenue received however, this is not the 660000 PPP loan we have.
Carrying that as a loan until the forgiveness for which we've applied has granted hopefully by the end of April.
We do not as most of you may recall provide forward looking guidance I will say, though that so far the first quarter looks pleasing from our perspective.
Revenues continued to be a mix of distributor sales P. M P direct and direct to consumer.
I should note that we can't really always tell the difference between PMT direct and direct to consumer as Pnp's order from both the website directly as well as from distributors.
We believe that sales were much slower than might have been due to the continuing effects of the pandemic.
But we cannot confirm or calculate a precise effect.
Cost of goods sold continues to improve on on operating basis. However, the reported 281000 was negatively impacted by 119000 inventory reserve for the plastics associated with an older base station format. The JT Eaton that just doesn't seem to be selling much anymore.
Our customers have moved almost completely over to the newer format based on the Evo bait station design.
Adjusting for that reserve cost of goods sold would have been $162000.
For our 42% gross margin up from 29% last year.
Our move into manufacturing plant from Flagstaff to Phoenix is now complete and full commercial production has resumed.
The move to Phoenix allows us to both save some money on rent.
And operating expenses, but also to access a broader manufacturing talent pool.
Operating expenses also improved significantly in 2020.
Opex was $7 9 million in 2020 versus $10 million in 2019.
As we mentioned previously our goal was to remove $1 million from the expense structure and we have done that.
The pandemic also reduced opex as it were COVID-19 impacts on head count and travel.
But at least $1 million of the reduction was due to operational improvements that should be sustainable.
We will release further detail in the 10-K.
I am confident we will be able to sustain much of the cost structure improvement in the coming quarters.
On a GAAP basis net loss for the year was $8 4 million.
Compared with a loss of $10 million in 2019.
We believe however that adjusted EBITDA loss, which is detailed in the press release is a better measure of overall operating performance.
For 2020, adjusted EBITDA loss was $6 9 million.
$8 2 million in 2019.
Cash at the end of 2020 was $3 6 million.
This does not however, taking into account financings that we closed after year end.
In February 2021, the company closed a private placement price at the market under NASDAQ rules, which resulted in net proceeds of approximately $9 2 million.
And in March the company closed a shelf offering priced again at the market under NASDAQ rules.
Which resulted in net proceeds of $3 5 million.
As will be disclosed further in the 10-K, we have also begun to see again warrant exercises. So far in the quarter. These are brought in an additional $1 $2 million in additional cash.
So taking this first quarter financing activity into account our pro forma cash was approximately $17 $5 million.
Now arithmetically using last year's cash burn this implies that we have enough cash through 2022 or further.
I would also like to note that the shelf offering I mentioned now exhausts, our shelf capacity under the shelf registration statement filed back in 2018.
I do anticipate that we will eventually file another S three shelf.
Is that is prudent and common practice, but we are not in a hurry. 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. Please.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys if at anytime Youre question. That's been addressed and you would like to withdraw your question. Please press Star and then two at this time, we will pause momentarily to assemble our roster.
Our first question will come from Amit Dayal with H C. Wainwright. Please go ahead.
Thank you Hi, Ken Hi, Tom Thank you for taking Mcmahon.
With respect to the commercialization strategy going forward now.
It looks like you have an opportunity on the agricultural side as well as on the urban front.
Where is the focus going to be and you know what sort of the strategy that you're implementing.
If you could provide any color on that would be helpful. Thank.
Thank you.
Sure happy to on it.
Key focus geographically, it's gonna be California, particularly.
Particularly with the adoption of the Yugo ecosystem protect protection Act. That's one of the reasons why we doubled up on.
On the sales team there and we're actually looking to recruit additional people.
Similarly.
California, because the municipalities are one of the areas that are <unk>.
Subject to the limitations of the statute will be a prime area of focus so we're currently reaching out to us.
As many municipalities as we can as you might imagine given the situation with Covid in California.
Still having difficulties scheduled schedule on the in person meetings. So as soon as that begins to crack open.
We'll have our people out in the field meeting with.
You know the various municipalities.
Agriculture is is broader again, there's significant potential in California because of.
The law on because we had the positive results in the industry.
But we're also looking in the South East and we're also moving.
Up the food chain and as I mentioned before essentially.
The critical issue in.
And the research we did wasn't necessarily that would involve poultry wasn't necessarily bad it involves grain I've had it involves eggs or chicks.
Was the grant it was the feed and if you think about it.
That grain makes its way through the entire food chain. So we're looking not only at.
Farm, we're actually looking at as the grain is aggregated.
In storage and transport working all the way into retail so right now everything is critical.
Okay.
Critical area of our focus.
The way that we're approaching it though is we've worked we've now begun outreach to a major regional distributors of the of the product.
Turning to stay away from the national distributors, because it really can't get their attention when we can't get the shelf space.
And so we're partnering up with the regional distributors.
You get access to not only them, but to their pmt's, we're using the data that we've gotten both from the urban markets and from the poultry studies to directly engage with the P. M. P's, we've created new handout collateral that they can use to market to their own customers. So the idea here is that we're going to attempt to leverage.
On the existing system.
To get people out there and so on.
So.
You know on multiple different efforts, but really with a high level of focus on the areas, where we think we are most likely to generate revenue in 2021.
Great.
You think you could be more aggressive.
Sort of year progresses in terms of your marketing efforts now that you have a pretty strong balance sheet.
Absolutely.
Part of this is part of the aggression simply is now being able to get people out there and and be able to being able to.
Physically meet the other pieces, we can ramp up.
Advertising, we can look into different channels et cetera, but the key piece of this thing is.
As Covid Abates as you know.
Now that we are you know.
Well armed with cash we think that we can be very very.
Very strategic in how it is we deploy the money to best drive sales.
Sales throughout the year.
Alright, understood and maybe just one this was the year over year increase.
A small base, but it's a pretty healthy jump was it driven by your online contribution on E. Commerce contribution or was there something else that drove the top line growth in 'twenty one.
Well I know, it's not really just the online portal and as I mentioned the online portal is a bit of a mix between direct to consumer and pest management professionals, who prefer to order direct instead of working through distributors. So we can't really tell as precise.
<unk>, which which segment of the buying population it is.
But we've had a lot of direct sales, where our sales force is beginning to see a lot of action in terms of direct orders.
And we are continuing to see order than normal orders growing from the various and sundry distributors that we have.
As Ken mentioned, a little bit more bias towards regional distributors lately.
But that.
<unk> channel is certainly increasing.
And although order sizes going through at all or is it just you could even more orders from distributors.
Distributors are on the order sizes.
We're significantly increasing the number of customers that are ordering.
There are some specific <unk> that we can track anecdotally that we know that they are increasing the deployment.
Into other customers as they see the success of Contra pest.
So it's a mix of that.
And Tom can you remind us what the share count is after the recent financing and the warrant exercise.
On a pro forma basis, using all of those different.
All of the all the financings that we had on the in the first quarter I think the share count comes out at approximately $12 2 million.
Okay. Thank.
Thank you.
Just one last one from me I guess you.
In terms of milestones for 2021 what should we be looking for is it just potential execution.
You know against the data that we on produce and now deploying this capital.
Are there any other milestones that we should keep in mind.
I mean I know.
The chemo milestone really is execution.
We should be looking.
About for revenue growth.
Discussion of backlog.
And then we'll update you as to the progress of the various initiatives that we have going on with U P. A.
You know, which we'll start seeing in subsequent quarters. So you know.
The product improvement and expansion is running through EPA, but the you know the critical milestones as you know how we do over the next couple of quarters and revenue.
Okay got it. Thank you guys Thats all I have I appreciate it.
Terrific.
This concludes our question and answer session I would like to turn the conference back over to Ken Siegel for any closing remarks.
Great. So again, thank all of you for joining us this afternoon.
You know frankly, I hope the sense that you got from the call is.
As we're up we're up we're optimistic about the year are the various things that we've taken close to a year and a half to put in place are finally clicking.
And we've got an energized sales team, we've got an energized marketing function.
And we have cash on the bank.
So that were not constantly worrying about that point, so again, hopefully you'll be hearing good things from us over the next several quarters and look forward to talking to you again at the end of <unk>.
At the end of Q1.
Okay.
Thanks Al.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.