Q2 2021 Senestech Inc Earnings Call

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Good day and welcome to the <unk>, Inc. Second quarter fiscal year 2021 financial results all participants will be in a listen only mode.

Should you need assistance. Please signal conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one. Please note. This event is being recorded I would now like to turn the conference over to Robert Blum with Lytham partners. Please go ahead.

Alright, Thank you very much call and thank you all for joining US today as Colm mentioned on today's call. We will discuss the nasdaq's second quarter 2021 financial results for the period ended June 32021.

With us on the call today are Mr. Ken Williams, the company's Chief Executive Officer, Tom Chesterman, The company's Chief Financial Officer, and Nicole Williams, the company's Chief strategy Officer.

At the conclusion of today's prepared remarks, we will open the call for a question and answer session.

As a note the company has provided a slide presentation to accompany the prepared remarks today.

If you are listening via the webcast the presentation will be on your screen.

For those on the live dial in portion of the call you can access a copy of the presentation from the Investor Relations portion of the company website at <unk> Dot com.

Before we begin with prepared remarks, we submit for the record the following statement.

Statements made by the management team of <unk>. During the course of this conference call may contain forward looking statements within the meaning of section 27, a Securities Act 1933 as amended and SEC.

'twenty one E and 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 1095 forward looking statements describe future expectations plans results or strategies and are generally preceded by we.

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 our filings with the Securities and Exchange Commission.

All forward looking statements contained during this conference call speak only as of the date on which they are 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 Ken Siegel Ken. Please proceed.

Thanks Robert.

Good afternoon, everyone and thank you all for joining us today.

As Robert mentioned for those of you that have followed the company over the past few years, we thought we try something different.

This quarter and include a slide presentation for you to follow along with as we deliver our remarks.

We hope you will find it useful, especially as we walk through some of our new sales and marketing initiatives that we have in place.

As you likely saw in the press release, we issued after the close the second quarter of 2021 showed continued improvement in the adoption of Contra pest.

With revenue up 125% from the year ago quarter.

Up 82% from the first quarter.

This was in fact, a record quarter for sonesta.

However, while these improvements are good they are still from a relatively small base and we're highly focused on significantly expanding adoption in the quarters to come.

Everyone on the management team knows the contract best offers customers in the PMT is that service them, a powerful effective and sustainable tool to control rat infestations.

Personally believe that country best will be a game changer in the industry.

We are highly focused on making it to success, we know it can be.

Yes.

As we've discussed over the past several quarters, we've been laser focused on putting together all of the building blocks to successfully drive our commercialization strategy.

Last quarter helped us further advance our goals as we were finally able to get our team out on the road.

Directly with our channel partners and customers.

We launched our new branding and marketing strategies.

We significantly enhanced our sales and marketing capabilities.

So lets briefly discuss some of the progress we made during the quarter against our core areas areas of focus.

Sure.

We will then expand on some sales and marketing strategies that we've deployed that are gaining traction.

Tell you about a major new initiatives set to launch next week that we are highly optimistic about.

I've asked our new Chief strategy Officer, Nicole Williams to join US today to provide some.

Some additional details on those strategies as well.

Nicole has joined US in May and is immediately made an impact across all aspects of our organization, helping to develop and execute strategies to accomplish the growth that we as a management team.

And I am sure you as shareholders are looking for.

But before we get to the forward looking strategies, let's take a moment to look back at the second quarter and year to date.

So as I mentioned quarterly sales were up 125% year over year to $160000, a new quarterly record for the company.

Year to date sales are over $248000.

And to put that in perspective product sales for all of 2020 were only $258000.

The key sales acceleration tactics, we have discussed on the last few calls are all contributing to this growth may include <unk>.

Enhanced marketing techniques, new advertising and public relations initiatives.

Development of a new website and branding.

The launch of our E Commerce site contract test store Dot com.

The completion of compelling real world long term studies across key market segments, and finally enhance strategic partnerships and collaborations with key distributors and pest management professionals.

These strategies against the backdrop of favorable legislation changes and growing environmental awareness.

Highlighted by California's new legislation restricting the use of major second generation anticoagulant rodenticides are playing into our favor as well.

Year to date sales to California, where nearly a third of our overall sales.

As we've discussed for some time, we are focusing our efforts towards high value target segments. These include agribusiness and municipalities as well as zoos and sanctuaries and the consumer residential market.

We're delivering solutions to these segments through our distributor relationships.

Relationships direct sales and our expanding e-commerce platform.

A key factor in adoption by these high value targets continues to be the long term studies. We finished earlier this year.

As a reminder, we spent the better part of last year, completing agricultural and urban settings studies, which resulted an overwhelmingly positive efficacy and economic results.

At a west coast egg farm the final results confirm the Contra pest cut the rep population by over half within six months and.

And produce the sustained 90% decline in red activity over the 12 months study.

At an east coast pull at farm the staff recorded an 88% improvement in pullet survival after reducing their rat population with contra past the.

The annual benefit predict projected by the customer was over $600000 in increased revenue and decreased costs.

And our urban deployment data collected showed a 94% reduction in rat activity and then 98% decline in juvenile rats at one site.

While our second site had a 99% reduction in rat activity and a 100% decline in juvenile rats during the same period.

To highlight the progress we made in the municipal market.

We fulfilled an order with a large east coast city, which continues to place additional off orders as its deployment expands to other city owned properties.

The resulting success has provided direct references to additional municipalities in new England, the west coast and the Midwest.

Excuse me.

Additionally, further reorders continued to occur from key California municipalities as well.

And in agribusiness, while still early in the process.

We have established additional distribution through companies focused on animal health, which we believe will be an additional entry into the market.

Our zoos and sanctuaries segment continues to gain traction comprising nearly 20% of our year to date sales with orders for more than 40 different customers.

As youre likely aware secondary exposure from poisons is becoming.

Has become a growing concern.

Especially in an environment, where our non target animals or wildlife reside.

<unk> is increasingly being recognized among influencers within the segment.

As ideal for addressing the concerns of rat infestations due to lessen the risk to non target and predatory animals.

Transitioning.

A key objective for us going forward is to expand our online presence.

As we talked about last quarter, we launched <unk> dot com as a way to directly access consumers.

Some of these are individuals and small business owners, while some of our larger corporations in PMT.

It's been interesting to see how sales growth has increased in this channel.

Direct sales were nearly a third of our year to date revenue.

We experienced strong growth sequentially.

The channel has added more than 250, new customers during the second quarter and saw a sequential decrease in churn.

Average order sizes are also increasing.

Overall active customers on our e-commerce portal now number more than 400.

We see this as a very nice trend and are optimistic about continued traction that we can gain in this segment.

As we mentioned in the press release to accelerate initial adoption in first time purchase we enacted package and promotional discounts, which did have an impact on near term gross margins.

We believe this will ultimately drive longer term purchase renewables is the benefits of contract are recognized by consumers.

Key focus over the next several quarters is expanding our subscription business.

We are now testing different offerings to incentivize automatic repeat purchasers, which we believe will drive both customer satisfaction and recurring revenue.

I believe we now have a good structural base in place that is beginning to produce results.

First off and most importantly, we have a product that works.

Second we have data that shows customers. It works in the settings they care about.

Third we have relationships with strategic Pmt's in key distributors in place.

The common values, we do.

Ways in which to address rat infestations through an integrated approach.

Fourth we have an engaged sales team that is now out in the field driving sales.

Fifth we have an ecommerce site in place that is functioning well and driving new customers every month.

Six we now have an integrated marketing advertising and public relations strategy to get our messaging out and a unique and compelling way.

So what's next.

And how do we take a sizable leap forward.

And the next week, we will tie everything together with an aggressive new multichannel sales and marketing campaign that we expect will dramatically expand sales over the next several quarters.

The new advertising campaign and sales Blitz, Codenamed operation Rat race.

It's designed to dramatically expand lead generation and sales opportunities across each of our key market segments.

So to expand on this a bit further I have asked Nicole Williams to provide an overview of the campaign.

And what you should expect to see from us in the near future nickel.

Nicole.

Yeah.

Thank you Ken as mentioned this multichannel sales and marketing Blitz with the internal Codename operation Rat race references the collective race to top of mind awareness.

<unk> recognition and revenue throughout the remainder of 2021 operation Rat race focuses on our key market segments Agribusiness household municipality commercial professionals using sanctuaries and Additionally, treats California has its own market segment in light of opportunity created to the recent 17.88.

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The common theme in a campaign and bold and unique and contract cost following months and building confidence in relationships within the pest management community and generating compelling real world data. We're now tasked with building awareness and driving demand among end users for an effective environmentally responsible and for some customers non lethal solutia.

Managing rat populations, we need customers asking their pest management professionals for contract binding and we intend to do that by letting target markets now we support thanks rack Saks that's right someone had to do it so they weren't introducing contra past for what it is a rat contraceptive.

Going back to the shocking stack that two base rats in Maryland, a female can result in more than 15000 rats in just one year, how would we ever get control of that managing the death rate alone. We want in order to get rat populations under control, we must make them less prolific by controlling the <unk>.

Birth rate as well.

<unk> is the only EPA approved Quebec contraceptive on the market a truly integrated pest management program pulls not one that both levers that population control ask for it by name or by direct a contra test store Dot com.

Having partnered with new marketing and PR agencies, you may have already heard about the effectiveness of contra passed across the country via syndicated radio interviews with many more to come.

Digital strategy is expanding with an increased cadence of prescriptive content creation building, our CFO, making us the page to visit to answer your rat control questions and establish establishing us as the expert in population control fertility management.

All campaign activity is designed to increase the number of qualified sales leads in our funnel across our strategic markets. Each vertical has a specific campaign landing page speaking to their needs with tailored calls to action capturing interest and engagement our social media presence is evolving into market specific messaging eye catching stacks and blurts aimed at lowering.

And for something unique and effective leveraging in agribusiness specific marketing agency, we will engage in programmatic and email campaigns directed at poultry farmers and owner operators at grain storage facilities across the United States.

Tactics in California include both digital and out of home aimed at household consumers planned communities and municipalities and a tailored campaign will run in Malibu, where they have decided to go completely appointment free.

We will continue to build confidence among the pest management community through trade shows to include women in pest management and traditional advertising through industry media.

Additionally, we'll be attending annual meetings and conferences in agribusiness through local and National Association educating business owners and operators about the effectiveness of Contra passed in the overall operational budget savings potential we demonstrated last year on a pull at farm as part of an integrated pest management program.

The backbone of this multichannel marketing campaign is analytics.

Tiddly integrating our e-commerce fulfillment marketing automation and lead tracking platforms in order to effectively capture campaign results in the form of sales and revenue key performance indicators, such as tanks cases, and subscriptions sold as well as regulatory milestones moving us closer to product expansion will be tracked and celebrated companywide for the remainder of the year.

In doing this we are breaking away from our sales territory approach and instead engaging the entire organization to work together towards one common revenue call for the remainder of 2021, we believe this operation rat race puts in place momentum and unwavering focus on meeting and hopefully exceeding revenue projections well some tactics are already live.

Look for the bulk of the campaign to kick off August 23, and with that Ken.

We're off to the races.

Thanks, Nicole for that overview.

Yes, Nicole pointed out operation Rat race puts together all the elements, we've been creating over the past two years to drive a compelling and effective commercialization program.

Planned to be agile in our approach actively monitoring our progress tweak.

Tweaking it along the way.

Emphasizing what works and modifying what doesn't to build a strong foundation for the balance of this year and beyond.

So as I hope you saw we have strong reasons to be very optimistic about the campaign and the unique way in which it will enable us to expand lead generation and sales opportunities.

Each of our key market segments.

Before I turn it over to Tom to review the numbers, let me just say if it's not clear already we.

We are laser focused on accelerating sales and adoption of controversy.

We believe we have a better understanding today of the strategies to help us get there.

And for that matter I think we have a good idea of what won't work as well, which can be equally important.

We're looking to be aggressive in our approach and believe that now is the time to strike.

But one thing I want to make abundantly clear and Thats that we will continue to maintain financial and fiscal discipline throughout the organization.

It's been one of the key topics I've talked about since I joined the organization and it won't stop now.

The strategies, we are putting in place will all be measured against one thing and one thing only.

Accelerating sales and adoption of controversy.

And with that let me.

I'll turn it over to Tom to review the financials.

Yeah.

Thank you Ken.

A reminder to our investors. The press release is available on our website in the Investor Relations section.

Further we will be filing our 10-Q.

So I'll just try and touch on some of the high points today.

Revenue during the second quarter was approximately $160000 compared to approximately $71000 in Q2 of 2020, an increase of 125%.

As expected we continue to see strong growth in California, and we expect that an enhanced and focused campaign is Nicole described will drive that growth even faster.

Doubling revenue year over year is good of course, but we know we can do better.

Direct sales also represented a key driver of growth for the quarter and our customer acquisition rate was high <unk>.

And this segment, especially comes at a cost though.

During the quarter, we had a number of promotions and bundling which directly affects gross margin.

We also provided free shipping to any customers as an incentive to introduce contract best.

While these customer acquisition costs were significant we do believe that the efforts will be rewarded by an increased recurring revenue stream by new and happy customers.

In other segments agriculture, and municipalities, we have made progress and starting more and more of these customers into the sales cycle.

But that is not yet reflected in the current quarter sales the decision cycle. In these segments is much longer than the direct sale and more data driven based on efficacy.

Net loss for the second quarter was $1.7 million compared with a net loss of $1.6 million.

For second quarter of last year, and the adjusted EBITDA loss, which is a non-GAAP measure of operating performance.

For the second quarter of 2021 was $2.1 million versus $1.4 million in the second quarter of 2020.

This is a good place to comment on some cost structure items.

As will be detailed further in the 10-Q, while there is a significant increase in the research and development operating expenses, thereby nature very different expenses than what we have called R&D previously.

This spending is much more targeted to have a near term effect on revenue growth.

In years past.

R&D expenses may have included spending for developing products for additional non rodent species or other pure research.

<unk> spending is focused on improvements to our existing product.

Make it better how to deploy it better and how to extend the label with the EPA.

SG&A also saw an increase in the quarter year over year. This is primarily driven by last year's impact of the pandemic. During the second quarter. This year, we have been able to resume travel in direct selling for example, as pandemic restrictions at east.

The quarter over quarter growth with somewhat driven by the free shipping mentioned previously as well.

One note of caution, though the delta variant.

Of Covid seems to be bringing back some of the restrictions and we will have to continue to take steps, we need to protect our people and respect our customers' wishes.

Also of note in the quarter was that the PPP loan was forgiven by the SBA.

This resulted in other income of $650000, which.

Hey, guys.

Through the forgiveness of the note and related accrued interest.

Cash at the end of 2021.

Got it.

Cash at the end of the second quarter of 2021 was approximately $13.1 million at.

At our current burn rate, we continue to have the resources to execute our current strategies.

With that let me open the call to questions operator.

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. The key withdraw your question. Please press Star then two and at this time, we will pause momentarily to assemble the roster.

Coal, while we're waiting for potential questioners here, let me just jump in guys. If I could with something that came across in the news the other day.

I noticed that there was again something coming out of British Columbia, Canada, where they impose a temporary ban on the widespread sale and use of some mascara sounds very California ask any color you can provide there.

Sure Robert Thanks for the question so yes.

The <unk>.

Excuse me the environmental Ministry in British Columbia has announced an 18 month ban.

On the use of eschar is similar to cars that are that are restricted in California.

Four.

Most uses I mean, there is exceptions for essential services there are some exceptions for agriculture.

The key piece here is they've really vary significantly.

Tightened down the ability to use <unk>.

And for pest control.

And.

They're going to take 18 months to assess what alternatives. There are so obviously, it's an interesting time for us to be going to talk to them about controversy.

But I think it's indicative of a trend thats going to begin to accelerate in North America.

As.

States as provinces begin to take a strong look at the effect that poisons are having on other species.

And theyre going to be looking to drive.

Pest control professionals and.

The community more broadly to look for.

A better effective and less toxic solutions.

Perfect. Thank you for that call I'll turn it back over to you. If there are any questions there.

We do another question will come from George <unk> private Investor. Please go ahead.

Thanks, guys.

I'd like to report could you give me an idea of what you think the sales level.

It needs to be to achieve breakeven and become profitable.

Tom Let me turn that one over to you.

Well, let me first preface it by saying, we don't provide any guidance here, but let me walk you through some relevant arithmetic.

We have about between six and $8 million worth of operating expenses per year.

It's been coming down a little bit, but that's a good range.

Our gross margins are targeted at about 50%.

We've been moving closer and closer to those except for sales pushes I think we're relatively confident that we can we can achieve that.

Using that you'd have to see some kind of a revenue model of between 12 and $16 million per annum to get you over that opex.

I hope that gives you a little bit of guidance there.

It does thank you very much I appreciate it.

And this will conclude our question and answer session I would like to turn the conference back over to Ken Siegel for any closing remarks.

Again, thank all of you for joining us today.

Again, we're really excited about this.

Fact that all the pieces are coming together.

Look out for things that are coming on in August 23rd also look to see we're getting increasing coverage in the media, but 23.

The commencement of operation Rat race, and hopefully you will follow along with it.

As we begin to to really drive things here. So again, thank you for your time and attention and we'll be speaking to you again next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.

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