Q3 2021 Senestech Inc Earnings Call

Good day and welcome to the <unk> Tech third quarter of fiscal year 2021 financial results Conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialists bypassing starving zero.

After today's presentation, there will be an opportunity to ask questions to ask a question Press Star then want any touchtone phone to withdraw your question. Please press star.

Please note. This event is being recorded and I would not like to turn the conference over to Robert Blue. Please go ahead.

Alright, Thank you very much and thank you all for joining us today on today's call. We will discuss enough techs third quarter 2021 financial results for the period ended September 32021 with us on the call today are Mister Ken Siegel, the company's Chief Executive Officer, Mister 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.

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

Statements 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, a of the Securities Act 1933 as amended infection 21 E of the Securities Exchange Act 1934, as amended and such forward looking statements are made pursuant to the safe Harbor.

<unk> of the private Securities Litigation Reform Act of 1995.

Forward looking statements described future expectations plans results or strategies and are generally preceded by words, such as may future plan or planned will or should expected anticipates drafty eventually or projected.

Listeners are caution 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 company's filings with the <unk>.

Geared even change commission.

All forward looking statements contained during this conference calls speak only 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 received a new information the occurrence of future events or otherwise.

With that said, let me turn the call over to Ken Siegel 10. Please proceed.

Thanks Robert.

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

As you saw in the press release, we issued after the close the third quarter of 2021 showed continued improvement in the adoption of Contrapest.

With revenue more than double that from last year.

And a 14% from the most recent second quarter.

This is yet another record revenue quarter percent Aztec.

On a year to date basis, we're up 133% from the year ago period.

The record quarterly a nine month results are being driven by growth in each of our targeted market verticals, including agribusiness such as poultry farms.

Municipalities, such as our deployments in Hartford, San Francisco, Washington, D C and another one we recently announced in the Boston suburb of Newton.

Susan sanctuaries, where we now have deployed contrapest more than 50 locations.

Marshall applications.

Where we are primarily selling through distributors to a variety of end markets.

And finally, our direct to consumer offerings, where we sell through our online store at Contrapest store Dot com.

By the end of the quarter, where we were finally able to fully integrate all of the efforts we've been working on for the past two years to fully commercialized contrapest.

These included enhanced sales and marketing tactics to drive awareness and recognition of Contrapest.

No advertising and public relations initiatives through our operation Rat race campaign.

Development of a new website and branding.

The launch of R E Commerce site contract a store dot com.

Completion of compelling real world Longterm studies across key market segments.

And enhanced strategic partnerships and collaborations with key distributors and pest management professionals.

As we previewed on our last call the highly anticipated launch of our multichannel sales and marketing Blitz with the internal code name operation Rat race launched late in the third quarter and is now in full swing.

The campaign is bold and focuses on supporting safe rat sex.

We hope that you have a chance to see our many fun and unique posts on the leading social media platforms.

We've also bought media placements in key geographies and are leveraging and agribusiness specific marketing agency, where we are engaging and programmatic campaigns directed at poultry consumption production and the owners or operators of grain and food storage facilities across the U S.

I will also be attending annual meetings and conferences and agribusinesses through local and national associations, where will be educating business owners and operators about the effectiveness of contrapest and a substantial bottom line improvement potential we've demonstrated to a real world studies.

Our tactics in California. For instance include in addition to our agribusiness outreach both digital in out of home placements aimed at household consumers planned communities and municipalities.

We also have a tailored campaign, we're running in Malibu, where they've decided to go completely poison free.

Which includes both radio and Billboard advertising.

We're leveraging the overall campaign to build confidence among the pest management community as well through trade shows and traditional advertising through industry beat it.

We're working hard to make sure that the industry understands that we are highly a highly valuable solutions provider that can improve customer loyalty and their bottom line.

So while safe Rex rat sex draws you in the.

The real goal of the campaign is all about building awareness and driving demand among end users.

Each vertical has a specific campaign landing page speaking to their needs with tailored calls to action capturing interest and engagement.

Very simply put.

And Nicole Williams mentioned this during last quarter's call back.

The backbone of this multichannel marketing campaign is analytics.

We're actively integrating R e-commerce fulfillment marketing automation and lead tracking platforms in order to effectively capture campaign results in the form of sales and revenue.

And doing this we're temporarily breaking away from our sales territory approach and instead engaging the entire organization to work together towards one common revenue goal.

Needless to say, we're excited about the campaign and look forward to its impact on sales growth in the quarters to come.

So let me transition for a moment and discuss some progress in each of our market vehicles.

As you hopefully saw Newton, Massachusetts, a suburb of Boston was our latest municipality to look like Contrapest, joining other cities like Hartford, San Francisco, and Washington, D C and successfully incorporating.

Contrapest into their pest management programs.

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The deployment of Newton has had a beneficial impact on our sales in the state of Massachusetts as a whole.

And is driving further and user interests, particularly in the Boston Metro area.

Contrapest is also being successfully deployed on a neighborhood level in Seattle.

Extensive media coverage of rat issues and major metropolitan areas is increasing inbound interest in Contrapest from neighborhood and community associations, which we hope will translate into revenue in the coming quarters.

In the meantime, our sales forces aggressively mining these relationships to drive adoption going into next year.

Our Susan Thanks for a segment continues to gain traction comprising nearly 20% of our year to date sales with orders for more than 50 different customers.

Secondary exposure from poisons has become a growing concern, especially in environments, where non target animals or wildlife reside.

Contrapest is increasingly being recognized among influencers within the segment is ideal for addressing the concerns of rat infestations due to both its effectiveness and the lessened risks to non target and predatory animals.

And the agribusiness segment following successful agricultural deployments of Contrapest with demonstrated sustained success, reducing rat populations and improving economies and poultry farms Ah.

The company is established additional distribution through companies focused on farm animal health.

As I mentioned before early in the fourth quarter, we launched a comprehensive targeted sales and marketing campaign, the poultry producers and grain and feed storage facilities.

In addition to attention grabbing rat race marketing, we're using our compelling data from our poultry studies that show dramatic declines in grain consumption and contamination by rats. Once contrapest has been introduced.

And the direct to consumer vertical I spoke in detail about the impact that operation Rat race will have in this area.

But here are a few more details.

At a high level expanding our online presence is a key focus for us.

We launched Contrapest store Dot com earlier, this year as a way to directly access consumers.

Some of these are individuals summer small business owners, well some are larger corporations and pnp's.

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

The channel has added more than 250, new customers during the third quarter and so <unk> sequential decrease in churn down to 4%.

The key focus over the next several quarters is expanding our subscription business, where nearly 10% of our active users now are part of the subscription program as we continued to test different offerings to incentivise automatic repeat purchases, which ultimately drives recurring revenue.

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We see these is very nice trends and are optimistic about the continued traction we can gain in this segment.

In California.

While the geography.

It's being uniquely targeted by us do the backdrop of favorable eco graphics.

Including the recent legislation restricting the use of major second generation Anticoagulants Rodenticides.

This legislation coupled with growing environmental awareness and the removal of the restricted use product from the contract S label continue.

Continue to be key tailwinds for us in this market.

Similar to last quarter sales within California continue to represent nearly a third of year to date sales.

Operation Rat race is added targeted advertising and public relations campaigns to stimulate demand in this critical market, which is directly resulted in 108, new customers in California since the start of the campaign in late August.

As I mentioned in the municipal segment further reorders continue to occur in T, California cities as well.

We clearly think California is a significant opportunity for the company.

And are certainly putting the resources to work to ensure we can benefit from the investment in this key market.

California, often leads the country in the adoption of new products and initiatives and we think this will certainly be the case for contrapest.

To reiterate something I said last quarter I believe we now have a good structural base in place that's beginning to produce results.

We have a product that works.

A great product that works.

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

We have relationships with strategic T M P's in key distributors in place it's share our common values about ways in which to address rat infestations through an integrated approach.

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

Excuse me.

And finally, we have an integrated marketing advertising and public relations strategy to get our messaging out in a unique and compelling way.

We remain laser focused on putting together all the building blocks to successfully drive or commercialization strategy.

And with a number of key sales acceleration tactics now firmly in place we have strong reasons to be optimistic we just need to execute.

And with that let me turn it over to Tom to review the financials.

Thank you can.

As a reminder to our investors. The press release is available on our web site and the Investor Relations section.

Further we expect to file our 10-Q on Friday, So I will just touch on some of the high points today.

Revenue during Q3.

Was approximately $183000 compared to approximately $77000 third quarter of 2020.

This represents growth of 138% more.

More than doubling the revenue in Q3 of 2020.

This revenue included grant revenue of 24000.

Excluding the grant revenue growth was still 106%, maintaining our doubling sales trend for another quarter.

We are beginning to see the positive effects of operation Rat race and our effort in the agriculture segment, both of which commenced late in the quarter.

And both of which we expect to drive continued success in the fourth quarter and in 2022.

Gross profit for the quarter was approximately $77000 or 42% of total revenue for the quarter <unk>.

Compared with approximately $36000 or 47% of total revenue.

For the third quarter of 2020.

This was negatively impacted by sales discounts and manufacturing inventory adjustments.

We expect that the cost of manufacturing itself will continue to approach 50%.

But we will continue in the near term off the discount selectively.

To attract and retain customers.

Net loss for Q3, 2021 was $2.3 million compared with a net loss of 1.9 million for Q3 2020.

Adjusted EBITDA loss, which is a non-GAAP measure of operating performance for Q3 2021.

Was 2.0 million compared to $1.7 million in Q3 2020.

It should be noted that operating expense was negatively affected by a free shipping promotion during the quarter.

Inexpensive shows up 10, opex rather than cost of sales.

Adjusted EBITDA loss, sometimes referred to as burn rate is likely to continue in the short term at a rate equivalent to $7 million to $8 million per annum as we.

Anya to invest in operating expenses that should drive customer and revenue growth.

Cash at the end of the quarter was approximately $11.1 million.

With continued fiscal discipline this cash should be sufficient to fuel our growth strategy for over a year.

That said, we do intend to file an S. Three for a renewal of our shelf capacity, which expired earlier this year.

Shelf, where an S. Three is an SEC provision to register a new issue shares without having to sell the offering at once but instead offer portions of the issue selectively over a three year period.

That is our intent to be selective about capital raises balance and the need for resources with shareholder interests.

With that let me open the call to questions.

Could you do so.

We will now begin the question and answer session to ask a question Press Star then one on a touchtone phone. If you are using a speaker phone. Please pick up your handset before pressing the keys.

To withdraw your question, please press star and to.

We will pause momentarily to symbol a roster.

And the first question comes from Avi Fisher with long cast advisors. Please go ahead.

Hey, Ken and Tom Thanks for the update.

I just I just had a quick question regarding the lipid tech collaboration that was announced in March.

You said something about it I missed it I apologize, but could you provide some sensitive.

How that's moving.

We are still working through the formulation issues Avi.

So we have managed to combine.

The Contrapest actives with their product we're now assessing.

Stability ultimately with a view towards.

Doing a feeding greed product, but right now we're still going through the stability testing.

So I probably have more to talk about that in the next quarter call.

And and.

I mean.

Tom talked about.

The expected annual burn rate.

And I have to assume that the expectation is at.

A year and a half from now your plan you expect to at least be breakeven.

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How how.

How do you model, but.

This.

Non liquid opportunity is it bigger than the liquid opportunities the same size.

There.

It's interesting we think that obviously the liquid is extremely compelling due to the.

The needs of rodents too.

Consume 10% of their body weight every day and and water.

What we're looking at and what we're still assessing is how valuable the.

The solid product will be in some consumer applications.

And Familiarization with.

The pest management committee that likes to deploy wax blocks in the light.

So we think it could be a very big market.

But we think right now even with the liquid product we've got enormous runway.

Yeah.

I I agree.

And I appreciate the work you've been doing and thanks so much.

Okay.

Again, if you would like to ask a question Press Star then one to join the queue. The next question comes from George Fox is a private investor. Please go ahead.

[noise] Hello, Gentleman How're you doing.

Hi, there very.

Very well thanks.

Good good add very pleased with the results. This this quarter I think the growth in customers is the real statistic that should be looked at and.

I I was gonna ask about the pebble the dry formulation as well, but I think I understand where you're at with that.

How 'bout the market in Australia, I had spoke with though whenever you earlier about that has there been any change in the in the opportunity there in Australia with the rat problem, they're experiencing.

And George we continue to.

Try to work with the government in Australia, we were working to see whether or not they would give us an emergency authorization to go in.

Mhm and essentially.

With their their responses and you can imagine this is the government at the end of the day they think that.

With the onset of seasonal change the the problem was going to abate so they're not prepared to allow us to go into on an emergency basis.

So we're working on putting together those areas.

International data submissions that we need to do not just for Australia, but for other countries around the world.

I see it right now.

With the United Nations and have have have some quota program that would be kind of worldwide that you could apply to.

No. Unfortunately, it's it's country by country.

And.

We we we run into this situation periodically, but what we're doing more and more as we're trying to see whether or not we can get.

Local agencies to attempt to bring us in on an emergency basis, thus far been come up dry in Australia.

We're looking at that as victors in other countries that are not quite as bad as Australia with with the rat problem.

But are having growing radishes.

Oh, good well the final question would be how 'bout word of mouth.

You indicated that you were having a fairly good repeat customer right.

I wasn't quite clear on what it is but I'm, assuming the 4% churn means there's a lot of your customers are repeating orders, yes, and among the agriculture in cities and oftentimes. The word of mouth is a very you know if it works for one city. There you know happy to share it with others are you able to you.

The lies that in are you having success are you getting recommendations from from.

Existing successful customers.

[laughter], we're starting to.

The good news of an interesting piece of this was the the interesting factor in the recent Newton placement, which actually came off of that.

Hartford.

The appointment that we did.

In the late spring early summer.

What we're now seeing since Newton aggressively publicize the fact that they were doing that.

We are now starting to see a bunch of inbound inbound inquiries not necessarily from the government, but from the constituents. So we're starting to see the community associations. The neighborhood associations. The planned communities now beginning to.

Reach out because they are seeing successful deployments in the cities.

Similar peace, mostly right now in direct to consumer we have sort of a rabid.

Enthusiasm base, if you will.

That are talking up talking us up a lot on social media, which is driving more of the consumer traffic where early in the in the campaign now around agriculture.

So we expect to see more word of mouth coming in the next couple of quarters as we get more deployments under our belt.

This concludes our question and answer session.

Now, let's from the comes back over to Ken Siegel for any closing remarks.

Okay. Thanks, So again, thank all of you for joining US today, I think as you've seen and I mentioned, probably a couple of times in the script.

The pieces have finally come together and I think the final piece.

Which is really giving us.

The.

The power behind the overall commercialization strategy is the new marketing advertising campaign and robust way that we're promoting contrapest.

So look forward to updating you more as the campaign gains traction remember, it's only a few weeks old.

But hopefully we'll have a lot more exciting things to talk to you about the.

And the full year call early next year. So again, thank you for your attention and look forward to talk to you again next quarter.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

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