Q4 2021 Senestech Inc Earnings Call
[music].
Good day and welcome to this tenant check telephone fourth quarter and fiscal year 2021 financial results Conference call.
All participants will be in a listen only.
Do you need assistance. Please signal a conference specialist by pressing Star then zero.
After todays presentation, there will be an opportunity to ask questions.
To ask a question you May press Star then one on I touched on the phone.
Withdraw your question. Please press Star then two.
Please note this event is being recorded.
I would now like to turn the conference over to Mr. Robert Blum with Lytham partners. Please go ahead.
Alright, Thank you very much operator, and thank you all for joining us today to discuss Nasdaq's yearend 2021 financial results for the period ended December 31, 2021 are with US on the call today are Mr. Ken Siegel, the company's Chief Executive Officer, Mr. 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 statements.
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 of the securities acts 1933, as amended and section 21 E of the Securities Exchange Act of 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 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.
Virtually 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 in which they are made and are based on management's assumptions and estimates as of such date.
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.
That said, let me turn the call over to Ken Siegel, Chief Executive Officer of NASDAQ Ken. Please proceed.
Thanks Robert.
Good afternoon, and thank you all for joining us today.
As you hopefully saw in the press release, we finished the year on a strong note with a continuation of the revenue growth trends, we had throughout much of the year.
Overall total revenue for 2021 more than doubled compared to 2020 with product sales growth of 123%.
Importantly, and while I don't want to give specific guidance. We believe we can continue these trends in 2022 as well.
As we sit here today I believe we will once again see more than a doubling of revenue in the first quarter of 2022.
Compared to the first quarter of 2021.
And Tom will have more to say about this later.
The growth, we're achieving is being driven by accelerated penetration of contract capacity in both existing markets as well as an expansion into a number of new market verticals.
Yeah.
Key to the growth we experienced in 2021 has been the deployment of a number of sales acceleration tactics designed to increase awareness and.
In recognition of contract test, including.
Enhanced marketing techniques.
New advertising and public relations initiatives through the operation Rat race Campbell.
Development of a new website and branding.
The launch of an e-commerce site contract the store Dot com.
Completion of compelling real world long term studies across target market segments.
And enhanced strategic partnerships and collaborations with influential distributors pest management professionals.
And there's a number of these initiatives came online at various points during the year.
Expect to see their full effect in 2022.
In addition to the sales acceleration tactics, we're also seeing tailwind from favorable legislative changes.
Growing environmental sensitivity.
And an emerging preference for clean tech choices.
As we've touched upon in the past the key component to this that's been California's legislation restricting the use of major second generation anticoagulant rodenticides or S. Scars.
Seeing continued adoption in California with sales to the state representing approximately 20, 28% of our 2021 sales.
In addition, we are seeing this tailwind effect in new England.
We're publicity of government contracts that sparked a surge in e-commerce orders as well as in the northwest.
Another key item I mentioned, a moment ago has been our E Commerce solutions.
Nearly a third of our 2021 revenue came from concert pet store Dot Com, which was only launched in March and May of 2021.
And while we've implemented certain package and promotion discounts to spur demand and thus impact our gross margins. We believe ultimately this will drive a longer term purchase renewables as the benefits of Contra past are recognized by customers.
Already we've seen fairly low churn in this segment approximately 4% monthly churn and subscriptions for example.
Learning from this early success will be rolling out an enhanced e-commerce site is coming months as.
As well as additional incentives to drive subscription purchases.
As we highlighted in our last call the launch of our multi channel sales and marketing Blitz with the internal Codename operation Rat race was begun late in the third quarter and have shown positive results for.
For those who haven't seen it I encourage you to look up some of our materials on the campaign, which focuses on supporting safe rat sex.
Leveraging its marketing campaign, we will continue to aggressively target key geographies, such as California as.
As well as key industries, such as agribusiness.
Specifically targeting poultry production and owner operators of grain storage facilities across the United States.
While targeting key geographies and industries is crucial.
So leveraging the overall campaign to build confidence among them.
First management community.
Make sure that the industry understands that we are a highly valuable solutions provider that can improve customer loyalty and their bottom line.
But this is a results conference call.
I'm pleased with the continued growth and progress that we've made.
Since the end of the year, we've announced a number of key appointments and applications, especially government, where more and more cities counties and government customers are recognizing the growing success of contract past through various media reports and our sales and marketing efforts.
Excuse me.
These positive deployments in the media coverage around them is having a bit of a clustering of that.
For instance, following the recent successful deployments in Newton, Massachusetts in Hartford, Connecticut, We now have a growing number of government entities and communities in new England, reaching out for additional information.
Amos occurring around Columbus, Ohio, and San Francisco and elsewhere.
And we're working hard to convert these inquiries to customers.
On the government side also of importance is that Los Angeles County specified the use of fertility control and one of their recent request for proposal.
While it was but one RFP so far it is quite a signal that rat control experts and government are beginning to see the value of fertility control in their integrated pest management programs.
Especially valuable as they move away from second generation anti Coagulants pursuant to vehicle systems protection.
We expect this trend will continue in future Rfps and as the only EPA registered product available for fertility control and breadth.
This puts contra passed in an excellent position for further penetration of the government market.
Beyond the government segment, we continued to penetrate the zoos and sanctuaries segment.
Most recently, we announced the appointment of contract test, it's a foray west Wildlife Reserve in Northern California.
Hey house, nearly a thousand animals with a large array of birds hueston small mammals and carnivores many of which are in danger.
Secondary exposure from poisons has become a growing concern in these types of environments, where non target animals or wildlife reside.
I believe we are increasingly being recognized among influencers within this segment is ideal for addressing the concerns of rat infestations.
Both contract has the effectiveness and the lessons risk to non targeted in predatory animals.
Yeah.
This is probably a good place to remind our investors that few customers wanted to have their rate issues become public.
So every press release so for every press release there are many many other wins that go on in that.
Yeah.
Transitioning to perhaps the most exciting news this call.
A key market segment I mentioned, a moment ago is agriculture.
While our experience with agricultural applications demonstrates the efficacy and economic value of country.
Our customers had been requesting an additional abating option to target rats were they often live.
Specifically in rafters and other above ground locations.
We're excited by last week's EPA approval of our all new elevated based system with controversy.
Debate system, specifically designed to be easily employed.
Deployed above ground.
With multiple options for mounting in the rafters Barnes greenery is.
Storage and manufacturing facilities.
Wherever rats are feeding transiting or heightening.
The novel suspended bait station, we created is easily accessible by rats, but out of the way of people pets livestock food stores and other sensitive areas.
System is lightweight and designed to permit easy drop in and replacement of our new eight ounce bottles of country.
Which helped to reduce servicing time and cost.
Particularly excited about the use of the elevated system to control roof rats.
Given the frequent difficulty of deploying traditional rodenticides and the areas that can happen.
The new product design and use is currently undergoing state registrations and is expected to be ready to ship to customers by mid April at which time it will be available in most states.
We believe that sales in the agricultural will be greatly enhanced and accelerated by having the elevated based system with contra pest.
Option.
This is an additional tool that our sales team believes is key to explosive growth in the agriculture segment.
Okay.
So let me step aside for a moment from the current results to update you on our project continues with our partner.
Ill liquid or semi solid formulation of contra pets that we are developing with leaf attack a leader in semi solid dates.
As we mentioned when we started this project product development and the regulated world is controlled and precise and it takes time.
This is a completely new product from a regulatory standpoint.
The fact that we have not commented on it publicly it doesn't signify a lack of progress.
On the contrary, we're making good progress in the area.
We will continue to provide updates as they are available, but expect that any new product is still more than a year out.
Taking into account the realistic timeline for product development and regulatory approval.
So over the past two years, we've been putting the structural base in place to become a commercial company.
This has been no easy feat.
Been bumps in turns along the way.
That said.
Believe that heavy lifting is now complete.
Our sales and marketing reorganization is driving product awareness and lead generation.
And we have a much better understanding of how to target customers and market segments, which should drive improved acquisition market penetration and repeat sales.
We've added resources in high potential areas, such as California and.
And are adding even more in the coming weeks.
We've obtained real world data and Parkman target segments, highlighting both the efficacy and cost effectiveness of controversy.
The EPA approval of elevate is expected to further accelerate our penetration into one of our key end markets agriculture.
And something that is clearly critical we are seeing enhanced interest from major P. M. P's, we begin utilizing contract beds as part of an integrated pest management program.
The best is the right product at the.
The right time.
Not only does it work.
Hits on a number of key environmental regulatory and social trends that continue to gain traction.
So I think all of you for your continued support at Sonesta.
And now let me turn it over to Tom to review the numbers.
Thank you Ken.
A reminder to our investors. The press release is available on our website in the Investor Relations section further we have filed our 10-K today.
So here I will just touch on some of the high points right now.
Revenue during 2021 was approximately $600000 compared to approximately $282000 in 2020, an increase of 113%.
Excluding the effects of grant revenue product sales grew 123% for the year.
This fourth quarter revenue was also more than double the revenue in the fourth quarter of 2020.
This doubling trend has been sustained now for over a year.
And as Ken mentioned, we see the trend continuing into the first quarter of 'twenty two.
I would go so far as to say, we consider this doubling to be the baseline beyond which we can grow even further and faster in 2022.
Yeah.
Gross profit for the year was approximately 244000 or 41% of total revenue.
Compared with the $1000 or 1% of total revenue in 2020.
The gross margin improvement is driven by the fact that we had a high level of scrap and manufacturing and inventory charges in Q4 of 2020.
This is also in line with our efforts to bring the cost of manufacturing below 50%.
Net loss for 2021 was $8 3 million compared with a net loss of $8 4 million for 2020.
Adjusted EBITDA loss, which is a non-GAAP measure of operating performance for 2021 was $7 8 million compared with $6 9 million in 2020.
Yes.
In 2021.
Adjusted heavily in marketing and customer acquisition costs, we're continuing to invest in customer acquisition. So we carefully monitor the specific programs for efficacy and cost effectiveness for.
For example, we are curtailing the free shipping promotions as rising shipping costs defeat their effectiveness.
We would therefore expect adjusted EBITA loss to continue at a pace of $7 million to $8 million per annum.
Cash at the end of 2021 was approximately $9 $3 million.
With continued fiscal discipline this cash should be sufficient to fuel our growth strategy for over a year.
That said as mentioned last quarter, we have filed an S. Three for a renewal of our shelf capacity, which expired earlier last year.
A shelf S. Three is an FCC provision to register a new issue shares without having to sell the offering all at once but instead to often portions of the issue selectively over a three year period.
That is our intent to be selective about capital raises balancing the need for resources with our shareholder interests.
I would also note that there are $4 5 million warrants outstanding over $3 million, which are near the money were expiring soon.
These may prove an efficient source of capital as well.
One additional note as you all may have seen we recently received notification from NASDAQ.
Did price deficiency, providing notification that the bid price for our common stock had closed below $1 per share for the previous 30 consecutive business days and our common stock no longer meet met the minimum bid requirement minimum bid price requirement for continued listing on Nasdaq.
We have an initial period of 180 days or until August 29, 2022 to regain compliance.
To regain compliance the closing bid price of our common stock must be a dollar per share or more for a minimum of 10 consecutive business days at anytime before August one Nick.
If we do not regain compliance by August 29th we may be eligible for an additional 180 day compliance period at which time, we may need to contemplate a reverse split.
It should be emphasized here that we do not need to or intend to contemplate a reverse stock split during this first 180 day period.
We will instead focus on the execution of our business plan and seek to regain compliance through success.
With that let me open the call to questions operator.
We will now begin the question and answer a question to ask a question you May Press Star then one on you touched on corn. If you are using a speakerphone. Please pick up a handset before pressing the keys.
Dan Your question has been addressed and you would like to withdraw your question. Please press Star then.
At this time, we will pass momentarily to assemble our roster.
Our first question comes from Sameer Joshi with H C. Wainwright. Please go ahead.
Yes, Thanks, Michael.
A question and congratulations on a good year.
Hum.
Of course, the operation Rat race has been a good a big step for you.
Do you have.
Any plans.
Plan to continue it.
The next year and what is the budget for that.
Yes.
So thanks.
Thanks for the call.
Yeah, we are continuing rat race.
You know it is planned to run through the balance of accrued 2022.
I will defer to Tom on the on budget discussions but.
Tom.
Okay.
Yes.
We expect to manage this basically at the same level of overall cash burn as we have had in the past. So we're gonna be carefully monitoring it posted growth of as revenue as well as the efficacy of the program to make sure that we do not surge beyond that $7 million to $8 million EBITDA loss that I mentioned.
Right right.
When you mentioned $7 million to $8 million, an EBITDA loss.
I'm Surmise then that you.
You will have higher gross profit dollars.
In the end that we you can use more of those dollars for other expenses.
Just didn't EBIDTA will be seven to 8 million a loss is that you should look at it.
Yeah, we view it as really an investment in growth as we continue to invest how should we can back into the customer acquisition.
And growth of the business.
Got it.
And then.
You reiterated I think you had mentioned during the third quarter call as well that Ah.
E Commerce sales.
Roughly a third of your 2021 revenues.
Is that on an annualized basis or.
From me to now it has been roughly $200000.
What all was 600000.
Yes, actually it's that is a full year effect, where we're seeing a lot more.
E Commerce success early on and we continue to see that.
Growing strongly.
As I think we've mentioned before it was a little bit of it.
A surprise that we did not expect quite as much do it yourself business as we've been getting but we've also noticed that some pest management professionals and other and.
And users are deciding to order through the e-commerce side rather than.
And then going through one of our salespeople, so theres a little bit of a slop in there and a little bit of crossover between the segments.
Yeah Yeah.
And then on them.
Okay.
And pump it up.
Okay.
Did you mention that the subscription.
Customers are at around 10% of the customers are e-commerce customers.
Is it that.
How does that relate to the 4%.
Thank you on the phone.
No I actually don't have.
Stuart.
Exactly how many of the e-commerce customers are on a subscription.
And we're getting more and more new subscriptions, but as we look at the subscriptions one of the key things that is on us.
Okay.
And that's one where we're seeing that.
Approximately a 4% per month churn, which is which is reasonably good.
You would expect we would have to run about that.
Cable future.
Yeah, no sudden flip of centers are good.
In terms of the top two customers.
The customer count if you will.
I think it goes I don't do at 100 at the end of third quarter, which is significantly up from around 500 in the second end of second quarter or do you have a number for that or.
Are you not giving that number anymore.
Yes, I don't have that number handy right now and in fact, I think we need to really look at that because I don't think you were very clear about what a current customer was defined as <unk>.
And so as we're continuing to increase this.
We need to look carefully and make a clear definition, so that everybody can understand what that is so.
So they'll be coming out with that information a little bit later.
Okay, and then just one last one on the U S.
I listen to you.
Oh well.
You did mentioned that it would be around the yard before you want to grow.
And include students come back, but what is the size of that market then hold large abortion.
So now do you expect that product to be I, suppose I'm only guessing.
Got it.
So let me start first and then Ken can jump in English.
It's really unclear and very difficult to separate out.
What is the market for the <unk> system versus what is the market for the traditional companies eight station product because.
They really split out roughly in which brown rats, or Norwegian rats on which ones of roof, France, because France do tend to spend more time aloft.
So a little bit of just going to be what's the split between those but also there are some customers that have a deployment strategy that may incorporate both.
So I don't think it's really possible to prospectively say, how much of the market is going to be one product or another theyre, both contra best and they both have.
The effectiveness of contract. So we really still are looking at what is the overall market for contract best we do know that Rodenticides in general are being we're spending about $1 billion per annum in the U S. So we know it's a big big market.
As people want to begin to incorporate controversy into that but.
Sitting out between the different modalities and different delivery systems.
Probably a little difficult to at this time.
Yeah, no it and Douglas fir.
Wondering if you had something.
And I I'm again, I said it was going to be the last question, but I just have one more.
If you will.
You mentioned that there was the RFP from the Lee County.
One so far.
You also have mentioned that you are probably.
The only one that is approved for use there. So should we consider this a win.
Eventual win that you're fairly confident about.
Okay.
Yeah, I think we can consider to win.
Uh huh.
We're really the only one that they can use.
Got it got it okay.
Okay. Thanks, and good luck, what a good go into 'twenty two.
Thanks much.
Also as a reminder, if you have a question. Please press Star then one can be joined in the last year.
The next question comes from Avi Fisher with long cast.
Please go ahead.
Hi, Thanks for the I V.
Tom and Ken and I appreciate it.
Ken just a quick question you said you talked about the heavy lifting and I just wondered if you could clarify that I mean.
In my mind can tell you're shipping hundreds of thousands or even possibly millions of units.
There's still a lot of heavy lifting so you know what what did you what did you mean by that what did you think what do you think about that opportunity.
Getting there.
No I hear you in and.
I think that.
Fair point, I mean, we have an awful lot of lifting to do.
You know what actually drive sales and what I was talking about the heavy lifting was.
Finally, having a.
Our commercial organization in place I.
I think as you and I've talked about a couple of times you know when I came on board.
This was an R&D company.
Did not have a sales organization did not have data to support how the company op were upgraded.
Well, how the product operated in the field.
So an awful lot of lot of data.
We were very weak in terms of.
This generation marketing preparation of all the things that you really need to do to finally commercialize the product.
And we have no dedicated sales force.
We also had to relocate and upgrade the manufacturing facility to get that ready to scale.
And bringing them more professionalized manufacturing organization.
So all of the basic pieces I think are in place now.
That actually really begin to aggressively sell the product and to your point yeah. There's an enormous amount of lifting to go we've got.
A lot of runway and a lot of ramp to get to the numbers that I think that we can get to and I know that our investors are counting on to get to but I really wanted to make clear that.
At least the basic things necessary to finally have a viable commercial organization are in place and functioning and ready to go.
Yeah fair enough you've done a lot of work getting those pieces in place.
Hum.
On the manufacturing side.
Tom you mentioned the high level of scrap a year ago.
I Wonder if you could talk about sort of or quantify the reduction in scrap and.
And kind of where you are in the manufacturing side.
Sort of.
Just to give me a realistic notion of kind of if youre shipping you know yeah.
20, <unk> hundred <unk> hundred thousand unit say or some level of Munich, where you can get the unit cost down to and how like relative to kind of the more traditional offering.
Yes sure.
So the scrap I'm talking about that we've done.
Part of it has to do with the.
The discontinuation of one of the bait box format that we had the GTE eight box format.
Which really has been is not very popular anymore. So we discontinue that unfortunately, the nature of buying plastic tanks is you have to buy them by the thousands and thousands so yeah discontinuing and that meant we had to recycle a whole bunch of plastics.
The other thing is that occasionally some of our ingredients typically not the active ingredients because they're very stable, but some of the other ingredients to that expiration dates.
So for example, as we look at the end of the year, we might have some of our our oil that we use for the manufacturing process that needs to be so these are the types of scrap as soon as we get better and better at NSP actually the volume increases it becomes easier to manage those sorts of things.
Taking all of that together I believe it's quite achievable in the near term to achieve 50% manufacturing.
And that's.
That's with with the all of the direct costs included.
They will still be a little bit go else going into the costs in terms of cost of sales discounts and such so our gross margins may not be quite at 50%.
41%. This time I think that we could maybe improve it a little bit but the improvements we're going to be doing in the in the near term in terms of cost of manufacturing, we probably will continue to re invest into customer acquisition in the short term.
And and then I mean.
I think it is generally viewed as a pretty neat premium product versus traditional poisons, which you know you could buy poisons for.
10 cents.
Well, what's it just I'm, just trying to understand and gauge kind of where your cost of manufacturing could be at a higher level of scale in that way there are today, but at a higher level of scale, you know relative to that poison.
And therefore, you know what where this can be in terms of a price point.
That might be more attractive to clients down the road, if you aiming for more ubiquity across markets and stuff like that.
Well.
The first thing is that the cost of poisons or the Rodenticides is quite variable you're right.
Simpler stuff that were dental sides are extremely cheap and were priced at about six times that amount.
Some of the more advanced and more progressed.
Rodenticides like lethal Tech Softbank are much more expensive than that and they come closer and then if you look at the overall cost of other lethal means like traps.
And the like.
Some of them are actually more expensive than contract best. So there is a wide variety in terms of the cost of the integrated pest management.
Pieces, but getting back to your question, which is how much more room is there in cost of goods sold.
For improvements.
It is true as you begin to buy particularly the active ingredients.
We would expect the prices to go down.
And with these particular active ingredients.
A forecast as to that sort of thing, but having done this before I would say that you know you should be able to continue to reduce the cost at scale by another 20 or 30% potentially now.
They would then have breakthrough ideas about how to dramatically rescale, the manufacturing process and they could take it further so I don't think there is an end to how much better we can get at manufacturing.
It is going to be an evolutionary process, that's what I've seen before but I also don't think that there was a specific goal to say that that's as far as it can get and we can't go any further.
Great and just two more quick questions are you, having any issues getting the materials you need for that product.
No we're not at this point.
We've taken a fairly conservative approach.
And I think we've disclosed before one of the ingredients is sourced from overseas because of that.
We tend to hedge.
Order it way ahead of time, and we tend to stockpile. So we want to make sure that we have at.
At least six months, if not a full year's worth of supply.
Just because of disruptions in shipping and weather and political issues. So at.
At this point, we're sitting we're sitting very good in terms of our supply.
Okay and then finally, one last question and can you you know it is not quite guidance, but you did talk about <unk>.
Expectations for this quarter, but if you just sort of thinking about the step function of growth right, you've kind of stepped it up a level from where we were a year ago.
And as we get deeper into 'twenty two.
Just curious about your ability to continue to step it up another level.
Kind of you know if you could talk about that generally are with quantify sort of what kind of conversion rates you need to have to step it up yet another level, but youre going to have to do eventually but I'm just thinking is that a 2022 with them.
Yeah, Ivy you know that my my CFO , who is going to step on my microphone shortly but.
[laughter].
We're we're we're excited about the first step.
Obviously you know.
I would say beyond hope, but you know.
We are looking to see how much further we can ramp it in <unk> and.
And 'twenty two.
We're excited about rat race, we're excited about the addition of the additional salespeople we're excited about elevate.
And what Tom said, specifically, we can't figure out quite well.
You know what percentage of the market kind of take it really opens roof rats for us in a way that we hadn't seen before.
So there's a lot of it went negative things.
I'm sorry go ahead.
When does elevate.
Come to market.
So elevate will be clear, we believe most of the state registrations by mid April .
We are we are doing a soft launch now from a marketing campaign. It really is.
<unk> to start to begin to ramp.
At the end of Q2.
But.
We're going to do everything we can to pull that forward as much as we can.
And you know that's a big.
It's both an opportunity and uncertainty right now.
It is a unique deployment capability.
As I mentioned in my in my comments, there's nobody that's really crack the code on deploying for roof racks.
So we've actually got something that can be deployed it pop in pop out its a different bottle size.
So you know it could be the.
You know the big change for Us, but you know we'll.
Well have more to say about it probably at the end of.
And the Q2, but it's you know these are the various factors that give me.
Some say if theres more upside here than.
You know, maybe we're seeing right now.
Awesome. Thanks again for the update really appreciate it keep up the good work.
Alright, thanks, guys.
This concludes our question and answer those Hudson I would like to turn the conference back over to Mr. Peng CFO for any closing remarks.
Okay, Alright, well again, thank all of you for the support of the company hopefully as you can see you know every time, we do one of these which quarter. These quarters you can begin to see the momentum building you can continue to see the excitement just you can do things that are coming online.
And now a growing sense of optimism about the company. So look forward to talking to you again at.
At the end of Q1 and I hope to continue to talk to you about the great progress, we're making but again, thanks for the support and well talk to you again in a few weeks.
Yeah.
The conference has now concluded thank you for coming.
That is correct.