SenesTech Inc. Q1 2023 Earnings Call

Speaker 2: Hello and welcome to Synasitex First Quarter 2023 Financial Results Conference Call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw from the question key, please press star, then two. Please note the event is being recorded. I would now like to turn the conference over to Robert Bloom with Welcome Partners. Please go ahead.

Speaker 3: Great, thank you so much MJ and thank all of you for joining us today to discuss the NESTX first quarter, 2023 financial results for the period ended March 31, 2023. With us on the call today are Joel Fruent, the company's chief executive officer.

Speaker 3: and Tom Chesterman, the company's Chief Financial Officer. At the conclusion of today's prepared remarks, we'll open the call for a question-and-answer session. Before we begin with prepared remarks, we submit for the record the following statement.

Speaker 3: Statements made by the Management Team of Sinus Tech during the course of this conference call may contain forward-looking statements within the meaning of Section 27A of the Securities Act 1933 is amended, and Section 21E of the Securities Exchange Act 1934 is amended, and such forward-looking statements are made pursuant to the SAFARBO provisions.

Speaker 3: projected..

Speaker 3: 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.

Speaker 3: as a result of various factors and other risks identified in our filings with the Securities Exchange Commission. All forward-looking statements contained during this conference will speak only of the date in which they were made and are based on management's assumptions and estimates as of such date.

Speaker 3: statements, whether as the result of the receipt of new information, the occurrence of future events or otherwise.

Speaker 3: With that said, let me turn the call over to Joel Fruent, Chief Executive Officer at Synestec. Joel, please proceed. Good afternoon everyone. Thank you all for joining us today. Following my appointment as CEO a few months ago, it is my clear goal and objection to accelerate and steepen the adoption curve.

Speaker 3: to address these imperatives. Let's start with the selling strategy.

Speaker 3: our customer acquisition capabilities while also putting sales reps closer to the customers to focus on the numerous large opportunities that are available for our unique fertility control product.

Speaker 3: Next, we have expanded our field sales organization, each deployed by geography with leadership in both the eastern and western half of the US.

Speaker 3: This strong regional focus on new customer acquisition through an expanded commercial team and new depths of vertical industry knowledge to get in front of decision makers is all designed to tighten the sales cycle and ultimately driving revenue.

Speaker 3: We've also made some changes in the leadership. I have taken over direct leadership of the commercialization efforts.

Speaker 3: We are also moving our growth planning and outsourced marketing to a new group, the Dorn group, with whom I have had success in the path. Moving now to make better products. During the third quarter of last year, our customer complaints peak at 35 complaints per month.

Speaker 3: Not that high, we were doing an adequate job, but I knew we could improve it. During the first quarter, even amidst higher volumes, our complaints averaged less than 10 per month.

Speaker 3: We did this by introducing improvements in our delivery system, our trays.

Speaker 3: we can still do better. We are preparing a number of formulation improvements for EPA review, which we will be submitting within days.

Speaker 3: giving the customers more choices. This really started last year with the introduction of the Elevate system, a delivery system that uniquely targets the roof rad or black rad.

Speaker 3: For those not familiar, the Elevate system we created with its suspended bait station is revolutionary within the pest control market. There simply is no other effective product on the market like it designed for above-ground deployment for the control of roof rats.

Speaker 3: The industry has typically utilized traditional bait boxes to deliver pesticides and other products.

Speaker 3: and the design of the system is such that it permits easy drop-in and replacement of new 8-ounce bottles of ContraPEST, reducing servicing time and cost. We filed for patent protection for the Elevate system in April in recognition of both its uniqueness and effectiveness.

Speaker 3: The initial focus for us with the elevate is agriculture. While our experience with agricultural applications demonstrates the efficacy and economic value of contrapes, our customers have been requesting an additional baiting option to target rats where they often live, specifically in rafters and other above ground locations.

Speaker 3: I believe the Elevate System will be an innovation that enables us to accelerate our penetration into a number of key markets, particularly agriculture.

Speaker 3: We also realized that the 400 milliliter standard tank size was not always optimal for initial deployments or modest infestations. Therefore, we have introduced a 4-ounce starter tank.

Speaker 3: We suggest that this tank be used at the outset of a deployment and then replaced with a 400-milliliter tank when consumption patterns are confirmed.

Speaker 3: We have added additional products and options to our e-commerce site, such as the 12 month prepay subscription for e-commerce customers and convenience items.

Speaker 3: products and options to our ecommerce site such as the 12 month prepaid subscription for ecommerce customers and convenience items. All of our ecommerce

Speaker 3: as well as commercial activities are being enhanced by CRM campaigns. Investments in this channel continue to show results.

Speaker 3: I will mention that the recent weather-related issues, and California especially, have put a damper on Q1 activity for both agriculture and e-commerce. Q2 looks to be recovering nicely. Let me turn now to some of the highlights of the quarter. As part of our expanded selling strategy, we recently signed a national distribution agreement with Target Specialty Products for ContraPests. In addition to distribution, Target Specialty Products and CinesTek will be actively collaborating in marketing and selling ContraPests throughout their extensive network.

Speaker 3: With this agreement, we have now renewed and expanded agreements with the two largest structural pest management distributors, Becerris and Target Specialty Products, allowing us far greater reach and access into the professional market than we would otherwise be able to afford.

Speaker 3: Another key commercialization strategy has been the highlighting of ContraPest at a number of industry conferences, including animal care, expo, and new warnings.

Speaker 3: New York's Rodent Roundup and the peak 2023 poultry show.

Speaker 3: Trade shows provide a unique opportunity to interact directly with the pest management customers and to communicate the benefits of ContraPest directly.

Speaker 3: Each of the introductions can then be followed by a sales discussion with their pest management providers.

Speaker 3: The Peak Poultry Trade Show in particular is the largest industry trade show in the US and proved an ideal venue to showcase the economic and productivity benefits of contra pests that can provide when added to other integrated pest management tools.

Speaker 3: I believe the Elevate system will be a key driver for growth in the poultry market, with an addressable market size of close to 200 million, particularly as the effects of the recent avian bird flu subside. As further evidence of our top-of-funnel activities, our public relations efforts continued as Time Magazine featured Contrapest.

Speaker 3: as an innovative approach to dealing with global rat infestations. The article highlighted successful contra pest programs across the country, resulting in rat population reductions of 90%, and also announced the start of a program in the city of Ferndale, Michigan. The story explains the city is moving forward with a program because quote, contra pests has the potential to change the way cities around the world address their own rat situations by limiting the rodent's ability to reproduce.

Speaker 3: We were also highlighted in a Seattle-based article recently where the owner of an eco-based pest control company explained her approach. Her quote, we avoid using rodenticides and prefer to seal up holes and use physical traps. And one new product that we have tested over the last year is a rat birth control liquid called Contrapest made by Sinesteck.

Speaker 3: In our commercial test site on the top of Queen Anne Hill, we've seen a 91% reduction in the resident red population over eight months. We're offering this option to the conservation-minded homeowners and businesses that it has proven to be very effective with no risk of secondary poisoning.

Speaker 3: Even in cases where populations are controllable for a short time, the movement of food products allows opportunity for populations to move during the transport, especially in grain. With this customer and this initial deployment, our experts work with the best management professionals to develop and deploy contra pest as an addition to the existing integrated pest management program. If this follows the success we have seen in other customer segments, this initial deployment that the argument represents...

Speaker 3: are controllable for a short time, the movement of food products allows opportunity for populations to move during the transport, especially in grain. With this customer and this initial deployment, our experts work with the pest management professionals to develop and deploy contra-pests as an addition to the existing integrated pest management program. If this follows the success we have seen in other customer segments, this initial deployment represents significant growth potential.

Speaker 3: I should also note that we have recently been contacted by an international grain shipment company. They are also interested in discussing how contra pests could aid in their efforts to combat destructive rat infestations.

Speaker 3: We are also seeing continued adoption in Santa Clara and San Francisco. Geographically, California continues to be a leading adopter of contra pests following their implementation of the Ecosystems Protection Act of 2021, which bans the use of commonly used second-generational anticoagulant poisons under many circumstances. You may recall that in December , we announced that the City of Los Angeles had ordered and have now deployed contra pests broadly at the Los Angeles Zoo as part of their Integrated Pests Management Program, with a deployment plan that is expected to exceed 250 bait station.

Speaker 3: Overall, 25 zoos, including 3 of the top 10 zoos in the United States, are now using ContraPest. When we expand this segment to include animal sanctuaries and veterinary clinics, the customer count is much higher, well over 200.

Speaker 3: With a focus on the near-term and long-term, during the first quarter we advance a number of key initiatives, including the approval of ContraPest for General Use from New York State Department of Environmental Conservation, removing restricted use pesticide from the label of ContraPest. This was a key event that dramatically expands the market for ContraPest in New York as it no longer requires application by especially licensed pest control companies and eliminates restrictive handling and paperwork. New York now becomes the 49th state to remove the RUP label from ContraPest.

Speaker 3: Also in March we confirmed the various news reports that CNESTECH has been working with the Danish company Triptobio on the development of biosynthetic triptolide, one of the active ingredients in Contropest. There may be a number of very distinct advantages to biosynthetic triptolide, including more consistency and its quality and available.

Speaker 3: synthetic triplet lead will also provide a solid foundation for our soft bait product candidate that we have been working on with Leifatex. That project has progressed well, and we have a number of formulation candidates with which to move forward. We recognize the work that is needed to drive consistent and rapid adoption of contra pests and do not take the opportunity we have in front of us lightly.

Speaker 3: ContraPest is a game-changing product that fits seamlessly into all integrated pest management programs, greatly improving the overall goal of effective pest management. I am pleased with the operational progress made during the quarter, and believe we will see the benefits of these results in the coming quarters. With that overview, let me turn it over to Tom to review the financials.

Speaker 3: game-changing product that fits seamlessly into all integrated pest management programs, greatly improving the overall goal of effective pest management. I am pleased with the operational progress made during the quarter, and believe we will see the benefits of these results in the coming quarters. With that overview, let me turn it over to Tom to review the financials. Tom?

Speaker 3: Thank you, Joel. A reminder to our investors, the press release is available on our website in the investor relations section. Further, we expect to file our 10-Q today, so I will just touch on some of the high points right now.

Speaker 4: Revenue during the first quarter was $233,000 compared to $195,000 in Q1 of 22.

Speaker 4: increase of 19%. Sales growth during the first quarter was led by growth in the company's e-commerce platform which made up approximately 45% of Q1 2023 product sales as well as continued traction with zoos and sanctuaries and pest management professionals.

Speaker 4: As Joel mentioned though, weather-related issues put a damper on sales during the quarter, especially in California.

Speaker 4: Gross profit during the first quarter was approximately $92,000 or 40% of total revenue compared to approximately 90% or 46% of total revenue in Q1 of last year. Excluding costs related to the scrapping of defective inventory no longer used in our products, gross profit margin would have been 58% in Q1 of 2020.

Speaker 4: compared to $2.0 million in Q1 of 2022.

Speaker 4: Cash at the end of March 2023 was $2.7 million. Subsequent to the end of the quarter in April 2023, the company closed on a registered direct offering priced at the market under NASDAQ rules for gross proceeds of $1.5 million. While this does improve our runway, we will continue to assess the capital markets for further financing.

Speaker 3: that past fits right in with that passion.

Speaker 3: Beyond that, I joined because I felt I could leverage my 15 years of executive leadership in the vector and pest management industries, where I helped drive large commercial adoption of EPA registered control products.

Speaker 3: Beyond that I joined because I felt I could leverage my 15 years of executive leadership in the vector and pest management industries where I helped drive large commercial adoption of EPA registered control products just like Contrapus.

Speaker 3: I am instituting what I believe to be tried and true sales strategies to accomplish the goal that we all desire, which is to accelerate and steepen the adoption curve of a truly revolutionary product. Having now had the opportunity to be entrenched with the team for a few months, my excitement is higher today than when I joined.

Speaker 3: Thank you all for your continued support and with that operator let me now turn it over for any questions.

Speaker 3: all for your continued support and with that operator, let me now turn it over for any questions. Thank you very much.

Speaker 2: If you're using a speakerphone, please pick up your handset before pressing the keys.

Speaker 2: To withdraw from the question queue, please press star then 2.

Speaker 2: At this time, we will pause momentarily to assemble our roster. Again, if you have a question, please press star, then 1.

Speaker 2: No questions in the queue. I would like to turn the call back over to management for closing remarks. Pardon me. It seems we have Jonathan Berg, private investor. Show ahead with your question. Yeah, I have a couple of questions. Thank you.

Speaker 5: First off, how far along is TryptoBio in developing the synthetic cryptoide?

Yeah, this is Tom. So Tructo Bio is, has at this point, developed at the laboratory scale, the process necessary. They're moving now to the pilot scale. And as they move to that, we're working with them to...

but making very good progress.

So when you say a year away, does that mean that it will get through the EPA if they're successful? Is one year from now, is that it?

Another year away from being able to produce at the production level at least. And when will the EPA pass and finish evaluating the product?

The EPA process which will start sometime during the year usually takes about a year or less.

process which will start sometime during the year usually takes about a year or less.eleenceClichy break

a bait station would generate about how much revenue per month.

I'm not sure what you mean by a bait station. You mean in terms of revenue in a bait station? Yeah, Joel mentioned there's so many bait stations that are just out resulting.

get a new customer and they put out

a new customer and they put out 100 bait stations.

How much revenue would you expect to get per month of that? I understand it's a ramp time, but about how much would you expect in terms of revenue from one bait station or 100 bait stations?

Well it depends on consumption right? Of course. They're using it every month is a refill is 30 to 40 dollars per refill depending on what so you could get six to twelve times for each bait station every month.

I see so about $30 a refill. I'm sorry. Yeah. Yes, so 30 to $40 per refill And then depending on how many refills you have with the base station we typically see that they're doing it every month or every two months.

I'm sorry? Yes, so 30 to 40 dollars per refill and then depending on how many refill fills you have with the base station. We typically see that they're doing it every month or every two months. One refill.

Right.

Per every month to two months so when we're talking about a bait station being out

in the field, we can expect that $20 to maybe $40 a month would come in. Is that correct?

But they finish. Yes. Okay.

Per base image, yes. Yes. Okay.

And the bait station itself costs how much initially? In other words, if I show up and I get one from my building here in New York, and I get a, whatever it is, a one tank fill, that costs you how much to get out the door?

Yeah, so we have a starter kit that's on our e-commerce site and that's $79 and that'll give you the bait station plus two tanks I think it is.

to get you started. The good news is we're also working with some of the other bait station manufacturers to come up with a lower cost bait station that can be used to attract more of the residential type customers who are not wanting to spend as much on the initial starter kit.

Okay, so do you make a profit on that $80 start kit?

If you make a profit on that $80 starter kit, we do.

Give me an idea of what it costs to put that together. Our objective here and what we've been trying to do and you can see what Tom was reporting on is that if less of those extraordinary items we were at 57% or 58% gross profit in this quarter. Certainly our objective is to stay up in that range.

That's all you need to know to get your own bait stations.

Thank you.

This concludes our question and answer session. I would now like to turn the call back over to management for closing remarks.