Senestech - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 delivered record revenue of $0.501M, up 70% year over year, with gross margin at 60.9% and the smallest quarterly Adjusted EBITDA loss in company history as the Evolve product line scaled across e-commerce and municipal channels.
• Management announced operating optimization initiatives expected to reduce annual expenses by ~$2M and lowered the annual cash flow breakeven revenue threshold from ~$12M to ~$7M; CFO targeted quarterly cash burn to ~$(1.0)M and breakeven at a little over $1.5M in quarterly revenue.
• Mix shift to Evolve Rat (52% of Q4 revenue) and Evolve Mouse (24%) with e-commerce representing 55% of Q4 revenue (up 206% YoY) underscores channel and product traction; municipal pilots (NYC) and warehousing wins broaden end-market adoption.
• Stock reaction catalysts: accelerated path to breakeven via cost cuts, international distribution approvals, and big-box retail warehouse inclusion potential; near-term municipal and warehousing deployments could quickly move revenue toward breakeven thresholds.

What Went Well and What Went Wrong

What Went Well

• Evolve adoption drove Q4 revenue up 70% YoY to $0.501M and gross margin to 60.9%; management emphasized “record financial results” and “smallest quarterly adjusted EBITDA loss” to date.
• Channel execution: e-commerce represented 55% of Q4 revenue and grew 206% YoY; launch across Amazon, Walmart, Tractor Supply, and DIY Pest Control expanded reach.
• Strategic cost actions: pausing new product development, insourcing marketing/regulatory/IP, and optimizing direct sales expected to reduce annual expenses by ~$2M and cash burn by ~30% to ~$1.0M per quarter.

Management quotes:

• “Evolve continues to be a game changer for SenesTech as well as for the industry”.
• “We believe we will cut our cash burn by about 30% from $1.5 million per quarter to about $1 million per quarter”.
• “We are taking decisive steps to accelerate our path to profitability”.

What Went Wrong

• Legacy product transition: ContraPest declined 51% YoY in Q4 as customers converted to Evolve, implying near-term headwind in the legacy base while Evolve ramps.
• R&D spending elevated earlier in the year; though Q4 OpEx fell 16% YoY, full-year R&D rose to $1.712M from $1.228M before optimization initiatives were announced.
• Consensus estimates unavailable via S&P Global during retrieval, limiting direct benchmarking versus Street for revenue/EPS/EBITDA and making beats/misses vs consensus indeterminable (see Estimates Context) [GetEstimates error].

Transcript

Operator (participant)

Good day, and welcome to the SenesTech Fourth Quarter and Fiscal Year 2024 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, and to withdraw your question, please press star then two. Please note today's event is being recorded. Now I'd like to turn the conference over to Robert Blum with Lytham Partners. Please go ahead.

Robert Blum (Head of Investor Relations)

All right, great. Thank you so much, and thank you all for joining us today, as the operator mentioned, to discuss SenesTech's fourth quarter and full year 2024 financial results, and this for the period ended December 31, 2024. With us on the call representing the company today is Mr. Joel Fruendt, the company's Chief Executive Officer, Mr. 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. If you dialed into the call through the traditional teleconference line, as the operator indicated, please press star then one to ask a question, and if you are listening through the webcast player and would like to ask a question, you can submit your question through the Ask a Question feature in the webcast player. Before we begin with prepared remarks, we submit for the record the following statements.

Statements made by the management team of SenesTech during the course of this conference call may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended, and Section 21E of 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 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, 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 risk 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 the company's filings with the Securities Exchange Commission. All forward-looking statements contained during this conference call speak only as of the date in which they were made and are based on management's assumptions and estimates as of such date. The company does not undertake any obligation to publicly update any forward-looking statements, whether as a result of the receipt of new information, the occurrence of future events, or otherwise. All right, with that said, let me turn the call over to Joel Fruendt, Chief Executive Officer. Joel, please proceed.

Joel Fruendt (CEO)

Thank you, Robert, and good afternoon, everyone. Thank you all for joining us today for our fourth quarter and year-end conference call. Let's jump right into it. As you saw in the press release, we concluded a truly transformational year for SenesTech with record financial results across the board, including quarterly revenues, which were up 70%, and quarterly gross profit margins of 61%, which, when coupled with our improvement in our operational efficiencies through cost reductions, resulted in our smallest quarterly adjusted EBITDA loss in company history as we advance our progress towards profitability. On top of the record results and efficiencies already implemented to date, we are also implementing additional initiatives effective immediately, which are set to further reduce cash burn by $2 million on an annualized basis.

These new savings, coupled with the higher gross margins from Evolve, are anticipated to reduce the revenue threshold for cash flow break-even to $7 million annually, compared to $12 million historically. I will ask Tom to expand more on some of these new initiatives to lower costs in a moment. Let me state upfront that our goal is to achieve cash flow break-even in the near term, which we believe serves as a significant inflection point for the company. To that end, as Tom will touch on momentarily, we believe the strategic financing we just completed this week will provide us the capital necessary to accelerate our progress to cash flow break-even. First, back to the dramatically improved financial results announced this past quarter and the progress it highlights towards that goal of cash flow break-even.

The improvements are being driven almost entirely by the introduction of our Evolve Soft Bait Fertility Control solution, which was launched a year ago. Its improved form factor, economical price point, proven efficacy, and lengthy shelf life have allowed us to expand distribution into new retail customers and end markets. Evolve continues to be a game changer for SenesTech, as well as for the industry. As we have communicated to you for a few quarters now, we have identified a number of key growth objectives that will allow us to continue the positive trajectory we are on. Let me take a moment to walk through the updates on each of these. First, during the year, we successfully launched Evolve Rat and Evolve Mouse on numerous online retailers, including Amazon.com, Walmart.com, TractorSupply.com, and DIYPestControl.com.

Inclusive of the company's online store at SenesTech.com, overall e-commerce sales increased 206% during this year's fourth quarter compared to last year's fourth quarter and represented 55% of Q4 2024 revenue. We are still in the early stages of reach here, with TractorSupply.com coming on in just the last few weeks. We also have seen a nice uptick in our municipal programs. As we discussed briefly last quarter, the New York City Council has approved a bill to implement a rat contraception pilot program. I'm pleased to confirm that we received an order from New York City in December 2024 for Evolve Rat, and that will be shipped in April. The product is initially expected to be deployed in a few locations throughout the city and expand from there based on success parameters being met.

Beyond the New York City government deployment, we also signed an agreement with Bug Off Pest Control in New York City, as we work directly with customers to implement contraception into their IPM programs. Beyond New York, in January of this year, the City of Baltimore joined other major cities on the Rattiest Cities list, such as Los Angeles, by integrating Evolve into their integrated pest management strategy. The city placed a substantial initial order for Evolve and is currently deploying the product this quarter as part of its integrated pest management program. Programs have also just begun, and orders received in Chicago and the Boston area. While everyone loves to talk about the municipal orders, there are a number of other end market customers that can be significant growth drivers for us going forward. One of these is the warehousing and distribution sector.

Just last week, we announced the shipment of a substantial order of Evolve to one of the largest warehousing and distribution companies in the Midwest. As you might imagine, the warehousing in the United States is huge. Controlling rodent infestations in facilities that store food supplies presents unique challenges, as the use of traditional poisons is often not feasible due to safety concerns. Evolve offers a humane and effective alternative, ensuring the integrity of stored products while maintaining compliance with industry regulations. We are excited to expand into this exciting new vertical. Another key area for us has been to expand our reach internationally. Again, Evolve, with its soft bait form factor, has permitted this to occur. To date, we have signed distribution agreements in 10 separate countries to distribute Evolve, including a letter of intent signed with SMark Corporation in India just a few weeks ago.

As we have communicated in the past, international distribution often requires country-specific registrations efforts. To date, we have obtained approval and shipped product to Hong Kong, the United Arab Emirates, the Netherlands, and the Maldives. Our distributors in Australia, New Zealand, and India are in the final stages, with large orders already set to be shipped upon approval for both countries. Others continue to work through the registration process, and we expect further approvals during the remainder of the year. Another key initiative we have been working on has been brick-and-mortar retail chains. During the year, we launched Evolve in Ace Hardware stores and brought on manufacturers' representative agencies targeting retail, co-op, and big-box chains to inventory Evolve in their stores. The process is largely driven by longer purchasing cycles by retailers, with initial e-commerce proof points considered key determining factors.

We just returned from events for Mid-States Distributing, Ace Hardware, and Orgill Hardware Distribution. We saw enthusiasm and orders from individual stores, but more importantly, we are finalizing plans with both to stock their warehouses as a standard product. Our progress on e-commerce and the individual store orders positively influenced these discussions. Those are the key drivers that led to the rapid growth this past year and the fourth quarter in particular: growth in e-commerce, expansion into municipal markets, expansion into new end markets, and expansion internationally. Our team continues to aggressively pursue each of these areas and others to bring our Evolve solution to the market. As I stated at the beginning, as this growth continues, which when coupled with higher gross margins and lower operating expenses, it positions us well to achieve our goal of cash flow break-even.

With that, let me turn the call over to Tom Chesterman, who's going to review the financials in more detail. I will then wrap up with a few closing comments before taking questions. Tom?

Tom Chesterman (CFO)

Thank you, Joel. We will be filing our 10-K shortly, but let me hit the financial highlights. What Joel mentioned at the beginning was the strategic financing that we completed this week. It does not look like much at first glance: a warrant repricing at the market that raised $1 million, but we also included $4 million of short-term warrants. We have had great success with warrants historically, raising capital with much more lower dilution than public offerings. To some extent, this can be seen as an alternative to a $5 million public offering priced at the money instead of at a discount. With this cash, along with our existing cash and our ATM facility, under which we have already raised $1 million during the first quarter, as well as with the efficiencies mentioned, we can confidently pursue the initiatives discussed by Joel on our pathway to profitability.

I should note that we do not reprice warrants without careful consideration. We do everything we can to execute our initiatives such that warrants are exercised naturally. Now to the numbers. For the fourth quarter, revenue increased 70% to a quarterly record of $501,000. For the year, revenue increased 56% to $1.9 million. As Joel touched on, quarterly growth was driven by the market acceptance of our Evolve products and growth in e-commerce. Breaking it down by product, Evolve Rat was 52% of Q4 sales. Evolve Mouse represented 24%, while our historical ContraPest product was the remainder. For the year overall, Evolve Rat was 53% and Mouse 12%. From a product growth perspective, Evolve Rat was up 365% in Q4 from a year ago period, while there were no sales in Evolve Mouse in the year ago fourth quarter, as it was just launched in May of 2024.

ContraPest was down 51% as customers convert to the Evolve solutions. Looking at revenues by channels, e-commerce represented our largest channel at 55% of our Q4 sales. This was followed up by pest management professionals and international distributors. As Joel mentioned, e-commerce growth has been extremely strong lately, with Q4 e-commerce sales up 206% from the year ago fourth quarter. With the addition of TractorSupply.com and hopefully others, we expect these strong trends to continue. As we said in the past, our Evolve product line represents a higher margin opportunity for SenesTech, and it is proving this out. Ever-improving manufacturing operations give us both pricing and margin flexibility. Gross margin for this quarter was 61% compared to 44% in the year ago fourth quarter. From a dollar standpoint, gross profit dollars increased 136% in Q4 2024 compared to Q4 last year.

As I mentioned last quarter, we're also increasing production capacity to meet future demand. We have secured a newer, larger facility in Phoenix that will allow us to meet the next five years of increasing demand without dramatically increasing our facility costs. We expect to move to this location during the first half of this year. As you saw from the results, we continue to hold the line on OpEx as well, but are implementing a new series of optimization initiatives to further reduce expenses. The first is pausing new product development to focus exclusively on the commercialization and growth of Evolve Rat and Evolve Mouse. Second, we are bringing marketing, regulatory, and intellectual property functions in-house to reduce reliance on external consultants.

Finally, we are optimizing our direct sales efforts, shifting to a more proactive approach focused on high-value customer acquisition in key customer segments, such as e-commerce and retail, and focusing on commission-only models such as distributors and manufacturer representatives. All told, we believe we will cut our cash burn by about 30% from $1.5 million per quarter to about $1 million per quarter. These savings, coupled with the higher gross margins and the operating efficiencies gained on manufacturing, are expected to move our cash flow break-even level to a little over $1.5 million per quarter. As we've discussed, this can be achieved very quickly with one or two big-box sales, rapid expansion of brick-and-mortar retail or municipal, or large-scale agriculture or international sales. We have any number of shots on goal coming up.

With the revenue growth plans we have, higher gross margins, lower OpEx, and a strategic funding completed that can provide the funds necessary to achieve cash flow break-even, I believe we have reached that inflection point that many companies and investors are looking for. There is still execution work to be done, but the pathway is clear. Let me turn the call back to Joel. Joel?

Joel Fruendt (CEO)

Thanks, Tom. Just a couple of closing comments. We are committed to executing a focused strategy that positions SenesTech for sustainable long-term success. By concentrating our most impactful growth areas, improving cost efficiencies, and streamlining operations, we are taking decisive steps to achieve profitability. This is the inflection point everyone has been looking for, and we are on the pathway to achieving it. As the only manufacturer of U.S. EPA-registered and accepted products for the reduction of reproductive capacity in rodents, we have a tremendous opportunity ahead of us to change the game of how the pest control industry, municipalities, agriculture, warehousing, and consumers in general address the problem of rodent infestations. With Evolve and its improved form factor, economical price point, proven efficacy, and lengthy shelf life, we have addressed all the key product attribute requirements communicated to us by the industry.

Our financial results are highlighting the progress made, and with initiatives in place to continue driving rapid adoption of our innovative solutions, I believe we are in a great position as we enter 2025. Thank you to everyone for their time today. Operator, let's open the lines for questions.

Operator (participant)

Yes, sir. Thank you. If you'd like to ask a question, please press star then one on your telephone keypad. If you'd like to withdraw yourself from queue, please press star then two. Our first question today comes from Samir Joshi with H.C. Wainwright. Please go ahead.

Sameer Joshi (Analyst)

Hey, thanks. Good afternoon, Joel, Tom. Congrats on all the progress and the new initiatives for reducing costs, optimizing costs. Looks good.

Tom Chesterman (CFO)

Thank you.

Sameer Joshi (Analyst)

Just a few questions. The opportunity in New York, you're shipping your first initial product for the pilot in April. Do you have some sort of visibility into how big it could get and what period of time, say, six to eight to nine months?

Joel Fruendt (CEO)

Yeah. They are laying out the—they want to start the project April 27th. There are two 10-block areas that they are going to focus on. Our technical people will be there with them, helping them assess where the bait station should be placed and the product placement. They are going to monitor those areas, and as they see progress, they may add additional areas. While it is hard to predict how much it could spread, we think that getting in on the ground floor in those areas, which will require some significant product usage itself, we could see some really good opportunities there for growth by adding sections to it.

Sameer Joshi (Analyst)

Yeah, no, that is a significant opportunity. I think you also highlighted the e-commerce, sorry, the warehousing distribution channels as well, in addition to the online efforts. For warehousing, what does your sales effort look like?

Joel Fruendt (CEO)

In the warehousing sector, wherever there's food supplies, food production, right, there's the issue of how are you going to control rodents there? Because rodents actually like to go to where the food is. Really, there's not an opportunity to use a lot of the lethals there. We had, in September and October, some good field tests that were done at some of the warehousing facilities, and now we're moving into where they're starting to order pallets of material to deploy the product there. It's a huge marketplace with warehousing and distribution, and we see opportunities across the board in those areas, not only in food production, but in storage of other types of products as well.

Sameer Joshi (Analyst)

Understood. On the e-commerce front, I think more than 50% of your sales are coming from those platforms. Is this just word of mouth, like a pull, or is there any—are you spending any ad dollars or awareness dollars on this?

Joel Fruendt (CEO)

Yeah, we have ad dollars we spend for Google Ads and a lot of online search engine optimization and pay-per-clicks. Really starting to hit our stride there. Our Amazon sales, we recorded their largest increase in quarter over quarter recently, and we're excited about that and just getting started on Tractor Supply. We do have some programs on Walmart.com to help us gain traction and gain customers there in the short term.

Sameer Joshi (Analyst)

Understood. One clarification question, Tom. I think you described the reduction from $1.5 million to $1 million on a quarterly basis. Was that the cash burn or was that the OpEx? I may have missed this. Sorry.

Robert Blum (Head of Investor Relations)

That was cash burn for adjusted EBITDA.

Sameer Joshi (Analyst)

Understood. Got it. One last one. I think in the press release, you mentioned the Lure Bait Dispenser. Is there any visibility on how that offering is going and what kind of contribution do you expect from that?

Joel Fruendt (CEO)

It's a great accessory item because it allows our product to be used in areas that would be hard to put a bait box. If you're going to hang it in the attics or want to put it on a fence post, put it out in a garden. While not a high-revenue item because it's relatively inexpensive, it allows access to other areas that will allow more of our product to be used in those areas. We just got back from some of these shows, and we've had a lot of interest and an unexpected amount of orders for the Lure Bait Dispenser in order to hold the product, so hold the Evolve product. We're really excited about that.

Sameer Joshi (Analyst)

Yeah. No, I think the dispensing technology has become more important than the product itself many times. So it's good to see that you're seeing that traction as well.

Joel Fruendt (CEO)

Yeah. You know what we have with our ContraPest product, we have the Elevate system. This is the Evolve equivalent of the Elevate system, and it's really gotten the attention of those customers that want to put the product in unique areas.

Sameer Joshi (Analyst)

Yeah. No, I think even retail customers might find this attractive and easy to use. Sounds good. Thanks a lot for taking my questions.

Joel Fruendt (CEO)

Always good to talk to you.

Operator (participant)

Thank you. As a reminder, if you'd like to ask a question, please press star then one at this time. We'll pause for just a moment to assemble our roster.

Robert Blum (Head of Investor Relations)

All right. Operator, looks like no questions on the live call at the moment, so we'll jump over to the webcast. Joel, Tom, I've got a series of questions here. I'll just sort of start walking through them. First one here, and touched a little bit on this, but there's been a number of significant contracts signed in late 2024 and early 2025 here. Sort of talk about how long it is expected for these to sort of contribute to meaningful revenue growth, and is there any sort of a revenue forecast that you have for 2025?

Joel Fruendt (CEO)

Being a regulated product, the difficulty is, is how are you going to get state approval? How long does it take to get state approvals, local approvals? Sometimes when you get approvals, they want to do field trials. I think what you're seeing here is the results of work that we did in early and mid-2024 to get our product out in the hands of field personnel and regulatory personnel, do the necessary legwork in order to get it approved. Once we get the product approved, we show the customers that want to use it within those marketplaces that it works, and they like to put their hands on it. While I don't want to give a revenue forecast for the rest of this year, what I will say is that we were working really hard all of last year.

You're starting to see some results from the things that we were doing a year ago, and we'll continue to see that because we had a lot of progress that was made in the middle and the end of 2024, which should bode well for us going forward.

Robert Blum (Head of Investor Relations)

Okay. Great. Next question here, and you talked a little bit about this in your prepared remarks, but talk about some of the traction within the big-box retailers here.

Joel Fruendt (CEO)

Ace Hardware was really the first one that we talked with and said, "Yeah, we think that our stores and dealers would really like this product." That was a little less than a year ago. We've gotten to the point where now we're under consideration to be put into their warehouses at their recent market that they have twice a year. The number of orders we got from this market over the other one was up about 1,000%. We're in a really good spot there as we move forward. I think some of the dot-com e-commerce will lead to us getting into the brick-and-mortar stores and looking at both Tractor Supply and Walmart.com. The other big thing is that, as I mentioned in the remarks, we have some really well-tied-in rep agencies that are representing us at all of the big retailers.

We're hoping to have some really good news on some developments there going forward in the near future.

Robert Blum (Head of Investor Relations)

Okay. Great. Next question here. It says the review case studies and empirical evidence are all extremely positive for Evolve. It seems it's only a matter of getting the word out now. Is this also what you are seeing on your end, and how do you plan to deploy capital to increase awareness and sales?

Joel Fruendt (CEO)

As Tom mentioned earlier, we've had some improvements that we think we're making. We're streamlining some things. I think that what you see is we have a really good marketing plan for the year, so we're going to continue on with our marketing plans, being able to reach more of the end markets that we pursue. I mentioned municipality. Certainly, when we start deploying in New York City, and recently we just got an order from one of the areas within Chicago, you're going to see some good public relations campaigns built around those. We think one of the most important things is that we got to be able to get the word out there on where it is working and how it's going. Once we do that, you can start to see the landslide of others that are interested in it.

We're going to keep up our plans to get the word out. We're on social media. We're going to continue to do the things necessary to drive business both to the e-commerce sites as well as through our distribution channels. We're set up well in the distribution channels, and that, once again, is from the work that we did in 2024.

Robert Blum (Head of Investor Relations)

All right. Again, just a quick reminder to everyone on the webcast player. If you have a question, you can type it into the question box there. If you're dialed in live to the teleconference line there, you can press star, then one, to ask a question. A couple more questions here for you, Joel and Tom. With a 60% gross margin now, can you lower the price of your products and increase sales enough to cover the lower margin? Talk sort of about the elasticity of demand.

Joel Fruendt (CEO)

Absolutely. We are at a price point where we are right in line with competitive products that are within the industry. We are looking at really ramping up revenue. That may involve some discounts for larger orders from some of our distribution channels. We think that once we get a regular cadence moving within our manufacturing facility, we are going to be able to reduce the price out in the field as well as lower our cost and be able to hold those margins steady.

Robert Blum (Head of Investor Relations)

All right. That last point there, I think dovetails into what may be the last question here. Are there any limitations or constraints to being able to manufacture and supply product for continuing these significant revenue increases? Are there cost savings to higher production levels?

Joel Fruendt (CEO)

Tom, you should take that one.

Tom Chesterman (CFO)

Okay. I would love to. First, no, we don't have the constraints. We've built our supply chain management and our manufacturing processes to be able to expand seamlessly into larger demand. As for the efficiencies, yes, absolutely. We've been working on that. The manufacturing team here in Arizona has done a very, very good job of increasing batch size, reducing waste. They're always making improvements to the process. As we move to our new location, we expect to be doing more and more of that. One of the things that is out there is that the larger you get in terms of your manufacturing process, the more automation options there are as well. These are relatively low-investment improvements to the process.

To be honest, it is explicitly in the goals and objectives for the manufacturing team to find these efficiencies and find the automation and move forward to an ever-improving manufacturing process.

Robert Blum (Head of Investor Relations)

All right. Fantastic. I am showing no further questions. Joel, maybe I'll turn it over to you for any closing remarks.

Joel Fruendt (CEO)

Thanks once again for being online and listening to our story. We're excited about where we're at. We're excited about all the work that we did in 2024 that is going to pay off for us in 2025. We feel that our near future is very, very bright, and we look forward to telling you all about it on our next conference call.

Operator (participant)

Thank you. This concludes today's presentation. You may now disconnect your lines and have a wonderful day.