SenesTech, a leading developer of technologies for rodent control, announced its financial results for the third quarter of the fiscal year 2024, ending September 30, 2024. The company reported record quarterly revenue, primarily driven by strong sales of its Evolve Rat and Evolve Mouse products.
Improved gross margins, decreased operating expenses, and a significant reduction in cash burn were among the key highlights, positioning SenesTech on a path towards achieving cash flow breakeven next year. With a focus on both e-commerce platforms and brick-and-mortar retail expansion, the company is also making strides in the international market, with its largest order to date from the Netherlands.
Key Takeaways
- Record quarterly revenue with significant contributions from Evolve Rat (52%) and Evolve Mouse (17%).
- Gross margins improved to 65%, up from 49% in the previous year.
- Operating expenses decreased by 12%.
- E-commerce sales accounted for 35% of total revenue, with growth on Amazon (NASDAQ:AMZN) and Walmart (NYSE:WMT).com.
- Expansion into brick-and-mortar retail, targeting major chains.
- Largest order received from a distributor in the Netherlands.
- Products now available in 47 states for Evolve Rat and 35 states for Evolve Mouse.
- Company anticipates cash flow breakeven next year due to operational efficiencies and demand growth.
Company Outlook
- SenesTech plans to relocate to a new facility in the first half of next year to support increasing demand.
- Management expects updates from New York City within the next month.
- The next earnings call is scheduled for March.
Bearish Highlights
- Despite record revenues, the company still operates at a loss with adjusted EBITDA losses of approximately $500,000 per month.
Bullish Highlights
- Significant reduction in cash burn from over $1 million per month to approximately $500,000 per month.
- Closed an exercise of warrants for 505,000 shares at $4.60 each, generating $2.3 million in gross proceeds.
- Implemented an at-the-market equity facility for capital raising and using debt for manufacturing investments.
Misses
- There were no specific misses mentioned in the earnings call.
Q&A Highlights
- Management expressed optimism about future growth and profitability.
- The earnings report will be filed in a 10-Q later today.
SenesTech (ticker: SNES) is demonstrating a strong performance in the third quarter with its Evolve products leading the way. The company's strategic moves, including its e-commerce expansion and international market penetration, suggest a robust growth trajectory. The operational efficiencies and the reduction in cash burn further underscore SenesTech's potential to reach a financial breakeven point in the near future. With the anticipation of new developments from New York City and the upcoming relocation to a new facility, investors and stakeholders are keeping a close watch on the company's progress as it aims to cement its position in the rodent control industry.
InvestingPro Insights
SenesTech's recent financial results align with several key insights from InvestingPro. The company's record quarterly revenue and improved gross margins are reflected in the InvestingPro data, which shows a revenue growth of 38.16% over the last twelve months as of Q3 2024. This growth is particularly impressive given the challenging market conditions many companies have faced.
An InvestingPro Tip highlights that analysts anticipate sales growth in the current year, which corroborates SenesTech's positive outlook and expansion plans. This expectation aligns with the company's reported success in e-commerce and brick-and-mortar retail expansion, as well as its entry into international markets.
Despite the strong revenue growth, InvestingPro data indicates that SenesTech is not profitable over the last twelve months, with an operating income margin of -407.51%. This is consistent with the company's reported adjusted EBITDA losses of approximately $500,000 per month. However, the significant reduction in cash burn mentioned in the earnings call suggests that SenesTech is making progress towards its goal of achieving cash flow breakeven next year.
Another relevant InvestingPro Tip notes that SenesTech holds more cash than debt on its balance sheet. This financial position, combined with the recent exercise of warrants generating $2.3 million in gross proceeds, provides the company with some financial flexibility as it continues to invest in growth initiatives.
It's worth noting that InvestingPro has 12 additional tips available for SenesTech, offering investors a more comprehensive analysis of the company's financial health and market position. These additional insights could be valuable for those looking to make informed investment decisions based on a broader range of financial metrics and expert analysis.
Full transcript - SenesTech Inc (SNES) Q3 2024:
Operator: Welcome to the SenesTech Third Quarter Fiscal Year 2024 Financial Results conference call. All participants will be in a listen-only mode for the duration of the call. Should you need any assistance today, please notify a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Also, please be aware that today's call is being recorded. I would now like to turn the call over to Robert Blum of Lithium Partners. Go ahead.
Robert Blum: Thank you very much, and thank you all for joining us today to discuss SenesTech's third quarter 2024 financial results for the period ended September 30, 2024. With us on the call today are Joel Fruendt, the company's Chief Executive Officer, and 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. If you dialed into the call through the traditional teleconference line, as the operator indicated, please press star then one to ask a question. If you are listening to the webcast portal and would like to ask a question, you can submit your question through the ask a question feature in the webcast player, and we will do our best to get to as many questions as possible. 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. 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 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 the company's filings with the Securities and Exchange Commission. All forward-looking statements contained during this conference call speak only as of the date on which they 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. With that said, let me turn the call over to Joel Fruendt, Chief Executive Officer. Joel, please proceed.
Joel Fruendt: Thank you, Robert, and good afternoon, everyone. Thank you all for joining us today for our Q3 conference call. Let us jump right into it. As you saw in the press release, I am certainly pleased with all the progress made during the quarter, which culminated in yet another record quarterly revenue number as Evolve continues to be a game changer for SenesTech as well as for the industry. Beyond the record revenues, we are also maintaining a keen focus on efficient operational execution. During Q3, gross margins were 65% compared to 49% in last Q3, and up from 54% in Q2. From an OpEx standpoint, operating expenses were down 12% year over year by the continued revenue growth as we became more efficient in our selling processes. The net result was our best quarterly adjusted EBITDA performance in company history, a 21% improvement from the year-ago third quarter. Taking a step back, it is important to recognize that we only launched the Evolve Rat product less than a year ago. During that time, it has gone from zero in revenue to account for 52% of our business. We are just in the early innings of what we believe Evolve Rat will become. For those of you that are somewhat new to the story, a reminder that Evolve is our all-new soft bait product with similar efficacy to our legacy product, ContraPest, but in a format that is more familiar and easier to deploy, and is offered at a competitive price than traditional rodenticides. It is designated as a minimum risk product by the EPA pursuant to regulation 25(b) and consists of food and food additive ingredients. Evolve has dramatically increased our reach in terms of markets and geographies, and the results are clear that Evolve is what retailers and distributors have been looking for from SenesTech. Beyond Evolve Rat's continued growth and adoption, another key driver to our go-forward growth is our introduction of a mouse product, which we announced in May of this year. In that short period of time, it has accounted for 17% of Q3 revenue as we build on the success of the RAD product. This off-site product utilizes the same revolutionary breakthrough fertility solution as Evolve Rat but with a specific formulation to target mouse infestation, effectively doubling our addressable market opportunity. With these two products leading the way, we have several initiatives in place to drive growth. Let us dive into these one by one. First, let us talk about our expansion with key online retailers. As most of you know, we launched our Amazon store a few months ago. This has progressed well, and Amazon represented 43% of our total e-commerce business in the third quarter. We also launched the product on DIYPestControl.com during Q2 2024, and sales are increasing there at a rapid pace. Over the weekend, the company went live on Walmart.com. We launched the site and started to receive orders in a short period of time. We also are in the final testing with TractorSupply.com, with the product expected to be available for purchase in the coming weeks. Overall, sales on e-commerce-related platforms, including SenesTech.com, continued to trend upwards, with sales increasing approximately 20% in Q3 2024 compared to Q3 2023, and representing approximately 35% of total year-to-date 2024 sales. Next (LON:NXT), let us discuss brick-and-mortar retail chain adoption. Some of you may remember, during our Q2 call in August, I conducted a call live from the floor of the Ace Hardware Fall Buying Market, where we exhibited the Evolve product line for the first time to over 7,700 participants representing over 5,000 stores as well as over 400 buyers from Ace's wholesale business who sell to over 700 non-Ace stores. I am pleased to say we have increased the adoption of Evolve within this first key national home improvement retailer. The next step with Ace will be to have them begin stocking our products in their warehouses, rather than having each store order from us directly. To have our products represented on Ace.com, which can only happen if they are stocking our product in their warehouses. We are also working with five rep agencies with more than 50 outside representatives targeting retail hardware chains to inventory Evolve in their stores. We estimate that this realistically represents over 20,000 locations. With even a modest assumption of penetration, this represents a multimillion-dollar opportunity. In fact, one of our rep agencies has us set up for the Mid-States Distributing Winter Buying Exhibition and the Orgill Hardware Distribution Buying Exhibition in February. This will be our first time exhibiting at these buying shows.
Joel Fruendt: And we are excited about the exposure we will receive. As I mentioned last quarter, each of these buyers has their own specific processes and buying patterns. Ace, for example, agreed to put us in their purchasing system, but it is a complex process that takes months. Costco (NASDAQ:COST), on the other hand, plans everything six months in advance or more, so we are pitching for next year's sales. Walmart is yet different. They tend to start with some of their stores, stock them with a couple of cases of product, and then expand based on demand. Every customer is different, which is why it is so important to work with manufacturer rep agencies who know these buying patterns. Next, let us transition to municipal programs, namely New York City. Recently, the New York City Council has approved a bill to implement a rat contraception pilot program. From the bill, the term rat contraceptive means an agent for the reduction of reproductive capacity in rats that is available for sale and approved for such use by the EPA. SenesTech is currently the only manufacturer of products that meet this requirement. Responding to a request from the city, we have prepared and presented an initial supply proposal. We look forward to being able to communicate more with you about our progress in the weeks and months to come. Earlier this year, we had put out several announcements related to partnerships in various global locations. As we stated in these releases, there is an in-country registration process that is required to begin selling Evolve in each of these countries. With our respective partners, we have been working hard to move these forward, and we are making progress. We just received a multi-pallet stocking order for immediate shipment from our distributor in the Netherlands. This is the largest order in the company's history. Evolve recently received full registration in Hong Kong, and we are close to receiving a container-sized stocking order from our exclusive distributor in Hong Kong. To put some perspective to size, we estimate the pallet is about a $10,000 order, while a container contains ten pallets.
Joel Fruendt: And we are getting close to registration in Australia and New Zealand after many months of submissions and trials. We also are in the final stages of selecting exclusive distributors in India, Pakistan, Chile, Brazil, and Taiwan. So when we look at the coming quarters, our global push should be a significant driver to future growth. As you can hear, we are moving the ball forward quickly on our multichannel commercialization strategy. Beyond commercially focused efforts, we are also advancing other key efforts that will be beneficial to SenesTech. As we talked about last quarter, we have enhanced our packaging of Evolve with new convenient 1.5-pound, 3-pound, and 6-pound pouches, which use 87% less plastic than traditional pails. This past packaging also provides for enhanced gross margins, which you saw in today's results. And we are focused on bringing new products to market and should have more to report on that in subsequent quarters. We also have many studies underway to showcase Evolve's success in real-world settings. Right now, we have trials underway with an East Coast agricultural firm highlighting Evolve in a sugarcane operation. We also have a leading pest management company deploying Evolve in a housing area on a West Coast university campus, and the Western University is completing a laboratory efficacy trial for Evolve. Finally, a leading pest control firm is conducting a Department of Pesticide Regulation-funded study on sustainable alternatives to rodenticide use. Finally, on the regulatory front, Evolve Rat is now available for sale in 47 states, while Evolve Mouse is up to 35 states. Remaining states are waiting for various administrative steps, which should be completed soon. So as you can hear, there is a lot going on. As the only manufacturer of US 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 in the pest control industry, municipalities, agriculture, and consumers to address the problem of rodent infestation. With Evolve and its improved form factor, economic price point, proven efficacy, and lengthy shelf life, we have addressed all the key product attribute requirements communicated to us by the industry. We look forward to continuing rapid adoption. Let me now turn it over to Tom Chesterman to review the financials in more detail.
Tom Chesterman: Thank you, Joel. We will be filing our 10-Q later today, but let me hit some financial highlights. Revenues for the first nine months of 2024 were $1.4 million compared to $898,000 for the same period in 2023. This growth was driven by the Evolve Rat and Evolve Mouse product lines. Evolve Rat, which was launched at the beginning of the year, represented 52% of Q3 2024 revenue, and Evolve Mouse, which was launched in May, represented 17% of Q3 revenue. ContraPest and related products represented the remaining 31% of revenue for the quarter. Looking at revenue by channels, e-commerce sales, which included our own website, Amazon, and DIYPestControl.com, represented 35% of revenue during the third quarter. Distributor revenue was 39%, while field sales represented 25%. Brick-and-mortar retail, which really just started for us, was about 2% of our sales, and we had nominal sales internationally in the quarter. But as Joel indicated, we are anticipating international orders will provide added growth in the coming months, and in fact, we just received our first multi-pallet order for an international distributor.
Tom Chesterman: As we said in the past, our Evolve product line represents a lower cost and higher margin opportunity for SenesTech, and this is proving out. Ever-improving manufacturing operations give us both pricing and margin flexibility. Gross margin this quarter was a new record 65%, up from 49% for the same period last year. From a dollar standpoint, gross profit dollars increased 79% in Q3 2024 compared to Q3 of last year. As I mentioned last quarter, we are also increasing production capacity to meet future demand. We have secured a newer, larger facility in the Phoenix area 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 next year. We continue to hold the line on OpEx as well. In fact, with growing revenues, solid gross profit, and disciplined operating expenses, we have cut our cash burn significantly. Our adjusted EBITDA, how we measure cash burn historically, was more than $1 million a month. For the first nine months of the year, our adjusted EBITDA is just about $500,000 a month. With these trends, adding in the near-term potential Joel mentioned, we definitely see the potential for cash flow breakeven next year. Looking at the balance sheet, in August, we announced the closing of an exercise of certain existing warrants to purchase 505,000 shares of the company's common stock at a price of $4.60 per share. In addition, the company issued new warrants. The aggregate gross proceeds from the exercise of these existing warrants were approximately $2.3 million before deducting placement agent fees and other offering expenses payable by the company. We have also put in place an ATM or at-the-market equity facility. This allows us to sell small amounts of stock over time directly to the market opportunistically. This is a lower-cost way of raising capital and one that does not involve warrants. We have started using this ATM recently, taking care not to disrupt the market. We have also begun using debt more. Most of our manufacturing capacity investment has been through debt, as will be detailed in our 10-Q. We are also pursuing credit facilities that will provide a committed source of capital to bridge to our goal of cash flow breakeven next year. Similar to Joel's comments, I am pleased with the progress made during the third quarter and year to date. Record revenues, record gross margins, decreased OpEx, our lowest EBITDA loss in history, and a pathway for growth and profitability. The game has truly changed for us. Operator, let us open the lines for questions.
Operator: We will now begin the question and answer session. To ask a question, you may press star and one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw a question, you may press star then two. At this time, we will pause just momentarily to assemble a roster. And, again, to ask a question, you may press star and one on your telephone keypad.
Robert Blum: Tom, let me jump in here for just a moment. I do have one question from the webcast to both Joel and Tom. Can you talk about the timing as it relates to when you think you might hear from New York City?
Joel Fruendt: Yes, it should be soon. We have been going back and forth on a few things, and it will certainly be within the next month.
Robert Blum: Okay. Fantastic. Operator, that is all the questions I have here. I will go ahead and turn it over for closing instructions.
Operator: Alright. This will also conclude our question and answer session. I would like to turn the conference back over to management for closing remarks.
Joel Fruendt: Yes. Thank you all for being on the call today. We always look forward to sharing the information and the progress of the company. We look forward to being with all of you again in March.
Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your line.
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