Good day, and welcome to the SenesTech Fourth Quarter and Fiscal Year 2021 Financial Results Conference Call. All participants will be in a listen-only mode. After today’s presentation there will be an opportunity to ask questions. 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.

All right. Thank you very much, operator and thank you all for joining us today to discuss SenesTech’s year-end 2021 financial results for the period ended December 31, 2021. 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 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 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 on which they are 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 the result of the receipt of new information, the occurrence of future events or otherwise. With that said, let me turn the call over to Ken Siegel, Chief Executive Officer of SenesTech. 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 are achieving is being driven by accelerated penetration of ContraPest in both existing markets as well as an expansion into a number of new market verticals. Key to the growth we experienced in 2021 has been the deployment of a number of sales acceleration tactics designed to increase awareness and recognition of ContraPest, including enhanced marketing techniques, new advertising and public relations initiatives through the Operation Rat Race campaign, development of a new website and branding, the launch of an e-commerce site ContraPestStore.com, completion of compelling real-world long-term studies across target market segments, and enhanced strategic partnerships and collaborations with influential distributors and pest management professionals. And as a number of these initiatives came online at various points during the year, we expect to see their full effect in 2022. In addition to these sales acceleration tactics, we are also seeing tailwinds from favorable legislative changes, growing environmental sensitivity, and an emerging preference for clean tech choices. As we've touched upon in the past, a key component of this has been California's legislation restricting the use of major second-generation anticoagulant rodenticides or SGARs. We're seeing continued adoption in California with sales to the state representing approximately 28% of our 2021 sales. In addition, we are seeing this tailwind effect in New England where publicity of government contracts has 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 ContraPestStore.com, which was only launched in 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 longer-term purchase renewals as the benefits of ContraPest are recognized by customers. Already, we have seen fairly low churn in this segment, approximately 4% monthly churn in subscriptions, for example. Learning from this early success, we'll be rolling out an enhanced e-commerce site this coming month as well as additional incentives to drive subscription purchases. As we highlighted in our last call, the launch of our multichannel sales and marketing blitz with the internal codename Operation Rat Race has begun late in the third quarter and has shown positive results. 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 this marketing campaign, we will continue to aggressively target key geographies such as California as well as key industries such as agribusiness where we're specifically targeting poultry production and owner-operators of grain storage facilities across the United States. While targeting key geographies and industries is crucial, we're also leveraging the overall campaign to build confidence among the pest management community to 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, and I'm pleased with the continued growth and progress that we've made. Since the end of the year, we have announced a number of key deployments and applications, especially government, where more and more cities, counties, and government customers are recognizing the growing success of ContraPest through various media reports and our sales and marketing efforts. These positive deployments and the media coverage around them are having a bit of a clustering event. For instance, following the recent successful deployments in Newton, Massachusetts and Hartford, Connecticut, we now have a growing number of government entities and communities in New England reaching out for additional information. The same is occurring around Columbus, Ohio, San Francisco, and elsewhere. And we're working hard to convert these inquiries into customers. On the government side, also of importance is that Los Angeles County specified the use of fertility control in one of their recent requests for proposal. While it was only one RFP so far, it is quite a signal that rat control experts in government are beginning to see the value of fertility control in their integrated pest management programs and especially valuable as they move away from second-generation anticoagulants pursuant to the Ecosystems Protection Act. We expect this trend to continue in future RFPs. As the only EPA-registered product available for fertility control in rats, this puts ContraPest in an excellent position for further penetration of the government market. Beyond the government segment, we continue to penetrate the zoos and sanctuary segment. Most recently, we announced the deployment of ContraPest at Safari West Wildlife Preserve in Northern California. They house nearly 1,000 animals with a large array of birds, hoofed and 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 nontarget animals or wildlife reside. I believe we are increasingly being recognized among influencers within this segment as ideal for addressing the concerns of rat infestations due to both ContraPest's effectiveness and the lessened risk to nontarget and predatory animals. This is probably a good place to remind our investors that few customers want to have their rat issues become public. So for every press release, there are many other wins that go unannounced. Transitioning to perhaps the most exciting news on 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 ContraPest, our customers have been requesting an additional baiting option to target rats where they often live, specifically in rafters and other aboveground locations. We're excited by last week's EPA approval of our all-new elevated bait system with ContraPest. The bait system is specifically designed to be easily deployed aboveground with multiple options for mounting in the rafters of barns, granaries, storage and manufacturing facilities, basically wherever rats are feeding, transiting, or hiding. 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. The system is lightweight and designed to permit easy drop-in and replacement of our new 8-ounce bottles of ContraPest, which helps to reduce servicing time and cost. We're particularly excited about the use of the elevated system to control roof rats given the frequent difficulty of deploying traditional rodenticides in the areas they inhabit. The new product design and use are 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 agriculture will be greatly enhanced and accelerated by having the elevated bait system with ContraPest as an option. This is an additional tool that our sales team believes is key to explosive growth in the agriculture segment. Let me step aside for a moment from the current results to update you on a project that continues with our partner, a nonliquid or semi-solid formulation of ContraPest that we are developing with Liphatech, a leader in semi-solid baits. As we mentioned when we started this project, product development in the regulated world is controlled and precise and takes time. This is a completely new product from a regulatory standpoint. The fact that we have not commented on it publicly doesn't signify a lack of progress. On the contrary, we're making good progress in this area. We'll continue to provide updates as they're available but expect that any new product is still more than a year out, taking into account the realistic timeline for product development to 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, and there have been bumps and turns along the way. That said, we believe the 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 are adding even more in the coming weeks. We've obtained real-world data in target segments, highlighting both the efficacy and cost-effectiveness of ContraPest. 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 is that we are seeing enhanced interest from major PMPs to begin utilizing ContraPest as part of an integrated pest management program. ContraPest is the right product at the right time. Not only does it work, but it hits on a number of key environmental, regulatory, and social trends that continue to gain traction. I thank all of you for your continued support of SenesTech. 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 $600,000 compared to approximately $282,000 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 '22. 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. Gross profit for the year was approximately $244,000 or 41% of total revenue compared with $1,000 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%. The net loss for 2021 was $8.3 million compared with a net loss of $8.4 million for 2020. The 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. In 2021, we invested heavily in marketing and customer acquisition costs. We are continuing to invest in customer acquisition, though we carefully monitor the specific programs for efficacy and cost-effectiveness. For example, we are curtailing the free shipping promotions as rising shipping costs defeat their effectiveness. We would therefore expect adjusted EBITDA 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 continuing 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-3 for a renewal of our shelf capacity, which expired earlier last year. A shelf or an S-3 is an SEC provision to register a new issue of shares without having to sell the offering all at once but instead to offer portions of the issue selectively over a 3-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 of which are near the money or 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 of a bid 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 met 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 $1 per share or more for a minimum of 10 consecutive business days at any time before August 29. If we do not regain compliance by August 29, 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.

We will now begin the question-and-answer session. Our first question comes from Sameer Joshi with H.C. Wainwright. Please go ahead.

Yes. Thanks Ken and Tom, congratulations on a good year. Of course, the Operation Rat Race has been a good, big success for you. Do you have any plans to continue it into the next year? And what is the budget for that?

Hi Sameer. Thanks for the call! Yes, we are continuing Operation Rat Race. It is planned to run through the balance of 2022. I will defer to Tom on budget discussions.

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 going to be carefully monitoring it, both the growth of the revenue and 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. So when you mentioned $7 million to $8 million in EBITDA loss, I'm surmising that you will have higher gross profit dollars, and that way, you can use more of those dollars for other expenses, and adjusted EBITDA will be $7 million to $8 million loss. Is that how we should look at it?

Yes, we view it as really an investment in growth as we continue to invest as we can back into the customer acquisition and growth of the business.

Got it. You mentioned during the third quarter call that e-commerce sales are approximately one-third of the revenues for 2021. Is that based on an annualized figure? Or from May until now, has it been about $200,000, totaling around $600,000?

Yes. Actually, it's that is a full year effect. 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 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 end users are deciding to order through the e-commerce site rather than going through one of our salespeople. So there's a little bit of slop in there and a little bit of crossover between the segments.

Yes, yes. On that same topic, did you mention that subscription customers make up around 10% of your e-commerce customers? How does that relate to the 4% churn? I'm just trying to understand exactly.

I actually don't have handy right here exactly how many of the e-commerce customers are on a subscription, and we're getting more new subscriptions. But as we look at the subscriptions, one of the key things in fact is on our subscription. And that's one where we're seeing approximately a 4% per month churn, which is reasonably good as we would expect to run about that for the foreseeable future.

Yes, 4% is good. In terms of the total customer count, I think it was around 1,200 at the end of the third quarter, which was significantly up from around 500 at the end of the second quarter. Do you have a current number for that or are you not providing that information anymore?

Yes. I don't have that number handy right now. And in fact, I think we need to relook at that because I don't think we were very clear about what a current customer was defined as. 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 we'll be coming out with that information a little bit later.

Okay. And then just one last question about the newest addition to your portfolio. You mentioned that it might take about a year before you see significant sales from that. What is the size of that market? Two years from now, how much do you expect the elevate product to contribute to your overall sales?

Let me start first, and then Ken can add if he would like. It's quite unclear and challenging to differentiate between the market for the Elevate system and the traditional ContraPest bait station product. The distinction largely depends on the types of rats involved—brown rats, Norwegian rats, or roof rats, which typically spend more time in higher areas. Some customers may adopt a strategy that includes both products, making it difficult to predict how much of the market will lean towards one product or the other. Both products are under the ContraPest brand and share its effectiveness. We are currently focused on assessing the overall market for ContraPest. It's noted that rodenticides in general account for about $1 billion annually in the U.S., highlighting the significant market potential as there is a desire to integrate ContraPest into this space. However, distinguishing between the various methods and delivery systems remains a bit challenging at this moment.

Yes. No, and that is fair. I was just wondering if you had something. And 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 L.A. County, one so far. And you also mentioned that your product is the only one that is approved for use there. So should we consider this a win or eventual win that you're fairly confident about?

Yes, I think we can consider it a win, Sameer. We're really the only option they can use.

Hi, thanks for the update, Tom and Ken. I appreciate it. Ken, I have a quick question. You talked about the heavy lifting, and I was wondering if you could clarify that. In my view, until you're shipping hundreds of thousands or even possibly millions of units, there's still a lot of heavy lifting. What did you mean by that? What are your thoughts on the opportunity to get there?

Well, Avi, no, I hear you. And I think that's a fair point. I mean we have an awful lot of lifting to do to actually drive sales. And what I was talking about the heavy lifting was finally having a commercial organization in place. I think as you and I have talked about a couple of times, 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 operated or how the product operated in the field. So an awful lot of lab data. We were very weak in terms of list generation, of marketing preparation, of all the things that you really need to do to finally commercialize the product. And we had no dedicated sales force. We also had to relocate and upgrade the manufacturing facility, get that ready to scale and bring in a more professionalized manufacturing organization. So all the basic pieces, I think, are in place now to actually really begin to aggressively sell the product. And to your point, yes, 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.

Yes, you've made significant progress in putting all the necessary components in place. On the manufacturing side, Tom, you mentioned that a year ago there was a high level of scrap. Could you provide some insights into the reduction in scrap and your current status in manufacturing? Additionally, it would be helpful to understand realistically what your unit cost could be if you're shipping 100,000 units or a similar quantity, especially compared to more traditional offerings.

Certainly. The scrap I'm referring to is partly due to the discontinuation of one of our bait box formats, the JT Eaton bait box, which has not been very popular lately. As a result, we decided to stop producing it. Unfortunately, when it comes to purchasing plastic tanks, we have to order them in very large quantities, which means discontinuing that format required us to recycle a significant amount of plastic. Additionally, some of our ingredients, although not the active ones since they are stable, do have expiration dates. For instance, towards the end of the year, we might find that some of the oils used in our manufacturing process need to be addressed. These are the types of scraps we manage. As we improve and increase our volume, these challenges become easier to handle. Taking everything into account, I believe we can realistically achieve a 50% cost of manufacturing soon, factoring in all direct costs. However, we may face additional costs related to sales, discounts, and similar expenses, meaning our gross margins might not hit 50%. They were at 41% this time, and I think we could see a slight improvement. Nevertheless, any manufacturing cost savings we realize in the near term will likely be reinvested into customer acquisition efforts.

I believe this product is generally seen as a premium option compared to traditional poisons, which can cost around $0.10. I'm trying to understand and assess where your manufacturing costs might stand at a larger scale, not just currently, but at a higher level of production in relation to that poison. This will help determine a price point that could be more appealing to clients in the future if you aim for broader market adoption.

The cost of rodenticides varies significantly. The simplest rodenticides are very inexpensive, while our pricing is about six times that. More advanced options, like Liphatech soft bait, come at a higher price but are still competitive with other lethal methods, like traps, which can even exceed the cost of ContraPest. There is a wide range in the costs associated with integrated pest management. Regarding potential improvements in cost of goods sold, as we purchase more active ingredients, we anticipate a decrease in prices. Although I cannot provide specific forecasts, based on past experiences, I believe we could realistically reduce costs at scale by another 20% to 30%. Moreover, if we discover innovative ways to enhance the manufacturing process, we could achieve even greater savings. I see this as an ongoing evolutionary process, and there isn't a set limit on how much we can improve manufacturing efficiency.

Great. I have two more quick questions. Are you experiencing any issues obtaining the materials needed for the product?

No, we're not experiencing that at this time. We've adopted a conservative approach, and as we've mentioned previously, one of our ingredients is sourced from overseas. Because of this, we tend to place our orders well in advance and stockpile our supplies. We aim to have at least six months' or even a full year's worth of inventory to account for potential disruptions in shipping, weather, and political factors. Currently, we feel very secure regarding our supply.

Awesome. Lastly, I have one more question. Ken, it's not exactly guidance, but you mentioned your expectations for this quarter. Considering the growth trajectory, you've elevated it from where we were a year ago. As we progress further into 2022, I'm curious about your capacity to push growth even higher. Could you discuss this generally or provide some details on the conversion rates needed to achieve that next level? Is this something we can expect in 2022?

Yes. Avi, you know that my CFO is going to step on my microphone shortly, but we're excited about the first step. Obviously, I would say, beyond hope, but we are looking to see how much further we can ramp it in '22. We're excited about Rat Race. We're excited about the addition of the additional salespeople. We're excited about Elevate. And while Tom said specifically, we can't figure out quite what percentage of the market it's going to take, it really opens roof rats for us in a way that we hadn't seen before. So there's a lot of positive things. I'm sorry, go ahead.

But when does Elevate sort of come to market?

Elevate will likely be clear of most state registrations by mid-April. We are currently conducting a soft launch as part of our marketing campaign, which we expect to start ramping up at the end of Q2. However, we will do our best to accelerate this process as much as possible. This represents both an opportunity and a level of uncertainty for us. We possess a unique deployment capability, and as I mentioned earlier, no one has really figured out how to effectively deploy solutions for roof rats. We have developed a system that can be easily deployed and removed, featuring a different bottle size that could significantly impact our operations. We will provide more updates at the end of Q2, but I believe there are various factors suggesting there could be more potential here than we currently perceive.

Thanks again for the update. Really appreciate it. Keep up the good work.

All right. Thanks, guys. This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Kenneth Siegel for any closing remarks. All right, well, again, thank all of you for the support of the company. Hopefully, as you can see every time we do one of these, we score these quarters, you can begin to see the momentum building, you can continue to see the excitement to see the new things that are coming online and a growing sense of optimism about the company. So I look forward to talking to you again and at the end of Q1, and I hope to continue to talk to you about the great progress we're making. But again, thank you for the support and we'll talk to you again in a few weeks.

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