Nov 12, 2019
Operator
Good afternoon, and welcome to the SenesTech, Incorporated. Third Quarter Fiscal Year 2019 Financial Results Conference Call.
All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions.
[Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Robert Blum with Lytham Partners.
Please go ahead.
Robert Blum
Thanks so much, Gary, and thank all of you for joining us today. On today's call, we will discuss SenesTech's third quarter 2019 financial results for the period ended September 30, 2019.
With us on the call today are Ken Siegel, the company's Chief Executive Officer; 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 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 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 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 Ken Siegel, Chief Executive Officer for SenesTech.
Ken, please proceed.
Ken Siegel
Thank you, Robert. Good afternoon, everyone, and thank you for joining us.
In our last call, I laid out our strategy and critical focus areas for the next several quarters. I described our three target verticals: zoos and sanctuaries, municipalities and government agencies and food and agriculture.
I also talked about our singular focus on commercialization of ContraPest and the possibility of California AB1788 as an accelerant to our business. We also discussed our expectation that revenues would continue to be light through 2019, but that we are cautiously optimistic for a significant lift in 2020.
Three months in now, I'm pleased to report than our strategy is gaining traction, and we are beginning to see our first results as we are launching a number of key lead projects. Our team is gaining experience and our contract sales organization is beginning to see results.
Our multi-pronged approach to the food and agriculture segment is proceeding along a number of fronts. As we mentioned in our last call, California is a critical target market for us, but we are also launching projects in other locations in forward-looking states.
Our major project in the poultry industry is now in full swing. This project is allowing us to experiment with different dispensing techniques with full EPA support.
This will enable us to customize our systems to more effectively service a diverse customer base, and we expect initial results in the next few months. As we announced a few weeks ago, we have begun to penetrate the organic farming industry in California with our first major project at Lundberg Farms.
Lundberg has provided us a road map for others in the organic segment to use ContraPest as part of their organic production. In addition to rice and other grains, we're starting to see adoption in the wine and grape segment.
We have now created a dedicated sales team to work with organic and conventional farms in California. We are deploying our contract sales organization in this segment as well to help generate more leads for our dedicated sellers.
We’ve also launched an initial program in a major retailer. They are acutely focused on loss and contamination caused by rodents and have already expanded the program from the initial locations.
We’re still in the preliminary stages of this program, but we’re optimistic about the results. Our work with municipalities continues to progress.
Most significantly, our project in Washington, D.C. is now live in all eight wards and is testing deployment in both residential and commercial areas.
The bait consumption, a key measure of efficacy, has been very high, averaging over 80%. More importantly, our preliminary camera data is showing a significant decline in the ratio of juvenile to adult rats.
This is another key indicator of the efficacy of our birth control solution. We are continuing to refine our delivery techniques there and are assembling long-term data to aid in targeting sales to other large locations.
St. Louis has added another location to their program after their successful initial deployment earlier this year.
We’ve also begun deployment in San Francisco and in various locations in Los Angeles. Although these projects are ramping slowly, we’re optimistic that they will expand as initial positive results come in.
We are currently pitching several other municipalities and government agencies and hope to see further penetration in the next few quarters. I personally have been joining our team members on these calls to demonstrate how serious we are about gaining our customers’ trust and business.
At this point, we are servicing over 15 zoos and sanctuaries. As I mentioned in our last call, this was a key initial target of our contract sales organization.
We’re now just shy of 60 days into that program. The results, while promising, have indicated that we need to evolve our selling strategy.
One thing that we learned is that most of the zoos and sanctuaries are serviced by PMPs and any deployment will still require that we work with them on both pricing and delivery strategies. So while we’ve been generating pull-through demand, we still need to help the PMPs understand how to use and price the product.
To address this, we’ve added 4,200 PMPs to the CSO target list. We’re cautiously optimistic that the combined pull and push-through strategy will be successful and will provide a model for expansion into our other target verticals.
We continue to be acutely focusing on – focused on managing our burn rate. As I mentioned last quarter, we have redirected our energies towards product sales and are focusing our science efforts on improvements to our existing product.
As the company aggressively transitions to the commercialization stage of ContraPest, there’s less need for the core research skills of our Chief Science and Chief Research Officers. Consequently, Doctors Loretta Mayer and Cheryl Dyer are leaving their roles as Chief Science Officer and Chief Research Officer.
On behalf of the company, I want to thank both Loretta and Cheryl for their contributions to the success of ContraPest and hope they continue with their passion for humane animal population control with research into other species. As Tom will report, revenues are sequentially higher than the last quarter, and we’re beginning to see backlog developing.
That said, we are engaged in an in-depth review of our cash requirements over the next few quarters against potential revenues. While it’s still early to know for sure, we will be exploring additional capital capital-raising strategies over the next few months, so we can be prepared if necessary.
Finally, California AB1788 remains parked by Assemblyman Bloom while the California authorities work on solutions for how to enforce the new restrictions on anticoagulants. Our sources tell us that the bill will reemerge this spring, but the exact timing is uncertain.
As we stated last quarter, 1788 is a potential accelerant to our business but is not essential to our future. 1788 indicates the direction in which states like California are heading, and we expect other states will follow its lead.
That said, the need to move away from poisons as the sole solution to rat infestation is already strongly evident, and SenesTech is very well positioned to take advantage of this trend. And with that, let me turn it over to Tom to take you through the numbers.
Tom Chesterman
Thank you, Ken, and good afternoon to all. Let’s start with revenues.
Our revenues for the third quarter were $36,000, up from $24,000 in the second quarter. Not included but quite meaningful, the $36,000 does not include an additional order from one of our PMP partners for $38,000.
This was a stocking order intended for a variety of the PMP's customers and we will recognize the revenue as it is shipped or deployed at the end-user locations. Operating expenses were $2.6 million for the quarter, which is up from the second quarter.
Within the third quarter, we had an unusual surge in professional and legal fees that we do not expect to occur for $160,000. We also launched a marketing and sales surge primarily in California, which increased expenses $90,000.
That brought the net operating loss to $2.6 million or $2.3 million for a more cash-focused EBITDA. We ended the quarter with $3.9 million in cash.
I would anticipate that our operating expenses will continue at $600,000 to $700,000 per month and that the EBITDA loss for the year will be a little in excess of $8 million. How much in excess will depend on how much revenue grows during the fourth quarter from the programs and initiatives that Ken mentioned.
Last quarter, we also introduced a set of market awareness metrics. Total inquiries are the total pipeline of individuals who have shown an interest in a solution that SenesTech offers.
This is the starting point of a potential customer relationship. At the end of the second quarter, this figure was 193.
Year-to-date, the number is 761. Unique contacts are what we called qualified leads, those with whom the conversations has ramped up and who are now ready for a full sales effort.
At the end of the quarter – second quarter, this number was at 107. The year-to-date number is 259.
One additional metric, which more describes the campaign reach, we call influence contacts. These measures any sort of response to a campaign communication, which can, of course, include no thanks.
But what is a no thanks yesterday can turn into a yes later once they are aware of what ContraPest is. That number year-to-date is 13,185.
As a reminder, our full press release and earnings is available on our website. Furthermore, we expect to be filing our 10-Q shortly where the complete financial picture for the quarter will be.
At this point, we would like to turn the call over for questions. Operator, could you please open it up?
Operator
We will now begin the question-and-answer session. [Operator Instructions] The first question is from Kevin Ellich with Craig-Hallum.
Please go ahead.
Kevin Ellich
Good afternoon, guys. I was going to say, good morning.
Hey, Ken, hey Tom.
Ken Siegel
Hi.
Kevin Ellich
A couple of questions for you. I guess let's start off with D.C.
Good update there in terms of the validation and the camera study. In the press release, you guys cited the $300,000 – the contract is for up to $300,000 per year.
Wondering when are we going to start to see that ramp?
Ken Siegel
Your turn, Tom.
Tom Chesterman
As you may recall, Kevin, we had a rather sizable stocking order at the end of last year, which was them preparing to deploy ContraPest in the city. That's – they have not yet burned through that, so we have not seen any additional orders coming out of that yet.
We might expect that to be – however, I would reiterate that, that contract is up to – how much they actually spend in a given year really is dependent on exactly how do they deploy it. And that's something that's totally under their control.
Kevin Ellich
Got it. Understand.
I understand. And then, Tom, since I have you, just going back to the $38,000 order that you cited, the stocking order on September 3 – 30, will that all come through in Q4?
Or is that going to be spread over maybe a couple of quarters?
Tom Chesterman
I'm not sure at this time. There were a number of additional conditions that were necessary for the recognition of the revenue.
I would anticipate that most of them would clear in the fourth quarter. I can't guarantee that all of them would.
Kevin Ellich
Got it. And then the SG&A was higher this quarter.
I think I picked up that you said professional and legal fees were an incremental – was it $160,000? And there was one other thing this quarter.
Can you give us a little bit more color as to what those two items were?
Tom Chesterman
Yes. The $160,000 was professional and legal fees.
And those include not just legal fees, but other types of professionals including any lobbyists we might have, et cetera. We also launched a marketing and sales surge primarily in California, which increased the expenses $90,000.
I would also say that within that period, we had some start-up costs for the contract sales organization. And all of those were more or less periodic rather than being something that I would expect to continue at the same rate.
Kevin Ellich
Got it. Understood.
And then, Ken, just going back to some of your prepared remarks, you made a comment, which I thought was pretty interesting about a program with a major retailer. Can you give us a little bit more color?
You said it's already expanded. Can you tell us who it is?
And then is it only – is it in California? Or is it in other states as well?
Ken Siegel
Kevin, I can't give you more detail. We're under NDA right now.
I will tell you that this is a national retailer, so it's not just a California issue.
Kevin Ellich
Okay. I understand.
And then lastly, obviously, it seems like you're making good progress with all of your efforts in the verticals. What do you think is the most interesting opportunity and may be the biggest TAM over the next one to two year?
Ken Siegel
I’m most excited about food production and its various forms. Though the piece that really emerged in the last quarter, and this was a significant contribution by Loretta Mayer, is organics.
And as we're seeing our way there, particularly with their strong bias against poisons, that's a wide-open field for us. But again, as we're looking at whether it's organics or otherwise, the whole grain vector, since it works its way across the entire food chain, is something that I think we're very well positioned to exploit right now.
And so that's where I'm most excited.
Kevin Ellich
Excellent. Thanks guys.
That’s all I have.
Operator
[Operator Instructions] The next question comes from Ian Gilson with Zacks Investment Research. Please go ahead.
Ian Gilson
Good afternoon. I missed part of the call.
Did you discuss the initiative in San Francisco?
Ken Siegel
We talked about it at very high level, Ian. We are really just starting in San Francisco with a couple of pilot projects.
We're working with a PMP there. We're working in some of the municipal buildings, but it's early stages at this point.
And we'll probably have more to talk about in the next quarter. The big thing we really were focusing on in the call for this quarter is where we are in D.C.
And D.C. is the one showing the best early returns.
I don't know if you went for that, but you've got a point that we're seeing 80% bait consumption levels. We are now deployed at…
Ian Gilson
Yes, I did get that from the press release. On that particular area, how many bait stations were there in D.C.?
Ken Siegel
I don't know off the top of my head, but I can get you that data.
Ian Gilson
I'm talking for just the camera side.
Ken Siegel
Again it's not a data that I have in front of me right now, but it's something that we would get for you.
Ian Gilson
Okay, great. Thank you.
Thank you.
Operator
This concludes our question-and-answer session. I would like to turn the conference back over to Ken Siegel for any closing remarks.
Ken Siegel
Again, thank all of you for joining us. It's – I'm now six months in.
It's been a very exciting time. I think we're really beginning to start seeing momentum in commercialization process, and look forward to sharing more with you next quarter.
Again, thank you.
Operator
The conference has now concluded. Thank you for attending today's presentation.
You may now disconnect.