SenesTech, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. SenesTech develops and commercializes fertility-control products for managing rat populations, including ContraPest. Amounts below are in thousands of dollars unless otherwise noted.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $360 | $250 | $898 | $722 |
| Gross profit | $176 | $122 | $410 | $348 |
| Gross margin | 48.8% | 48.8% | 45.6% | 48.2% |
| Operating expenses | $2,127 | $2,741 | $6,406 | $7,872 |
| Operating loss | $(1,951) | $(2,619) | $(5,996) | $(7,524) |
| Net loss | $(1,947) | $(2,646) | $(5,977) | $(7,547) |
| Net loss per share, basic and diluted | $(0.47) | $(4.33) | $(1.97) | $(12.36) |
- Revenue increased 44% in Q3 and 24% for the nine-month period, primarily from higher unit sales, internet sales initiatives, distributor and pest-management-professional relationships, and the Elevate and Isolate bait systems.
- Q3 gross margin was unchanged year over year. Nine-month margin declined because of $42 of defective product trays scrapped in Q1; management said margin would have been 50.3% excluding that charge.
- Operating expenses fell 22% in Q3 and 19% for the nine months. Lower headcount, professional fees, and marketing expenses were key factors. The resulting net loss narrowed 26% and 21%, respectively.
Cash, liquidity, and capital
- At September 30, cash and cash equivalents were $2,145, down from $4,775 at December 31, 2022. Current assets were $3,316 and current liabilities were $1,034.
- Operating cash use was $5,547 for the first nine months, compared with $6,339 in the prior-year period. Investing cash use was $114; financing provided $3,031, primarily from common-stock and warrant-related proceeds. Ending cash was $2,145.
- Total liabilities were $1,112. Debt included a $53 equipment note, bearing 9.1% annual interest, with $9 current and $44 noncurrent. Operating lease liabilities totaled $226; the related leases expire in 2024.
- The company reported an accumulated deficit of $128.2 million and stated that available cash, anticipated revenue, and any additional equity sales were expected to fund current operations for at least the next three months. This estimate is conditional; management said additional financing is needed before anticipated revenue and margin targets are reached.
Material developments, outlook, and risks
- In August, SenesTech induced a warrant exercise at $0.7202 per share, generating $2.1 million gross proceeds before issuance costs. It also issued replacement warrants. The filing reports a $657 expense to equity associated with modifying warrant terms. A substantial portion of the related shares was held in abeyance; by November 9, 3.631 million shares were outstanding and 2.268 million remained in abeyance.
- A registered direct offering in April generated $1.5 million gross proceeds, before issuance costs. A separate July offering filing sought up to $7.5 million gross proceeds; the filing states no shares had yet been issued pursuant to that filing.
- After quarter-end, in November 2023, the company launched Evolve, a cottonseed-oil soft bait marketed as a minimum-risk pesticide. It was authorized for sale in 12 states as of the filing date; state registration is still needed where the federal exemption is not accepted.
- Management expects significant expenses and operating losses to continue, including for at least the next six months, and says it may need further equity or debt financing. The company may need to limit or delay commercialization and development, or discontinue operations, if financing is unavailable on acceptable terms. Profitability and positive cash flow are not assured.
- The company’s products depend on market acceptance and regulatory status, and it cited the need to build sales and marketing capabilities, develop strategic partnerships, and manage working-capital needs. It also identified Nasdaq continued-listing compliance as a risk.
- A former general counsel’s lawsuit seeks damages, treble damages, and fees over alleged unpaid stock options. The company disputes the claims, intends to defend them, and does not believe the litigation is likely to materially affect operations; mediation was agreed to.
- Management reported disclosure controls and procedures were effective at period-end and no material change in internal control over financial reporting occurred during the quarter. No material risk-factor changes were reported from the 2022 Form 10-K.
Key facts for investors to verify
- Whether cash runway and financing plans remain adequate, given $5.5 million of operating cash use over nine months and the stated three-month funding estimate.
- Progress in revenue growth, product adoption, gross margins, and Evolve’s launch and state registrations; no quantified revenue or profitability guidance is provided.
- The status and potential dilution from outstanding warrants, shares held in abeyance, and the proposed offering; compare the September 30 share count with the November 9 count.
- Updates on Nasdaq listing compliance, the former counsel litigation, and the timing or terms of any additional financing.