A Quick Take on SenesTech

11 International distribution deals, what if just one of these starts ordering..

SenesTech (SNES) produces Evolve Rat and Evolve Mouse, non-toxic products that greatly reduce their reproductive capabilities and hence a humane way of controlling pests, an otherwise rather intractable problem. Evolve is starting to gather serious traction..

See our free Primer for a description of the company (products, business model, valuation, etc.). The company already has an impressive array of distribution partners and channels:

• E-commerce, through senestech.com, amazon.com, walmart.com, and tractorsupply.com, with Amazon the predominant channel in Q1, growing 107% y/y.

• Big box retailers like Ace Hardware, where Evolve has begun selling. Additional retailers will come, but this is slow to develop as it’s not easy to get shelf space for new products. Walmart, which sells Evolve on Walmart online, wants to see the latter develop before committing Evolve to its stores.

• Municipalities, trials in New York, Boston, Baltimore, and Chicago. Chicago and NY started after Q1, and the Q1CC mentioned additional municipalities, like Los Angeles, San Francisco (with partner PesTech), and Waukesha (Wisconsin). From the Q1CC (our emphasis):

Municipalities are increasingly understanding the need as you can see from deployments in some of the largest cities in the country. And to be clear, these are very small areas being deployed at the moment. With potential expansion of these across entire cities, this could lead to millions of dollars in opportunity for SenesTech going forward.

• The developments in Chicago Wicker Park can be followed in real-time.

• Warehousing and the distribution sector, the company is beginning to receive orders from this segment.

• International, now 12 distribution deals, the latest one for Indonesia (and, per the Q1/25CC, also the Philippines) with earlier deals with the product already approved and shipped to Hong Kong, the United Arab Emirates, the Netherlands, and the Maldives with management expecting reorders in the coming quarters. Distributors in Australia, New Zealand, and India are in the final stages of registration, with large orders expected upon approval, from the Indonesia PR:

"AJM is a prominent Indonesian trading company with a specialized pest management operation committed to providing for the unique needs of its customers while maintaining high quality and standards in all its offerings," said Joel Fruendt, SenesTech's President and CEO. "As with other exclusive international distributors, the agreement with AJM incorporates a substantial initial order and annual minimum purchases to maintain exclusivity. This brings our total number of international distribution agreements to eleven."

• There are plenty of additional opportunities (Q1CC, our emphasis):

The opportunity doesn't stop in municipal applications. Agriculture is a huge opportunity, both domestic and international. Zoos and other animal sanctuaries where you cannot easily deploy poisons are a huge opportunity for us. Residential applications, especially in large apartment complexes is a huge opportunity for us. Commercial buildings and warehouses are also a huge opportunity for us. And we are just beginning to penetrate these areas. I believe we will gain significant traction in each of these areas shortly.

In addition, we have a few observations:

Revenues are rapidly rising

• Keep in mind that they produce 70% revenue growth despite running off their legacy product, so the underlying growth of Evolve is really much stronger.

• Q1/25 figures are not in the graph yet, but growth slowed to 17% with Evolve growing at 40% and now comprising 79% of revenue.

• That slowdown is mostly optical as:

  • E-commerce sales grew 107%

  • There were no international sales in Q1/25, but that will change, and international orders are bigger (container-sized).

  • Municipality programs in New York and Chicago have only started in Q2.

Gross margins are improving

• Q1/25 figures are not in the graph yet, but gross margins rose further to 64.5%.

Operating costs are falling in dollar terms

• This really is pretty unique for a company in its early stages of growth, producing tremendous operating leverage.

• And it’s not done, the company is implementing another $2M cut from OpEx at the end of March to reduce cash breakeven to $1.5M per quarter. The results of that will start appearing in Q2/25, from the Q1CC:

These initiatives included the pausing of new product development to focus exclusively on the commercialization and growth of EVOLVE Wrap and EVOLVE Mouse bringing marketing, regulatory and intellectual property functions in house to reduce reliance on external consultants and optimizing our direct sales efforts, shifting to a focus on high value customer acquisition in key customer segments and commission only models. The benefit of these initiatives should be evident in the quarters to come on the operating expense line.

Cash burn is decreasing

• No surprise that if you combine rapid revenue growth, rising gross margins, and falling OpEx in dollar terms, you’ll get rapidly improving cash flow.

• OpEx cash outflow was $1.5M in Q1/25, but that’s a seasonal high and the $2M cost reduction is yet to take hold.

• Management argued that with the cash on hand, ATM, and conversion of warrants, they have no need to go back to the markets for additional financing in the near future.

Valuation

• There are 1.77M shares outstanding, 2.45M warrants and 2.35M options for a fully diluted share count of 6.57M, at $2.7 per share, yields a market cap of $17.74M and an EV of $16.3M, although conversion of options and warrants will bring in millions of cash.

• They also have an ATM facility so they can tap into that at opportune times as well, and there is some $4.35M possible from warrant exercise (at $2.90) as well.

Conclusion

• Cash burn is likely to fall further with cost-cutting, revenue, and gross margin expansion.

• What if one of these international distribution deals starts ordering commercial quantities? With 12 of these deals (and counting), the odds of that happening look pretty favorable to us.

• The TAM for Evolve is likely to be very large, and with 65% gross margins and falling OpEx, the company looks to be on a path to be very profitable in a few years.