Good afternoon, and welcome to the SenesTech Reports Second Quarter Fiscal Year 2026 Financial Results Conference Call. 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.
All right. Thank you very much, Megan, and thank you all for joining us today to discuss SenesTech's Second Quarter 2026 Financial Results. Again, this is for the period ended June 30, 2026. With us on the call today are Michael Edell, the company's President and Chief Executive Officer; and Tom Chesterman, the company's Chief Financial Officer. As the operator indicated, 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 statement. 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 in 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 Michael Edell, President and Chief Executive Officer. Michael, please proceed.
Thank you, Robert, and good afternoon to everyone joining us today. I appreciate you taking the time. This is my second earnings call as President and Chief Executive Officer, and the tone of today's discussion is meaningfully different from last quarter. In May, I described the strategy we have begun putting in place and the early indicators that gave us confidence in the direction. Today, we can point to a full quarter of measurable commercial results. The strategic changes are working and in several important areas, they are working faster than we had planned. Stepping back for a moment, the past year has been a transformation of this company from a primarily research-focused organization into a revenue-driven business with a clear strategy for sustainable long-term growth in a category that we are creating. The headline numbers are all very positive. Revenue increased 56% sequentially to a company record of $770,000. E-commerce revenue increased 186% to another record of $511,000. Amazon revenues increased 473% to a record $349,000 and our first full quarter of having this being managed in-house. Direct-to-consumer subscription revenues increased 89% to another record of $104,000. And gross margins reached another company record of 73.6%. First half revenue reached another record of $1.26 million, up 14% year-over-year. Each of those results is important, but what excites me most is that they are connected. They reflect a commercial model built around direct consumer relationships, data, analytics, recurring revenue, stronger brand control, and a disciplined channel strategy. Q2 was the first full quarter in which we directly managed our Amazon and other e-commerce channels from beginning to end. During the quarter, Amazon established new records across major platform performance categories, including total orders, subscription revenue, non-subscription revenue, total revenue, and subscriber counts. Amazon revenue has now grown every single month since we assumed direct control in the middle of February, culminating in a record June of $148,000. June was also the strongest e-commerce month in the company's history with a total e-commerce revenue of $206,000. We now control the customer experience, advertising strategy, pricing, promotions, subscription programs, and the data that comes from each of these transactions. We can see what's working, make changes quickly, test new messages and offers, and allocate marketing dollars with much greater precision. But it's not simply a better Amazon model; it is the ideal operating model that we need to rapidly scale. Importantly, the e-commerce momentum broadened beyond Amazon. Non-Amazon e-commerce, which is primarily our own senestech.com Shopify channel, saw revenues increase 31% sequentially to $155,000, and we ended the quarter with a record number of Shopify recurring revenue subscribers. In July, we also completed the launch and redesign of the SenesTech website on the schedule we have previously communicated. The new site places Evolve and rodent birth control at the center of the customer experience. It is designed to make the product easier to understand, easier to purchase, easier to reorder, while also providing a strong platform for digital marketing and subscription growth, customer education, and commercial B2B lead generation. If you have not done so yet, please take a look at the new site. We think you'll be impressed. Subsequent to the quarter end, July provided another encouraging data point for the e-commerce strategy. E-commerce revenues for July reached a record $245,000, up 19% from the $206,000 in June, and subscription revenue achieved a new record at $52,000, up 22% from the $43,000 in June. Subscription growth remains one of the most important components of the strategy. The Evolve product is not intended to be a one-time purchase. It is designed to become part of an ongoing rodent management program. Subscription revenue increased 89% to a record $104,000 in Q2 2026 compared to $55,000 in Q1 of 2026 and increased 142% compared to $43,000 in Q2 of 2025. Combined subscriber counts across Amazon and the company's e-commerce site increased 117% to new record levels, further strengthening the company's recurring revenue base and increasing revenue visibility. That creates more predictable revenue, improves customer lifetime value, and provides evidence that customers are incorporating the product into a recurring program. We are still early on, but the direction is exactly what we want: more customers, greater retention, more repeat purchasing, and a larger recurring revenue base. There is a bigger strategy beyond the e-commerce results. SenesTech is creating an entirely new category of rodent fertility control. Before we can meaningfully scale the B2B opportunities that we have available to us, we needed to build awareness of the Evolve and ContraPest brands, educate the market further, establish credibility, and create demand. E-commerce is how we accelerate that process. Every customer review, educational campaign, digital advertisement, subscription, and repeat order does two jobs: it generates consumer revenue today, and it makes the brand more recognizable, understood, and trusted when our sales organization engages with a pest management company, a municipality, commercial operator, agricultural customer, big retailer, or distributor. Our growth strategy is, therefore, built around three priorities that reinforce each other. First, we use e-commerce to build the Evolve and ContraPest brands, establish the category, and create a growing recurring revenue base. Second, we grow B2B with both Evolve and ContraPest through a professional sales organization focused on targeted vertical markets. Third, we expand our addressable opportunity through new products, new services, and separate initiatives. We designed them to build one on the other with customer awareness and data supporting B2B growth and with services and partnerships deepening customer relationships across the platform. Turning to B2B. Reported revenue was $259,000 for the quarter. The sequential comparison requires some context because the first quarter included an $81,000 international order carryover from 2025. So if we actually exclude these one-time events, core B2B revenue actually increased by 11%. Tom will walk through the full comparison in a moment. In June, we were proud to present that Jack Karabees is our new Executive Vice President of Sales and was brought in to lead the effort. Jack's mandate is to build a professional commercial organization with clear vertical ownership, qualified pipelines, better forecasting, stronger follow-up, and accountability for conversion. We're moving away from a broad approach in which every prospect was treated the same. Each market now has different business challenges, buying criteria, decision-makers, and sales cycles. Our sales process needs to reflect those differences. We have already begun adding to the team with a new regional sales manager and a Director of Marketing, both joining in July. To further support that strategy, we are developing dedicated sales presentations, ROI models for each vertical, case studies, technical support materials, and adjusted industry-specific messaging for each priority vertical. We do not want to lead only with product features or science. The science does matter and it is a critical differentiator, but customers ultimately make purchasing decisions based on business outcomes and solving problems. Our objective is to demonstrate how Evolve and ContraPest can reduce damage and disruption, support sustainable objectives, improve pest management performance, and deliver measurable long-term value. We are concentrating our resources across eight strategic verticals: third-party e-commerce, pest management, commercial, agri-business, zoos and sanctuaries, government, retail, and international markets. Each represents a meaningful opportunity, but we will prioritize our efforts and resources based on the results we see in each vertical as we build out the new B2B organization. As we identify the greatest opportunities and strongest customer adoption, we will increase our investment and resources in those areas while continuing to build the foundation across the remaining markets. Third-party e-commerce partnerships with leading online retailers and marketplaces extend the reach of the Evolve brand well beyond our own channels. In retail, the consumer demand we are proving through e-commerce is what supports potential expansion into national, regional, and specialty retail partners. Pest management is one of our highest priority verticals. Evolve and ContraPest are designed to complement integrated pest management programs rather than trying to replace them, which lets pest management professionals expand their service offerings, generate recurring and greater revenues, and differentiate themselves in an increasingly competitive market. Commercial and agri-business customers can use fertility control to protect facilities, infrastructure, stored commodities, and operating continuity. Zoos and sanctuaries require solutions that fit sensitive animal environments. In government, we are starting to see cities and municipalities where demand continues to grow for environmentally responsible approaches that align with integrated pest management initiatives and help communities address public health concerns. Over time, that opens the door to state and federal agencies, military installations, public housing authorities, and other public institutions. Internationally, we will continue to favor experienced local partners who can lead the regulatory approval process while we contribute to the scientific, technical, and commercial expertise. That model lets us generate revenue supporting these partners through the approval process, and it establishes the commercial relationships that position us for launch once approval is attained. The value of a vertical approach is that it allows us to convert broad interest into very specific economic proof. The agricultural deployment we discussed in July is a good example — a 400-acre Texas operation. On-site observations indicated an estimated 80% reduction in rodent activity together with a substantial decline in damage to underground irrigation infrastructure. That is the kind of result that we can support that can support a compelling case study and ROI discussion. The customer is not simply buying a product. The customer is addressing damage, maintenance cost, and operational risk. Our job is to identify more opportunities with that profile and turn them into larger repeatable commercial relationships. We also launched our assessment services in July and have actually completed our first deployment. This is an important extension of the strategy because many customers simply don't have an objective baseline of data regarding the size, location, or severity of an infestation. These services are focused first on our B2B market verticals where professional assessments deliver the most value. And over time, we will evaluate simplified versions for our direct-to-consumer business. Our program combines trained field personnel with track plates, track tunnels, and a proprietary AI technology that we have launched. We can conduct an on-site assessment, identify areas of activity, establish a measurable baseline, and provide reporting that helps the customer understand the severity of the problem before selecting a treatment program. From there, we can offer implementation support based on this assessment. This can include a customized integrated management plan, recommendations for the placement of our Evolve and ContraPest products, assistance with deployment, and ongoing monitoring to measure progress and optimize results. These services will generate additional revenue with limited incremental infrastructure, improve product placement and efficacy, strengthen customer confidence, and help us build a proprietary database of customer and performance results over time. Strategically, they also move SenesTech from being viewed as only a product company toward becoming a trusted expert in rodent population management with products and services. Partnerships and disciplined market expansion remain a third element of the strategy. Our direct e-commerce infrastructure gives us a much more efficient platform for launching related products and reaching new customers. Internationally, we expanded distribution into Bermuda through our partner, Animal and Garden House, adding to activity in the U.S. Virgin Islands and Belize. Our approach is to work with capable local organizations that can support regulatory and commercial execution without requiring a disproportionate amount of capital from SenesTech. The quarter also demonstrated that growth can come with improved economics. Gross profit increased 68% sequentially to a record $560,000, while gross margins improved to 73.6%. Gross profit grew faster than revenue, reflecting the contribution of e-commerce and better channel economics, a much more disciplined approach to pricing, and favorable raw material purchasing conditions. The adjusted EBITDA loss also improved sequentially. We need to continue expanding revenue, but we also must do it in a way that creates operating leverage and moves us toward profitability. So when I think about the next phase, the priorities are very practical. We need to keep scaling e-commerce. We need to improve conversion, subscriptions, retention, and repeat purchasing. We need to use the e-commerce awareness and brand building to help the B2B team close larger and more repeatable opportunities. We need to launch and continue with the assessment and implementation services model with discipline. We need to develop the case studies and return on investment tools that support each of these verticals. And we need to protect gross margin and deploy capital only where we can measure a credible return. One quarter does not complete the transformation, and I do not want to suggest that it does. But Q2 is the clearest evidence that the strategic trajectory is right. Last quarter, we discussed moving from planning to execution. This quarter, we can point to results, which gets me excited. The excitement is not based on a theory or a single announcement. It is based on record revenue, record channel performance, accelerating subscriptions, a stronger brand platform, improved economics, and a commercial organization that is becoming more focused and accountable. Now the work is to repeat it, broaden it, and build a durable growth company around it. With that, let me turn the call over to Tom Chesterman to review the financial results in more detail. I will then return with a few closing comments before we open the call for questions. Tom?
Thank you, Michael, and good afternoon, everyone. I will provide a brief review of our second quarter financial results and add context around the operating trends Michael discussed. Our Form 10-Q, which will be filed later today, provides a more detailed review of the quarter and the reconciliations of our non-GAAP measures are included in today's press release. Revenue for the second quarter was $770,000, an increase of 23% compared to the second quarter of 2025 and an increase of 56% compared with the first quarter of 2026. This sequential increase is driven primarily by record e-commerce performance during the first full quarter of direct in-house management of Amazon. E-commerce revenue was a record $511,000, increasing 206% from the prior year quarter and 186% from the first quarter. In-house Amazon revenue, part of e-commerce, increased 473% sequentially to $349,000 from $61,000. On our own e-commerce platform, revenue increased 31% sequentially to $155,000 from $118,000. Direct-to-consumer, or subscription revenue, increased 89% sequentially and 142% year-over-year. Amazon was externally managed during the year-ago period, so the sequential comparison provides the clearest view of the momentum and benefit of bringing the channel in-house. B2B revenue was $259,000 compared with $350,000 in the first quarter and $460,000 in the second quarter of 2025. The first quarter amount included an $81,000 international order that carried over from 2025. Excluding that order, core B2B revenue increased 11% sequentially. The prior year quarter included a $180,000 periodic bulk sale associated with the third-party management of Amazon at the time as well as an initial stocking order from a large distributor. Excluding both of these items, what I would characterize as core B2B revenue increased 14% year-over-year. We believe that these adjusted comparisons provide a clearer view of the underlying B2B trend as the new sales leadership and vertical strategy take hold. By product, Evolve revenue was $662,000, an increase of 27% from the prior year quarter and represented 86% of product revenue compared with 83% a year ago. ContraPest revenue was $107,000, up 2% year-over-year and up 43% from $75,000 in the first quarter. That sequential improvement is an early return on the targeted approach the sales team has taken to the customers in the markets where ContraPest continues to provide the most value. Gross profit increased 39% year-over-year and 68% sequentially to a record $567,000. Gross margin improved to a company record 73.6% compared with 68.5% in the first quarter and 65.5% in the prior year quarter. That represents an improvement of 510 basis points sequentially and 810 basis points year-over-year and reflects a more favorable channel mix, stronger direct channel economics, continued pricing discipline, and favorable raw material costs. More importantly, gross profit grew faster than revenue, which is a key indicator of the operating leverage we are working to build. Total operating expenses were $2.4 million compared with $2.0 million in the prior year quarter. The current quarter included $270,000 of severance costs as well as continued investment in e-commerce, brand development, sales capability, and other commercial initiatives. The net loss improved sequentially to $1.8 million when compared to $2.1 million in the first quarter and increased when compared to the $1.6 million in the second quarter of 2025. The sequential improvement was driven by an increase in revenue and record gross profit. Adjusted EBITDA loss, a non-GAAP measure, improved 15% sequentially to $1.4 million compared with $1.6 million in the first quarter and increased when compared with $1.2 million in the prior year quarter. The reconciliation in today's press release adjusts for severance, one-time legal costs, stock-based compensation, depreciation, interest, and noncash operating lease expense. While the year-over-year adjusted EBITDA comparison reflects the investments we are making in the growth platform, the sequential improvement shows the early benefit of higher gross profit and early returns on those investments. Turning to the balance sheet, we ended the quarter with $5.1 million of cash and cash equivalents. The cash usage for the quarter was approximately $1.7 million, reflecting elevated raw material purchasing in May as well as severance payments. With those items behind us, cash usage in June declined to $298,000 from $917,000 in May. Based on our current operating plan, we believe that our cash and cash equivalents as of June 30, 2026, together with current revenue and operating expense levels, will be sufficient to fund our operations for at least the next nine months. We remain focused on disciplined capital deployment and careful expense management while funding the initiatives that have the clearest potential to generate scalable revenue and attractive contribution margins. Overall, the second quarter's financial results demonstrate meaningful progress in the quality of the revenue mix, gross margin performance, and sequential operating improvements. The next step is to sustain that performance and translate the commercial momentum into continued improvement in adjusted EBITDA and cash efficiency. With that financial overview, I will turn the call back to Michael for closing remarks.
Thank you, Tom. Last quarter, I asked investors to judge this team by execution. Q2 provides the first clear answer to how we're executing. The first full quarter of an in-house management produced record revenues; gross profit and gross margins reached company records; and the strategy, as we described, is beginning to show up in the financial statements. But this is not a victory lap. Our responsibility is to turn a strong quarter into a repeatable business model. E-commerce is more than an online sales channel. It builds our brand and educates the market. The foundation requires a professional B2B sales organization focused on specific verticals and larger customer relationships. Assessment and implementation services can deepen those relationships and make results more measurable. Together, all these elements create a more scalable and diversified commercial platform. We will continue to measure progress with the operating data, not anecdotes, and we will allocate resources based on what the data supports. I'm very excited because we now have evidence that the model and the strategy can work. We have differentiated products in the Evolve and ContraPest brands and a market that needs effective and sustainable options, direct channels that are scaling, and a clear commercial strategy for converting awareness into long-term customer relationships and, more importantly, revenue. For investors seeking additional third-party perspective, Zacks recently published a research report on SenesTech that may be of interest. That report was produced under a sponsored research engagement paid for by the company. There's also a great deal of work ahead, but the organization is moving with speed, focus, and accountability. Our objective is to build on the progress in Q2 and translate it into sustained growth, improved operating leverage, and long-term shareholder value. Thank you to our employees for their hard work required to execute on this transition and strategy, and thank you to our customers, partners, and shareholders for your continued support. We are excited by the progress and focused on turning the momentum we're seeing into durable results. Robert, we are now ready to open the call for any questions.
Wonderful. Thank you very much, Michael and Tom, for your prepared remarks. We will now open the call for questions. We've got a few questions that have been submitted thus far, so we'll begin. First, can you speak more about the new avenues and the key verticals you have, and which ones you tend to approach first?
We've outlined the key verticals. There are eight verticals. One of the first things we did when I started in this role was take each of the verticals and clearly define them, figure out which of the verticals we were actually driving revenues in and which we had the best opportunity to solve major problems. We positioned the verticals, first being third-party e-commerce, second being pest management, third being commercial, fourth being agri-business, fifth being zoos and sanctuaries, sixth being government, seventh retail, and eighth international. I would also like to comment on why retail is seventh out of eight: big retailers and big box sellers need to see a clear demonstration of consumer acceptance of product before they want to take the risk and put that product on their shelf. As we solve that problem, we believe retail is going to be a bigger area of growth for us.
Very good. The next question here. Can you comment on the change in margins from selling via distributor and by direct sales? Do you think this has been financially successful?
It's been very successful. One of the first actions I took when I came in was to stop doing certain transactions and deals with partners that did not have reasonable margins. There was too much discounting and end-of-quarter promoting that I didn't feel was necessary. It took about five months to eliminate many of those older transactions and move into the new structure, which is much more straightforward. That's one of the main reasons you're seeing an increase in margins.
Okay. Next question here. Can you elaborate on the B2B revenue increase of 14%, excluding the one-off $180,000 order in the previous period? So the question is, did this achieve your internal targets?
Actually, the internal targets we were going for as we moved into Q1 and through Q2 focused first on putting in place the methodology and analytics to track the pipeline and what was available in the B2B market. That took us pretty much through Q2 to get in place. Now we have very clear visibility on the pipeline, time frames, close rates, and other analytics that come as you implement these types of B2B methodologies and processes.
All right. And maybe as a follow-on to that, what is the acceleration in revenue for B2B that we should expect going forward?
I'm not going to give forward guidance on that. But keep in mind that Jack Karabees, who came in as our EVP of Sales, only started July 1 in a full-time capacity, so it's only been two weeks. Prior to that, he was helping implement these changes on a part-time basis. So just to give you an idea of how much we've been able to accomplish without having all the resources in place to take advantage of the B2B market. In addition, we only recently brought on a new Director of Marketing on July 15, and I only took over as CEO on May 6. So it should give you some indication of how fast things are moving in such a short time frame.
Okay. Very good. The next question here is, does the sales team have team members focused by vertical or generalists looking across the verticals that you've identified?
That's a great question. We are territory-based on the B2B sales side. We learned that although there are inherent differences in each of the verticals, about 80% of what you're doing in a particular vertical is consistent across all verticals. The other 20%, in terms of ROI that a vertical is going to achieve, needs to be tailored. So we're dividing the country by territory. Each rep will have, within their territory, the verticals they cover, but they are being provided marketing materials so they can switch between municipality, agri-business, a farm, a sanctuary, and so on fairly easily and still be effective.
All right. We have a couple of questions, all sort of surrounding the thoughts on your timeline to profitability or sort of the general quarterly revenue required to reach profitability.
Again, I can't really speak to forward guidance, but I can tell you the focus is on driving the monthly run rate and maintaining the gross profit margins that we believe are moving us in the direction of achieving profitability. You have to increase the monthly run rates and drive revenues in order to be able to pull that off.
Okay. Very good. I have a couple of questions here relating to sort of New Zealand, Australia, India, and maybe elsewhere in Asia. Any updates that you can provide more broadly in those areas?
We're deploying currently to New Zealand, which is one of the international markets with very sophisticated programs related to rodent and pest management. So we're doing quite a bit in New Zealand. In Australia, we're still going through a regulatory process. We're not doing anything in India or elsewhere in Asia at this point.
Okay. Very good. When will we know if Washington, D.C. will take ContraPest or Evolve for further use beyond the pilot?
There are different pilots that are going on, but where we're focused is in Chicago and the surrounding areas. They are the most forward-thinking and advancing in terms of deployment. I believe we're on our fifth deployment now within the Chicago area, and that's where we've been focusing a lot of our attention because they are the ones most actively moving toward deployment and implementation.
Next question here is, do you feel the retail customer is gaining a better understanding of the product advantages post repackaging efforts and sort of the early digital marketing that's been deployed?
Yes. It became clear that consumers were not really understanding how to use the product, and there wasn't a proper expectation on the timeframe for effectiveness. Our solution is not one where you deploy it and see results in two days by catching rats in a trap, for example. It takes time because you must get through the birth cycle for rodents; that's when you start to see birth control take effect and the population decrease over time. After we redid the packaging and reset expectations, we're seeing an effect with the explosive growth in e-commerce. Consumers now are getting it.
Next question here is how and when will new capital be raised as it looks very likely that the capital will be burned before profitability?
I can't give future guidance. What I will tell you is that we're aware of the company's needs. What we wanted to do first was demonstrate execution, which will make any future efforts to raise capital much easier.
Okay. Next question here is, are there any large contracts which you expect to win in the second half of the year, whether it be municipalities, farms, etc.?
As I've been describing on the B2B side, we've shifted our focus to large-scale projects. We no longer have the team focusing on small $500 opportunities. The first step was working with companies and organizations that have much larger scale. In terms of what the future holds, we've just brought on new team members in the B2B professional sales team. That team is growing, but we're going to need another two quarters to demonstrate the larger deals I'm describing.
All right. Next question here: the Caribbean seems a strong target market. Are there other international markets also characterized by strong potential?
We've shifted our focus to finding the right partners in international markets who are willing to step up and pay for the regulatory process required for that country. Instead of leading the regulatory effort in every market, we look to partners who will fund that process. That lets us avoid spending disproportionate resources without near-term revenue and positions us to launch when approval is attained.
All right. And what looks to be our final question here is, since the National Park Service trials in D.C. and the New York City trials were reportedly successful, will orders likely be forthcoming?
The New York City trials and certain trials in D.C. were not run with our assistance; some of those trials were run independently. I don't anticipate anything coming from D.C. or New York City at this point. I believe the growth is going to come from other areas in Illinois and specifically around Chicago.
Very good. I'm showing no further questions. So with that, Michael, I will turn the call back over to you for any closing remarks.
Well, again, I want to thank everybody for your patience and your focus and for working with us as we turn this company into a real market player in this category. We're very excited about what we see in the future.
The conference has now concluded.