TOMI Environmental Solutions Inc (TOMZ) 2015 Q4 法說會逐字稿

Good afternoon and welcome to the TOMI Environmental Solutions fourth-quarter 2015 financial results conference call. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Becky Herrick of LHA. Please go ahead.

Thank you, Amy. Thank you all for joining us today for the TOMI Environmental Services (sic) fourth-quarter and full-year 2015 financial results conference call.

On the call today are CEO Dr. Halden Shane, who will provide a review of recent accomplishments. President Rob Wotczak will discuss market opportunities and marketing, and CFO Nick Jennings will deliver the financial highlights. Dr. Shane will then provide the Company's vision and open the call for questions.

A telephone replay of today's call will be available through April 1, the details of which are included in the Company's press release issued after the close of market today. A webcast replay will also be available at TOMI's website for 90 days.

Please note information in this call speaks only as of today, March 31, and therefore you are advised that time-sensitive information may no longer be accurate at the time of any replay. Certain written and oral statements made by management of TOMI may constitute forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.

Forward-looking statements are identified by such words and phrases as we expect, expected to, estimates, estimated, current outlook, we look forward to, would equate to, projects, projections, projected to be, anticipate, anticipated, we believe, could be, and other similar phrases. All statements addressing operating performance, events, or other developments that the Company expects or anticipates will occur in the future, including statements relating to revenue growth, earnings, earnings-per-share growth, or similar projections, are forward-looking statements within the meaning of the Reform Act.

They are forward-looking and they should be evaluated in light of important risk factors that could cause our actual results to differ materially from our anticipated results. The information provided in this conference call is based upon the facts and circumstances known at this time. The Company undertakes no obligation to update these forward-looking statements after the date of this call.

It is now my pleasure to turn the call over to Dr. Shane. Please go ahead.

Thank you. Good afternoon. Thank you for joining us today. 2015 marked a dramatic turning point for TOMI. In short, we achieved significant validation of the effectiveness and competitive advantages of our technology and products; established strong manufacturing relationships and distributional channels around the world; significantly expanded our penetration of the United States and international markets; and fortified our operating and corporate infrastructure to support our rapid growth.

As a result of these efforts, we increased our full-year 2015 net revenue by 86% over 2014 and, more importantly, set the stage for future profitable growth.

Before I go into more detail of our recent accomplishments, I would like to provide a brief introduction to TOMI for those new to the story. TOMI is a leading provider of infection prevention and decontamination products and services focused primarily on life sciences, including healthcare, biosafety, pharmaceutical, clean room, and research.

We provide environmental solutions for indoor and outdoor surface decontamination through the sale of equipment, services, and licensing of our SteraMist binary ionization technology, or BIT, platform. BIT is an EPA-registered hydrogen peroxide-based mist and fog that is deployed through our SteraMist line of products, which include the SteraMist Surface Unit and the SteraMist Environment Unit. We are continuing to make product enhancements to our suite of SteraMist BIT products and we are filing additional patents to protect these innovations.

We have continued building our momentum in 2016. In fact, already this year we have made significant progress in expanding the adoption of our SteraMist platform around the world.

First, I will review recent highlights within the United States. As you remember, we received our initial EPA registration for our patented BIT solution for use as a healthcare hospital disinfectant in June 2015. Last month, the EPA amended our registration for BIT to include its effectiveness in disinfecting Clostridium difficile or C. diff spores, MRSA, and H1N1. This is important for two main reasons.

First, the extensive testing process with the EPA provided further validation of BIT's efficacy against a broad spectrum of pathogens. The test protocols that we passed for C. diff spores required a 100% kill rate for three days in a row and we also demonstrated a physical six-log kill, or 99.999% if you can count the nines, by destroying the cell wall of the C. diff spores. Second, the amendment significantly increases our market opportunity in the US hospital and healthcare channels.

According to the study published in the American Journal of Infection Control, C. diff increases hospital costs by 40% for each infected person and puts each at higher risk for a longer hospital stay and readmission. Furthermore, in the last 15 years C. diff hospitalizations have increased by more than 200%.

As more than two-thirds of the hospital infections affect people with Medicare or Medicaid, this becomes a costly issue. The total financial cost and impact of C. diff-related infections on the healthcare system are estimated to be around $5 billion annually according to Premier, a healthcare service company. As one of the most effective strategies to reduce and control C. diff is through environment of cleaning and decontamination of patients' rooms, TOMI's SteraMist platform provides hospitals and healthcare facilities with a simple, quick, and cost-effective solution to reduce the penalties associated with the Affordable Care Act and Medicare's non-payment policy.

Following our initial EPA registration, we quickly expanded the registration of TOMI's SteraMist throughout the country on a state-by-state basis to ensure we obtained the appropriate regulatory credentials to effectively operate in each state. As of today, TOMI's SteraMist platform has been registered in 35 states, including the largest markets of California and additional large market states.

As a next step, we are working to register the amended registration with California and New York. We'll be focusing on those states in which we currently have customers in.

Throughout 2015 and into 2016, we have rapidly grown our TOMI Service Network called TSN. TSN provides licensed, well-trained professional responders capable of deploying our SteraMist product and BIT solution within their current client bases and also in response to pandemic outbreaks around the world on behalf of TOMI.

After its launch in 2015, we closed the year with a total of 24 members. With an additional 15 who have joined so far in the first quarter of 2016, that brings the total to 39 members nationwide. In 2016, we expect to further grow TSN membership at rates exceeding those of last year.

Now I'll review our recent progress in expanding into international markets. In December, we received an order from SG Environmental Solutions, one of TOMI's international distribution partners. The order, valued at approximately $400,000, is for the employment of SteraMist in a variety of decontamination and disinfection applications including healthcare, senior care, child care, and educational facilities, dental and oral surgery offices, and tourist transportation including buses, boats, and emergency transports within Indochina.

In January, we received a $500,000 order for a SteraMist surface unit from Espire Health, an existing customer. Espire plans to deploy SteraMist in new healthcare facilities being opened across the Philippines.

To address the significant growth opportunities in Asia, in February we signed an agreement with independent parties to establish TOMI ASIA Pte Ltd. TOMI Asia will serve multiple markets in the region and provide sales, training, services, and support for our suite of products. In addition, TOMI Asia provides us with a logistical and service advantage that enables us to more quickly and effectively meet the needs of our customers.

We are excited to establish an Asia-based center from which to further expand our footprint in the region. We also received an order valued at over $620,000 for use of SteraMist products throughout Mexico.

We are in the process of developing new products that deploy our BIT solution in innovative new ways. We are currently filing design patents and evaluating utility patents for our specific non-trade confidential features that exist on our new-generation models. Additionally, we are gathering the required documentation for filing new patent applications on at least two of TOMI's newly-developed products, which have not yet been disclosed to the public.

We expect to take action on all these intellectual property patent applications during the second quarter of 2016 with additional filings in Europe, Asia, and the rest of the Americas to follow.

To further accelerate our corporate goals we have strengthened our infrastructure by making several strategic hires and appointments. First, we recently added three experienced members to our Board of Directors -- Walter Johnsen, Kelly Anderson, and Edward Fred -- all of whom share our goal of delivering shareholder value while supporting our growth objectives.

In addition, all have public company executive experience. Walter is currently the Chairman and CEO of Acme United Corporation. Ed was most recently the CEO of CPI Aerostructures, and Kelly is a former CFO of T3 Motion. We are excited to have them join the TOMI Board of Directors at this exciting time for the Company.

In addition, in February we announced the addition of Robert Wotczak as President of TOMI. Rob's background in capital markets broadens the skill set of our executive team and supports the achievement of our near-term goals of uplifting to a national exchange. Furthermore, Rob has been a valued consultant to TOMI for over five years and I look forward to his continued insight and advice as we continue our corporate evolution.

I will turn the call over to Rob at this moment. Thank you.

Thank you, Doc. As you noted, I have been working with TOMI for half a decade, which has given me an excellent educational on the Company's evolution as well as their outstanding market opportunity. We are very well-positioned to address major worldwide health issues including: one, reducing and controlling the involvement of surfaces that are a contributable concern pertaining to hospital-associated infections, also known as HIAs, which include C. diff, MRSA, and more; two, indoor-related health issues such as mold; and three, assisting with the control of potential pandemic pathogens such as H1N1, Ebola, MERS, and other SARS-like viruses.

Our near-term opportunities are in healthcare, biosafety, laboratories, clean rooms, indoor environmental including air and mold remediation, blood and tissue banks, and infectious disease control. We believe our long-term opportunities will start with food safety and multiply.

As Doc noted, we are building out our distribution channels domestically and internationally to capture this opportunity. Furthermore, in February we hired Ken Kelliher as our Vice President of Sales. Ken will report to me and we believe his 20-plus years of healthcare experience and his extensive network will help to drive sales growth in this very important near-term market segment. In addition, we plan to expand our sales infrastructure to generate new opportunities and pursue the voluminous database of sales leads TOMI has generated over the past several years.

To support all of our expanding opportunities, we are escalating our marketing efforts to build awareness and drive increased adoption of our SteraMist platform around the world. We are pursuing memberships in relevant industry groups that represent strong sales potential. We are currently focused on healthcare, professional restoration, laboratory, and clean tech industries.

We are developing and executing a media, advertising, and print campaign based on studies and white papers resulting from our amended EPA registration, specifically around our C. diff claim. We also remain active in industry trade shows representing healthcare, first responders, and many other relevant industries. We have also added an internal salesforce to take advantage of the tremendous opportunity in the hospital and healthcare industry in the US.

Also, TOMI is excited to announce we launched our new corporate website www.tomimist.com today. Our goal with this new website is to guide visitors through an interactive experience that provides easy access to information about SteraMist powered by BIT and its multiple applications. The site contains a vast resource center housing case studies, white papers, GLP study summaries, efficacy data, and multimedia, as well as the TOMI SteraMist blog with integrated social media buttons for Facebook, twitter, LinkedIn, Google Plus to promote improved outreach and communication with our clients.

TOMImist.com also incorporates information about the TOMI Service Network and features a real-time map of our network of primary service providers. We will continue to update our content with the latest news and information on technology, relevant industry news, company announcements, and client testimonials. For any questions, you can email us at info@tomimist.com.

Now I will turn the call over to Nick Jennings, our CFO.

Thank you, Rob. I will provide a brief overview of our financial results for the fourth-quarter and full-year 2015 compared to the prior-year periods.

For the fourth quarter of 2015 compared to the fourth quarter of 2014, net revenue was $1.8 million, a 69% increase from the $1 million recorded in the fourth quarter of 2014. Gross margins were 61% compared to 58%.

Loss from operations was $157,000 compared to $102,000 in last year's fourth quarter. The net loss was $157,000, or breakeven, on a per-share basis, compared to net income of $1.2 million, or $0.01 per diluted share, in the fourth quarter of last year. The $1.2 million in income reported in Q4 included a positive non-cash, fair-value adjustment on a derivative liability of approximately $2 million.

For the full year 2015 compared to the full year 2014, net revenue was $4.2 million, compared to $2.2 million in 2014. The 86% increase reflects our expansion into new markets and geographic regions.

Gross margins were consistent at 61% for both 2015 and 2014. Loss from operations was $3 million and included a $1.7 million in equity compensation expense. This compares to a loss from operations of $3.8 million in the full-year 2014, which included $2.6 million in equity compensation expense.

The net loss was $12.2 million, or $0.12 per diluted share, compared to net income of $268,000, or breakeven, on a per-share basis in the full year 2014. The increase in the net loss was primarily attributable to one-time non-cash charges related to the liquidation of our outstanding convertible promissory notes.

At December 31, 2015, cash and cash equivalents were $5.9 million and our working capital was $7.9 million, an increase of $9.7 million over the $1.8 million working capital deficit reported December 31, 2014.

Now I will turn the call back to Dr. Shane.

Thank you, Nick. We are off to a strong start in 2016 as we continue the momentum from last year. We have improved our sales and marketing infrastructure and financial foundation to support our rapid growth. We also strengthened our leadership with key executive hires and an expanded Board of Directors.

To accelerate acceptance of SteraMist around the world, we are committed to the following growth initiatives. Increasing penetration of the US hospital healthcare disinfectant market including hospitals, surgical centers, medical, dental, and veterinarian offices; developing products that leverage our core competency in decontamination and disinfection of indoor air and services; enhancing the breadth and depth of TOMI's service network; furthering our regulatory claims to unlock even more opportunities for market growth; uplifting TOMI on to a national exchange to improve our capital market exposure; and maintaining a prudent cost structure while positioning the Company for growth.

Operator, now I would like to open the call for questions.

(Operator Instructions) Jim McIlree, Chardan Capital.

Thanks a lot. Doc, can you talk a little bit about what customers are requiring before they place orders with you?

Do they have to do extensive testing, or are they looking to see the product in operation somewhere else? Or are they waiting for you to get a bigger service network or a balance sheet? I'm just trying to understand what the customers are looking for before they commit to you. Thanks.

The customers are -- they are different in different industries. In biosafety it's mostly word-of-mouth and our results in the biosafety community has -- because of the University of Texas Medical Branch, Galveston National Lab has really credited the technologies that should be. So with them it's more of how much is the product and placing an order.

In healthcare, it's a little bit more complex of an order where the customer has to be trained if we are currently going to sell it to them as an end-user. That training is a simple process and occurs in a very short time period. Or we have our TSN members that are all certified to assist us with training and that's one of the main reasons to help us broaden the distribution of the product throughout the United States.

We are now going ahead and demoing the product where we are allowing some customers in large university healthcare facilities to test the product for 30 days and they are doing that. So there are some variables that are involved and everybody that has tested the product and has pursued it is extremely interested; has either placed orders or our current customers are increasing their solution orders on a daily basis. And thank you, good question.

Have you received any pushback on prices from customers?

No, we really haven't. Prices seem to be very comparable compared to the market. We're -- on an application basis, it's less than $0.04 a square foot, if we sell it to an end-user, and it definitely is very much in line with the market.

Great, thank you.

(Operator Instructions) [Jay Kindelong], private investor.

Thanks for the detailed comments on the Asia program. Could you give us a little bit more color on the targeted verticals there and how you see that process evolving?

Sure. We have a large group of trained technicians over in Asia at the moment, almost 20-plus people. TOMI Asia will be the hub for this program. It's a group of independent sales team members that are selling the product to healthcare. They are selling it to travel, transportation, airline industry, senior living, child daycare, places where that -- the product has the best -- quickest way to show an effect to the governments and the people.

So we're going to expand in Asia with the program. They will be going into areas as China, Japan, and Tokyo shortly. I think that TOMI Asia will be a big success going forward. They are very dedicated, well-trained group and every day I get great notes and emails from them in response to areas that they've treated and experiences.

So we're very much excited over here at TOMI and for TOMI Asia and its potential expansion. And we will be hearing a lot from them as the year goes on.

Great, great, thanks. Rob, welcome to the team there. Can you tell us a bit about the status of the Company's potential up-listing to a national exchange?

Sure. Thanks, Jay, for the question. As we stated in public disclosure prior, TOMI certainly has an eye on up-listing to a national exchange and our evaluation and what we've -- steps we've taken over the past couple of months, when you are looking at creating a listing to a national exchange, it's really three main buckets that you have to try to satisfy: the corporate governance, some of the qualitative issues that an exchange might look for, as well as the quantitative metrics that they will require to be met before admitting the Company to list.

As discussed in this call, we have recently added three new independent Board members to the Company, which really helps go a long way in satisfying some of the corporate governance aspects with respect to an independent board. Audit committee, compensation, nominating committees are in place, as well, with these independent Board members all as members of those various committees. We have taken steps as a company with the exchange to talk and work with some of the qualitative issues and we feel we're in a good spot there.

Really I think what's left for us at this point is to satisfy some of the quantitative metrics that need to be met. Our K was filed yesterday prior to this call, so the year-end numbers are out there so the exchange could certainly evaluate those to see where they stack up with respect to some of the quantitative metrics. And, as a company, we fully expect to take the steps fully in Q2 to get listed on to a national exchange.

Thank you for your question.

Terrific, thanks a lot.

(Operator Instructions) [Beth Zelinski], private investor.

Thanks for taking my questions. I have a couple EPA-related questions and then one about SteraMist.

First of all, what impact are you expecting from the February EPA amendment to have on the near and long term? And also what additional EPA registrations are you seeking on a national level? And then what do you expect, or I should say when do you expect, to have the EPA registrations completed in all 50 states?

I think your first question is relationship to the recent February amendment on our label. We are, of course, very excited about that amendment because it opens up the whole world to SteraMist in relationship to C. diff.

C. diff spores are a very dangerous pathogen. It's affecting lots of people. It's causing -- as I said I think earlier, it's a $5 billion problem in the US alone and adding about 40% cost to the hospital. Increased C. diff hospitalizations by 200%. So I think to TOMI, we will be able to go after and achieve hopefully many of these facilities that are having C. diff problems and help them, along with other remedies that are necessary, in order to reduce C. diff spores in the environment and the transference from a health worker to a patient.

So I think that long term and short term are both going to equate to significant revenues and more hospital utilization as soon as they are made aware of the technology in our EPA registration.

I believe your second part of the question had to do with the further EPA registrations. Currently, we are registered as a hospital healthcare disinfectant claim, so as a general disinfectant. We also received our Dash-2 amendment, which is the C. diff, H1N1, and MRSA claim.

We are also pursuing other claims in sporicide and sterilization use of our product. We're halfway through that; half of that has been accepted by the EPA. We are pursuing other claims for other bacteria such as TB. We are also pursuing EPA-registered claims that we are going to be utilizing for the Australian government in relationship to insects and specifically the Zika mosquito and bedbugs in the adult and egg stage.

So there's a lot of exciting opportunities we have with our technology. As everybody knows, it comes from DARPA and it has demonstrated multiple efficacy across broad borders. We do use it throughout the world and in the US we are pursuing to develop those standards and tests and get those approvals for the appropriate registration in the United States of the same types of pathogens as mentioned.

Currently -- I think you were talking about registration in states. We are registered in 35 states. We will register in all 50 states; as soon as we get a customer in a state, we register. Most of the forms are very simple outside of the larger states. So we plan and, hopefully, by the end of this year we will be registered in all 50 states because we will have clients using our product in all 50 states.

But currently we are registered in 35. I think I covered everything, Beth.

Okay. And I just have one other question about do you have an update on orders for SteraMist in the California market?

I can't really give forward-looking updates, but we currently have five members of TSN, I believe, in the state of California that's using our product currently. We are pursuing the registration of it as the addendum for C. diff and we have a very, very nice pipeline of interested California facilities that our sales group will be pursuing this year and next.

Great, great. Well, thank you for taking my questions. That's all I had.

This concludes our question-and-answer session. I would like to turn the conference back over to Dr. Shane for closing remarks.

I'd like to thank everyone for joining us today. We look forward to speaking with you soon. Have a great day. Thank you all.

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