TOMI Environmental Solutions Inc (TOMZ) 2022 Q1 法說會逐字稿

Welcome to the TOMI Environmental Solutions, Inc. first-quarter 2022 financial results. I will now turn it over to John Nesbett of IMS Investor Relations. John, you may begin.

Thank you for joining us today for the TOMI Environmental Solutions investor update conference call. On today's call is TOMI's Chief Executive Officer and Chairman of the Board, Dr. Halden Shane; and Nick Jennings, TOMI's Chief Financial Officer. Dr. Shane will provide an overview of recent business highlights, and Nick will review the financial performance for the most recent quarter before addressing any questions you may have.

A telephone replay of today's call will be available through May 19, details of which are included in the company's press release today. A webcast replay will also be available at TOMI's website, www.tomimist.com. Please note that information contained within this call is relevant only to the day in which it was recorded, May 5, 2022, and you are therefore 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. These forward-looking statements should be evaluated in light of important risk factors that could cause our actual results to differ materially from 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.

In addition, TOMI will discuss certain non-GAAP financial measures during this call. The company uses non-GAAP measures because it believes they provide useful information about the operating performance that should be considered by investors in conjunction with the GAAP measures. A reconciliation of these non-GAAP measures to comparable GAAP measures is included in the earnings release.

I will now turn the call over to TOMI's Chairman and Chief Executive Officer, Dr. Halden Shane. Go ahead.

Thank you. Good afternoon, everyone. Thank you for joining the TOMI Environmental earning call. Today, we will discuss TOMI's operating and financial results for the first quarter of 2022.

I am pleased to report that 2022 is seeing a rebound in our life science business coming out of the pandemic. We have started with some notable large wins and expect this year to end even stronger, with increased sales, further expansion of brand recognition via multiple avenues and new partners. As in every quarter, I'll mention some notable key customer wins and provide an update to studies and publications the company has endured this quarter.

In the first quarter of 2022, we saw a growth in sales and gross profit, with a decrease in operating expenses. Sales grew approximately 11% in comparison to the first quarter of 2021 and 15% sequentially over the fourth quarter of 2021. This increase in sales is primarily driven by the increase in demand for our mobile equipment and iHP Corporate Service.

While our iHP Corporate Service continues to be profitable, TOMI adapts to the demands of its customers in all industries. Therefore, we are manufacturing a variety of prototypes, and this versatility is leading to improvement in the marketplace. With the demand for our custom engineered system, or as we call it CES, it's increasing ahead of other product lines.

Because of this increase in demand for a fully automated full-room disinfection decontamination solution, TOMI received approximately 3.5 million in orders this quarter, and we expect this trend to set a precedent for future quarters of this year and beyond. We project a portion of these orders to be recognized into revenue later this year.

These additional orders for our CES come on the heels of our fourth-quarter order and installation from Fresenius Kabi Portugal's affiliate, Labesfal S.A. Approximately $1.7 million that have been sold this quarter are for additional custom systems, and these purchases have, with fixed milestones and installation dates. Two of these wins are from a Fortune 500 company which is also a current customer, and the other is from a leading research facility focused on immunology and infectious disease.

As we announced earlier in the year, our new partnership with ARM EnerTech Associates, which is a US-based engineering service and custom control panel manufacturer, will further support the manufacturing of our SteraMist product line. The partnership between TOMI and ARM has also been positive for the manufacturing of our custom install wins and the pipeline of those opportunities we have outstanding proposals on. A current TOMI outstanding proposal for its CES may range anywhere from $100,000 to $1 million, and we have approximately $6 million in proposals being reviewed between current and new customers.

TOMI was cash flow positive in the first quarter, which can be attributed to various customer deposits on such orders that we will convert into revenue later. The relationship with ARM has provided TOMI to be competitive in bidding for its fully automated disinfection decontamination system. Thus, we expect many more of these types of orders to close in the near future.

Before our CFO, Nick Jennings, provides his report, here are some key accounts that closed in the quarter one that I feel are worth noting. TOMI assisted the decontamination efforts of On Demand Pharmaceuticals, an innovative technology company transforming how medicines are made, by providing its SteraMist environmental systems for use at On Demand's modular cleanroom. The pairing of the DARPA-funded medicine manufacture initiative with a DARPA-developed disinfection decontamination technology creates a powerful and unique partnership.

A biomedical science company located in the heart of New York City purchased three modified environment systems for their hot cells and radioactive-shielded nuclear radiation containment chambers. And in the first quarter of 2022, the TOMI team sold and onboarded seven new ServPro locations as TOMI Service Network, or TSN, providers.

As I stated, I'll go into further detail. But now, I'm going to turn the call over to our Chief Financial Officer, Nick Jennings, who will provide you some current financial highlights.

Thank you, Dr. Shane, and good afternoon, everyone. We will provide a brief overview of our financial results for the three months ended March 31, 2022, compared to the same prior year period. We'll also touch on some of the improvements in the financial results in our first quarter of 2022, compared to the fourth quarter of 2021, and discuss some of our key balance sheet items as of March 31, 2022.

For the three months ended March 31, 2022, compared to March 31, 2021, our consolidated net revenue was $2,309,000 compared to $2,073,000, an increase of $236,000 or 11%. The increase in revenue was largely attributable to increased demand for our mobile equipment and iHP service. Consolidated gross profit was 61.5% compared to 59.6%, representing an increase of 1.9%. The increase in our gross profit was due to our product mix in sales and higher concentration of our off-the-shelf mobile equipment, which carries a stronger margin when compared to our custom engineered systems or CES.

The consolidated operating loss improved to $660,000 compared to $1,510,000, representing a 56% decline. The improved operating loss was attributable to higher sales, gross profit, and lower operating expenses, which declined 24% when compared to the same prior year period. The decline in operating expenses was primarily due to lower G&A expense, which were down 20% compared to the same prior year period.

Our consolidated net loss improved to $660,000, or $0.03 per basic share, compared to $1,511,000, or $0.09 per basic share, representing an improvement of $851,000, or $0.06 per basic share. EBITDA was a loss of $578,000 compared to $1,427,000, representing an improvement of $849,000.

Cash provided from operations was $27,000 compared to cash used in operations of $1,225,000. The increased cash flow from operations was primarily due to cash deposits received from customers in the first quarter.

It's also worth mentioning the sequential quarter-over-quarter improvements in our results. When looking at the first quarter of 2022 versus the fourth quarter of 2021, some of which Dr. Shane has already touched on, we grew our first quarter of 2022 consolidated net sales and gross profit by 15% and 30% respectively when compared to the fourth quarter of 2021. The growth in revenue was due to higher demand for our mobile equipment in the first quarter of 2022, which also gave our gross profit margins a nice boost when compared to the sales mix in the fourth quarter of 2021.

Our first quarter of 2022 consolidated operating expenses were down $749,000, or 26%, when compared to the fourth quarter of 2021. Overall, the first-quarter 2022 consolidated loss from operations declined $1,074,000, or 62%, when compared to the fourth quarter of 2021. The first quarter of 2022 consolidated net loss was down approximately $1 million when compared to the fourth quarter of 2021, which represents a $0.05 per basic share improvement.

Moving on to the balance sheet. As of March 31, 2022, our cash and cash equivalents were approximately $5.3 million and working capital was $10.8 million. Our shareholder equity was $13.3 million at March 31, 2022.

Now, I will turn the call back over to Dr. Halden Shane.

Thank you, Nick. As I mentioned prior to your report, seven separate ServPro locations each purchased two SteraPaks this past quarter. These locations and TOMI's relationship with ServPro expanded because we are steadily making progress with long-term service providers. As we diligently search for new partnerships and providers, the TOMI executives are actively meeting with owners to develop opportunities to integrate SteraMist disinfection beyond their regular SteraMist business.

A long-term TSN member, and now sales representative, Indoor Environmental Solutions & Consultants recently completed a 124-page Forensic Architectural and Engineering Investigation and Decontamination Report with Kalera Indoor Farms. IESC is a state-of-the-art indoor air and surface decontamination company dedicated to food and health safety. In addition to being a TSN service provider, IESC are distributor partners to iHP's SteraMist technology.

Kalera, a global leader in vertical community farms for greens and culinary herbs, harvested on demand all year, is highly motivated to have iHP SteraMist be their cleaning decontamination solution. The recently received report outlines decontamination protocols and calculated savings, and estimated service and purchasing options. ServPro added SteraPak to their locations in Colorado and Arizona to continue iHP disinfection treatment of Kalera facilities. In addition, Kalera is budgeting to purchase SteraMist mobile equipment for the protocols set forth in the report.

The renewed interest can be attributed to the increase of TOMI's corporate support interest in the CES and the launch of SteraMist support portal that is available on desktop and in mobile app, which provides ease of use for sales support, branding, and assistance.

TOMI continues to pursue market connections, partnerships, and sponsorships. Recently, TOMI attended RIA 2022, the International Restoration Convention & Industry Expo. TOMI was able to discuss with large franchisees about the future growth plans and the possibility of SteraMist disinfection partnership.

Mycotoxin Deactivation: A Successful Mycotoxin Treatment and Reduction Case Study, written by David Mark Quigley, the owner of BioRisk Decontamination & Restoration, is available on Amazon, Apple books, and other platforms. The book highlights SteraMist iHP as the treatment for deactivating and rendering mycotoxins in earth. This is critical, as not only will iHP SteraMist be used in the remediation of mold, but also contribute to the prevention of mold spores by deactivating mycotoxins which are commonly found in the food crop industry and also in buildings.

As previously reported, TOMI's new 0.35% BIT solution has been approved by the Environmental Protection Agency, and our first batch is scheduled to be blended and delivered by the end of the month. We will soon not only offer five different sized bottles, but be able to provide two different blends, all of which should contribute nicely to our razor-razor blade business model. TOMI will first conduct internal testing of the 0.35% BIT solution with its current partners, in preparation for the opportunity to provide food safety customers the option to use a reduced iHP solution against plant pathogens.

TOMI provides a unique advantage in the food industry compared to its competitors, as SteraMist is designed to be a no-rinse and no-wipe product while minimizing shutdown times. TOMI expects the solution to have a prominent role in the food safety industry, a market in which TOMI has been trying to expand in for years. The food industry is a multibillion-dollar one, and creating a prominent disinfection solution for it may prove profitable.

SteraMist's versatility on pathogens and material compatibility is allowing current customers to expand SteraMist disinfection into additional areas of their facility. Bellevue Hospital is one that recently added SteraMist to their disinfection protocols that involve kitchen and food preparation. SteraMist products are incredibly easy-to-use disinfection that is highly affordable and limits downtime, something that many fast-paced environments are requiring.

During the first quarter, TOMI fulfilled an urgent shipment of multiple SteraPak units to its local distributor in Hong Kong, TOMIMIST Hong Kong. The units were deployed for use in shopping malls, commercial, residential buildings, and premises to effectively combat the massive outbreak of COVID-19 Omicron variant infections in the city.

With our internal growth of customer support, and customers expanding the use of SteraMist, and our characterization of an emergency response company, TOMI is prepared to deploy in any state of emergency. Consequently, the commitment of holding inventory to all our mobile product lines are quite important.

In addition, we continue to conduct studies to further the use of SteraMist on chemical and biological agents. So we are prepared not only with equipment, but with the necessary data. TOMI recently received great preliminary biotoxin iHP and activation data against Ricin A Chain by a US government agency, who will be expanding testing to Botulinum and Staphylococcal Enterotoxin B, or SEB toxoid, as it's known, which is considered a biological weapon.

We are extremely excited to see the results of more testing as the year progresses. Testing on these agents is important, as this world is in uncertainty, and our country needs to be prepared to quickly remediate a facility that might be attacked with a chemical or a biological warfare agent, fortunately.

As many know, we have participated in a large multi-year hospital known as the Shield Study. It's a federal-granted and funded study from the United States Department of Health and Human Services, and the Agency for Healthcare Research and Quality, which is AHRQ, in which SteraMist was chosen as the technology -- only technology to be used in a study that compares hospital manual cleaning to a mechanical clean, SteraMist clean.

Preliminary results of the study indicate a decrease in the transformation of pathogens resulting in HAIs and Clostridium difficile infections, in the rooms that use SteraMist for their terminal clean, when compared to the rooms that were manually cleaned. Sufficient data has been collected to complete the study; it was sent to the independent statisticians. The leading clinical investigators have been writing the final draft that's to be, or has been, submitted for publication. We are excited to finally read this paper that we believe could be a game changer.

As first-time exhibitors, TOMI was also present recently at the Firefighters' Instructors Conference International (sic - "Fire Department Instructors Conference International"), or FDIC, which is the largest fire and rescue conference. Gaining knowledge of the EMS market, with the concerns of corrosion, vehicle time turnover, and residues left behind, SteraMist has a great advantage over these issues, creating great interest from many at the conference.

The health care and commercial market also has great interest in the iHP SteraMist transport. TOMI is excited to announce that we have made significant progress with ARM, and further developmental modifications to the product line, as well as with the Select Plus prototype. The iHP SteraMist transport is an [integration] into vehicles, such as emergency vehicle. TOMI remains in the budget with its current health care customer who sparked the invention of the transport system for a very large order.

We have not only added sales representatives that are familiar with our technology, such as the mentioned TSN member, but we search for other methods of expanding our sales representation. TOMI is in the progress of bidding on contracts with Thermo Fisher Scientific for the life science market, and Vizient for the health care market. TOMI showed a 60% increase in international revenue when compared to the same prior year period, and hope this trend to remain, as we are currently working with many other -- for instance, TOMI locations, including Brazil, Mexico, Germany, and Canada in the implementation and use of SteraMist as their standard decontamination solution.

We did finalize our partnership with MEDline, one of the longest operating distributors of medical equipment in Poland. By the end of June, their plan is to build a dedicated website and translate material solely for the distribution of iHP SteraMist equipment and BIT solution. Furthermore, and with MEDline's assist, TOMI is following procedures to transfer equipment in order to donate SteraMist mobile systems to a Polish hospital to aid the hospital in supporting Ukrainian refugees.

Shell Aviation, another long-term distribution partner of TOMI, purchased four environment systems in the first quarter of 2022. These units are for end users and established pharmaceutical companies located in Germany.

Lastly, on the international front, I must mention the sale and shipment of SteraMist to Nigeria. The TOMI team is working with a dedicated partner to expand SteraMist in the health care market for the region. Our Nigerian partner previously worked closely with the University of Texas Medical Branch, UTMB, Galveston National Lab, learning about our iHP SteraMist technology. She is now presenting to 30-plus doctors, gaining traction in Nigeria and other neighboring states in the continent.

As a product that was developed to combat anthrax after 9/11 attacks, SteraMist continues to combat the most dangerous of pathogens and agents throughout the world. With chemical and biological warfare agent threats looming, being prepared is vital. TOMI remains and always be prepared for any emergency needs and is established to quickly deploy worldwide.

On May 23rd through the 26th, I'll be attending the H.C. Wainwright Global Investment Conference, speaking and holding multiple one-by-one meetings during the week, and I hope to see many of you in Miami Beach.

To my TOMI team, when we set our minds to do something, we get it done. I am proud of what we have all achieved to date, and I'm looking forward to finishing the rest of the year on a very high note. Without every single one of us, these multiple projects would not be half as successful as it already is. We rock.

Operator, let's open the call to questions.

(Operator Instructions) Sameer Joshi, H.C. Wainwright.

Thanks, Doc. Nick, thanks. Congratulations on the good progress, both sequentially and year over year. And this is truly post-COVID drive of revenues, so that's fairly good to see.

Thank you.

The question I have is about the operating expenses. They were lower sequentially as well as year over year. At the same time, your revenues were up. That is remarkable. How come you were able to do this?

Yeah. Our operating expenses did go down in Q1, when compared to the quarters you referenced, and it was largely attributable to payroll costs. Where, at certain points last year, our headcount was higher than it is this year, which could be said for our general and administrative costs and as far as the selling costs are concerned. As well as our R&D costs are down somewhat this year too because there was a lot more in development in Q1 of the last year.

So should we see similar levels of OpEx on both R&D and SG&A in the upcoming quarters, maybe with just a little bit escalation based on inflation?

Yeah, I think so. Our research and development was mostly from the backpack, and a lot of that was in -- throughout the last year. And currently, a lot of our research is being done internally and with ARM for these other devices. So I am not sure yet until I see what numbers are in the second quarter, but I would think that we have that well under control.

Got it. I had another question, but since you mentioned -- so you are working in conjunction with them for the control panels and the customization of your product for each customer. What is the role of Planet Innovation, and what is the significance of them from moving facilities to California?

So I'm not sure there's any advantage for anyone in moving to California personally. But I think that -- I obviously don't work for the Chamber of Commerce here. But the fact that we were shipping from Australia to the States was expensive. And the fact that warranty repairs, they'll have a location here, they'll be able to assemble the products here, and the shipping costs will be a lot less.

So that's really what our advantage are, plus we'd be able to -- because they're in Southern California, we'll be able to work with them on a one-by-one basis for further developments in relationship to our backpack and our applicators.

Got it, okay. And then you -- I think in the prepared remarks, you mentioned $6 million worth of proposals that you are working on. Is there anything else in the pipeline? And then further stepping back, part two of that question is how much visibility, in general, do you have at this stage of what is to come, and then delivery timelines of the orders that you expect over the next, say, 9 to 12 to 15 months?

So we have a fairly robust pipeline. The proposals that are in there are just for the built-ins. They're not for the entire pipeline which covers multiple verticals. So I would have to say, until -- obviously, we get purchase orders in their pipeline, very interested companies, very large companies, and we're fairly comfortable on the built-in pipeline. And the other verticals will be coming in as people start putting in orders.

Got it, got it. And in general, how -- like this, the orders that you received, 3.5 million in the first quarter. I think, maybe 200,000 or 300,000 of that has already been delivered. But then some of it is, or a bulk of it is, over the next 9 to 12 months. Is that how typical orders should be expected to be going forward?

Yeah. Well, this is a first for this company because we always just ended at the quarter and then started over again. So now, we are starting to get deposits for product that is going out even into 2023. So we are very excited about that development and the position the company is currently in, in relationship to these proposals that are coming out of the pipeline, deposits that we are receiving, and the projected completion dates, which -- with ARM in manufacturing. And for us, they've been delivering on time. So we are very excited about the accumulation of all those facts coming into the company at the point we're at right now.

Got it. Just one last one. The biotoxin study, inactivation study that you refer to, it seems pretty significant. But in terms of the potential revenues from this effort, what is the timeline expected right now, and what is the size of this opportunity?

Well, the opportunity is extremely large if we're able to get the data that we know we can get, just by independently being achieved, because these are government agencies, potentially, who are looking for a fast reaction to the unfortunate use of a biological and/or chemical weapon. And this can expand out throughout the world once we get the data and individual units in use or tested. And so we are very excited about the opportunity, and I am comfortable we'll be able to go ahead and receive favorable data. So that's encouraging to me and for the company.

Got it. Congrats once again. And I'll take my other questions offline. Thanks.

Thank you so much.

John Nelson, an individual investor.

Thank you. Compliments again on progress made in developing this extremely large market that you're attacking. First question is related to -- I believe you -- in the last conference call, you mentioned working on a 1% solution for possible food treatment as part of that farm-to-table. Any progress you can tell us about that?

So we are still in the process. Our consultants who are working with the EPA on that are continuing to get dates. We know it's been severely delayed because of the COVID reason or excuse or whatever from meeting EPA people, but we are following up on it.

In my opinion, the food industry, I mean, they'll be able to spray direct on food, appliances, applications, maintaining tremendous advantages for both eliminating human and plant pathogens. So we are excited of the opportunity once we get that label. And in the meantime, as you know, we are moving forward with marketing on the 0.35%. And we don't really anticipate a problem getting to 1%. We may have to do some toxicity studies for them which should be fairly easy to do.

Okay. But no firm timeline yet?

No, I have no date -- no PRIA date yet. We're waiting for the EPA to give us a PRIA date. And once they do that, then we'll know what the outer range of that day is.

Got it, okay. Then last quarter, you also mentioned, for CES new mergers, CES transport, a healthcare facility with roughly 50 vehicles for install. Can you tell us anything about progress on this? Have any been installed? Or any timeline you can share?

So we have assembled the prototype, and it's been installed in our corporate van. The original idea came from this customer that you're talking about to multi -- purchase multiple units in the future. Their budget committee meets early summer. The prototype that was assembled was provided to our manufacturer of ARM for a beta 2 model with full engineering drawing packages.

And then this beta version will be delivered within the next couple weeks to us. Once we validate it in our laboratory in Frederick, we're heading it to the State of North Carolina, to the current customers' facility, for final production, demonstration, et cetera.

Okay, great. And then can you tell us roughly how many backpack units you've sold and what the actual -- I mean, I am assuming you've surveyed your customers as to what they like and don't like, and the pluses and minuses. Just some kind of a general update on the backpack?

So the backpack has been well received. I am not sure the exact number. I mean, it's well over 100-plus. We are in the process of training many people on the use of the backpack. And moving into these TSN members, like I've mentioned on the call, is very encouraging because they're each buying a couple of them. And as you know, ServPro is very large. And if they start to adapt this through some of the other competitor, regional ServiceMaster people, then I think then it's going to be a winner.

So we are making some changes to further editions of the backpack, including the applicator. And we're excited going forward with this. It's taken a while to get the backpack. We should have received a lot more at the end of the fourth quarter; we didn't. And this time, people are a little exhausted about decontamination. But we are excited that once this Shield Study comes out, this will be the type of device that people will want to use in the health care and medical world, dental world, surgical, [expanding] facilities, et cetera. But it's well received.

Okay, good. Any Boeing update?

Not since the last call, John. I will let you know since we have --

Okay. And then also any further progress on airport terminal cleans captured recently?

Not recently. But they're moving ahead in Germany and doing quite a bit of work in the aviation industry on Boeing planes and in airport facilities.

Okay. And any goals on profitability, reaching profitability?

I am hoping, with what we have and the way the first quarter ran, we should be profitable this year.

Okay, great. And last one is -- I realized you just have enormous markets to attack. You're a very small company with limited resources. If somebody like ServPro came in with a big order, are you confident that you could handle that?

100%. We got through 2020 which was panic, and we handled it as a very mature, large company. And we learned a lot and we are applying it. And we're here and ready to handle anything like that.

Very good. Thank you very much.

Thank you, John, for the call.

Okay. And with that, I will now turn it back over to management for closing remarks.

Thank you for your support and for joining us today. This was a strong quarter for the company. We have momentum in our business. We also have a strong balance sheet, with cash, and a book value very close to where our stock is trading. In my opinion, the stock is undervalued. We look forward to executing, growing the business, and driving sustained value for our investors as we perform.

To everybody, have a wonderful afternoon or evening, depending upon where you are. Thank you.

Okay. This concludes your call. You may now disconnect.