TOMI Environmental Solutions Inc (TOMZ) 2023 Q1 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the TOMI Environmental Solutions first-quarter 2023 financial results conference call. (Operator Instructions)

I would now like to turn the call over to your host, John Nesbett with IMS Investor Relations. Mr. Nesbett, you may begin.

Good afternoon and thank you for joining us today for 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; TOMI's Chief Operating Officer, EJ Shane; and TOMI's Chief Financial Officer, Nick Jennings.

Dr. Shane will provide an overview of recent business highlights, EJ will report on the company's growth and latest trends, 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 29, 2023, the details of which are included in the company's press release dated May 15, 2023. A webcast replay will also be available at TOMI's website, www.tomimist.com.

Please note information contained within this presentation is relevant only of the date of which is recorded May 15, 2023, 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 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 and 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 dated May 15, 2023.

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

Thank you, John. Hello and welcome to TOMI Environmental earning call. Today we'll be presenting the company's operating and financial results for the first quarter of 2023, along with positive updates of our current initiatives. Thank you all for joining us this afternoon.

Our first-quarter revenue was impacted by revenue recognition rules and customer-imposed delivery restrictions for equipment and CES orders. Our recognized revenue and our customer sale backlog for the three months ended March 31, 2023, together was approximately $3,129,000, which was comprised of the recognized revenue of $1,582,000 and a customer sales box backlog of approximately 1547 -- $1,547,000. We anticipate improved results for the second quarter and the remainder of the year.

We are very optimistic about our performance going forward. With our sales backlog, expanding distribution network, and robust sales pipeline, particularly for our CES products, we are anticipating reporting improved financial results for the remainder of calendar 2023.

Our market positioning and model remains very strong. From a market positioning standpoint, there are some industry trends as well as regulations that are opening up some massive market opportunities for the company. One of the largest opportunities that's unfolding is that the EPA has proposed cutting ethylene oxide emissions by 80%. at approximately 86 commercial sterilization locations in the United States. This could create a significant market void for the chemical disinfectant used for sterilizing medical devices and equipment.

TOMI solution utilizing ionized hydrogen peroxide has been identified as a viable alternative that leaves no residues and has decontainment -- decontamination efficacy upward of 99.9999% compared to ethylene oxide, SteraMist products are non-toxic, non-corrosive, do not cause temperature damage to medical equipment or devices. SteraMist superior solution offers a perfect alternative given it is faster, more environmentally sustainable, and has no [carcigenetic] risk to site workers and those living close by.

From a business model standpoint, our business reported a high gross margin of 59.9%, even with lower-than-anticipated revenue in the quarter. Finally, while still a relatively low portion of overall sales, higher margin solutions sales are growing and with our strong pipelines of [CES] Sales Solutions, sales should become increasingly more predictable. We are optimistic about achieving better outcomes for the company as we have taken several measures to strengthen our market position.

One key initiative is that we have proactively expanded our distribution network and manufacturing representatives. In the first quarter of 2023, we welcomed and executed agreements with JANZ Corporation, PennCare, New England Scientific Associates or NESA by Baker, ARES Scientific, Crow Food Safety, and Technimount Systems.

JANZ, a US-based medical supplier and distributor holds government contracts to provide medical and health products to various agencies, presenting an opportunity for us to expand our reach into the already familiar government sector. PennCare, an emergency medical service provider will help us strengthen our presence in said markets throughout the United States. NESA by Baker is a leading manufacturer of biotechnology and research equipment and will act as a new independent manufacturing representative for TOMI. While ARES Scientific has evolved in its service model and now serves as a new distributor of TOMI products.

Furthermore, Crow Food Safety will help us expand our global footprint in the food safety and hygiene market with a distribution focus on South Africa, Sub-Saharan Africa, representing our first venture into that part of the region.

Lastly, Technimount Systems, a highly reputable manufacturer and distributor will serve as an exclusive distributor of our SteraMist iHP technology to the emergency medical service industries throughout Canada, further expanding our presence in this key market.

Our expansion efforts in Africa extend beyond our recently added distributor in the food and hygiene market. To establish solid engagement in a larger market such as South Africa, Kenya, Uganda, Ghana, Senegal, Egypt, and Nigeria, we have donated four SteraPaks for various government agency-backed labs in Africa, including the Department of Defense, the DoD. By partnering with local governments and healthcare organizations, we are working to implement effective and sustainable disinfection protocols to help protect vulnerable populations from the spread of diseases such as malaria, Ebola, monkeypox, and tuberculosis.

Research universities remain a key stable market for us and have proven to be a faster sales process. And we're pleased to have onboarded the University of Hawaii and Oregon State University in the first quarter of 2023. As this is a market space where everyone knows each other, positive references, and customer satisfaction is key.

The Dana-Farber Cancer Institute, the location in which one of our original CES systems was installed, continues to create referrals and sales opportunities for us in the marketplace. One of the said opportunities is Orna Therapeutics, a leading biotechnology company located in Massachusetts, who we recently delivered a one-applicator Custom Engineered System to, that's our CES.

During the first quarter, we also entered into a service agreement with LFB USA, a subsidiary of LFB Group, a European biopharmaceutical company, specializing in development and manufacturing of innovative biotherapies. The agreement commits LFB to engage TOMI for a high-level disinfection of one or more facilities.

Ongoing studies remain a focus as we continue to grow internationally and domestically. For example, we received final acceptance after executing an extensive material study in Germany to prove the efficacy of SteraMist. Again, all germs of all categories spores gram-positive bacteria, gram-negative bacteria, fungi, found directly on specific materials in clean room laboratories. Thus adhering to the industry's strict regulations and guidelines, all runs showed a significant log reduction and was a pass.

German biotechnology is a substantial opportunity for TOMI in the future and we will keep you appraised. In the United States, we're working with the government and TOMI service network members to prove and demonstrate SteraMist's efficacy against Ricin and Sentinel, which is critically needed in this country. It has been publicly announced that SteraMist has proven successful as a direct spray on cannabis flowers to combat common molds and fungi without affecting the quality of the oil or plant.

We are currently in the process of registering SteraMist state by state to ensure that our future customers in this rapidly growing cannabis industry can choose SteraMist as their trusted decontamination solution with confidence. The cannabis opportunities continue positively evolve for us.

Vertical Crop Consultants, a food safety independent sales representative partners with TOMI as of late last year was onboarded as a formal customer during the first quarter of 2023. Vertical Crop has generated interest in the industry during their short time with TOMI, and now as a customer, completed this joint study with an American seed company and head breeder for one of the world's most famous cannabis strains.

This third-party study found SteraMist to be effective in eliminating aspergillus and powdery mildew while protecting cannabis growth and without affecting quality. Each phase of the study proves SteraMist iHP can be a consistent solution to prevent spores at every stage of the growing process, a huge saving for the industry.

Plum Island Animal Disease Center owned and operated by the USDA is a high-security laboratory facility that conducts research in animal diseases that pose a threat to agriculture and public health and is one of the few facilities in the world equipped to study highly infectious diseases that affect animals. And they have chosen to partner with TOMI in a GLP study on hand foot and mouth disease or HFMD, a highly contagious viral infection that commonly affects infants and young children.

We anticipate successful results on combating this virus, which can lead to viral meningitis, inflammation of the brain and spinal cord, and even paralysis. TOMI may begin work with the EPA once again to update its label with HFMD, TB, and other recent claim accomplishments in due time.

Finally, we've just launched our new website and domain, steramist.com -- STERAMIST.com. The TOMI marketing team has been working diligently to create a fresh, modern, and user-friendly online experience that accurately reflects our company's values and mission, innovating for a safer world. This new website will enhance our customers' and partners' ability to engage with us and find the information they need quickly and efficiently. The new site was launched this morning, so please visit steramist.com -- STERAMIST.com and share your thoughts with us.

At this point, I'd like to hand the call over to TOMI's COO, Elissa Shane, who will provide you with an overview of the company's upcoming plans and objectives for the rest of the year. Thank you. EJ?

Thank you, Dr. Shane, and good afternoon, everyone. I appreciate the opportunity to share a few updates on TOMI's progress and upcoming developments on today's call. I will begin by discussing TOMI's international developments and the positive impact they will have on our financial performance. As Dr. Shane mentioned earlier, we have a promising opportunity with a German biotechnology company that has the potential to result in significant orders.

I can confirm that our distribution partner in Germany, Universal Disinfection has done an excellent job in fostering this relationship. We anticipate this company to purchase mobile environments and multiple Custom Engineered Systems and expect these orders as the company is building the production sites now for SteraMist use.

Universal Disinfection has had other significant progress helping to expand SteraMist into various industries. They continue to undergo the qualifying process of suppliers for decontamination services among leading pharmaceutical companies in Europe. One of the leading companies in clean room technologies in the Bach region is planning to use SteraMist in material chambers, airlocks, cabinets, and containment isolators.

Universal Disinfection has also entered the transportation industry by conducting a practical study of the DRK, or German Red Cross, to decontaminate rescue vehicles. The Universal Disinfection is very optimistic that their hard work and patience invested in these endeavors will yield fruitful outcomes with significant financial success for both Universal Disinfection and TOMI in Europe.

We are actively seeking to establish more partnerships to accelerate our sales and business development efforts, both domestically and internationally. As mentioned by Dr. Shane earlier, the new partners we have onboarded are excellent additions to our sales team and are expected to generate positive return. We are confident that these will create further opportunities for business development and to create a substantial increase in revenue. We are fully equipped to support these partnerships to ensure success, particularly if they demonstrate the same dedication as Universal Disinfection has done in Germany.

We are in negotiations with many other companies worldwide and hope to shortly announce additional distribution partnerships, including a United States chemical manufacturer with specialty in biosafety management; a local Maryland energy industry expert with substantial working knowledge of regulated technologies; a medical equipment manufacturer in Italy; and a supplier of clean room products and disinfectants in India. While the latter region has been an area in which we have encountered some challenges when considering suppliers and opportunities for the past year, the latest interested party may be suitable.

Receiving global acceptance as a provider of decontamination services and equipment represents a major milestone and working with multinational pharmaceutical and biotechnology corporations as it promises to allow for easier acceptance in future and additional facilities for the corporation and its subsidiaries.

As you may know, we have been providing iHP decontamination services and selling capital equipment to Pfizer facilities for many years. And they are just the first of many that grant us global acceptance. In June, we will be implementing and qualifying mobile environments systems to a global healthcare company that specializes in medicines and technologies for infusion, transfusion, and clinical nutrition at their facility in Brazil, who purchased their order at the end of last year.

This company has been using [iHPD com] services in their facility in Chile for the past few years and one of their contract manufacturing sites in Portugal has a Custom Engineered System. I have personally been collaborating with the head of their technology center located in Mexico for the past 18 months and following the successful implementation and qualification of iHP in Brazil, we are expected to explore opportunities to expand into their South African branch.

With facilities in 47 countries across Africa, Europe, Latin America, Asia Pacific, and North America, attaining global acceptance with such a large corporation is crucial. While it is time-consuming process, it is well worth our patience as it will bring significant growth opportunities in the future.

Our iHP service sales strategy continues to be a successful approach in penetrating these large corporations. Catalent, a continuous user of our mobile products and iHP service in both their Maryland facilities are good referrals of our technology. And this quarter, we won and completed an iHP service with another Catalent facility in Kansas City, Missouri, for approximately $130,000.

We are expected to win an Emergent iHP service for approximately $150,000 in Baltimore, Maryland. This win would be a nice addition to other Emergent users of iHP in Canton, Massachusetts, and Rockville, Maryland. Emergent has six other manufacturing and product development sites worldwide. These are just a few examples of how we are fully working towards gaining headquarter acceptance of iHP SteraMist.

The timing for Custom Engineered System, iHP corporate services, and even the purchase of our mobile system products is subject to change due to customer timelines, but we've maintained a healthy pipeline. By the end of this quarter, we will have 14 fully installed Custom Engineered Systems, with all of them expected to be qualified and in use by the end of the first quarter of 2024. And dependent on end users' production facilities resulting in varying revenues a BIT solution and services moving forward.

TOMI's SteraMist technology is not limited to full decontamination for the life sciences, but also includes mobile systems that can be customized for packaging, feeding, and selling lines. We continue to work closely with highly respected indoor farming solutions company in their qualification procedures. Once final approval is received, we will announce this company who is committed to expanding the use of SteraMist through all future facilities.

This indoor farming company has broken ground on new buildings and have budgeted for SteraMist expansion. This is a significant opportunity for TOMI to showcase the versatility and effectiveness of iHP in the food safety industry and the potential growth this partnership can bring. Ongoing discussions for Custom Engineered Systems installs and upgrades with current and potential new customers has increased from 25% to 36% or 44% since our last call. While we have experienced a loss rate of only 14% when combined in the 2021 and 2022 year. This positive trend is highly motivating, and we remain optimistic about our fully automated projects.

During our previous call, I shared our vision of a streamlined solution for decontamination chambers, cabinets, cage washers, and module clean room. We have identified seven key partners that will help us on achieving this goal. These partners range from process design consultants to actual manufacturers of clean room equipment. A key priority for us is to collaborate with these partners as swiftly as possible to establish sales and manufacturing of this turnkey solution.

SteraMist Engineering has also been diligently working with a cutting-edge California-based cell therapy manufacturer on a revolutionary game-changing prototype for an industry that is expected to grow to $11.6 billion by 2030. The order received late last year for the two prototypes is currently set to be completed by the end of June 2023, and we look forward to sharing more details about this project once formally released.

TOMI is making forward progress and fulfilling its promise of the SteraMist Transport as we are currently in the procurement of material. To support the launch, TOMI marketing is actively developing advertising materials. Additionally, the company's independent sales representative is working closely with the customer who started it all, who is now part of a four-state integrated network of physician clinics, outpatient facilities, and hospitals. This customer remains to show interest in purchasing more than 50 SteraMist Transport units and the TOMI representative is maintaining the relationship to ensure a successful sale.

Our team recently showcased the SteraMist brand of products in several industry trade shows, including CETA International, RIA International, the Lab Manager Leadership Summit, at the IC International, and the InterFace Conference. April was a demanding month, meeting with both our existing and potential customers, creating new connections, and strengthening relationships across various industries such as life sciences, environmental testing, chemical manufacturing, and emergency services.

We managed to collect around 550 total contacts from these events, bringing our complete collection from tradeshows to 770 for the first half of this year. Our sales team is working hard to convert these leads while meeting customer budgetary requirements. I would like to express gratitude to our patient investors who have supported us in this long-term investment journey. I want to reassure you that we are making significant progress and achieving important milestones. We have a lot of positive developments in the pipeline, and we firmly believe that they will translate into revenue growth and profitability. I thank you for your continued support.

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

Thank you, EJ, and good afternoon, everyone. I'll provide a brief overview of our financial results for the first quarter 2023 compared to the same prior year period. For the three months ended March 31, 2023 compared to March 31, 2022, our consolidated net revenue was $1,582,000 compared to $2,309,000. Consolidated gross profit was 59.5% compared to 61.4%. The consolidated operating loss was $1,188,000 compared to $660,000. Our consolidated net loss was $1,187,000 or $0.06 per basic and diluted share compared to $659,000 or $0.03 per basic share. Adjusted EBITDA was a loss of $941,000 compared to $280,000. A table reconciling the adjusted EBITDA to the appropriate GAAP financial measure is included with today's press release.

Moving on to the balance sheet. As of March 31, 2023, our cash and cash equivalents were approximately $2.5 million, deferred revenue was $600,000, and working capital was $7.9 million, and our shareholders' equity was $10.5 million.

Now I'd like to turn the call back over to Dr. Halden Shane.

Thank you, Nick. And I want to thank all of you for joining us today and for your unwavering support as investors and followers of our company. We firmly believe that the work we are currently undertaking, and the initiatives reported on this call will deliver favorable financial results for the 2023 year and beyond. Thank you again for your time and your support. Operator, let's open the call for any questions.

(Operator Instructions) Todd Felte, AGES Cap Financial Services.

Thanks for taking my questions. I was first wondering how much in recurring revenue are we getting from the BIT solution either on a monthly or quarterly basis? And what are the margins on that?

The margins are -- I don't know if you want to talk about the margins.

They're very high, Todd. The margins on the reoccurring solutions sales is higher than what you typically see on our financial statements, which goes -- which is around 60% if you translate it. And right now, we're at about 15% of our revenue could be attributed to reoccurring solution sales.

Okay. And I know you've signed a lot of contracts recently, so you see that number going up dramatically or --?

Well, I think what we do is when we see the CES systems put into production and use after validation, they're making large financial commitments to buy them. They're going to be continuing with large financial commitments to use our solution, and that's when we'll see them really go up.

Sure. And as a company, are you willing to kind of reaffirm? I know in the past calls, we had said that the revenue could be lumpy, but really the second half of this year, you're going to see an uptick, and that we thought we would achieve profitability for this year. Are you willing to stay with that forecast that we'll be profitable for the year 2023?

That's what we're working at right now. We feel we will be able -- it is lumpy, as you know, and we can't control that part of it, but the second half of the year looks extremely good for us, and we are hoping that we will be profitable soon.

Okay. Thank you. Again, I appreciate you taking my questions.

Thank you, Todd.

[Alex Stoltry, Green Level Capital].

Hi. Thanks for taking my call. So you've mentioned, I believe in the past, that growth in the Custom Engineered Systems business over time will drive more predictable solution sales compared to other channels. Can you provide some more color as to why this is the case?

Sure. So what it is, is the -- they tried -- they tend to buy upfront the equipment that they need and then they use solutions more consistently. So that's basically the color. Anybody or any company that's investing this type of money upfront for our equipment is definitely going to be using it as soon as it's validated, and they have their protocols written going forward for a long period of time. So the shift we're seeing is -- over the long term, is that it's a good thing for our current model, which is this razor, razor blade model.

Got it. Thank you. Yeah, that's it for me. Thanks for taking the questions.

Thanks, Alex. Thank you, Alex.

[John Nielsen], investor.

Hi. That's Nelson. I have several questions. The first one was related to a Twitter account was pushing chlorine dioxide from a Swedish company called Life Clean and posturing itself as a competitor to TOMI. They call their product the Universal Bioside. Are you familiar with it? And I've done some extensive reading on it, and I don't think there's any comparison, but if you would like to compare it to SteraMist, please go ahead.

Thanks, John. You know, there really is no comparison. I mean, we're like a perfect 10 out of 10 on everything, including efficacy and speed and lack of corrosiveness and no residue and being eco-friendly in relationship to having just oxygen and humidity or water in the site like humidity as byproducts. According to that, they've been around forever.

It's just a lot of these companies now with these chemicals, there's I mean, 450 somewhat EPA-registered products. A lot of them are finding themselves in trouble because of the fact that they're -- that the environment is starting to speak up and say that we want a product that's not going to be damaging to the environment, not damaging to our equipment, not damaging to labs, et cetera.

So I mean, again, Twitter is Twitter. With line or without, but I still don't believe anything I read unless I threw a lot of research independently. So and I think you're hearing solution absolutely correct.

Sure. Okay. Thank you. And any update on a field study?

Not really. They're -- it's in the hands of the authors and they -- I think what I say always is the results are phenomenal. When I say that, they push it down the pipe to be finished up. I'm trying not to comment on it, but I'm going to meet with them in July and go over something so hopefully I'll have, by the next quarter, I have something to say.

Okay, thank you. Also, I think -- you were working with Vertical and had mentioned in the past a large seed company, which was -- which could be a potential user. Any progress on that?

Yes. We're having good progress on all our food safety people. In fact, the users and a whole bunch of new people that are doing testing, and they've had some real positive results from on pension of viruses and bacteria in general seeds. And as I said on the call, or EJ said on the call, there's some great work on the seeds cannabis. So I think this is a market that we're after and they can recognize how easy, quick, and effective our technology is, especially in a market where we always need safe and quick food safety verification. So we are working towards that.

Okay. Thanks. And also your staff approach to any of the semiconductor companies that will be either with existing plants here in the US or plans to build new operations on the use of -- potential use of SteraMist in clean rooms or the general plan itself. (multiple speakers)

We've done some research on it. There aren't really that many in the United States and with -- there are some that are going to be starting in the next year or two. We are looking for an employee that specifically specializes in that industry. As you know, it's not that big of an industry in this country, but we're hoping that soon it will be and we're doing our best. We've got a tremendous amount of pipeline opportunities, kind of multiple of verticals within the company, and that's one of them that we plan on time approaching heavily very quickly.

Okay. And then what -- can you go into a little bit more detail on the revenue recognition item? What was the -- any particular (multiple speakers)

You know, it's hard. I mean -- you know, in the way that the SEC, I guess, accounting recognizes revenue is that it has to shift and be out of your hands before the quarter closes. And we do our best. And sometimes the customer says, no, I want to wait a couple of weeks, or I need to wait another month. That's what occurs.

That's why I tried to call it earlier from Todd, about the second half of the year is always our strongest and probably it's going to be the same this year. And we see this company growing year over year. And the amount of employees we have, the percentage of what each of them bring in revenue wise is extremely high, because it's not that big of a company yet, but it's growing fast.

Okay, good. And then is -- are you comfortable with your current cash position?

Well, we're comfortable with it. I mean, going out 15 months.

Okay

But we're dependent on getting deposits for the CES system, which should report more cash in the company going forward.

Excellent. And this is just my noodling, but the baby formula industry, of course, had a significant national problem over the last year. Have you explored any potential use of SteraMist in the baby formula facilities in the US?

When I was going into food safety and into the fact that it's contaminated or potential contamination risks in relationship to the manufacturing of it or equipment use. So I don't know offhand if any of them have reached out to us. But from my knowledge, they cleaned up most of that act up very recently.

Okay. Very good. Well, I look forward to continued progress.

I do, too, and I thank you for your support as always.

Thank you.

Sameer Joshi, H.C. Wainwright.

Thanks. Hey, Doc. Thanks for taking my questions.

Sure. How are you?

Hey. Good, good. I'm having some technical difficulties. And so maybe some of the questions may be repetitions of whatever has been already asked, but one of the curious questions I had was the PennCare relationship that you have established, what kind of revenue potential should we expect from that particular relationship?

I think it's really too early to tell in the relationship.

Okay. Okay. It's -- so --

So we brought them on, and I mean, all of these new both rep manufacturing reps and the partnership agreements are so new that a couple of them have bought already significant -- I did a press release on one and they're all looking very favorable, but to predict, just trying to predict what we're doing.

Understood. Got it. Fair. And then a clarification on the revenue that would have been recognized back in the $1.54 million that was not -- because of timing issue, not recognized in the first quarter. Would it have been completely recognized or is it part of -- a part of it would have been recognized in 1Q?

Probably some of it would have been now that we know when they want it. We didn't push that. It's hard to push these clients to take product because we want to show revenue. So we're basically at their mercy to accept it. They want it. We could have produced it. But a lot of that will come in the second quarter and going forward.

Understood. So if we say that your -- the potential for what you would have been say potentially the revenue could have been nearly $3 million. And then if we assume that, should we -- or do you have visibility over the next two, three quarters that revenues will be sequentially higher from that number? Or how should we think about the cadence of revenues over the next few years -- I mean, quarters? (multiple speakers)

We spoke about it in our last call, and we're still prepared to beat that number -- at least beat that number at the end of this year.

Okay. Got it. Thanks for taking my questions. I will take my other questions offline.

Thank you so much. Thanks, Sameer.

At this time, it appears there are no further questions. I'd like to turn the call back over to Dr. Halden Shane for any closing remarks.

So once again, I just wanted to thank everybody for spending part of their afternoon or where they're at, early morning, but thank you for following the company, and we'll be talking at the end of the next quarter at the next earning call. So have a great day or evening. Operator, the call is over.

This concludes today's TOMI Environmental Solutions investor update. Thank you, everyone, for attending.