TOMI Environmental Solutions Inc (TOMZ) 2021 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the TOMI Environmental Solutions, Inc. first-quarter 2021 financial results conference call. (Operator Instructions)

It is now my pleasure to turn the floor over to your hosts, Dr. Halden Shane and Nick Jennings, after a brief introduction from John Nesbett.

John, please go ahead.

Good afternoon and thank you for joining us today for the TOMI Environmental Solutions' investor update conference call. On today's call is TOMI's CEO 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 discuss critical financial benchmarks for the most recent quarter before addressing any questions you may have.

The telephone replay of today's call will be available through May 24, 2021, the details of which are included in the company's press release of May 17, 2021. A webcast replay will also be available at TOMI's website, www.tomimist.com.

Remind you that during this conference call, we will make certain forward-looking statements, including discussions of the business outlook and financial projections. These forward-looking statements are based on management's current expectations and involve risks and uncertainties that could cause actual results to differ materially from such expectations. For a more detailed description of these risks and uncertainties refer to our recent and subsequent filings with the SEC. We assume no obligation to update the information provided in today's call.

I will now give the call to TOMI's CEO and Chairman of the Board, Dr. Halden Shane. Go ahead.

Thank you, and welcome, everyone, for joining TOMI Environmental Solutions' first-quarter 2021 earning call. For those new institutional and private investors to TOMI, our technology was invented under a defense grant in association with DARPA, the US Defense Advanced Research Projects Agency. That is the division of the Department of Defense that is responsible for emerging technologies.

BIT is registered with the United States Environmental Protection Agency, and uses a low percentage hydrogen peroxide, as its only active ingredient to produce a fog composed mostly of hydroxyl radicals, known as ionized Hydrogen Peroxide or iHP.

Represented by the SteraMist brand of products, iHP produces a germ-killing aerosol that works like a visual non-caustic gas. SteraMist disinfection has been used to fight multiple pandemics and weaponized chemical threats, including anthrax, Ebola, MERS, COVID, and latest pandemic coronavirus, SARS-CoV-2.

As we update you today, I think we can all agree that it is reassuring to see the progress being made on this pandemic from both a public health and economic standpoint now that many therapies and vaccines are widely available. As a company that focuses on safety, we are very glad to see things improving.

With that being said, our first-quarter 2021 performance had a steep comparison to last year's first quarter. When the pandemic was just beginning and TOMI benefited from tremendous increased demand in the marketplace for disinfection, decontamination solutions, the 2020 pandemic unquestionably brought disinfection worldwide to the forefront and drove a significant sales increase for TOMI. Because one, our disinfectant is an EPA-registered mechanical disinfectant and on the EPA list, and for SARS-CoV-2 with a five-second spray and an amazing consistent 6-log kill; and two, customers were looking for products that would aid in their ability to keep their businesses open.

However, as the quarantine and shutdown gained traction and more and more businesses implemented remote work, we saw a slowdown in demand for our product from these new customers. In addition, many of our existing life science customers also implemented remote work early during the pandemic, which has continued into 2021.

Due to the changing work environment, particularly when office and workspaces no longer require disinfection as people are working from home, many customers paused the majority of their capital expenditures related to decontamination and safety solutions TOMI provides.

For example, the pharmaceutical industry had to scale down their production to meet COVID guidelines. In terms of capital purchases, this is the group of customers that prefer our Environment System and our Custom Engineered Systems, our higher-priced product line, while the economy has begun to reopen, we expect workers will be returning to office which should increase expenditures for disinfection products.

Despite the challenging environment during the first quarter, we made considerable progress advancing key building blocks for our long-term growth, including expanding our internal sales force and continuing development of the three exciting new products, which I will provide more detail on in a minute.

First, let me turn the call over to Nick Jennings, our CFO, who will quickly run through the numbers.

Good afternoon, and thanks for joining us. I'll be providing a brief overview of our financial results for the first-quarter 2021 compared to the prior year period.

Total net revenue was $2.1 million, compared to $7.1 million, a decrease of 70%. Gross margin was 59.6%, compared to 63.6%. The lower gross margin is attributable to product mix.

Operating loss was $1.5 million, compared to operating income of $2.7 million. Net loss was $1.5 million or $0.09 per basic and diluted share, compared to net income of $2.6 million or $0.17 per basic share.

EBITDA was a loss of $1.4 million compared to EBITDA of $2.8 million. Adjusted EBITDA was a loss of $1.4 million compared to adjusted EBITDA of $3 million.

Looking at a few key balance sheet items. Cash and cash equivalents were approximately $3.9 million at March 31, 2021, compared to $5.2 million at December 31, 2020, a decrease of $1.3 million. Working capital was $10.1 million at March 31, 2021.

Shareholder equity of $11.9 million at March 31, 2021, compared to $13.2 million at December 31, 2020, a decrease of $1.3 million.

Now, I'll turn it back over to Dr. Shane.

Thanks, Nick.

I would now like to take a minute to discuss our new product initiatives. First, we are particularly excited about the upcoming launch of our SteraPack product, a much anticipated offering, which further differentiates our 6-log kill solutions in the marketplace and better positions us to continue our mission to make the world a safer place.

SteraPack is an AC/DC backpack unit with the same proprietary BIT technology available in our surface unit. We've developed the SteraPack to compete in the marketplace against electrostatic sprayers, which became very popular during the 2020 for service cleaning providers and the commercial industry.

We started accepting preorders and have seen high interest across all markets to this lighter, more mobile distribution method. Don't have a specific release date yet, as we continue to refine the development to bring to the market a sleek, easy-to-use backpack, that is in alignment with our TOMI Stera brands that our customers expect. Assuming the supply chain cooperates, I expect that we'll be selling the product, delivering it, and commencing in Q3.

We are also excited about the prospects for our robotic application, the SteraBot, which remains in testing in international hospitals and commercial sites.

Finally, we are seeing a great deal of interest for the SteraBox, primarily from our life science and hospital healthcare customers. The SteraBox is purchased only with our SteraMist Select Unit, or SteraMist Environment System, and a 90-degree stainless steel applicator. We are actively quoting on this product and awaiting approval from our customers.

With our existing products and the addition of these new offerings, our focus in 2021 is on working with our customers to be their safety resource as they return to work.

Our core customer in life sciences, commercial, and healthcare, are gradually returning to work. And we expect to see increased demand for our products and services in the latter half of 2021.

SteraMist is a broad-spectrum disinfectant solution that can be used in response to and for the remediation of mold spores and common healthcare outbreaks, such as C. diff and C. auris to the everyday disinfection of germs in your home or office space, as well as mitigating cross-contamination of the most hazardous of pathogens around the world.

So our product has broad appeal in a variety of settings, and we remain focused on growing our brand recognition as the gold standard in disinfection and decontamination.

To that end, the company is building its sales team. We have hired sales vice presidents to our divisions and plan to increase our inside sales team to assist these VPs. We have added six independent manufacturing representatives, bringing the total to 40 representatives across all our divisions.

We remain confident disinfection protocols have changed forever due to this pandemic. And the need for a speedy comprehensive mechanical disinfectant and decontaminate will be part of a new norm of cleaning.

We expect our sales team to bring our solutions to the forefront of existing and new customers. I think it's important to point out that the life sciences and our iHP Corporate Service requires a longer sales cycle, and our team is focused on long-term sales strategies. These projects are time-consuming in validation and implementation and are product into their current older outdated processes.

We are reengaging with these customers on projects that we had been working on for up to two years prior to their suspension due to remote work.

Our sales process has also been impacted during the remote work, as trade shows were canceled and our sales team have not been able to provide product demonstrations, the key component of an effective sales pitch.

Due to the nature of our technology, industry knowledge, and the amount of time required for onboarding new sales teams, including new independent manufacturing reps or IMRs, it takes time to build the pipeline and to become fully operational in the sales role. We expect a more positive impact from these efforts on our financial results by the second half of 2021.

Now, let me give you a brief overview of some highlights from each division.

Healthcare in the first quarter of 2021, we experienced an increase in sales to health system clients, including the expansion to our third Mercy Hospital in Ohio with the fourth Mercy facility seeking to implement SteraMist soon. We received multiple purchase orders from Zimmer, a medical device company. Further, we are working on long-term projects for this industry, specifically to the implementation of permanent installations and ambulances.

Life sciences. Long-term ongoing projects and validations have resumed for the life sciences, along with proposal and interest from our CES permanent decontamination room. We continue to work with our customers to respond to their inquiries regarding CES, ranging from $300,000 to $2 million per installation. These are longer lead time sales that can take months to close with additional time to design, build, validate, and implement. We expect these installations to have a positive impact to our results in late 2021, and into 2022, and even 2023. Additionally, the pandemic has highlighted the SteraMist products line.

Our CES in Pfizer, Missouri, was recently showcased in a New York Times article, as they featured their COVID vaccine process.

iHP Corporate Services. Our iHP Corporate Service team treated one of the four fill lines in the North Carolina pharmaceutical company that manufactures one of the COVID vaccines with the remaining three lines set to decontaminated in the future with SteraMist. This company has used our services for the past two years for their older buildings.

The TOMI team is working towards an iHP service contract with our long-term client, Pfizer Hospira, North Carolina decontamination services. Our iHP clients have resumed their decontamination services and are scheduled for the service in the next two months.

TSN. We saw a tremendous growth in our TSN division in the first half of 2020 in direct response to the COVID pandemic, which prompted an increased demand for SteraMist disinfection by servicing companies who try to remain in operations.

We now have 199 companies in our TSN division. As we look to 2021, we expect the TSN division to continue to be a growth division and expect to onboard at least six new TSN member companies per month. Further, with our SteraPack release being the driving force to add even more members per quarter and increase the new member domestic onboarding, along with addition of many new international members that will need onboarding.

During the first quarter of 2021, we expanded our channel for TSN by adding our first independent manufacturing rep to drive new members to the network. This rep has worked with two of our current TSN members and has extensive knowledge of the industry.

Food safety. Our food safety network customers, including grocery stores, restaurants, and fast food chains who continue disinfecting regularly and TOMI corporate, continues to cultivate new partnerships with large food safety suppliers.

Food safety remains an opportunity for substantial growth with continued product research and compliance testing. The industry in North America is facing closest scrutiny with the implementation and enforcement of new and established guidelines. And our consultants have submitted a request to expand our current label to include a 1% acceptable concentration of hydrogen peroxide.

This concentration has previously been approved by the USDA and FDA for direct food and crop application and will allow SteraMist to expand use sites beyond food processing machinery, restaurants, and food contact areas to assist in compliance with the newly established Food Safety Modernization Act guidelines set in place by the FDA, as well as the Safe Food for Canadian Act and Safe Food for Canadian Regulations in Canada.

Commercial. Our commercial division continues to expand its markets. For example, we are seeing increased interest from the aviation industry for implementing SteraMist. Change in the aviation industry is a long process as many of its regulations have been standardized for years. However, per our release last week, our partner, AV8R, is successfully striving to penetrate this market with the support of the TOMI team. This is only one vertical of many that TOMI is working on to penetrate in this division.

As we have always and often pointed out, TOMI is a long-term growth opportunity and investment. Our goals go beyond the COVID-19 pandemic, and we have long been focused on elevating TOMI's SteraMist to become the gold standard of decontamination market even before the onset of the pandemic. While 2020 changed the landscape to favorably impact our performance, we are unwavering in our pursuit of our long-term objectives to revolutionize the disinfection industry.

As our core customers in life science, commercial, and healthcare are slowly reopening, we expect to see increased demand for our product and services in the latter half of 2021. In addition, we believe our new product introductions, including SteraPack, will significantly impact net sales, cost of sales, and operating expenses.

We believe SteraMist is the best technology in the world in the disinfection and decontamination space. This pandemic has provided us with the confidence to develop a clear strategy to manufacture what may be our best product portfolio to date.

In addition, we continue to move our BIT technology closer to becoming the standard in disinfection and decontamination globally. This should lead to a greater market share and increased profitability. We continue to endeavor to protect our proprietary SteraMist technology and related intellectual property rights. And we now hold a total of 32 patents.

We continue to submit utility patent applications in multiple countries, which are all in national review stage for review. We have 178 trademarks worldwide across seven classes of specification of goods and services.

The full extent of the future impact of the COVID-19 pandemic on the company's operation and financial performance is currently uncertain and will depend on many factors outside the company's control. But for those that know the SteraMist product, our product was meant for much more. And we have created and built the company with the team that believes in what our brand of products is capable of for the world.

We remain confident in our SteraMist technology and products. We continue to drive forward to launch new products, and we believe there is tremendous potential for the growth of our company as we continue to strategically develop products and solutions to make the world a safer place.

Operator, let's open the call to questions.

(Operator Instructions) Walter Bellinger, [Loan Town Capital].

Hey, thanks, guys, for taking my questions. So during the peak of the pandemic, there was obviously a large amount of solution sales. How should we think about the timing of customers restocking this inventory of SteraMist?

Thanks for the question, Walter. It's correct. We had a lot of SteraMist solution sales, specifically in the first half. Much of it was pandemic -- pandemonium. They were buying lots of solution. In fact, they were hoarding solution, I think, because they were afraid that, either we would run out or be able not to produce enough of it.

And we're starting to see that the hoarding from all of our users that were doing this is running out. And they're starting to put in orders, new orders, for solution going forward, which is a positive sign for us because that's basically what our model is based on, solution usage. And we're happy to see these people that were ordering large amounts during the pandemic that are now continuing to order on a more realistic amount.

Okay. And so, how should we think about the competitive positioning of the SteraPack product? What's unique about the product that gives you confidence that it will help drive sales?

Great question. So this product is a concept to take our amazing technology, our 6-log ability, and put it into a backpack that can either be plugged in or be battery operated depending upon the location of use. And the competitors have been using electrostatic-type sprayers, fairly inexpensive sprayers, that have been -- many of them, in fact, 417,000 of them, have been recalled by the Consumer Safety Board because of various explosions and fires.

So we feel our pricing will bring us down to the competitive pricing of these electrostatic sprayers in the backpack version, and will be extremely -- be a great position for us to be in as a company, because we'll be able to open up and help drive sales into areas that we've not been able to get into in the past, which has been cleaning companies, the professional restoration companies, and some cleaning companies that are larger we're in right now.

But because of the entry price of our current products, the Surface Unit, the Environment Unit, we believe that the SteraPack will allow them to buy more and to have more types of companies from ISSA or cleaning companies enter into the marketplace. And this will help drive our sales, and again, go back to our solution usage for using our BIT Solution.

Okay. Thank you. And then kind of same sales being, what percentage of your sales are international? And how should we think about the international opportunity going forward for TOMI?

So percentagewise, we have a lot of international interest we've always had out there. We're registered in probably north of 30 countries around the world. Again, the problem has been, recently, we've noticed a decrease in international sales.

I think it's because, number one, is many of the people in international markets that use our product have been shut down and have been sequestered to their homes. And businesses like the United States have not been functional in that way; number two, we feel that the entry price has been a problem internationally and that's another reason, another great reason, for the production of our SteraPack, which we feel, internationally, this will be a forerunner of driving sales except for those professional biotech, biosafety pharmaceutical companies that are going to always use our main product, or the Surface Environment Unit and built-in systems. That's number two.

We'll also soon be able to start traveling. A big part of the loss of international revenue is the inability to travel internationally. And now that things are opening up in some parts of the world, not in all of them unfortunately, but in some parts of the world, we're beginning to have interest of going out and doing demos and doing bids on our complete engineered system.

So I think you can count on seeing greater international revenue going forward, as this country is opening and as the rest of the world starts to open, and with the release of our new product line.

Okay. Awesome. Okay, yeah. Well, thank you so much. That's it for me, and good luck moving forward.

Thank you so much. Thanks for your interest on the company and for your questions.

Todd Felte, Advisory Group.

Thanks, doc, for taking my questions. Just was revisiting the last conference call, and you had said that, quote, we were targeting 40% to 45% growth in 2021 as compared to 2020. I know the revenue is going to be kind of heavy on the back end. I was just wanting to know of you could provide a little color on that guidance and if you're still standing by that. Thank you.

Thank you. So yes, I think our revenue will grow greater than it grew in 2020. Again, this was not -- this was a disappointing quarter for me. I understand the reasons why. As to many shareholders, I'm probably more upset because I own more shares than anyone out there.

But I think that our revenue is going to be back ended, like I've been saying, the reason's because our sales force, the reason's because we have new products that are being introduced, reason's because solution usage is starting to pick up as people start to go to work and return to the verticals that made this company successful for years, which wasn't handling the pandemic but was life sciences, hospital healthcare, service industry, commercial now, and our TSN.

So we don't give guidance on a quarter over quarter. I think, sequentially, our second quarter is going to be better than our first quarter. I think that the $35 million range is extremely doable.

We need a lot of components to come into play. One, being our international sales needs to pick up. We need to get our product out throughout the world, both in Asia, Southeast Asia, and Europe, and the areas that we currently have in South and Central America. So without -- I'll reserve comment until the end of next quarter's call. But I think that the future is going to be tremendous. And I think I plan on beating next year's revenue numbers, and I plan on doing that significantly.

Thanks. That's great to hear that the $35 million range is still doable. So I appreciate you adding the color there. Just also wanted to see if you're fine. I see you have $7 million in cash. Are there any plans out for any equity raises or future dilution? Or do you feel like the current cash position will satisfy the company needs?

At the moment, I think we're good. As you know, we have a offering out there for $50 million that we're not going to go ahead with at the prices that the stock is currently at. So the answer to that question, the short answer is, no, we're not looking currently at any capital at the existing share price.

That's great to hear. I'll get back on the queue and look forward to witnessing the success of the company. Thank you.

Thank you. Thanks for following it. Thank you so much.

That now ends our Q&A, and I would like to now turn the call back to management for any closing remarks.

Thank you for your support and for joining us today. This pandemic has truly changed how people think about proactive decontamination. And we are optimistic about our ability to capitalize on that new thinking, as we continue to execute our long-term plan to become the standard in decontamination worldwide.

The world will inevitably face another pandemic. And the cost of preparedness will be dwarfed by the price of disaster. We believe these factors will drive sustained higher margin sales as levels above pre-pandemic levels, and we look forward to speaking with all of you in the next quarter. Stay well and thank you.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.