TOMI Environmental Solutions, Inc. (NASDAQ:TOMZ) Q1 2023 Earnings Call Transcript May 15, 2023

TOMI Environmental Solutions, Inc. misses on earnings expectations. Reported EPS is $-0.06 EPS, expectations were $-0.02.

Operator: Good day, ladies and gentlemen. Welcome to the TOMI Environmental Solutions First Quarter 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be provided at that time. I would now like to turn the call over to your host, John Nesbett with IMS Investor Relations. Mr. Nesbett, you may begin.

John Nesbett: 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 Chief Executive Officer and Chairman of the Board, Dr. Halden Shane; TOMI’s Chief Operating Officer, E.J. Shane; and TOMI’s Chief Financial Officer, Nick Jennings. Dr. Shane will provide an overview of recent business highlights, E.J. 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 that information contained within this presentation is relevant only to the day of which it was recorded, May 15, 2023. And we’re, 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 any 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.

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 could 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.

Dr. Halden Shane: Thank you, John. Hello. Welcome to Tony 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 $1,547,000. We anticipate improve 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 sale pipeline particularly for our CES products, we 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 is 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’s solution utilizing ionized hydrogen peroxide has been identified as a viable alternative that leaves no residue and has decontamination efficacy upwards of 99.9999% compared to ethylene oxides SteraMist products are non-toxic, non-corrosive, do not cause temperature damage to medical equipment or devices. SteraMist Superior Solution offers a perfect alternative giving it is faster, more environmentally sustainable, and has no carcinogenic 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 solution sales are growing and with our strong pipelines of CNS sales solution 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 networks 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 System. JANZ, a U.S.-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 state market 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 System, a highly reputable manufacturer and distributor will service 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 to 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 are 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 these said opportunities is Orna Therapeutics, a leading biotechnology company located in Massachusetts, who we recently delivered a one applicator, custom engineered system too, 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’ve received final acceptance after executing an extensive material study in Germany to prove the efficacy of SteraMist against all germs of all categories spores, gram-positive bacteria, gram-negative bacteria of fungi, founds directly on specific material in clean rooms laboratory. Thus adhering to the industry’s strict regulations and guidelines, all runs showed a significant log reduction and was a pass. The German biotechnology is a substantial opportunity for TOMI in the future and we will keep you appraised. In the United States, we are working with the government and TOMI service network members to prove and demonstrate SteraMist’s efficacy against ricin and fentanyl, 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 they’re trusted, decontamination solution with confidence. The cannabis opportunities continue to positively evolve for us. Vertical Crop Consultants, a Food Safety Independent Sales Representative partner to 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 savings 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 to 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. 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 and share your thoughts with us.

At this point, I’d like to hand the call over to TOMI’s COO, Elisa Shane, who will provide you with an overview of the Company’s upcoming plans and objectives for the rest of the year. Thank you. E.J.?

E.J. Shane: 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 development 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, the Universal Disinfection, has done an excellent job of 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 as suppliers for decontamination services among leading pharmaceutical companies in Europe. One of the leading companies in clean room technologies in the dock region is planning to use SteraMist and 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 patients 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 on-boarded are excellent additions to our sales team and are expected to generate positive returns. We are confident that these will create further opportunities for business development and should 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 the Universal Disinfection has done in Germany. We are in negotiations with many other companies worldwide and hope to shortly announce additional distribution partnerships including the 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 in this 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 in 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 iHPB contamination services and selling capital equipment to Pfizer facilities for many years, and they are just the first of many the grants US Global acceptance. In June, we will be implementing and qualifying mobile environment 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 iHPB comp Services and 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 patients 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 [Amergis] iHP service for approximately $150,000 in Baltimore, Maryland. This win would be a nice addition to other [Amergis] users of iHP in Catalent Massachusetts and Rockville, Maryland. [Amergis] has six other manufacturing and product development sites worldwide. These are just a few examples of how we are slowly working towards gaining headquarter of iHP SteraMist.

The timing for custom engineered systems, iHP corporate services and even the purchase of our mobile system products is subject to change due to customer timelines, but we have 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, independent on end user’s production facility, resulting in varying revenues of these solutions 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, seeding and selling lines. We continue to work closely with highly respected indoor farming solutions company and their qualification procedures.

Once final approval is received, we will announce this company who is committed to expanding the use SteraMist through all future facilities. This indoor farming company has broken ground on new buildings and has budgeted for SteraMist expansion. This is a significant opportunity for TOMI to showcase the versatility and effect business of iHP in the food safety industry and the potential growth this partnership can bring. Ongoing discussions for custom engineered systems, installed 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 combining with 2021 and 2022 year. This positive trend highly motivating and we remain optimistic about our fully automated projects.

During our previous call, I shared our vision of streamlined solution for decontamination chambers, cabinets, cage washers and module clean rooms. We have identified seven key partners that will help us in achieving 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 to launch, TOMI Marketing is actively developing and advertising materials. Additionally, the Company’s independent sales representative is working closely with the customer who started at 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 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, FDIC International, and the INTERPHEX Conference.

April was the 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 in our complete collection from trade shows 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 in 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.

Nick Jennings: Thank you, E.J., 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 with $600,000 and working capital was $7.9 million, and our shareholder’s equity was $10.5 million. Now, I’d like to turn the call back over to Dr. Halden Shane.

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 report 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.

Q&A Session

Operator: Thank you. At this time, we will conduct the question-and-answer session. [Operator Instructions] Your first question comes from Todd Felte of AGES Financial Services. Todd, your line is open.

Operator: Your next question comes from [Alex Stultree] of Green Level Capital. Alex, your line is open.

Operator: Your next question comes from Investor, John Nielsen. Mr. Nielsen, your line is open.

Operator: Your next question comes from Sameer Joshi of H.C. Wainwright. Sameer, your line is open.

Operator: 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.

Dr. Halden Shane: Well, once again, I just want to thank everybody for spending part of their afternoon or on where they’re at early morning. But thank you for following the Company, and I will be talking the end of the next quarter, next earnings call, so have a great day or evening too. Operator call’s over.

Operator: This concludes today’s TOMI Environmental Solutions Investor Update. Thank you everyone for attending.