Good day, everyone, and welcome to today's TOMI Environmental Solutions, Inc. Third Quarter 2022 Financial Results Conference Call. [Operator Instructions] It is now my pleasure to turn the conference over to John Nesbett of IMS Investor Relations. Please go ahead.

Good afternoon. Thank you for joining us today for the TOMI Environmental Solutions 3Q Earnings Call. On today's call are TOMI's Chief Executive Officer and Chairman of the Board, Dr. Halden Shane; and Nick Jennings, TOMI's Chief Financial Officer. I'll 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 our actual results to differ materially from such expectations. For a more detailed description of these risks and uncertainties, please refer to our recent and subsequent filings with the Securities and Exchange Commission. We assume no obligation to update the information provided in today's call. In addition, in this conference call, we will discuss certain non-GAAP financial measures. We use non-GAAP measures because we believe they provide useful information about our operating performance that should be considered by investors in conjunction with the GAAP measures that we provide. A reconciliation of these non-GAAP measures to comparable GAAP measures is included in our earnings release. I will now give the call over to TOMI's Chief Executive Officer and Chairman of the Board, Dr. Halden Shane. Go ahead.

Thank you, John. Good afternoon, everyone, and thank you for joining the TOMI Environmental earnings call. Today, we'll provide operating and financial results for the third quarter of 2022, along with a favorable update on a few key current focuses for the company. The last time we met, I reiterated how TOMI's patented iHP SteraMist technology is the only perfect 10 out of 10 in the disinfection, decontamination manufacturing world. Our process not only meets standards in the industry, but surpasses customer expectations by providing all the necessary competitive advantages. With the current market trends to the application of our original, current and upcoming product lines, we believe our production and pipeline has revenue poised to end the fourth quarter profitable along with meeting our expectations for the year. This year, TOMI has seen an increase in our customer sales backlog or rather pending sales orders where revenue has not yet been recognized, but purchase orders or contract bids have been received or won. We believe analyzing and reporting this metric is worthwhile when measuring our overall sales and business development performance as it gauges the overall volume of sales and business development activities. This is largely attributable to the increased demand for our Custom Engineered System, CES, as well as routine and new iHP Service engagements. Our iHP Service revenue for the current year has already surpassed all of 2021. A key driver to our longer-term growth is strengthening demand for our CES by referrals to the product line, hosting churns of current installed systems, continuing brand awareness via our domestic independent manufacturing sales representatives and growing the network of international partners. Avid Bioservices is a good new example of our current CES in the design phase and set for implementation in Avid's new purpose-built viral vector development and…

[Operator Instructions] We'll move first to Sameer Joshi with H.C. Wainwright.

Congratulations on the progress and the building order book and also all the other progress that you outlined. On the revenues front, can you elaborate a little bit on the customer imposes extended delivery time lines? Is it because they are delaying their projects? Or are there other budgetary constraints on their end? And what is the reason for this?

No. I mean these customers don't have budgetary restraints, really. The problem is a lot of the orders we're getting, we're able to build systems, but their facilities are not completed or they're having engineering delays due to materials of their own.

Okay. Understood. Understood. So these orders will be -- are you expecting deliveries in the fourth quarter? Or are they pushed into 2023?

It's a fine balance. We're expecting a number of them in the fourth quarter and more of them into 2023. And as we complete them, we're now even taking orders into 2024.

Okay. Okay. I think in September, we saw some residential executive order allocating roughly $200 million for DoD for biosecurity. Have you seen that? And is there any benefit that you may get from that?

We're not sure yet. It's a long process. Again, we're increasing our sales department, and we're signing those types of projects to them to go out and look into. We have not seen anything as of this date that I could tell you about.

Okay. And then on the cannabis and CEA front, what is the potential that you are looking at, not in terms of the market sizes, but your addressable market, which you can get in, say, 2023 and 2024 from these kind of customers?

Again, I think the market, as we know, is huge. The fact that it's working, we're getting calls all the time. This study was really good, and I just have to go back and ask the guy how he knows it didn't affect the level of it. But it will. In the U.S., I don't know about internationally.

Yes. It's a big market, even within a few states in the United States, that is true.

Yes, yes, that's true.

Just a question on expenses. You said you're increasing the headcount, you're hiring directors, sales directors. How should we see your operating expenses grow over the next few quarters? You've been pretty steady last 2 quarters. So just wanted to see how it goes from here.

I think you'll see an increase in proportion to our sales revenue. I don't think we're overly increasing. Some of them were replacements. Some of them are new engineers, as I said on the call. And some of them are increasing our sales. But as we increase our sales, we're increasing our revenue. And the operation expenses should increase. But on a percentage basis, pretty much stay the same or increase a little.

Understood. And just one last one clarification on the core generation equipment. Is it priced similar to your existing equipment? Or do you -- is it at a premium price range?

Well, like everyone else in the world, we've raised our prices on all our equipment. And the fourth generation will be a moderate increase over what our previous environmental systems and third generations were.

And we'll move next to [John Nelson], who's a private investor.

Halden, congrats on the quarter, and the future sounds bright. A few questions for you. The -- you mentioned earlier in the call about having the ability or increasing your ability to take on larger CES projects. And I was wondering what kind of larger projects are -- do you envision going after.

Anything from complete floors to complete buildings.

That will be something.

John, when the initial DARPA study came out, going back when the technology was developed, it was an immune building that it was developed for. So we just have escalated the ability to have consistent kill throughout a room, throughout a floor, throughout multiple rooms and even a building. So we'll be going back to that immune building concept for those people that are in the defense industry and obviously the high security profile clients that may be interested in that.

Excellent. I was wondering when you were talking about immune building concept, complete floors buildings, have you -- are your salespeople going after or consider going after the semiconductor industry because of its need for clean rooms and very serious levels of sterilization?

Absolutely. In fact, we've done some of that work in the service end, and that's an ideal facility to use our technology.

Okay. Very good. And I think your listeners will probably be interested in a -- just a brief update on the progression of the SHIELD study.

Yes. Okay. Again, it's completed. The results are phenomenal. The paper is somewhere being edited. And I'm just not pushing it with the authors as they're in the public health sector, and it seems like they always have a potential pandemic or a viral outbreak to deal with. And I don't want to step on their toes, but we're going to start coming out with some marketing material about the effectiveness of it. And I think the public will be interested.

Definitely. And let's see, the EMS progress? Anything -- a new report on that?

We have that transportation unit that next year, we have a customer that has a multiple need for it in their ambulances and it's still on budget. And time-wise, we're able -- we will be able to deliver.

Okay. Very good. And anything else to report on the -- I think it was -- if I recall correctly, it was a percentage of the solution for the food industry that you are waiting for the FDA for approval on like the 1%.

Correct. So we have the 0.35% that was approved by the EPA, and we're still progressing with the 1%. At the moment, we're using the lower percentage and getting good results, and the 1% will be ideal. Probably next year, we'll have more information on that along with some other additions to our EPA label that we're actively pursuing.

Okay. And I think that is it. The -- I guess one more. When you look on Amazon for -- I mean this is just for regards to the backpacks. You see the -- your competitors have much cheaper units versus yours. And the -- using the razor blade concept, is it worth considering a price cut on the backpacks? Or is it -- is the demand such that -- and the functions of your backpacks being so much superior that it's not worth considering.

Yes. I mean I can understand that. If there's 2 levels of disinfection and we have this high level, which is consistent sick flog and we're not caustic, we don't damage materials, the lower-end people that are -- I haven't looked at the Amazon site for a while. But the lower-end people that are out there all have less expensive solutions, but they're damaging. So you continue to use them, and we have some great case studies of major well-known facilities that use some of that product and came to us, and we're willing to pay what we charge because they were destroying materials for their clients. So it's a matter of just getting this around the world and going ahead and making these marketing claims and people reading them. A lot of people do call up and they say it's very expensive compared to X, and we go over the reasons why. If you want to get that 10 out of 10, a perfect disinfectant, decontamination solution, you got to use our product. And we would rather have the client that understands that versus the client that thinks they can maybe throw any solution in there and destroy our piece of equipment. So it's going to be working out fine for us, I think, John.

Okay. And then just lastly, I think in the past, you've done some work with one of the ServPro or ServPro distributors. Is -- are you able to make any comments about any further penetration of ServPro for your units, the backpacks?

Not at the moment in relation to that company, but I did mention on the call other large -- another large one and other ones that we're working with. So I'll have to check in and get back to everybody about that specifics.

Okay. Well, it sounds -- the future sounds exciting. Thank you for your efforts. Thank your team for your efforts, and I look forward to the progress.

Thank you, John. Thank you for your support.

And we'll take our next question from Adam Brent with [indiscernible] Partners.

Just wanted a bit more color as to what percentage of your sales are the higher-margin solutions sales. And how should we think about that going forward?

So I think our solutions sales overall has been around 15% of our total revenue. And the more equipment we get out there, the more we'll see an increase in solution sales. So with these new generation pieces of equipment and the current need of this type of disinfection, decontamination solution, along with our backlog and pipeline, I think that you're going to see that number percentage going up and you can use the 15%. I mean we have that as a historic number we've been following. And as time goes on, I mentioned on the call, we'll expect $0.25 million from these built-ins, and that's just a couple of them. So I think that, that will continue to increase as equipment usage.

And this does conclude the Q&A portion of today's call. I would now like to hand it back to management for any closing remarks.

Well, thank you all for listening. I hope everybody has a great Thanksgiving and a merry Christmas. Thank you. End of call.

This does conclude today's program. Thank you for your participation. You may disconnect at any time, and have a wonderful evening.