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TOMI Environmental Solutions, Inc. (TOMZ)

Q1 2023 Earnings Call· Mon, May 15, 2023

$0.66

-5.07%

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Transcript

Operator

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

Management

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

Management

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.…

E.J. Shane

Management

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…

Nick Jennings

Management

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

Management

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.

Operator

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.

Todd Felte

Analyst

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?

Nick Jennings

Management

Well, the margins are -- I don't know if you want to talk about the margins. They're very high, Todd.

Dr. Halden Shane

Management

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

Todd Felte

Analyst

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

Dr. Halden Shane

Management

Well, I think what we do is when we see these 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.

Todd Felte

Analyst

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 we were 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 will be profitable for the year 2023?

Dr. Halden Shane

Management

That's where we're working at right now. We feel we will be -- 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, and we are hoping that we will be profitable soon.

Operator

Operator

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

Unidentified Analyst

Analyst

So you've mentioned I believe in the past that growth in the custom engineered systems business overtime will drive more predictable solution sales compared to other channels. Could you provide some more color as to why this is the case?

Nick Jennings

Management

Sure. So, what it is 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 is validated and they have their protocols written going forward for 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 blade model.

Operator

Operator

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

Unidentified Analyst

Analyst

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 LifeClean and posturing itself as a competitor to TOMI. They call their product a universal biocide. 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.

Dr. Halden Shane

Management

Thanks John. There really is no comparison. I mean, we're like a perfect 10 out of 10 on 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 -- like humidity at byproducts --chlorine. They have been around forever. It's just a lot of these companies now with these chemicals, there is I mean, 450 somewhat ETA registered products. A lot of them are finding themselves in trouble because of the fact 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 Elon Musk or without, but I still don't believe anything I read unless I do a lot of research independently. So, I think your illusion is absolutely correct.

Unidentified Analyst

Analyst

Okay. Thank you. Any update a shield study?

Dr. Halden Shane

Management

Not really. It's in the hands of the authors and they -- I think what I say always is the results phenomenal. When I say that, they push it down the pipe to be finished. 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 have something to say.

Unidentified Analyst

Analyst

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

Dr. Halden Shane

Management

Yes. We are 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 have had some real positive results from mention of viruses and bacteria in general seeds. And as I said on the call or, E.J. said on the call, there is some great work on seeds cannabis. So, I think this is a market that we're after and they can recognize how easy the 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.

Unidentified Analyst

Analyst

Okay. Thanks. And also, your staff approached any of the semiconductor companies that will be either with existing plants here in the U.S. or plans to build new operations on the use of potential use of SteraMist in clean rooms or the general plans…

Dr. Halden Shane

Management

We've done some research on it. There aren't really that many in the United States and 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. 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 in a multiple of verticals within the Company, and that's one of them that we plan on approaching heavily very quickly.

Unidentified Analyst

Analyst

Okay. And then, what's can you go into a little bit more detail on the revenue recognition item? Or what was any part…

Dr. Halden Shane

Management

It's hard. I mean, in the way that the SEC and 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 weeks or I need to wait another month. And that's what occurs. That's why I tried to the call 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 it's extremely high, because it's not that big of a company yet but its growing fast.

Unidentified Analyst

Analyst

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

Dr. Halden Shane

Management

Well, we're comfortable with it. I mean, going out 15 months, but we're dependent on getting deposits for the CES systems, which should report more cash in the Company going forward.

Unidentified Analyst

Analyst

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 U.S.?

Dr. Halden Shane

Management

I would go into food safety and into the fact that it's contaminated or a potential contamination risk in relationship to the manufacturing of it or equipment used. So, I don't know offhand if any of them have reached out to us, but from my knowledge they've cleaned most of that act up very recently.

Unidentified Analyst

Analyst

Okay, very good, well, I look forward to continued progress.

Dr. Halden Shane

Management

I do too. And I thank you for your support as always.

Operator

Operator

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

Sameer Joshi

Analyst

I was 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?

Dr. Halden Shane

Management

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

Sameer Joshi

Analyst

Okay, it's a…

Dr. Halden Shane

Management

We really brought them on and I mean all of these new both manufacturing reps and 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.

Sameer Joshi

Analyst

And then clarification on the revenue that would have been recognized, I think 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 it would have been recognized in one queue?

Dr. Halden Shane

Management

Probably some of it would've 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.

Sameer Joshi

Analyst

Understood. So, if we say that, the potential for what -- first 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 in few years I mean quarters?

Dr. Halden Shane

Management

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

Sameer Joshi

Analyst

Thanks for taking my question. I will take my other questions offline.

Dr. Halden Shane

Management

Thank you very much. Thanks Sameer.

Operator

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

Management

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

Operator

This concludes today's TOMI Environmental Solutions Investor Update. Thank you everyone for attending.