TOMI Environmental Solutions, Inc. (NASDAQ:TOMZ) Q2 2022 Earnings Conference Call August 15, 2022 4:30 PM ET
Company Participants
John Nesbett – Institutional Marketing Services
Halden Shane – Chairman & CEO
Conference Call Participants
Sameer Joshi – H.C. Wainwright & Co.
Operator
Good day, everyone, and welcome to today’s TOMI Environmental Solutions, Inc. Second Quarter 2022 Financial Results Conference Call. [Operator Instructions]. It is now my pleasure to turn today’s conference over to John Nesbett with IMS Investor Relations. Please go ahead.
John Nesbett
Thank you for joining us today for the TOMI Environmental Solutions Investor Update Conference 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. Dr. Shane will provide an overview of recent business highlights and financial performance for the most recent quarter and 6 months. Both will be available to address any questions you may have. A telephone replay of today’s call will be available through August 29, 2022, the details of which are included in the company’s press release today. A webcast replay will also be available on TOMI’s website, www.tomimist.com.
Please note that information contained within this presentation is relevant only today of which it was recorded, August 15, 2022, 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 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 operating performance and should be considered by investors in conjunction with the GAAP measures. A reconciliation of these non-GAAP measures, the comparable GAAP measures is included in the earnings release dated August 15, 2022.
Okay. I will now like to turn the call over to TOMI’s Chairman and CEO, Dr. Halden Shane. Go ahead.
Halden Shane
Thank you, John. Good afternoon, everyone, and thank you for joining the TOMI Environmental earnings call. Today, we will provide operating and financial results for the second quarter of 2022 and an update on our iHP SteraMist product lines and competitive advantages. Before we begin, I wanted to let everybody know that today’s presentation will be accompanied by slides, which are available on the webcast. Please refer to the press release dated August 11, 2022, for details of how to join today’s meeting through the webcast feature. I’ll be presenting, and both Nick Jennings, our CFO, and myself will be available for questions and answers after the update [Technical Difficulty].
Quarter and year-to-date highlights. In the second quarter, we continued to see increased demand for our Custom Engineered System and mobile equipment, which has led to improved financial results, some of which are not measured in today’s filing. Throughout 2022, a strong interest in our technology continues, and we received orders for delivery in 2022. We continue to win opportunities for these larger sales for our CES as the product is one of our primary drivers for growth in our current pipeline.
During the first 6 months of 2022, we closed $5.6 million in orders, of which we anticipate $2.3 million to be recognized in revenue in our third and fourth quarter for the year. This represents a 35% growth in sales orders received for the 6 months when compared to the same prior year accounting period. We anticipate further growth in sales and the continued build of our pipeline for the remainder of 2020.
Interest in SteraMist iHP is robust. Based on our current orders as well as the pipeline and strength of our referral base in the life science sector, we are targeting over $12 million in revenue for 2022. Through June 30 of this year, revenue grew by 6%. The increase was attributable to higher demand for our mobile equipment where we saw a growth of 11% and 13% for the 3 and 6 months ended June 30, 2022. While our quarter-over-quarter revenue was flat with last year, our sales pipeline continued to grow in the second quarter with the addition of $900,000 in orders that will be recognized later this year.
We drove reduced operating expenses and losses for both periods. We reduced operating expenses by 16% and 21% for the 3 and 6 months ended June 30, 2022, respectively, when compared to the same prior year period. We reduced our loss from operations by 28% and 44% for the 3 and 6 months ended June 30, 2022, when compared to the same prior year period. We also improved liquidity with lower cash used in operations of 82% for the first 6 months of this year when compared to the same prior year period.
Inclusion of SteraMist on EPA’s List Q for the rare or novel viruses such as Monkeypox virus, SARS-CoV-2 and its variants that causes COVID-19 have been one of the many reasons the sales pipeline is strong.
During the first half of the year, orders or bookings increased 35% when compared to the first half of 2021. $4.9 million of the overall orders is attributable to our SteraMist product revenues, which represent our mobile equipment, CES and BIT Solution.
There are some substantial global market trends and drivers in the decontamination industry. Global disinfectant spray market size is expected to reach USD 18.6 billion by 2030 and is expected to expand at a CAGR of 8.2% from 2022 to 2030. Sales of disinfectant sprays have risen drastically over the past few years with rising consumer awareness towards the benefit of disinfection. As hospitals are trying to decrease the rate of HAIs, disinfection held more than 65% revenue share in 2021 and demand for HAI control products is predicted to rise in ambulatory surgical care centers at the highest CAGR in the upcoming years.
As we continue to market our technology and its competitive advantages provided in our EPA-registered label and develop new products and applications, we are closer than ever having these industry markets select our eco-friendly disinfection decontamination.
Our patented atmospheric cold plasma arc, which is the DARPA technology that we inherited — it closes hydrogen peroxide in a way that’s never been seen, converts the H202 compound into hydroxyl radicals. This is the most powerful natural oxidizing mechanism known.
Competitively, we blow every competitor away. destroys proteins and carbohydrates on contact, and it only leaves oxygen and water in the form of humidity. iHP reacts with chemical agents breaking their double bond, producing hydrogen, oxygen and water in the form of humidity, truly an eco-friendly disinfectant decontaminant.
TOMI expects to have a prominent role in the food safety industry, a multibillion-dollar market. After attending their most recent annual food production meeting earlier this month, it was confirmed we are not only solving contamination problems in a more efficient way, but we are solving ongoing issues in the industry that have never been solved. Of course, further trials and studies are being asked of us, but the industry is proving to show extreme interest in how our low 7.8% hydrogen peroxide BIT Solution is converted to hydroxyl radicals using our cold plasma science.
Like the life science industries, the food industry is impressed with the dispersion of our submicron droplet, this very, very small droplet and the way it disperses as a fog. Speed to the technology as it kills on contact by cellular oxidation burst and the element of this no residue or harmful byproducts left behind.
In addition to the advantages just stated, we achieved a 6-log kill or higher. It’s the very, very quick validation time on the most challenged of all pathogens. Most of the market, in fact, 400-plus disinfectants registered with the EPA, only have a 3- to 4-log kill, which is 99.9% or 99.99%. But we’re able to kill all challenged pathogens at 6-log or 6 9s. In addition, validated time and again, against these most challenging pathogens, we were able to receive many EPA registrations for various upcoming pathogens that the world may [indiscernible].
All our products use the same superior technology. Each is designed and manufactured for certain application solutions. The SteraMist Surface Unit, the original 5 second per square foot spray, perfect for high-touch, hard surface areas in almost any industry. The SteraMist Environment System, our 3 applicator full room fogger is sold unit in terms of its capabilities for complete air and surface decontamination. Price tag limits the device to pharmaceutical, government research universities and larger restoration and cleaning.
The Total Disinfection Cart was launched specific for the health care industry, making SteraMist even easier and faster to the quick turnaround time needed on — patient room, the only system that can complete a turnover in an ICU room in under 55 minutes in cleaning — including changing the .
Our SteraPak, which was launched earlier in the year, the sleek battery-operated, high-touch, hard-surface spray developed for those who need an even quicker disinfection without the hassle of an AC power outlet. The SteraBox, our decontamination chamber, a pass-through depending on customer requirements and used a 90-degree stainless steel applicator and the environment system provides a cycle time in just 40 minutes. Industries requiring smaller size sensitive or medical equipment tool, injectable devices may have these made to order.
The Custom Environment developed with Sloan Kettering in New York and used in radioactive cells as a device like the standard full room fogger but in an enclosure made of stainless steel provided with modified applicators for a permanent fitting.
SteraMist Custom Engineered System, we call CES, is a fully automatic product engineered and programmed to fit all facility specifications. Available features include remote start, HVAC utilization, downloadable data, security features, visual and audible alarms and is multiroom scalable. Every new installation includes the latest software and hardware components. TOMI tech team has installed 6 of these systems by 2021. This year alone, we’ve completed 1 installation, 5 currently being designed or manufactured, 3 waiting on purchase orders and an additional 8 in the final stages of customer approval.
With the trend of automated disinfection and decontamination continuing to rise as we have seen, the interest in our CES line has risen. With the production of our SteraMist Transport and the SteraMist Select Plus, they will provide the solutions and answers needs that some markets face and the decontamination requirements that until now have not been able to meet.
Transportation industry will utilize the SteraMist Transport. This permanently mounted ready-to-use noncorrosive technology and solution, which you see on the left, will provide a quick remote-controlled disinfection fog for vehicles in industries such as emergency response, health care, education and public transportation. The SteraMist Select Plus provides health care facilities, smaller clean rooms and research labs, classrooms and many others an easy-to-use product that delivers all the desired applications using our superior iHP SteraMist technology at a reasonable cost and that you see on the right. The Select Plus is a one-applicator remote start, full room, stainless steel fogging device. It sits on an open stand with wheels and adjustable height setting, making it versatile enough for a space with high ceilings. This system is projected to be one of our highest sellers, and it will not only meet facility requirements, providing the necessary reporting features, but it meets many of their budgets, thus outperforming the current available competition that is in this market.
There is a demand for every SteraMist product line in the life sciences from the utilization to TOMI’s mobile SteraPak pack to the intelligent permanently mounted Custom Engineered System to having our iHP Corporate Service deployed to their facility. Our recent focus is mainly in life science areas, which is a marketplace that to be less volatile in the times of a recession due to the constant need to continue the research, making pharmaceutical products and meet mandatory FDA documentation and decontamination standards. To date, our iHP Corporate Service team has delivered approximately $850,000 this year in revenue for services.
iHP technology adheres to the pharmaceutical FDA requirements for decontamination. SteraMist has been validated and verified and will continue to be the game changer in the industry with its innovative and versatile products, applications and services.
It’s important to understand how our product performs, hence the competition. We are simply the best and better than all the rest, whether you compare us to other hydrogen peroxide solutions who rely on the chemicals for their efficacy, manual wiping, which leaves a residue, requires mixing and still has a risk of cross-contamination or UV light, which is just as an efficacy kill rate as impeded by obstructions and finally, the most less expensive electrostatic sprayers, which produces large particles and utilizes extremely harsh chemicals. At the end of the day, SteraMist outperforms the competition.
TOMI’s iHP technology is the only perfect 10, with the market trends provided at the beginning of the call, to the applications of our original current and upcoming devices we’ll offer.
SteraMist customers, representatives and partners continue to grow throughout the world, currently now in 38 countries. And our portfolio of customers, just to list a few, continues to be some of the most profitable and successful companies in the world. Many of which have become huge supporters of the technology and promote not only our technology and equipment, but also our support team to their associates.
With all that has happened in the world over the last few years, I would also like to take some time on today’s call to look at some of the key areas of our business that compare where we are at today in 2022 and versus where we were pre-COVID in 2019. We’ve grown substantially over the last 3 years as we’ve expanded our customer base and total cumulative machines sold. In 2022, we have approximately 709 customers compared to 308 in 2019. Through June of 2022, our cumulative machines sold is now at 1,548 compared to 582 in 2019. Since 2019, we’ve added over 10 new SteraMist products and expanded our IP portfolio with 28 new patents and 115 trademarks, providing protection of the superior game-changing technology to TOMI until the year 2038.
From a revenue generation and gross profit margin perspective, our orders or bookings have grown 94% over the level prepandemic for 2019, and our gross profit margins have improved by 2.21% to 62.2% compared to 59.9% through June 2019. We have strengthened our balance sheet since 2019 as our cash working capital and inventory has improved over the last 3 years as follows: our cash balance as of June 30, 2022, was $4.8 million compared to $1.6 million as of June 30, 2019. Our current working capital as of June 30, 2022, was $9.9 million compared to a $775,000 deficit on June 30, 2019.
We feel the company is in a far better position now than compared to 2019 and before COVID-19. Also our inventory as — was $4.8 million compared to $2.5 million in June of 2019. From a balance sheet perspective, our cash used in operations during the first half of 2022 has declined by $2.061 million when compared to the same prior year primarily due to lower reported loss and the customer deposits of $607,000 received on sales generated in 2022.
Slide 20, profiles the income statement. I’ll not go through this line by line, but what is important to point out is that revenues were up slightly in the first half of the year and we have a robust backlog. We have kept a keen eye on expenses and saw reduced losses for each period. Looking forward, we’re able to drive revenue, manage expenses and drive the razor/razor blade model with continued increases in solution sales. This should bode well for future profitability.
Operator, let’s open the call to questions.
Question-and-Answer Session
Operator
[Operator Instructions]. We’ll take our first question from Sameer Joshi with H.C. Wainwright.
Sameer Joshi
So the first question is actually — so good to see that your annual outlook remains $12 million. What gives you the confidence in terms of achieving that? Do you have visibility in the pipeline where there are pending orders, which you can announce within the next few months? Can you just give us some insight into that?
Halden Shane
Yes, I believe I went over that a little bit. We have — we’re waiting for POs on 3, and we have 8 others that we’re just waiting for approval on. So I think that the unfortunate part is these are such high-profile clients that they usually don’t let us do any type of press release. We try our best so we can announce it to the public, but as I showed you in our tombstones, these are very, very large companies.
Sameer Joshi
Yes, yes. No. It’s really impressive. In terms of delivering against these — the 3 purchase orders and the 8 that are in final stages, those time lines are within the next 2 quarters? Or is it a longer-term outlook for those?
Halden Shane
No. We’re hoping that — I mean, the majority of them are in the next 2 quarters. Delivery on some of the larger ones that we have in our pipeline, again, depending upon product availability, which I think we’ve improved on may be in the first quarter, but we’re still anticipating meeting and beating this $12 million by the end of the year because of our other products, the SteraPak Surface Unit, Environment Unit and all these other pieces of equipment that we’ve been spending all this time on developing, which has been proven to be very fruitful for the company going forward.
Sameer Joshi
Yes. Yes. Actually, that was going to be my next question. When you mentioned CES and mobile equipment, are you — the mobile equipment refers to the SteraPak? Or some other products as well?
Halden Shane
It’s all of it. The Surface Unit, SteraPak, they’re all mobile equipment versus the fixed, which is the CES equipment and the Transport will be fixed in vehicles, things like that.
Sameer Joshi
Got it. Understood. And then moving on to expenses. Nice to see expenses lower. Should we expect this trend for the next 6 months? Or do you expect to have additional resources to meet the top line growth that you’re expecting?
Halden Shane
Well, we’re trying our best. Our team is working very hard, and we’re very small. We’re going to have to — we’re expanding. Again, we’re looking for employees, I think, like most companies are that are really good and qualified and dedicated. So it could increase. But again, the direction we’re taking and making these employees work is in the customer service end and helping assist with bringing in revenue. So we think one will outweigh the other tremendously.
Sameer Joshi
Yes, yes. No, I understand. So as sales increase, there could be some additional expenses, but it will — the leverage will be just — the outweigh as you just said. Okay. Just a curious question on the orders that you are getting and pending. Is it from — are these repeat customers who are ordering additional equipment for different locations? Or are these new customers altogether?
Halden Shane
Many of them are customers, repeat large Fortune 500 or the top 10 pharmaceutical companies that are ordering for various other facilities. And because of the word and the standardization that we’re creating, they’re new pharmaceutical life science customers, universities that are hearing about our product and are ordering also. So it’s a blend, but we’re most impressed with the repeat business from these large pharmaceutical customers.
Sameer Joshi
Yes. No, that’s good to know. It’s a blend of both sources. So just one last one. You mentioned the competitive landscape and your superiority in various respects. But when you are looking at the bids that are out there and your conversion rate from bids to orders in terms of some of the competitors taking some business away from you, can you just give us some insight into that?
Halden Shane
Yes, we don’t really — I don’t really see the competitors winning any projects. That’s why we have such a huge pipeline in some of these POs that are coming in and ones that are just waiting for approval from their various departments. As you know, it’s a complicated process. But we see us winning these bids, and we see this technology moving in the direction that I’ve always anticipated it should and would in relationship to becoming a standard in these markets. And with the new added types of equipment and new products that we’ve introduced, we’re covering everything from laboratory equipment to complete whole rooms to large facility decontamination. So we have the broad market covered going forward.
Sameer Joshi
I just said it was going to be my last question, but I have one more. You mentioned food safety. Have you already made any inroads into that? Are you making the outreach into that sector? If you could give us some high level insight into that.
Halden Shane
Sure. We’ve just presented at a food safety conference, and they were very excited. And of course, whenever you — same thing that happened with Corteva and Dow and DuPont at the beginning, they always wanted more testing and to go ahead and do their independent testing. And we are assisting and moving forward with that. We’re also going forward with the EPA as far as the registration, we received the 0.35% registration. Now we’re going forward with the 1% registration for direct food application. These things, unfortunately frustrating to me and I’m sure the team — takes time, but we’ll get there. And the interest is high.
We used to have maybe 2 food safety clients. And now we have somewhere between 8 or 9, and we have another half dozen that are — we’re working proposals to introduce it into their facilities. So we are slowly and frustratingly advancing in that market.
Sameer Joshi
Okay. Good to hear that. And good to see the comparison between pre-COVID and now. That is helpful.
Operator
We will take our next question from with Carter Management.
Unidentified Analyst
One of the more interesting aspects of your business is the ability to sell higher-margin solution across your installed base. I see solution sales were up a bit in the quarter. But could you provide any additional color as to how we should think about the revenue composition going forward?
Halden Shane
Sure. I mean from a percentage standpoint, if we want to use the 2019 to today, we’re probably up somewhere between 40% to 50% in solution uses. Going forward, the more pieces of equipment we get out there, especially these larger CES units that use 55-gallon drums of solution will create a consistent use of our solution on a daily, weekly, bimonthly basis.
In the past, we’ve always depended on it being used in health care or being used in service or service providers, which is still being used, and in many of them, the only tool box — the only tool they have in their toolbox. So as pandemics come and go and the extreme paranoia the country has or the world has in relationship to them, of course, solution sales will increase in those verticals. But the key is to get more pieces of equipment out there and for our customer service to be on top of them and reordering, which we are seeing. And we’re hoping that you’ll see more data pertaining to the solution usage going forward.
Operator
[Operator Instructions]. We’ll take our next question from [indiscernible].
Unidentified Analyst
Halden, I have several questions. First, any comments you can make on timetable to potential profitability?
Halden Shane
Well, if things go the way they’re supposed to, it’s going to happen this year.
Unidentified Analyst
Okay. That would be terrific.
Halden Shane
3 or 4 months.
Unidentified Analyst
And any update that you can provide us with on the SHIELD study? And maybe you should maybe make a brief comment on what the SHIELD study is and what the potential is if it turns out favorably.
Halden Shane
The SHIELD study was a study that was a government-branded study comparing manual cleaning to using our technology or mechanical cleaning and we were the only technology. It was a 5-year study, and we completed the 3 years of the data development. Then there is another year of various researchers, independents that went over the data. And the paper has been written or is being written. I’m waiting to get updates. But unfortunately, these authors are directors of a lot of the public health venues in L.A. County, and they’ve been quite busy with the variants and pandemic and now with Monkeypox. So I don’t want to push them, but I’m sure that it should come out relatively soon, I’m hoping and I’ve been asking.
Unidentified Analyst
You had mentioned, I think, and also on the slides, there was an identification of one of your customers being a ServiceMaster. And has that ServiceMaster relationship expanded over the last quarter to include more — I believe, ServiceMaster is a franchise operation — to more sites? Any color on that?
Halden Shane
That, I would have to personally get back to you on. I know that there are a number of these large service providers that are all merging and among our 208 service providers, a lot of them have sold or merged with these types of operations like ServiceMaster represents. So we’re finding that we’re trying to work with them to — there would be no reason in my mind why they wouldn’t utilize our technology as the only tool in their toolbox. They certainly would be throwing out a lot of other items and saving a lot of money long term and delivering the best to their clients. But give me some time to research the numbers, and I’ll try to include that in my next call.
Unidentified Analyst
Okay. And last — I believe last call, you mentioned — and it was — it might have even been in the press release about one of the health care organization’s orders for ambulance installs. And I — my question is, is there — has there been any additional orders from any other customers on ambulance installs?
Halden Shane
So we’ve just recently developed. In fact, I want to say I just got the first video of the first install of this SteraMist Transport device. And it was made and developed with them in mind, and I know they budgeted next year for this. It could be a very big order for the company. Once we get this validated and in their hands and tested, I think at that point, we’ll start marketing it. We haven’t really marketed it outside of working development for this 1 large order.
Unidentified Analyst
Okay. And then just kind of a general comment. The superiority of your product has always struck me as being so powerful that the — what kind of plans do you have to get the word out even more than you have in the past? Because, at least in my opinion, the product use would be so compelling for so many different kinds of organizations, and I think the lack of knowledge about your product to a lot of potential customers is kind of a limiting factor.
Halden Shane
Go ahead, John. That’s fine.
Unidentified Analyst
Go ahead. So how do we — how do you get the word out even more than you’ve been doing? Or should we just assume that — I mean I know you’ve made significant efforts to do so. But is there anything else in the game plan to get the word out that this product exists and how powerful and compelling it is for using it?
Halden Shane
So the answer is yes, there are plans in the game plan, and I’ve been telling other executives within the company that we must start bringing on a lot more customer service, a lot more salespeople. And we are negotiating with large companies to take the product on, but it’s a time-consuming process. Being as small as we are with the funds that we have with developing new products, with going ahead with all the patents and everything, we’re really stretched. And we see what’s happening in the pipeline and how large these orders are. So that’s why I’m comfortable with talking about what we could anticipate for the year and beating.
However, the knowledge and creating a standard when companies have to throw out their old standard is a very frustrating, time-consuming process. And fortunately, we’re on the bright side of it being over where we can see the future and they’re learning. And we’re hoping, as they learn we’ll pick up very knowledgeable salespeople that understand the technology in the various industries and be able to make it applied to those verticals. And this will be one really huge happy family that goes forward with the process and good earnings and et cetera.
Well, thank you for the call. Operator, there any other calls or questions?
Operator
It appears that we have no further questions at this time. I will now turn the program back over to management for any additional or closing remarks.
Halden Shane
Well, thank you all that joined us and for listening. Stay tuned. We will speak next quarter. Have a good evening or day, wherever you might be. Thank you.
Operator
This does conclude today’s program. Thank you for your participation. You may disconnect at any time.
Be the first to comment