Q1 2024 TOMI Environmental Solutions Inc Earnings Call

Participants

John Nesbett; Investor Relations; IMS Investor Relations

Halden Shane; Chairman of the Board, Chief Executive Officer; TOMI Environmental Solutions Inc

Nick Jennings; Chief Financial Officer; TOMI Environmental Solutions Inc

Elissa Shane; Chief Operating Officer, Corporate Secretary, Director; TOMI Environmental Solutions Inc

Adam Hullshier; Analyst; Hullshier Capital

John Nelson

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the TOMI Environmental Solutions first-quarter 2024 financial results conference call. Our host for today's call is John Nesbett of IMS Investor Relations. (Operator Instructions)
I would now like to turn the call over to your host. Mr. Nesbett, you may begin.

John Nesbett

(technical difficulty) 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 future plans; Nick will provide the financials, and all will be available for Q&A.
A telephonic replay of today's call will be available through May 29, 2024, the details of which are included in the company's press release dated May 15, 2024. A webcast replay will also be available at TOMI's website, www.steramist.com.
Please note that information contained within this presentation is relevant only the day of which it was recorded, May 15, 2024, and you are therefore advised that time-sensitive information may no longer be accurate at the time of any replay.
Certain written 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 the operating performance and should be considered by investors in conjunction with the GAAP measures. A reconciliation of these non-GAAP measures to the comparable GAAP measures is included in the earnings release dated May 15, 2024.
I will now turn the call over to TOMI's Chairman and Chief Executive Officer, Dr. Halden Shane. Please go ahead.

Halden Shane

Thank you, John. Good afternoon and thank you for joining the TOMI Environmental earning call. Today, we will provide an update on operations and financials for the first quarter of 2024. This call will be relatively short for those that have joined in the past compared to our previous calls due to the fact that we just had a call 30 days ago. I'll also providing insight into key current endeavors of the company for the past month and immediate future.
During the quarter, due to revenue recognition, we reported only $1.1 million in revenue. This was disappointing and below where we expect it to be. That said, our revenue remains susceptible to timing of large orders as we scale. So it's important to note that our backlog, which reflects firm orders, was $900,000, much of which was closed during the quarter. So our total sales activity for the quarter, combining sales and backlog, was approximately $2 million, which is about 27% increase in sales over the first quarter of 2023.
Also, we are encouraged by our sales pipeline across multiple end markets given our expanded base of distribution partners. So the sales in the quarter does not fully capture the growing interest in our technology and the flow in sale inquiries and engagements over the past 30 days. It is our expectation that we will see sequential growth and reduce loss in quarter two and are currently laser-focused on driving the business to profitability as soon as third quarter of this year.
We received news by a US-based multinational pharmaceutical customer confirming that two of their CES systems that were installed in September of 2022 are qualified and scheduled to begin use in the fourth quarter of 2024. Once these systems are up and running, we expect annual solution revenue of approximately $250,000.
As you know, solution sales are the blade in our razor-razor blade model, and this is a perfect example of the long-term evolution of our economic model. I guess, patience is a virtue in the life science verticals, in fact, probably in all verticals.
In addition to our commercial successes, we disclosed two groundbreaking studies showcasing the efficacy of our solution against foot-and-mouth disease virus, FMDV, and African swine flu virus, ASFV, reinforcing our pursuit of an additional EPA label.
We received notification from the Department of Homeland Security that our SteraMist technology has been included in their science and technology (inaudible) budget overview for the purchase of 16 SteraMist Environment systems in the amount of approximately $2 million, where our SteraMist technology will be used to support the decontamination of Plum Island Animal Disease Center.
Moreover, our participation at INTERPHEX 2024 in New York City provided the perfect platform to unveil our latest product development. E.J. will go into the specifics of our participation and the innovation showcase during the event.
Finally, during the quarter, we were invited to apply for a $3 million grant from the Department of Defense to be used by the Army, Air Force, and Marines focusing on mitigating ethylene oxide sterilization. In May of 2024, we submitted our proposal and application under the DoD program, and we will keep shareholders appraised.
Now, I'd like to turn the call over to Nick Jennings for his final call to provide our quarter-one financials. Nick has resigned due to personal health and family issues. He will be replaced by Joe Rzepka. Joe has been our Senior Vice President of Finance and our Senior Controller for our company for five years. You'll be able to welcome Joe during our next earning call.
Nick plans to stay on as a part-time basis as a consultant to assist with some of the finer aspects of filing Qs and Ks. Joe comes from a strong background in financial reporting in both public and private companies, including a long stint in an aviation company. We all wish Joe and Nick the best of luck in their new positions at TOMI.
Now, I'll turn the call over to Nick.

Nick Jennings

Thank you, Dr. Shane, and good afternoon, everyone. I'll provide a brief overview of our financial results for the first quarter of 2024 compared to the same prior year period.
For the three months ended March 31, 2024, compared to March 31, 2023, our consolidated net revenue was $1.114 million compared to $1.582 million. Consolidated gross profit was 60.2% compared to 59.5%. The increase in gross profit was due to our product mix and sales.
The consolidated operating loss was $1.226 million compared to $1.188 million. Our consolidated net loss was $1.310 million or $0.07 per basic and diluted share, compared to $1.187 million or $0.06 per basic share. Moving on to the balance sheet. As of March 31, 2024, our cash and cash equivalents were approximately $1.1 million; working capital was $6.6 million; and our shareholder equity was $7.1 million.
As Dr. Shane mentioned, this is my last call with the company. And I just wanted to take a quick minute to thank Dr. Shane for giving me the opportunity to work here. It's been an honor and a pleasure. And I also wanted to thank the Board, employees, and everyone involved with this company. I wish you all the absolute best moving forward, and I know we'll continue on our mission to make the world a safer place.
Now, I'm going to turn the call over to E.J. Shane to provide insight on the current company activities.

Elissa Shane

Thank you, Nick, and good afternoon, everyone. I would like to provide everyone with some context around our strategic progress. While our quarter one revenue was lower than we expected, our pipeline is strong and healthy, and it includes companies across multiple end markets. We are very focused on executing against the key objectives that we laid out in the April call.
These objectives include closing more CES sales and ensuring that current custom installations generate the anticipated BIT solution revenue; driving traction for our SIS, or SteraMist Integrated Systems; fostering repeat business with OEMs of decontamination enclosures; growing iHP corporate service revenues; and expanding sales of our mobile equipment to both existing and new customers and to our worldwide distribution network.
Let's please take each of these points separately. In February, we secured a new contract with a California-based life sciences company for the installation of the SteraMist iHP CES valued at approximately $600,000. This system is equipped with six applicators, is slated for integration into a clinical suite by the end of the third quarter in 2024, and the project remains as scheduled.
Upon full functionality, we anticipate all current CES installations to collectively yield approximately $600,000 in BIT solution revenue. This is based on current customer schedules and assuming these production and manufacturing schedules do not change.
In addition, we expect two additional CES contracts to close in the very near future for similar builds at the California company I just referenced with delivery schedules for quarter four of 2024 and quarter two of 2025.
We have implemented enhanced internal operational methods to monitor and support our customers with these installations as they require a different level of support than our mobile devices. Obviously, the faster they can get these larger systems installed, the sooner we can support these systems with a solution.
The SIS products are, in essence, a CES on a smaller scale, the decontamination of enclosures. It's significant slide in enhancing TOMI's reputation as a versatile and user-friendly decontamination solution technology; the ability to offer quick and effective solutions for biological safety cabinets, or BSCs; decontamination chambers; and various other enclosures will lead to long-term financial rewards.
These scalable models are in high demand as we are currently engaged in many communications on this matter, and I do acknowledge the repetition from our previous update in April on our SIS product launch. We must work with many parties. First, in the design and assembly; then in the testing of cycle developments; and finally, the registration procedures to ensure the data and compliance of these solutions. However, I am pleased to announce significant advancements with four distinct manufacturing companies.
Our in-house service team is performing extremely well. iHP service revenue serves frequently as our primary introduction to organizations and leads to repeat orders. As mentioned, service revenue increased by 21% in quarter one of this year.
I'm also pleased to report iHP service opportunities have increased significantly this quarter, some resulting in six-figure sales. These opportunities typically offer clear revenue forecast and expedited sales cycles, often tied to prompt decontamination needs. More importantly to report is that we are witnessing a significant shift in the decontamination service market, presenting us with a substantial amount of opportunities.
As stated throughout last year, we brought a distribution network to the United States to join our worldwide distribution network. Allow me to share an update on some of our partners around the world. ARES distribution is handling the 2025 CES build opportunity mentioned earlier, along with one of our high-value iHP service decontamination projects scheduled for this summer.
Moreover, they are exploring numerous opportunities for their existing inventory, including potential additional sales to end users in the United States. One of these opportunities will be by an independent agency of the US government, which, when approved to publicly share, will be particularly exciting to announce.
[Tecnimont] in Canada has a robust pipeline within the EMS industry featuring seven opportunities, each involving purchases of double-digit SteraPak or transport units. The status of these opportunities varies, ranging from budgeting processes to presentation to upper management, or the need for contracts to be finalized with current suppliers before proceeding with SteraMist.
AMETEK in Malaysia remains optimistic about four bids tailored specifically for SteraMist with the anticipation of securing the first contract soon. Another international bid tailored for SteraMist for shipments to Africa via the US Embassy is set to close by the end of this month for 10 SteraPak devices and associated accessories.
I.B.D. in Italy, having placed their initial order last quarter, engages with us frequently to explore partnerships aligned with our SIS strategy and beyond. Universal disinfection in Germany continues to cultivate their pipeline. They've also expanded their focus from life sciences and aviation to include the food safety market. We eagerly anticipate formal EU registration, which will unlock significant sales opportunities for our key European distributors.
Tecan in Turkey maintains a biannual purchase pipeline with their second order slated for the end of 2024. Additionally, we recently onboarded a new distributor in India, SPS Technocrats, comprising of three directors with 35 years of collective experience in technical consumable sales. Their clientele includes notable names such as Sanofi, Mylan, and Sun Pharma.
This overview covers seven of the 30-plus asset partners we collaborate with.
Lastly, I'd like to touch upon our confidence in the pipeline, particularly in capital equipment mobile purchases. As Dr. Shane mentioned earlier, our presence at INTERPHEX in April was impactful, facilitating interactions with current and prospective customers leading to hundreds of quality leads ,as well as valuable face time with our partners, several of whom I provided updates on today.
Many of the new leads will lead in the future projects and sales while also serving as a platform to introduce our latest products, namely the ISSA or standalone and the NV Plus, both which were well received. While feedback is always wide ranging, both items have already been quoted to opportunities identified at the show, and they all were in agreement with the necessity of these applications.
Remarkably, this is the first time our participation at a trade show resulted in an immediate request for quote, even before dismantling our booth. Some of these budget approvals align with upcoming summer initiatives.
Furthermore, the second half of 2023 and this year were intensified our proactive approach to disinfection in commercial and healthcare sectors, emphasizing the importance of routine disinfection beyond the lessons of any pandemic.
To expedite this process, we're developing an educational platform tailored for all our TOMI Service Network members as well as service providers and internal departments to healthcare facilities meeting a specified criteria.
The SteraMist Pro certified program remains a significant step towards industry excellence. As a recap, our aim is to establish a standard that reflects a commitment to continuous improvement, adherence to evolving disinfection biohazard response norms, and dedication to setting benchmarks in the field.
Central to our mission is ensuring that the SPC program resonates with consumers by placing their needs at the forefront, portraying the certification as user-centric rather than SteraMist-centric. The program seeks to ensure certified entities worldwide are equipped to deliver disinfection decontamination while prioritizing public health, safety, and environmental sustainability.
I will now turn the call back to Dr. Shane for closure.

Halden Shane

Thank you, E.J. and Nick. Very good. We continue to think out of the box and find new markets for our SteraMist iHP technology. And I encourage the company itself to think further out of the box because there's a lot of these opportunities available. So the biofuel industry is just one that has a high incentive to obtain better alternative biofuel. iHP is known to be the fastest and the second strongest oxidizer known to man, which may be able to be applied in the conversion of cellulose biofuels.
We're also in the early stages of marketing our SteraMist technology to be used in the decontamination process in server farm industry and data centers. One of the largest areas of the new infrastructure spend over the next one to five years is data centers. Major tech companies are pouring $1 trillion into data centers over the next five years.
Third-party data center operators are one of the many beneficiaries of this AI boom. These data centers will need high-level disinfection to maintain levels of cleanliness that is needed to sustain their centers' equipment. We will keep our shareholders up-to-date in our endeavors to spread the application in as many verticals as possible.
Thank you for your time today. Stay tuned. I'll open the call to questions and answers.

Question and Answer Session

Operator

(Operator Instructions) [Adam Hullshier, Hullshier Capital].

Adam Hullshier

Hey. Thanks for taking the question. Regarding the $2 million allocation from the Department of Homeland Security for the purchase of the 16 systems, can you clarify the expected timeline for revenue recognition from the contract?

Halden Shane

Sure. So they're going to decontaminate Plum Island. And I believe, it has to be performed in the first -- or the latter end of the first or second quarter of '25. So I would have to think that the budget itself and the purchase order would come in somewhere in our fourth quarter of this year.

Adam Hullshier

Got it. Got it. Thank you. And then just one more. Can you provide a bit more color on the growth in the CES business and how that impacts the razor-razor blade model? Is it true that kind of the CES customers are more dependable on the users of the high margin -- dependable on the uses of the high-margin BIT solution?

Halden Shane

Yeah. So once we're in this marketplace where we are building these devices for lots of money for major players in the life sciences, pharmaceutical variance base. And even though the usage of solution in this space isn't as great as, for example, if you're out spraying it every day in a hospital, it's consistent, and we can start going ahead and putting together reports onto what we anticipate our solution orders to be going forward.
So I think that's a breakthrough for the company. And we have a tremendous pipeline and interested life science professionals companies, Bavarian universities in these areas that we're very happy about.

Adam Hullshier

Got it. Got it. Okay. Great. Thank you. That's all for me.

Halden Shane

Sure.

Operator

(Operator Instructions) [John Nelson], shareholder.

John Nelson

Hi to all of you and thanks for the summary. I'm the -- it's incredible that such a small company has so many opportunities in front of it in my opinion. But the cash position looks low. Is the cash -- current cash position of the company enough to get you to profitability in your opinion?

Halden Shane

It might get us to profitability, but we're going to be looking for some cash as we need to make this company larger. And in order to take the opportunities that we have and turn them into revenue, we're going to have to build on the company. So I think that's the best way to answer it. So it's definitely a possibility.

John Nelson

Okay. Are you investigating a bank line of credit, or you already have one locked up?

Halden Shane

No, we don't. We're investigating a lot of sources.

John Nelson

Okay. Thanks.

Halden Shane

We do have the note holders that we initially dealt with in November -- September really of last year that are interested in furthering the line of credit in that.

John Nelson

Okay. You mentioned the two CES systems that were delivered in 2022 that are cleared now at a start-up and should start up at the -- in the fourth quarter of this year. Can you explain why it took so long? Or is it going to take so long to get those systems started up?

Halden Shane

Yeah, John. I mean, this is the frustrating part of the business. So these large companies spend hundreds of thousands of dollars, and they put these systems into play, then they have to go through qualifications and validations.
And many times, they buy the unit, and they don't even move into their facilities for a year. And sometimes they can't even validate them for two years. So it's good news that this very, very large pharmaceutical facility is now qualifying their two units and shortly, we'll be receiving revenue from their solution uses.

John Nelson

Okay. Let's see. The -- one of the things that -- from the year-end call that you had mentioned were investigating pentanol testing?

Halden Shane

Correct.

John Nelson

Any comments on that?

Halden Shane

Not yet. We have a couple of sources that are investigating it. I think we'll definitely be able to neutralize it. The ones that are, one is going to take a little longer because it's involved in the military, and nothing happens quickly. And the other one is within our service end. So we might have some data relatively soon.

John Nelson

Okay. Also, what kind of -- do you have any ideas on what kind of role SteraMist could play in PFOS and PFOA's treatment?

Halden Shane

Again, if we were a much larger company, we could focus on that. I know it's a big, big industry and it's a big problem in the world. I think a lot has tos do with soil and plants and of course, water and air contaminants. They're finding these traces everywhere in humans and everything. So it's a big issue, and we're -- again, we're wearing a lot of hats within the size of our company and doing as much as we can. But we're still looking into it.

John Nelson

Okay. And at the -- also from the year-end call, you mentioned the US Department of Biological Select Agents and Toxins Biorisk Program Office completed a study, which demonstrated SteraMist as an effective technology for decontaminating biological toxoid. And my question is, might this possibly lead to down the road to government stockpiling of SteraMist dispensers and solution for emergency purposes?

Halden Shane

It sure could if they thought like you and I are thinking now. We could. When did we say that we said that at the last -- the end of last year?

John Nelson

Yeah. It was in the call last year from the Q4 call.

Halden Shane

So this is May. We just finally, and thank goodness to them, received the final signed off paper and certification that happened this week.

John Nelson

Okay.

Halden Shane

Like I said, patience is a virtue.

John Nelson

Any updates on SteraMist's use for food produce, hospital cleaning, or you've mentioned the data centers. Also semiconductor plants?

Halden Shane

Not anything other than what I just mentioned. So we are still -- we renewed an agreement with USDA to continue their research in some specific targeted areas that we're interested in. And they are -- and they always come up with some really good papers, which you can pick up on the web, and any listeners can go ahead and review on food safety and pathogen killed. We're also going to be working with them further on residuals and applications in other areas of the food supply.
We're getting a lot of interest in food safety, as I think we should. I'm just -- I read a paper today that Bill Gates is spending $26 million to control farts and burps from cows. So I think that we could hook them all up with SteraPaks and figure out that --

John Nelson

Okay.

Halden Shane

That one.

John Nelson

And have you had any inquiries from any companies about trading animals with the -- or I should say, animals or their environments to prevent bird flu?

Halden Shane

We are getting some interest and we are marketing that because I believe that we can help with the control of avian flu and possibly prevent the culling of millions and millions of birds if they follow a protocol using our product. And my whole stance has been about these avian flus, which have been going on for years, especially this H5N1, has been that if they're going to cull all these animals, why don't they try something that may help them survive. And I think that's -- eventually, somebody will come up and say, yeah, let's go ahead and do a program and experiment in this area.

John Nelson

Okay. Good. Well, that's all of my questions. Thanks very much.

Halden Shane

Thanks, John. Thanks for your support.

Operator

At this time, I would like to turn the call back to management for any further remarks.

Halden Shane

I just want to thank everybody for joining today and thank Nick for his support and everything he's done for the company. With that, I say good night.

Operator

This concludes today's TOMI Environmental Solutions first-quarter 2024 financial results conference call. Thank you for attending. Have a wonderful rest of your day.