TOMI Environmental Options, Inc. (NASDAQ:TOMZ) Q3 2022 Earnings Convention Name November 10, 2022 4:30 PM ET
Firm Members
John Nesbett – IMS Investor Relations
Halden Shane – Chairman and CEO
Convention Name Members
Sameer Joshi – H.C. Wainwright
Operator
Good day, everybody, and welcome to at the moment’s TOMI Environmental Options, Inc. Third Quarter 2022 Monetary Outcomes Convention Name. [Operator Instructions]
It’s now my pleasure to show the convention over to John Nesbett of IMS Investor Relations. Please go forward.
John Nesbett
Good afternoon. Thanks for becoming a member of us at the moment for the TOMI Environmental Options 3Q Earnings Name. On at the moment’s name are TOMI’s Chief Govt Officer and Chairman of the Board, Dr. Halden Shane; and Nick Jennings, TOMI’s Chief Monetary Officer.
I am going to remind you that in this convention name, we’ll make sure forward-looking statements, together with discussions of the enterprise outlook and monetary projections. These forward-looking statements are based mostly on administration’s present expectations and contain dangers and uncertainties that might trigger our precise outcomes to vary materially from such expectations. For a extra detailed description of those dangers and uncertainties, please consult with our latest and subsequent filings with the Securities and Change Fee. We assume no obligation to replace the data supplied in at the moment’s name.
As well as, on this convention name, we’ll talk about sure non-GAAP monetary measures. We use non-GAAP measures as a result of we imagine they supply helpful details about our working efficiency that ought to be thought of by traders along with the GAAP measures that we offer. A reconciliation of those non-GAAP measures to comparable GAAP measures is included in our earnings launch.
I’ll now give the decision over to TOMI’s Chief Govt Officer and Chairman of the Board, Dr. Halden Shane. Go forward.
Halden Shane
Thanks, John. Good afternoon, everybody, and thanks for becoming a member of the TOMI Environmental earnings name. Right now, we’ll present working and monetary outcomes for the third quarter of 2022, together with a good replace on a couple of key present focuses for the corporate.
The final time we met, I reiterated how TOMI’s patented iHP SteraMist know-how is the one excellent 10 out of 10 within the disinfection, decontamination manufacturing world. Our course of not solely meets requirements within the trade, however surpasses buyer expectations by offering all the required aggressive benefits.
With the present market traits to the appliance of our unique, present and upcoming product strains, we imagine our manufacturing and pipeline has income poised to finish the fourth quarter worthwhile together with assembly our expectations for the 12 months. This 12 months, TOMI has seen a rise in our buyer gross sales backlog or moderately pending gross sales orders the place income has not but been acknowledged, however buy orders or contract bids have been obtained or received.
We imagine analyzing and reporting this metric is worth it when measuring our total gross sales and enterprise improvement efficiency because it gauges the general quantity of gross sales and enterprise improvement actions. That is largely attributable to the elevated demand for our Customized Engineered System, CES, in addition to routine and new iHP Service engagements. Our iHP Service income for the present 12 months has already surpassed all of 2021.
A key driver to our longer-term progress is strengthening demand for our CES by referrals to the product line, internet hosting churns of present put in methods, persevering with model consciousness by way of our home unbiased manufacturing gross sales representatives and rising the community of worldwide companions.
Avid Bioservices is an effective new instance of our present CES within the design part and set for implementation in Avid’s new purpose-built viral vector improvement and manufacturing facility in Costa Mesa, California subsequent 12 months. To correctly promote state-of-the-art iHP everlasting and totally automated built-in decontamination system, TOMI has begun coming into into advertising and marketing agreements with clients equivalent to Abbott to help within the continued model consciousness.
This 12 months, we now have accomplished 1 full set up for Fresenius Kabi internationally, 5 extra methods are being designed to fabricate for Merck and Orna with 3 of the 5 on schedule for supply by the tip of the 12 months. We’re ready on the acquisition orders for one more 4 methods set to shut. The income shall be acknowledged all through 2023 and 2024 upon supply of these orders.
As we set up CES items, we are able to count on to see elevated answer gross sales as these items are contracted for use at set common schedule. For instance, 2 of the installs at the moment being manufactured and anticipated to generate $250,000 in BIT Answer income yearly by the tip of the fourth quarter of 2023. The 9 months ended September 30, 2022, we now have obtained $7.9 million in gross sales orders, of which income recognition shall be upon supply all through this 12 months and subsequent. This represents 25% progress when in comparison with the primary half of final 12 months. And for the three months ended September 30, 2022, we obtained roughly $2.3 million in gross sales orders and/or profitable contract bids, which characterize a 5% progress when in comparison with the identical prior 12 months interval.
As a result of enhance in demand for our cellular SteraMist product, TOMI’s income elevated by 20% over what was reported for the second quarter of this 12 months. Our monetary working outcomes additionally confirmed sequential quarterly enchancment in comparison with the second quarter of 2022, with a 24% discount in our loss from operations as a result of increased income, gross revenue and decrease working bills. As our buyer base grows, we proceed to handle the necessity for well timed responses to inquiries, questions, orders and assist.
Throughout the third quarter, we elevated our worker headcount in our buyer expertise, gross sales and know-how departments in response to our rising buyer base and backlog. With the addition of two direct rent engineers, our enhanced know-how division will speed up R&D initiative and streamline inside manufacturing as we tackle bigger CES merchandise. Thus, our manufacturing capability not solely improved within the first half of 2022 with the addition of ARM EnerTech Associates who can manufacture our CES of their Pennsylvania facility. However now the added workers to our know-how division can help in analysis and improvement, prototype testing and meeting of our merchandise. We anticipate all these developments will scale back our total value and manufacturing leads.
TOMI employed a gross sales director with important gross sales expertise within the scientific well being care trade. A part of this background consists of utilizing TOMI SteraMist methods throughout his emergency medical EMS service for the previous 7 years. As an expert gross sales chief with an in depth file of success growing, supporting and implementing strategic plans to extend market share and penetration, TOMI expects to extend use of SteraMist in a lot of its business industries, colleges, emergency providers, transports, for instance.
Extra gross sales director at TOMI has years as an unbiased manufacturing consultant for SteraMist with a give attention to the life sciences and vivarian market. Since his tenure with TOMI, he has expanded into the meals security trade and is working some nice alternatives with the addition of two new unbiased TOMI manufacturing representatives.
TOMI launched SteraMist assist portal, which is now accessible on desktop in addition to by way of a cellular app offering ease of use for gross sales assist, branding and help to our TOMI Service Community or TSN suppliers, gross sales representatives and worldwide distributors and finish customers. We anticipate additional progress in gross sales and the continued construct of our pipeline for the rest of 2022.
We see sizable sequential enhance in profitability within the fourth quarter. We’re additionally inspired that we are going to see continued momentum into 2023 and 2024. Our final assertion relies on a really sturdy curiosity in SteraMist and pending negotiations and alternatives, a rising sturdy referral base from our present clients. With the rise in TOMI personnel leads me to imagine we’ll exceed analyst expectations in 2023 and 2024.
Third quarter confirmed our perception that SteraMist will play a really distinguished position within the meals security trade, a multibillion-dollar market. It has been established, we’re not solely fixing contamination issues in a extra environment friendly means, however we’re fixing ongoing points within the trade which have by no means been solved earlier than.
With the worldwide inhabitants explosion and continued concern over meals security, we anticipate a rise in demand for a mechanical approach to disinfect our meals provide. Day-after-day, there are information articles world wide pertaining to the contamination of the meals. The various printed meals security articles from the USDA demonstrates that our know-how provides a constant different to the decades-old chemical disinfection course of.
Earlier within the 12 months, Indoor Environmental Options and Consultants, or IESC, accomplished their forensic, architectural and engineering investigation and decontamination report with Kalera indoor farms. IESC acts as an unbiased gross sales consultant to TOMI. The report demonstrated the effectivity of SteraMist in a large-scale the EA vertical farm dramatically decreasing fungal progress, mould spores and yield loss from environmental bioloads, with notable efficacy towards the species inflicting 20% yield loss in all annual vegetable manufacturing. And it outlined decontamination protocols whereas calculating long-term financial savings in utilizing SteraMist as their decontamination answer.
Italia reviews structured the pathway to Soli Natural Integrated, one of many nation’s largest business indoor natural rising firms. Soli is now a proud proprietor of a number of SteraMist methods throughout 2 places. Soli’s anticipated to implement SteraMist in extra 8 places.
The TOMI crew continues to work with a couple of companions within the hashish trade. Biomist, a legacy TSN member, has been testing hashish flower incubated with a number of species of aspergillus, E.coli, Salmonella, yeast and different molds adopted by a remedy with SteraMist to the dried materials. Efficiency outcomes of the hashish plant weren’t affected, and no extra residual solvents have been discovered. The method was profitable in completion remediation of all microbial contaminants, whereas one other accomplice within the hashish trade has confirmed SteraMist reduces microbial rely on hashish flower from 400 cubic foot to non-detectable with out affecting the degrees of THC.
For brand new long-term traders, you might recall the variety of research and companions TOMI collaborated throughout the life science trade. And now we now have a premier set of world Fortune 500 firms, equivalent to Pfizer, Merck, Catalent, AbbVie, Sanofi constantly utilizing SteraMist as their decontamination normal.
There’s demand for each SteraMist product line within the life sciences. The utilization of TOMI’s Cellular SteraPak to the clever completely mounted CES to having our personal iHP company service deployed buyer amenities. We count on the meals security trade to observe the identical path, and the win at Soli Natural within the third quarter of this 12 months has began that path ahead, particularly in vertical farming.
Because the meals trade is approaching sturdy, our life science is rising even stronger. The largest drawback with integrating conventional vaporized hydrogen peroxide, or VHP, our #1 competitor within the trade into rack washers and different enclosures is the lengthy cycle instances. It’s so lengthy that they’re not often ever used. Nobody can afford to close down their operations to 7 hours. Nobody is aware of this higher than the producers of the washers and enclosures, thus TOMI’s new crew reconnected with the primary gamers this 12 months whereas exhibiting at AALAS.
Final month, Allentown, Higher Bilt, Tecniplast and Brit + Co are a few of these gamers serious about partnering with TOMI. We will promote the concept to finish customers prior to purchasing a cage washer enclosure, but it surely’s a completely totally different state of affairs if the manufacturing of the enclosure recommends SteraMist iHP.
The deal we’re engaged on with Brit + Co is a little bit of a recreation changer as a result of we achieved 6 log kills practically on contact, and the superior materials compatibility permit us to transform a biocontainment cubicle right into a decontamination chamber. Conventional chambers are extraordinarily costly heavy-duty items of apparatus, often manufactured from 100% stainless-steel. VHP requires such a enclosure. The distinctive properties of iHP quick kill, superior materials compatibility and it doesn’t require these massive heavy-duty enclosures. We will design a cubicle that is sooner, safer and cheaper than conventional decontamination adjustments. Brit + Co is a extremely revered title within the trade and no higher accomplice introduce the answer to the market than with them.
Concurrently, TOMI designed its fourth era SteraMist surroundings system. The system will now be 24 voltages, permitting for common outlet utilization and convert much more of the hydrogen peroxide answer, permitting for sooner turnaround time. As well as, the unit could have 8 outputs the place 4 are devoted to our common technique of injection, dwell and aeration, together with a light-weight beacon standing bar and 4 which can be programmable to fulfill the shoppers’ wants for any exterior tools they could want to work with the system.
This fourth era has been launched, and three are set for supply this month to our Australian companions. Important science options for use by a world-renowned influenza vaccine firm. SteraMist clients, consultant and companions proceed to develop all through the world, at the moment now in over 40 international locations. At present, TOMI is within the registration course of for India and renewal to fulfill new necessities within the Philippines. Each markets supply glorious potential resulting from elevated curiosity within the TOMI suite of decontamination answer.
The Nationwide Institute of Well being, or NIH, started utilizing SteraMist simply 1 12 months after receipt of our EPA registration to assist the analysis of cutting-edge medical information and improvement of revolutionary well being care innovation. And now they’ve 30 SteraMist machines throughout 11 divisions. Third quarter reported their newest buy of two SteraPak methods, and a pair of choose floor items assist the disinfection requirement for an Africa-based biosafety laboratory, increasing use of SteraMist to the worldwide biosafety market.
We continued to check with Group Buying Organizations, or GPOs, with Vizient, who serves greater than 50% of the nation’s acute care suppliers, together with 97% of the nation’s tutorial medical facilities and greater than 20% ambulatory care suppliers. We anticipate closing contracts to be signed early subsequent 12 months.
After launch of the SteraPak, the TOMI know-how crew rapidly started designing new SteraMist merchandise, which embody the Choose Plus. The one applicator fogging unit will permit for enhanced flexibility being in an enclosed stainless-steel pushcart to decontaminate full room to small area quantity. Choose Plus prototype is at the moment in actual setting testing with one in all our key native clients who owns a lot of all our present SteraMist merchandise has obtained an unlimited quantity of reward.
iHP SteraMist transport system has been designed for the transportation market, particularly emergency response, easy-to-use turnkey integration system with the choice to totally combine with the car or act as a stand-alone system. TOMI maintained strategic partnerships with associations, together with ISSA, a number one and worldwide affiliation for the cleansing trade. Many TSN members are additionally individuals of this affiliation. And we proceed to onboard new TSN members to the community, most notably within the third quarter was Jenkins restoration who holds 23 places in 15 states and rising. TOMI shall be launching a brand new web site early subsequent 12 months. As we introduce new merchandise and proceed to penetrate in new markets, it’s time to replace the design to showcase our new improvements. One of many major options on the positioning shall be logos and case research of our prestigious shoppers worldwide.
Our monetary outcomes for the three months ended September 30 in comparison with the identical prior 12 months interval for 3 months ended September 30 in comparison with September 30, 2021, our consolidated web income was $1,760,000 in comparison with $2,205,000. The decline in income is because of customer-imposed supply restrictions for tools and CES orders and associated influence on our income recognition and deferred income. We’re persevering with to see optimistic indicators within the market and elevated demand for our know-how.
Our buyer gross sales order obtained within the present 12 months is up 25% in comparison with final 12 months, and our buyer gross sales backlog continues to develop because of our clients’ time strains, which have an effect on our supply instances and corresponding income recognition in addition to our deferred income, which elevated $600,000 through the third quarter.
Consolidated gross revenue was 60.8% in comparison with 59.6%, representing a rise of 1.3%. The rise in our gross revenue was resulting from our product combine and gross sales. The consolidated working loss was $654,000 in comparison with $487,000, representing a 56% decline. The upper loss is because of decrease gross sales and gross income, offset by decrease working bills. Our consolidated web loss was $653,000 or $0.03 per share on a diluted share foundation in comparison with $488,000 or $0.03 per primary share.
EBITDA was a lack of $571,000 in comparison with $417,000. For the 9 months ended September 30, 2022, and 2021, money utilized in operations was $929,000 and $3,823,000, respectively, representing an enchancment of $2,894,000. The improved money stream from operations is primarily resulting from our decrease reportable loss for the 9 months ended September 30, 2022, which has declined 22% when in comparison with the identical prior 12 months interval in addition to the rise in deferred income, which is up $1.1 million in our present calendar 12 months.
Shifting to the steadiness sheet. As of September 30, 2022, our money and money equivalents have been roughly $4.3 million. Deferred income was $1.2 million. Working capital was $9.3 million. And our shareholder fairness was $11.8 million.
Operator, let’s open the decision to questions.
Query-and-Reply Session
Operator
[Operator Instructions] We’ll transfer first to Sameer Joshi with H.C. Wainwright.
Sameer Joshi
Congratulations on the progress and the constructing order ebook and likewise all the opposite progress that you just outlined. On the revenues entrance, are you able to elaborate slightly bit on the shopper imposes prolonged supply time strains? Is it as a result of they’re delaying their initiatives? Or are there different budgetary constraints on their finish? And what’s the purpose for this?
Halden Shane
No. I imply these clients haven’t got budgetary restraints, actually. The issue is a variety of the orders we’re getting, we’re in a position to construct methods, however their amenities are usually not accomplished or they’re having engineering delays resulting from supplies of their very own.
Sameer Joshi
Okay. Understood. Understood. So these orders shall be — are you anticipating deliveries within the fourth quarter? Or are they pushed into 2023?
Halden Shane
It is a tremendous steadiness. We’re anticipating plenty of them within the fourth quarter and extra of them into 2023. And as we full them, we’re now even taking orders into 2024.
Sameer Joshi
Okay. Okay. I feel in September, we noticed some residential government order allocating roughly $200 million for DoD for biosecurity. Have you ever seen that? And is there any profit that you could be get from that?
Halden Shane
We’re unsure but. It is a lengthy course of. Once more, we’re growing our gross sales division, and we’re signing these forms of initiatives to them to exit and look into. We’ve not seen something as of this date that I may let you know about.
Sameer Joshi
Okay. After which on the hashish and CEA entrance, what’s the potential that you’re , not when it comes to the market sizes, however your addressable market, which you may get in, say, 2023 and 2024 from these type of clients?
Halden Shane
Once more, I feel the market, as we all know, is large. The truth that it is working, we’re getting calls on a regular basis. This research was actually good, and I simply have to return and ask the man how he is aware of it did not have an effect on the extent of it. However it’ll. Within the U.S., I do not find out about internationally.
Sameer Joshi
Sure. It is a massive market, even inside a couple of states in the US, that’s true.
Halden Shane
Sure, sure, that is true.
Sameer Joshi
Only a query on bills. You mentioned you are growing the headcount, you are hiring administrators, gross sales administrators. How ought to we see your working bills develop over the subsequent few quarters? You have been fairly regular final 2 quarters. So simply needed to see the way it goes from right here.
Halden Shane
I feel you will see a rise in proportion to our gross sales income. I do not assume we’re overly growing. A few of them have been replacements. A few of them are new engineers, as I mentioned on the decision. And a few of them are growing our gross sales. However as we enhance our gross sales, we’re growing our income. And the operation bills ought to enhance. However on a share foundation, just about keep the identical or enhance slightly.
Sameer Joshi
Understood. And only one final one clarification on the core era tools. Is it priced much like your present tools? Or do you — is it at a premium value vary?
Halden Shane
Effectively, like everybody else on the earth, we have raised our costs on all our tools. And the fourth era shall be a reasonable enhance over what our earlier environmental methods and third generations have been.
Operator
And we’ll transfer subsequent to [John Nelson], who’s a non-public investor.
Unidentified Analyst
Halden, congrats on the quarter, and the longer term sounds shiny. A number of questions for you. The — you talked about earlier within the name about being able or growing your potential to tackle bigger CES initiatives. And I used to be questioning what sort of bigger initiatives are — do you envision going after.
Halden Shane
Something from full flooring to finish buildings.
Unidentified Analyst
That shall be one thing.
Halden Shane
John, when the preliminary DARPA research got here out, going again when the know-how was developed, it was an immune constructing that it was developed for. So we simply have escalated the flexibility to have constant kill all through a room, all through a ground, all through a number of rooms and even a constructing. So we’ll be going again to that immune constructing idea for these individuals which can be within the protection trade and clearly the excessive safety profile shoppers which may be serious about that.
Unidentified Analyst
Glorious. I used to be questioning if you have been speaking about immune constructing idea, full flooring buildings, have you ever — are your salespeople going after or take into account going after the semiconductor trade due to its want for clear rooms and really critical ranges of sterilization?
Halden Shane
Completely. In truth, we have performed a few of that work within the service finish, and that is a really perfect facility to make use of our know-how.
Unidentified Analyst
Okay. Superb. And I feel your listeners will in all probability be serious about a — only a temporary replace on the development of the SHIELD research.
Halden Shane
Sure. Okay. Once more, it is accomplished. The outcomes are phenomenal. The paper is someplace being edited. And I am simply not pushing it with the authors as they’re within the public well being sector, and it looks like they at all times have a possible pandemic or a viral outbreak to cope with. And I do not need to step on their toes, however we’ll begin popping out with some advertising and marketing materials concerning the effectiveness of it. And I feel the general public shall be .
Unidentified Analyst
Positively. And let’s examine, the EMS progress? Something — a brand new report on that?
Halden Shane
We’ve that transportation unit that subsequent 12 months, we now have a buyer that has a a number of want for it of their ambulances and it is nonetheless on price range. And time-wise, we’re ready — we can ship.
Unidentified Analyst
Okay. Superb. And anything to report on the — I feel it was — if I recall accurately, it was a share of the answer for the meals trade that you’re ready for the FDA for approval on just like the 1%.
Halden Shane
Appropriate. So we now have the 0.35% that was authorised by the EPA, and we’re nonetheless progressing with the 1%. For the time being, we’re utilizing the decrease share and getting good outcomes, and the 1% shall be perfect. In all probability subsequent 12 months, we’ll have extra data on that together with another additions to our EPA label that we’re actively pursuing.
Unidentified Analyst
Okay. And I feel that’s it. The — I assume another. Whenever you look on Amazon for — I imply that is only for regards to the backpacks. You see the — your opponents have less expensive items versus yours. And the — utilizing the razor blade idea, is it value contemplating a value minimize on the backpacks? Or is it — is the demand such that — and the capabilities of your backpacks being a lot superior that it isn’t value contemplating.
Halden Shane
Sure. I imply I can perceive that. If there’s 2 ranges of disinfection and we now have this excessive stage, which is constant sick flog and we’re not caustic, we do not injury supplies, the lower-end individuals which can be — I have never appeared on the Amazon website for some time. However the lower-end individuals which can be on the market all have cheaper options, however they’re damaging.
So that you proceed to make use of them, and we now have some nice case research of main well-known amenities that use a few of that product and got here to us, and we’re prepared to pay what we cost as a result of they have been destroying supplies for his or her shoppers. So it is a matter of simply getting this world wide and going forward and making these advertising and marketing claims and other people studying them.
Lots of people do name up they usually say it is very costly in comparison with X, and we go over the the explanation why. If you wish to get that 10 out of 10, an ideal disinfectant, decontamination answer, you bought to make use of our product. And we’d moderately have the shopper that understands that versus the shopper that thinks they will perhaps throw any answer in there and destroy our piece of apparatus. So it may be understanding tremendous for us, I feel, John.
Unidentified Analyst
Okay. After which simply lastly, I feel up to now, you’ve got performed some work with one of many ServPro or ServPro distributors. Is — can you make any feedback about any additional penetration of ServPro in your items, the backpacks?
Halden Shane
Not in the intervening time in relation to that firm, however I did point out on the decision different giant — one other giant one and different ones that we’re working with. So I am going to should test in and get again to everyone about that specifics.
Unidentified Analyst
Okay. Effectively, it sounds — the longer term sounds thrilling. Thanks in your efforts. Thank your crew in your efforts, and I look ahead to the progress.
Halden Shane
Thanks, John. Thanks in your assist.
Operator
And we’ll take our subsequent query from Adam Brent with [indiscernible] Companions.
Unidentified Analyst
Simply needed a bit extra colour as to what share of your gross sales are the higher-margin options gross sales. And the way ought to we take into consideration that going ahead?
Halden Shane
So I feel our options gross sales total has been round 15% of our complete income. And the extra tools we get on the market, the extra we’ll see a rise in answer gross sales. So with these new era items of apparatus and the present want of such a disinfection, decontamination answer, together with our backlog and pipeline, I feel that you will see that quantity share going up and you should use the 15%. I imply we now have that as a historic quantity we have been following. And as time goes on, I discussed on the decision, we’ll count on $0.25 million from these built-ins, and that is simply a few them. So I feel that, that may proceed to extend as tools utilization.
Operator
And this does conclude the Q&A portion of at the moment’s name. I’d now like handy it again to administration for any closing remarks.
Halden Shane
Effectively, thanks all for listening. I hope everyone has an amazing Thanksgiving and a merry Christmas. Thanks. Finish of name.
Operator
This does conclude at the moment’s program. Thanks in your participation. It’s possible you’ll disconnect at any time, and have an exquisite night.