TOMI Environmental Solutions Q3 2023 Earnings Call Transcript

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November 14, 2023

There are 7 speakers on the call.

Operator

Greetings. Welcome to the Tomy Environmental Solutions Incorporated Third Quarter 2023 Financial Results Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note that this conference is being recorded.

Operator

I will now turn the conference over to your host, John Nesbitt of IMS as Investor Relations. You may begin.

Speaker 1

Good afternoon. Thank you for joining us today for the Tommy Environmental Solutions Investor Update conference call. On today's call is Tommy's Chief Executive Officer and Chairman of the Board, Doctor. Holden Shane Tommy's Chief Operating Officer, Thank you, EJ Shane and Tony's Chief Financial Officer, Nick Jennings. Doctor.

Speaker 1

Shane will provide an overview of recent business highlights. EJ will report 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 November 28, 2023, the details of which are included in the company's press release dated November 14. A webcast replay will also be available at Tommy's website, www.tomymist.com. Please note that information contained within this presentation is relevant only to the date of which it was recorded, November 14, 2023.

Speaker 1

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 Tilney 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 Thank you for the 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.

Speaker 1

In addition, Tomi will discuss certain non GAAP financial measures during this call. The company's use of non GAAP measures It believes they provide useful information about the operating performance that 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 November 14, 2023. I will now turn the call over to Tony's Chairman and Chief Executive Officer, Doctor. Hal Vinsheng.

Speaker 1

Please go ahead.

Speaker 2

Thank you, John, and good afternoon from the West Coast of the United States. Thank you all for joining to discuss some key achievements of our Q3 2023 performance. During the Q3 of 2023, our strategic focus on expanding our sales channels and business development persisted worldwide, along with collaborative efforts from key current and new customers. Simultaneously, we diversified our product line Finally, our launch of our SteriMist transport system and the SteriMist integration system known as the SIS Seems to be the answer to the automation requests that many industries are looking for to replace their old And EJ will discuss this in some detail shortly. Revenue declined during the quarter due to the timing of customer orders and the related revenue recognition.

Speaker 2

That said, our revenue was up 5% for the 9 month period And we are optimistic about our high margin business model and its ability to drive future sustained profitability as We scale the business. Subsequent to the close of the Q3 of 2023, We agreed to sell and issue convertible notes in a private placement in 1 or more closings Up to an aggregate principal amount of $5,000,000 As of November 7, 2023, we sold and issued an aggregate of $2,600,000 to a group of institutional and accredited investors, most of whom are new investors in the company's securities. The note contains no restrictive covenants or restrictions that may impose burdens for limitations on our operations. We intend to use the net proceeds from this offering For working capital, expansion of our existing Frederick facility and other general corporate purposes, including expanding Our sales channel through the addition of distributors, outside sales representatives, internal sales staff and external consultants. Throughout this year, our strategic emphasis has been significantly geared towards the expansion of additional sales channels.

Speaker 2

Distinguishing itself from previous years, Our approach has evolved to encompass not only domestic, but also international partnerships with larger groups. This strategic shift in focus involves collaboration with prominent entities to enhance our distribution network and simplify our market presence. As we continue recruitment of additional independent sales representatives, we have also added Consultants possessing key expertise in our targeted market segments. Thus far in 2023, We have brought on 8 distributors expanding our presence worldwide. Our team has grown organization Vizient last week.

Speaker 2

This collaboration marks a significant milestone in our efforts to broaden our reach and strengthen our position in the healthcare market. Some of the notable additions in Q3 are as follows. We partnered with Colcom Incorporated to offer SteriMist IHP products as part of Colcom's life science and healthcare portfolio of products. With a combined 50 years of technical sales expertise, Colcom Incorporated Join forces with us under the leadership of Bridget Collins. Colcon Incorporated is a trusted supplier of high Quality clinical and laboratory equipment.

Speaker 2

Given its established customer base and extensive In the decontamination industry, this partnership will be mutually advantageous. In August, we entered into a business development consulting agreement with Darr Incorporated, a company specializing in food safety and food processing spaces. We anticipate the agreement will better position us in providing education to the food safety markets Through the education of the advantages of the SteriMist platform of products and expand our sales channels as well as our customer bases on the food safety markets. In September, we entered into a sales representative agreement with Universal Disinfection to better facilitate growth in the European region in the commercial, aviation and life science markets. The two partners of Universal Disinfection are the most knowledgeable about our technology in all of Central Western Europe and the Baltic Most recently in November, we entered into an agreement with Patti Olanger, the Founder of Beam's LLC, who specializes in public health preparedness.

Speaker 2

Patty is also a Director of Frontline Foundation dedicated to protecting American citizens from Bio Terra Threats. In the past, she was Assistant Vice President of the Office of Research Administration and Executive Director of Environmental Health and Safety Office of Emory University Hospital System and most recently the Executive Director of Global Bio Risk Advisory Council, a division of ISSA. Patty will assist, strengthen and expand the Tomisteremis network and And increased business development in the commercial markets. She brings over 20 years experience establishing executive strategic vision and direction of large institutions and companies spanning multiple industries including higher education, with Healthcare, Consultancy, Hospitality and Pharmaceutical Sectors. We continue To remain active in our marketing initiatives and attended and presented our Sterimus brand of products at 6 different trade shows during the Q2 alone.

Speaker 2

The expansion of our sales infrastructure in 2023 has been substantial and will maintain a strong sense of optimism as we approach the conclusion of 2023. Looking ahead to 2024, we anticipate a significant acceleration in the momentum of our sales network. We continue to see positive signs with our Stiry Mist IHB service team as we saw quarter over quarter revenue growth of 59% and year over year growth of 16% through September. As we announced in August, Pfizer Rocky Mount engaged our IHP service to conduct emergency decontamination within their facility, which suffered substantial damage to the tornado. Pfizer Rocky Mount has been a long term loyal client of Tomy, having commenced their utilization of SteriMist IHP Corporate Service in 2014.

Speaker 2

Since then, Tommy has been performing decontamination services twice a year During their facilities, routine scheduled shutdowns and called on as necessary throughout the years. During the Q3, we expanded our portfolio of CES systems with the delivery of a 3 applicator CES System to Raygon Institute of MGH, MIT and Harvard for implementation in their research and clinical lab located in Cambridge, Massachusetts. I would now like to turn the call over to Tomi's Chief Operating Officer, EJ Shane, who will provide a comprehensive overview of the company's forthcoming initiatives with both new and exciting partners, insights into our product Development endeavors and the strategies in place to drive revenue growth. P. J?

Speaker 3

Thank you, Doctor. Shane, and good afternoon, everyone. Our current pipeline and backlog remains healthy. We are encouraged by long term disinfection Within the biopharmaceutical industry, aseptic manufacturing is undergoing several noteworthy developments. The emphasis on maintaining sterile environments in the production process is more critical than ever.

Speaker 3

There is a continuous integration of advanced technologies, such as automation to enhance aseptic manufacturing process, ensuring precision and minimizing human interventions. Stringent regulatory standards persist demanding adherence to strict guidelines to ensure product safety and efficacy. Biopharmaceutical companies are increasingly adopting a global approach, establishing facilities in strategic locations to meet growing global demand. There is a notable shift toward the adoption of single use systems offering increased flexibility, reduced contamination risk and quicker changeovers between production runs. Companies are engaging in collaborations and partnerships to leverage shared expertise and resources to allow for continuous manufacturing processes providing for more efficient and streamlined productions, reducing the time and resources required for Overall, the landscape of aseptic manufacturing with the biopharmaceutical sector is dynamic, driven by technological advancements, regulatory considerations and the evolving needs of the global healthcare markets.

Speaker 3

We believe the competitive advantages to Tomine's IHP STERAMIS technology is well aligned with these prevailing trends within the biopharmaceutical sector. Furthermore, our expanded range of STERAMIS products and applications combined with recent partnerships is poised to reinforce this alignment. These developments aim to enhance awareness among facilities, ensuring IHP technology caters effectively to evolving industry needs. Our partner in Germany, Universal Disinfection, has significantly expanded their list of opportunities in recent months across Variety of market segments, but mainly biopharm. They maintain a positive outlook on the collaboration with the German biotechnology company referenced during our last call, Anticipating the conversion of this partnership into several orders for our CES or custom environment system.

Speaker 3

On a side note, Universal Disinfection and the German Red Cross, the largest humanitarian organization in the world, recently released its successful implementation of STERAMIS P, with its project manager stating, and I quote, STAIRMAN's disinfection system could revolutionize hygiene measures in the ambulance service And would make it possible for ambulances to completely disinfect during the return journey from an infection transport. This would be a real milestone. Universal Disinfection purchased 2 STERAMIS transports in quarter 3. We are actively engaged with Fresnius Kabi in Brazil and we anticipate the qualification process to be completed later this month. The next phase involves the assessment of STEREMIS IHP in the 2nd location in Brazil, 2 in South Africa and 1 in Argentina.

Speaker 3

Notably, the technology has already been introduced to key personnel at these facilities. It's worth reiterating that Fresnius Kabi extends to 47 countries around the globe. Adhering to the industry trends previously discussed, Our innovative product, the Scaramis Integration System or SIS is gaining notable traction. This system This is automation and ensures compliance with necessary guidelines, making it an ideal solution for large manufacturers of enclosures requiring decontamination. This product line meets every noteworthy developments referenced earlier.

Speaker 3

Moreover, it extends the small lab spaces, research universities and the animal research industry. The SIS is offered in 3 distinct packaging and assembly options, establishing a standardized product line adaptable for almost any enclosure utilized in life Our strategic collaboration with recent partners and representatives specializing in the industry positions STERAMIS IHP to market and sell this product line Effectively. The past 2 months have been marked by significant activity, and I am optimistic that the efforts Invested will yield positive awareness by the end of this year with an even greater impact anticipated in the coming years. Our ongoing partnership with Solaris, as highlighted in the press release from the previous continues to be of significant importance. I'm pleased to share that we are gearing up to advance to Phase 4 of our collaboration.

Speaker 3

We anticipate unveiling further details, so I encourage everyone to stay tuned for this upcoming announcement. In the current quarter, we initiated discussions with engineers and scientists of another stem cell company based in New England. This company currently in the design phases of a cell therapy device is exploring the integration of IHP as its decontamination method. This presents another promising prospect for collaboration in the realm of long term integration. While quarter 3 presented timing challenges on the revenue front, we made significant achievements in acquiring new customers, particularly within the industry closely monitored by our shareholders that in food safety.

Speaker 3

Notably, we successfully sold our Steripak to Simplot, a leading international food and agricultural company headquartered in Boise, Idaho. Simplot, known for innovations in plant nutrition and food processing, Is currently incorporating the Steripak into potato related processes in Idaho with plans for expansion to other facilities. We have collaborated on drafting their initial sanitation standard operating procedure. Additionally, our Steripak found significance with other notable clients, including Purina Nestle for pet food manufacturing and Mayorga Coffee, who allowed tome to heavily promote their use of the Steripak in their facility. In Michigan, our deformed wing virus study has generated interest in a group of professional beekeepers.

Speaker 3

We will soon be traveling to the group to assist in its effort to save the bees through the application of our Steripak, marking a meaningful contribution to environmental sustainability. These accomplishments underscore the diverse applications and Positive outcomes associated with our innovative solutions. The recent collaboration with Vizient GPO holds promise for expansion in the healthcare sector. The variety of well established partners ranging from the collaboration with design and engineering groups of pharmaceutical facilities To the decades of expertise in enclosure decontamination representation, combined with our new product lineup, positions Steramics IHP for significant growth, especially in the life sciences. Our association with Patti Ohlinger, a renowned figure in bioversecurity and industry leader for commercial service providers It is anticipated to refresh the Tommy Service Network or TSN members and enhance our commercial division.

Speaker 3

Additionally, The recent additions to our customer base in the food safety sector acting as referrals for our technology mark first time progress for us. I appreciate your patience, and I am encouraged that our strategic initiatives position the company to drive sustained revenue growth in the near term. I thank you all for your continued support. And now, I'll turn the call over to our CFO, Nick Jennings.

Speaker 4

Thank you, EJ, and good afternoon, everyone. I'll provide a brief overview of our financial results for the Q3 of 2023 compared to the same prior year period. For the 3 months ended September 30, 2023 compared to September 30, 2022, Our consolidated net revenue was $1,470,000 compared to 1,760,000 Consolidated gross profit was 55% compared to 61%. The decline in our gross profit was due to our product mix and sales. The consolidated operating loss was $901,000 compared to 654,000 Our consolidated net loss was $901,000 or 0 point 0 $5 per basic and diluted share compared to 653,000 or $0.03 per basic share.

Speaker 4

Adjusted EBITDA was a loss of $807,000 compared to a loss of 571,000 A table reconciling adjusted EBITDA to the appropriate GAAP financial measure is included with today's press release. Moving on to the balance sheet, as of September 30, 2023, our cash and cash equivalents were approximately 1,400,000 Working capital was $6,900,000 and shareholders' equity was $9,500,000 Now I'd like to turn the call back over to Doctor. Halden Shane.

Speaker 2

Thank you, Nick. As I hope you have garnered from our remarks, a key strategic shift Our product to the right customers. A few years ago, I tried to establish Vice Presidents of Sales to head up each vertical And this was just a mistake in cost us valuable time. That being said, we learned from it and EJ and the team have Done an amazing great job building a sales and distribution network that can help us scale Tomy to be a much larger It is my belief that we are poised to move through to profitability in the 4th quarter And if we execute, we should be able to drive sustained profitability going forward. Thank you all for joining us today and for the unwavering support as investors and followers of our company.

Speaker 2

A big thank you to our team around the world who has laid the foundation for our company to become the world's leader in the disinfection, decontamination space. It is the right time and place to unseat the competition, We now open the Q and A part of the call. Operator, let's open the call to questions please.

Operator

At this time, we will be conducting a question and answer session. And our first questioner is Frank Lewis with Adams Street Capital.

Speaker 5

Hi, thanks for taking the question. How should we think about revenue mix this year by end market? And have we seen a particular shift over the last few years?

Speaker 2

Thank you. Nick, you want to take that?

Speaker 4

Sure. In terms of A breakdown of that really, we continue to see growth in life science in that vertical as it's the most mature. And food safety is developing quickly, so in terms of markets. And really if you were to break it further down into how we generate revenue through equipment solution and service, If you've been following along, you can see the custom engineered systems or the collaboration projects we have with certain Companies provide a lot of optimism for us because these are great things we're getting into.

Speaker 5

Got it. Good to know. Thank you.

Speaker 2

Yes. I think also the CES and the SIS systems will be what drives the company going forward in Thank you.

Operator

We now hear from John Nelson, Private Investor.

Speaker 6

Hi, Doctor. Shane. Thank you. And I have several questions. The first one is, You mentioned at the end of your statements that you expect to be profitable in the Q4.

Speaker 6

And If that were the case, it must or it should mean that you're expecting a significant increase in revenue from This last quarter, is that correct?

Speaker 2

We are hoping that. That is correct.

Speaker 6

Okay. And what areas might would you think would be driving that Increased revenue?

Speaker 2

Well, I think it's the interest in the CESs and the SIS systems that we have out there and our new transportation system, mostly from the life sciences, Along with the addition of the onboarding, the education of these new partners that we've taken on who have significant pipelines in the sales end of all verticals.

Speaker 6

Good. Thank you. The next question is related to the Convertible debt deal that you did, is there anything in the documents that prevents The participants from shorting your stock?

Speaker 2

Yes, there is. There are a couple of documents that restrict sales and also restrict Shorting of the stock, so we are covered from that standpoint. Thank you.

Speaker 6

Excellent. Great. Next question, is there any can you give us any update on the ethylene oxide Replacement market?

Speaker 2

Not really. It's still these regulatory agencies Are still creating the foundation for who's going to be able to use ethylene oxide and who isn't. At the moment, it seems it's just large facilities that they're restricting because of OSHA and some employees' Regular standards, but it's going to be a while, John, and I think that this will go out to all Usage of ethylene oxide, once the regulatory agencies start Condensing and specifically hitting uses of it. We think our product is we know it's the replacement and we think that It won't be too long until it's used in the food safety industry for the ripening and for prevention of foodborne

Speaker 6

Okay. Thank you. Fentanyl has been in the news a lot concerning a number of people. Is there anything new on the neutralization regarding use of STERAMIST?

Speaker 2

So we're hoping, you've read that I'm sure the press release that the Ami did in relationship to other toxoids And we're hoping that they will do a similar study on Fentanyl. As we all know or all we all should No, it's a significant problem throughout the United States and it's affecting educational systems, affecting police. And I personally believe because it's an organic compound, we'll be able to alter the structure of that compound with the use of SteriMist in closed Areas which is the most concern for people and we're pursuing it. We're pursuing also some studies with individuals That know how to do the right studies and collect the right data. So we're on track to hopefully have something In 2024, not sure what part of it, but within by 2024.

Speaker 6

Okay. And let's see, any also any new developments on with the FDA as far as Steramist on food treatment?

Speaker 2

We're still working towards that label In this 1%, we're able to treat it with our 0.35%. We just want to get a little more pathogen kill and we're still involved in that process. But Many food companies are using our regular 7.8% in non food areas to decontaminate

Speaker 6

Okay. And I always ask this, but The UCLA study?

Speaker 2

The field study, yes.

Speaker 6

Anything to report there?

Speaker 2

Nothing published yet, as you and I know.

Speaker 6

Okay.

Speaker 2

We know the data is

Speaker 6

good. Yes. The and my next question is related to From the installs with the transport system, Have you been able to can you give us any metrics as far as Comparison cost effective comparison between the use of stair mills versus the To our manual cleaning on that ambulances generally require after usage?

Speaker 2

I'm going to let Ijei answer that question, Primarily involved with the transport system. Kate?

Speaker 3

Of course. So currently, we are still at a soft promotion on the transport. We have a few sold with our partner in Germany, who is working On the next stages with the Red Cross there to install the transports there. We do still are in communication as well with the hospital who is a who is a customer of ours that started the whole transport development and we're hoping to meet with them before the end of the year. We're also working with the Canadian distributor group, Technimount that we released earlier in the year.

Speaker 3

And they're gaining a lot of traction on the Transport with designers of ambulances in which we're going to work with them on certain mounting devices because that is their specialty. We still have to endure some crash testing that's required in the region. But once that's completed, we'll be able to establish more of a metric.

Speaker 6

Okay. But any preliminary indications as far as a significant cost benefit using The new transport system?

Speaker 3

Of course, it goes in line with our technology on the corrosive Lack of grossness of abuse of IHP with comparison of the main competitor in the industry. So there's certainly interest and the speed in which we can turn over an ambulance. And that was generated in a case study we've released with The German Red Cross on

Speaker 6

the feed. Okay. All right. Thanks. And my last question is related to again back to the convertible debt offering.

Speaker 6

You had a number of, I think it was 28 investors and that's Rather large amount for a deal this size. Can you explain Why so many investors in the deal?

Speaker 2

Well, I think I've always felt that the more Eyeballs we have in our company that understand our technology and that are long term investors, the better off Certainly, we raised a small amount of capital and we've got to raise a lot more with 1 There are 2 investors, but I felt that the company started way back when with a group of And I think now this group fits the criteria of being what we Like to have and what we currently have going forward. So that's why we did it. It's obviously a lot more difficult to bring in many They did a terrific job and making sure that all investors including these new ones are successful

Speaker 6

Okay, makes sense. That is all The questions I have, I look forward to a profitable Q4. Thank you.

Speaker 2

Thank you. Thank you all.

Operator

We have reached the end of the question and answer session. And I will now turn the call over to management for any closing remarks.

Speaker 2

I just want to thank everybody for joining and hope everybody has a happy and healthy Christmas.

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TOMI Environmental Solutions Q3 2023
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