TOMI Environmental Solutions Inc
NASDAQ:TOMZ
Earnings Call Analysis
Q4-2023 Analysis
TOMI Environmental Solutions Inc
TOMI Environmental Solutions experienced a challenging year in 2023 with a decrease in annual revenue, reported at $7.355 million compared to $8.338 million in the previous year. This decline was attributed to order timing and cumbersome approval processes. However, gross profit margins remained relatively strong at 58.3%, although slightly lower than the 60.7% seen previously. Despite this setback, the company made significant strides in diversifying its product offerings with the introduction of the SteraMist Transport, Integrated System, [ Envi ] Plus and Hybrid, focusing on expanding their distribution and service capabilities, both domestically and internationally.
Demand for TOMI's CES escalated with the successful delivery of four such systems in 2023, which are anticipated to fuel solution revenues and serve as a powerful marketing tool going forward. This uptick in system deliveries marks a positive growth indicator as the company strives to establish SteraMist technology as the industry standard for disinfection and decontamination.
With an active pipeline and multiple initiatives underway to close sales in the CES segment, TOMI forecasts a significant revenue inflow from the BIT solution moving forward. Current bids, if successful, could collectively generate an approximate $600,000, presuming the client facilities adhere to their planned production schedules.
TOMI has not only expanded its product lineup to cater to the needs of both existing and new customers but has also focused on fortifying strategic relationships with industry partners. This strategic positioning, combined with their vigorous marketing efforts and research showcasing efficacy against challenging pathogens, is expected to bolster the company's reputation and market share, despite the revenue number not entirely reflecting the progress made over the past year.
Management expressed optimism about upcoming quarters, envisaging profitability due to a robust increase in interest across various verticals and a large volume of bids. This optimism is bolstered by a confident stance on the company's current cash position to sustain operations until profitability is achieved.
You don't have any saved screeners yet
Good afternoon, everyone, and welcome to the TOMI Environmental Solutions, Inc. Conference Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, John Nesbett. Sir, the floor is yours.
Good afternoon, and thank you for joining us today for the TOMI Environmental Solutions Investor Update Conference Call. On today's call is TOMI's Chief Executive Officer and Chairman of the Board, Dr. Halden Shane; TOMI's Chief Operating Officer, E.J. Shane; and TOMI's Chief Financial Officer, Nick Jennings. Dr. Shane will provide an overview of recent business highlights, financials and future plans. E.J. and Nick will be available for the Q&A.A telephone replay of today's call will be available through April 15, 2024, the details of which are included in the company's press release dated April 1, 2024. A webcast replay will also be available at TOMI's website, www.tomimist.com. Please note that information contained within this presentation is relevant only to the day of which was recorded April 1, 2024, 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 they believe they provide useful information about operating performance that should be considered by investors in conjunction with the GAAP measures. A reconciliation of these non-GAAP measures to comparable GAAP measures is included in the earnings release dated April 1, 2024.I will now turn the call over to TOMI's Chairman and Chief Executive Officer, Dr. Halden Shane. Please go ahead.
Good afternoon, everyone, and thank you for joining the TOMI Environmental earnings call. I hope everyone had a nice Easter Sunday. Today, we will provide operating and financial results for the full year 2023, along with an update on a few key current focuses for the company. During our 2023 calendar year, we delivered multiple custom engineered systems to key customers, diversified our product lines to support our expanding customer base and the related utilization of our SteraMist technology and continue to build out our sales infrastructure through the expansion of our distribution network.Our year-over-year revenue declined due to the timing of certain customer orders and the frustrating long approval processes. There was tremendous progress made in 2023 within the company, and we continue to do business with premier companies around the world. Our list of clients keep getting larger and our latest product mix with the SteraMist Transport, SteraMist Integrated System, [ Envi ] Plus and Hybrid puts us in a great position to provide much improved financial results moving forward.As stated throughout last year, we remain focused on expanding our internal and external sales infrastructure and business development initiatives. Last year, we expanded our presence both domestically and on an international basis with new customers across our division, independent sales representatives and brought a distribution network to the United States. Most recently, in November of 2023, we announced the addition of Sterile Grow, a United States-based distributor and consultation company in the food and cannabis market. Sterile Grow has demonstrated noteworthy achievements in the cannabis and food markets, specializing in controlled environment agriculture, particularly in integrating systems for large-scale indoor cannabis cultivation.In November 2023, we entered in a consulting agreement with BEAMS LLC to strengthen and expand the TOMI SteraMist network and increase business development in the commercial market. BEAMS LLC brings over 20 years' experience establishing strategic vision and direction of large institutions and companies spanning multiple industries, including higher education, not-for-profit healthcare, consultancy, hospitality and pharmaceutical sectors.Our sales infrastructure is in a much better place now compared to where we were last year at this time, and we anticipate the increased bandwidth of our internal and external sales channels will have a positive impact on our revenue in 2024 and beyond. Demand for our CES has grown as we completed and delivered 4 CES systems in 2023, expanding our growing portfolio of projects. In the first quarter, we delivered a CES system to Orna Therapeutics, a leading biotechnology company located in Massachusetts. During the second quarter, we delivered an 11 applicator CES system to Avid Bioservices for implementation in Avid's new purpose built in viral vector development and manufacturing facility in Costa Mesa, California.During the third quarter of 2023, we delivered a 3 applicator CES system to Ragon Institute of MGH, MIT and Harvard for implementation in their research and clinical lab located in Cambridge, Massachusetts. And in the third quarter of 2023, we delivered our CES Hybrid system to Indigo Pharmaceutical in Las Vegas, Nevada. We anticipate these additional systems will not only contribute to growth in our solution revenues moving forward, but will also lead to more referrals as they serve as a great marketing tool for us. Our brand recognition continues to grow market share as we march forward towards becoming the standard in the industry. We continue to diversify our base of products in 2023 with the introduction of SteraMist Hybrid and SteraMist Transport to support our ongoing commitment to providing superior disinfection decontamination solutions for our growing customer base.The company remains active in our marketing initiatives and attended and presented our SteraMist brand of products at 7 different trade shows during the fourth quarter alone. Our in-house service team is performing well, SteraMist iHPservice team saw a year-over-year growth of 13% through December and has continued to perform well through quarter 1 of this year. Earlier this month, we announced a new groundbreaking study demonstrating the effectiveness of our solution against foot-and-mouth disease virus, FMDV. This significant advancement supports the company's submission for an additional EPA label. During 2023, we also completed a study conducted in accordance with the U.S. Department of Defense, biological select agents and Toxin Biorisk Program Office, which demonstrated SteraMist iHP as an effective technology for decontamination of biological toxoid and a study funded by the USDA and NIFA, which demonstrated SteraMist iHP as an effective treatment of deformed wing virus, known as DWV contaminated hive substrates.The following are our company's forthcoming initiatives with both new and existing partners, insights into our product development endeavors and our strategies in place to drive revenue growth. Our revenue numbers for 2023 are not an accurate reflection of the progress we made during the year, positioning the business for long-term growth. The strength of our pipeline comprised of key players in various industries gives us confidence. Key objectives include closing more CES or custom engineered system sales, driving future revenue growth, ensuring that current CES installations are fully qualified and begin generating the anticipated BIT Solution revenue. driving traction for the SIS or SteraMist Integrated System, thus fostering repeat business with OEMs of decontamination enclosures, all while maintaining growth of the iHP corporate service revenues and expanding capital equipment purchases of our mobile equipment to both existing and new customers and distributors.To increase the success rate of winning bids for the CES custom engineered system, we are focusing on several key areas. Customers now have many options available to them in the implementation of SteraMist iHP as their decontamination solution with CES emerging as a preferred choice for many, A crucial factor in securing successful CES bids lies in perfect timing and budget. This involves aligning the design, construction and budget aspects of a project built to create an optimal environment for SteraMist CES or any fully permanent automated system to be their choice. With these elements aligning, our chances of winning these large bids increased significantly.One advantage TOMI Environmental is currently enjoying is the cultivation of strategic contacts at these important moments. For instance, a recent successful bid wasn't initially solicited for our technology nor was it a primary interest for the end user. However, the designers of the project recommended and preferred our solution, leading to a SteraMist win. We are actively entering into more and more relationships with these designers and construction firms to expand our outreach. By staying connected and informed about upcoming projects, we can position ourselves for success.Our internal initiatives aimed at enhancing communication and engagements are well underway, and we are confident that these efforts will yield positive results. Currently, we are in discussions with many companies regarding approximately 60-plus bids involving some sort of TOMI SteraMist integration over the many coming years, extending beyond the immediate fiscal period. Our second initiative involves ensuring that all 15 installations are operational and generating BIT solution revenue. To date, the final qualifying step for 6 of our 15 installations are coming to a close with the last expected to be completed by June of this year. We anticipate that once fully functional and operational, BIT solution revenue streams will equate to approximately $600,000 for our current bids only, assuming each facility maintains their current planned production schedules.While the SIS plan translates into less BIT solution revenue than the CES product due to the smaller scale of enclosures, it's significance lies in enhancing TOMI's reputation as a versatile and user-friendly decontamination solution technology. The ability to offer quick and effective solution for biological safety cabinets, BSCs, decontamination chambers and various other enclosures for medical devices reinforces our position as a leading decontamination solution provider. We are currently engaged in communication and testing and registration procedures to ensure the efficacy and compliance of these solutions, further solidifying our presence in the market.IHP service revenue has been a steady and reliable source of income for our company, consistently showing growth over time. It serves as our entry point into many organizations, allowing us to showcase the effectiveness of our solution first hand. Once clients experience the quality of our services, they often choose to engage with us for additional purchases. However, in today's economic climate, budget considerations often influence decision-making. As a result, many clients opt for routine service treatments that align with their financial plans. This trend reflects the current market dynamics and budget constraints faced by businesses. In addition to these new launches, we anticipate a surge in sales for our legacy Surface unit and the well-received SteraPak handheld devices. This growth will be facilitated by collaborative efforts with Patty Olinger of BEAMS in revamping our TOMI service network.The SteraMist PRO certified program represents a significant evolution from the TOMI service network. It will not only extend its reach internationally, but also broaden its scope beyond remediation companies to include in-house service providers. The program will offer top-tier training branches covering various aspects from SteraMist usage to infectious disease management and indoor air quality control. Participation in the program will entail an annual fee, granting access to continuous learning opportunities, regional conferences and future affiliate products. Additionally, members can expect roundtable discussions and other collaborative platforms to facilitate knowledge sharing and networking. This initiative reaffirms our commitment to providing comprehensive support and resources to our partners worldwide.I want to highlight the ongoing momentum of our partnership initiatives encompassing collaborations with key entities such as Fresenius Kabi, ambulance manufacturers, both directly and through our Canadian distributor, Vizient GPO, Nestle and other committed European distributors, Universal Disinfection. These partnerships remain pivotable to our growth strategy, providing us with access to new markets and opportunities. We will shortly announce the recent developments, including advancement in sentinel testing capabilities, the pursuit of our new EPA label, whether or not that SteraMist can play a role in controlling the environmental impact of PFOSs and PFOAs, also known as the forever chemicals, along with follow-up on our marketing plan and how to take advantage of the loss in the medical sterilization industry as approximately 20 billion medical devices are sterilized per year with ethylene oxide and an EPA regulation is restricting its usage, which could create a significant market void that may be filled with alternative sterilization processes such as TOMI's patented binary ionization technology.A brief overview of our financial results for the full 2023 compared to the full year 2022. Our consolidated net revenue was $7,355,000 compared to $8,338,000. The timing of orders, including holidays, the masses of signatures needed for order progression affected our revenue. Consolidated gross profit was 58.3% compared to 60.7%. The decrease in gross profit was due to our product mix, more CES than mobile. The consolidated operating loss was $3,349,000 compared to $2,882,000. Our consolidated net loss was $3,403,000 or $0.17 per basic and diluted share compared to $2,880,000 or $0.15 per basic share.Moving to the balance sheet. As of December 31, our cash, cash equivalent was approximately $2.3 million. Working capital was $7.9 million and our shareholder equity was $8.4 million. As far as a positive feedback from investors, I was just notified that HighWire, the contractor success platform for builders and owners of capital projects, has just announced the recipient of its prestigious Safety Award. TOMI Environmental Solutions received the Gold Safety Award "management systems are critical to any company's ability to deliver successful outcomes and most importantly, to keep their employees safe." TOMI Environmental Solutions has done a remarkable job implementing a strong safety management system, resulting in exceptional safety performance and results. A little about HighWire. It's a contractor success platform for asset owners, general contractors and facility managers. Some of the world's most admired organizations, including Skanska, which is a Swedish company, has about $15 billion revenues, Bond Brothers, been around since 1886 as a civil infrastructure, and Merck, who we all know, multinational company based in Germany, active in 66 countries leading science technology with 3 sectors: healthcare, life sciences and electronics.With that being said, I want to thank you all for joining us today and for your unwavering support as investors and followers of our company. A big thank you to our team around the world who has helped lay the foundation for our company to become the world's leader in disinfection and decontamination space. We are situated correctly with the right conversations taking place to move us forward and replace the archaic methods and increase the idea of proactive over reactive approaches. We'll now open to questions and answers. Operator?
Certainly. Everyone at this time, we'll be conducting a question-and-answer session. [Operator Instructions] Your first question is coming from [ Jack Williams ] from [ Warren Capital ].
So you guys launched a handful of new products in 2023. Can you provide some color on these new products, expand your addressable market? Or they're mostly kind of for existing customers or verticals?
Okay. E.J., do you want to take that, if you can?
Yes, certainly. Hello, everyone. So the new product launches are for both current customers and new customers there. made and designed for a variety of different industries. For example, the Transport is primarily designed for emergency services. The [ Envi ] Plus and the SteraMist Integrated System stand-alone version are 2 that will be launched live at [indiscernible] in 15 days in New York, and we look to have seen a lot of results there considering they were designed with a lot of the customers [indiscernible] as well.
[Operator Instructions] Your next question is coming from John Nelson.
My first question is, do you have the cash resources to get you to profitability?
We believe we do at the moment, and we do have the resources in place... Yes.
Okay. Good. And can you kind of give us some updates on some of the various opportunities that you've been exploring in past sessions regarding food produce and hospital cleaning and semiconductor plants and service pro type operations.
Yes. As mentioned on the call, we're revamping the TSN into a professional certified program that we will be issuing various badges as levels of achievement. And we think that bringing that domestic and internationally with the new hires we have will be extremely beneficial to the company. As far as the ambulances, we have customers or distributors that have customers in both North America, Canada and the United States. And that's interested in our Transport, and we're hoping to see movement this year in that area. Food safety is every time I give a quarterly update seems to be getting busier and busier. There's a tremendous interest out there in the food safety end and from both transportation, processing and in general, protective food safety as a country and as a world obviously, food prices are going up and food is becoming more scarce. So that, I think, will be fighting for the lead among our divisions with life sciences in the very near future. Hospitals, we are still coming out with new marketing this year for the hospital markets. And with some of the advancements in some of our new pathogens, I think that they're going to be looking to replace a lot of the excessive disinfection equipment that they bought during the COVID pandemic, which by now is either not working or they're ready for something new. So we see a pretty bright horizon in all those areas. I don't know if I missed any, but I know semiconductor you mentioned. Yes, we haven't done much with that yet, but I think it's going to be definitely another market that should be interested in our product.
Okay. And what about exploring the use of SteraMist in addressing the substitution for ethylene oxide.
Right. I mentioned that on the call, too. And I think that, that's going to be a very interesting new niche for us. Now the point being this ethylene oxide, the EPA is putting some real restrictions on both from a indoor environmental and outdoor environmental aspect, and it has a lot to do with exhausting out from these large medical sterilization facilities, medical material supplies, equipment. And it's going to be an expensive process to change their exhaust system. So I think some of them will end up probably changing it and stay with ethylene oxide. Many will be looking for alternatives that are more eco-friendly and less [indiscernible]. So I think we have a great opportunity here. We still have a little bit of regulatory stuff to go through that we're working on, and there should be some interesting updates in future earnings calls about that.
Okay. And I know you're exploring the possibilities of use of your solution in addressing the PFAS and PFOA problems. Can you give us any more details about how you would go about using your product to treat that problem?
Well, so I mean, I really can't. I can do it on a personal basis, which I will right now. But as a company, with the amount of employees we have and with the amount of effort and work, as you just heard that we're doing, it's not up there, it's on our list to accomplish this year. I think both from water safety and from these areas where these yards are that they keep throwing all these forever chemicals, I think we potentially have a shot at breaking them down and eliminating it whether they're put into certain bins that we treat or the process itself. So we're still looking at it. I am more than anyone in the company. And I'm hoping that because that would be if we're able to break into any aspect of that, whether it's the way that these products, these forever chemicals are breaking into our food supply through the soil and through the roots of plants or whether it's into the water supply or literally that they're just toxic in the environment. It will be a great win, both from a financial aspect of our company and from a humanitarian aspect of what this product can do for the world.
Good. And then you mentioned delays in the fourth quarter revenues, would you expect most of that to catch up in Q1 or just over the next 3 or 4 quarters?
I think that it's going to be a little strange, I think. The second, third quarter, which usually are not our stronger quarters are going to be really strong quarters for us. I think we'll definitely be showing profitability by then. And I think once we do that, then the future, we'll be there going forward into 2025, 2026. We have a tremendous amount of bids out there and people interested. And even just before I went on the call, I looked at 3 mails and 3 different verticals of people that want our product over the competitors. So we have a really good group, a good plan. And as the call stated the right initiatives going forward to make it a profitable company.
Okay. Good. And just addressing the competition, it's always struck me as TOMI having a far superior product in the markets that you're addressing, is there anything that's changed on the competitive level in the last 3 to 6 months?
No, I don't follow it as much as I used to because when it comes down to it, nothing can compete to us and both from a time and efficacy standpoint. So the fact that we're not [indiscernible], that we're the quickest and probably the most effective, it's going to be hard to find anybody competing unless they are violating our patents, and then we'll go after them. But at the moment, we need to grow the company, and we need to close out these deals going forward and to maintain and become profitable and maintain profitability.
Thank you. That concludes our Q&A session. I'll now hand the conference back to management for closing remarks. Please go ahead.
Once again, I just want to thank everybody for your support and for joining us today, and I hope you have a great rest of the year.