Applied UV, Inc.

Good morning, my name is Matthew, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the full year 2020 AppliedUV Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If you have any questions or comments during the presentation, you may press star 1 on your phone to enter the questions queue at any time. As a reminder, this conference is being recorded. It is now my pleasure to turn the floor over to your host, Mr. Kevin McGrath, Investor Relations for AppliedUV. Thank you. You may begin.

Thank you, Matthew, and good morning, everyone. On today's call, we have Q Saeed, Chief Executive Officer of Applied UV, Jim Doyle, COO of Applied UV, and Rhonda Wallen, Vice President of Marketing and Corporate Development for Sterilum, a wholly-owned subsidiary of Applied UV. During today's call, we make certain predictive statements that reflect our current views about future performance and financial results. We base these statements and certain assumptions and expectations on future events that are subject to risks and uncertainties. Our most recent Form 10-K, filed with the SEC on March 30, lists some of the most important risk factors that could cause actual results to differ from our predictions. With that, I will now turn the call over to Q Saeed, our Chief Executive Officer. Q?

Thank you, Kevin. Good morning, and thanks, everyone, for joining us. Before I talk about the year, I want to thank and recognize our employees for all their work and tireless dedication and patience in a really tough 2020 for everyone. Also, the incredible support team on this call and our new colleagues that joined us from Airside and our board of directors for their commitment and professionalism during 2020 and the ongoing pandemic. As we move through 2021, the COVID-19 pandemic is still a challenge that creates some level of uncertainty. But over the course of this past year, there have been many lessons for Applied UV, and the experience has hopefully prepared us for the coming year and beyond. In our short time researching and building product, we know we can win and execute to deliver the growth in North America and internationally for our shareholders, given the growing suite of products. Today we want to cover four things. The first is our full year results. After that, we'll provide an overview of some of the initiatives we've been pursuing to grow our revenues, some recent highlights in 2021 supporting that effort, and then some perspective on our priorities going forward. All right, moving on to our financial results. I should note that all net sales for all periods discussed were generated entirely from our Munwork subsidiary. Munwork supplies custom designed mirrors to global blue chip hotel chains, including the Four Seasons, Hilton, Marriott, and the Hyatt. Our results for the year reflect the highly challenging period as the pandemic evolved from regional to global. Our sales cycles were elongated for our Munwork subsidiary and customers delayed or canceled orders. The declining performance in the hospitality industry from the COVID-19 pandemic was the main reason for decline in our revenues. As the economy improves from COVID-19 decline, we believe that the recovery will drive our revenues back to our normal operating levels. We're beginning to see glimpses of that at our Munworks subsidiary and at Sterilumin leading and launching with our NASA-adopted technology with Aerosight's product portfolio, which is ready for market at scale, and it's in demand. And I'll elaborate on that a little bit later. We believe that many of the hotels that delayed orders in 2020 as a result of COVID-19 are returning in 2021. We're optimistic about a recovery in orders for our Moonworks subsidiary in, I feel like, March. And looking at the numbers, we're seeing a significant rise in momentum at Moonworks. OneWorks has provided a great foundation for the company, leveraging its relationships in the hospitality market while expanding into other sectors. Now for the results for 2020. The full year net sales in 2020 were $5.7 million, down 58.7%, compared to $9.1 million in 2019. Net loss for the full year 2020 was $3.7 million, or negative 60 cents per diluted share compared to 2.6 million or 51 cents per diluted share in the 12-month ended in 2019. The company finished 2020 with strong liquidity available with $11.7 million of cash. As I stated earlier, our revenues and margins were significantly impacted from the suspension of operations at all hotels and the impact to the hospitality industry from COVID-19 and the pandemic. Importantly, throughout the pandemic period, we further increased our growth investments in innovation, technology, sales capabilities, and infrastructure that should allow us to best capitalize on the post-COVID environment. We believe that our recent strong new business wins for our aerosite business, our ongoing innovation and investments in infection control technologies and successful sales and profit initiatives will deliver full year 2021 revenues above 2020 results. For 2021 and beyond, our operational priorities will remain consistent around delivering top-line growth, improving margin, and building scaled, efficient, profitable companies. Let's look at these priorities in more depth, starting with growing revenues. As I mentioned earlier, Applied UV is well positioned going forward to grow revenues through a combination of organic and inorganic opportunities. all built on a foundation of commercial excellence. Starting with organic growth over the last several years, the company has made significant advancements from our R&D program. Our Sterilumin subsidiary has worked with customers, labs, and healthcare experts since 2016 to develop ultraviolet light technology and devices to destroy pathogens that cause hospital-acquired infections, otherwise known as HAIs, and other serious infections. Using proven germicidal power of ultraviolet light, our connected, automated, UL-listed products provide safe and highly effective disinfection, killing and inactivating human coronavirus strains and other dangerous pathogens as validated independent lab testing. While our initial focus was the healthcare sector, we are actively pursuing opportunities to help safely reopen the economy in the hospitality municipal, state, and federal, and commercial markets as well. Their Lumen data-driven disinfection platform currently has three primary product lines. The Lumicide ribbon is for placement above sinks, vanities, restrooms, above desks, and along countertops. The Lumicide drain complements the Lumicide ribbon placements in the restroom, and is the only device that automatically disinfects the drain trap, which is the high contamination risk area kicking up aerosol back into the sink. Finally, our Clarity D3 cloud service enables any web interface and also apps with Android and OS compatible for remote control reporting, monitoring, asset management tools with enhanced data visualization. To augment our organic growth, we have and will continue to seek partnerships that can provide us access to new markets or accelerate adoption of our products in specific sectors. A good example of this strategy is the joint development and license agreement we announced in October of 2020 with Axis Lighting, one of the largest independent lighting companies in North America. Axis is a world-class operator with onsite design, engineering, and marketing. They also offer about 90 agents in North America with approximately 4,000 feet on the street to help Sarah Luman and themselves with distribution. Since announcing our agreement, we've been collaborating with Balanced Care. Balanced Care is a new dedicated healthcare facilities lighting brand, and the development and commercialization of new LED-based infection control technologies and solutions for UVC products designed for use specifically in the hospital sector. In addition to our investment in organic programs, when appropriate, we look to acquisitions to support critical growth priorities. As we announced in early February, Applied UV acquired substantially all of the assets of Akita Holdings, which included the rights to manufacture and sale of the aerosite system of patented air purification technologies. The acquisition gives us significant scale in the critical air purification market, and it's been great to welcome this outstanding team to Applied UV. The airside bioconversion technology is based on patented technology developed by NASA to eliminate harmful air particulates such as bacteria, mold, and viruses. The FDA has issued guidance for air purifiers and disinfectants that states that they may reduce the risk of viral exposure to SARS-CoV-2, the virus causing COVID, by keeping aerosol concentration levels low. During 2020, Aeroside maintained robust sales. This business carried good momentum from the fourth quarter into the new year, and the integration of the Aeroside business is on track. Aeroside provides us with new capabilities and accomplishes four main objectives. First, it expands our product offerings, customer base and access to new markets in North America, and most importantly, distributor arm internationally. Second, the AeroSight platform brings an additional scientific validation and technological advancement with NASA using it in the space station. Third, gives us an entry into the fast-growing amplification segment of the device disinfection market. Finally, we believe the importance of indoor air quality is expected to remain top of mind for safety at home after the pandemic. and in the workplace. Global economies and populations will be taking extra care at home and measuring risk of employees and customers at work, health and safety, which supports continued market growth for us and a long tail for our business. In summary, our companies shared a similar focus on infection control across a range of healthcare, hospitality, and commercial customers. Combined, we can now offer a broader set of customers a more diversified selection of infection control products and services for air-advanced services. Validation of these objectives was confirmed by our announcement last week that we'd partner with the Boston Red Sox to install the AeroCide air quality improvement system in Fenway Park and JetBlue Park. We're also thrilled to announce that AeroCide will be the official air purification provider of the Boston Red Sox. Purifiers will be installed in all the player areas, including the weight rooms and both the home and visitors locker rooms. Additionally, air purifiers will be installed in the luxury suites as well. Various points of contact in each facility where fans congregate indoors throughout the course of the game or an event. We're very excited about this relationship and we've already commence shipping products, airside products to both Fenway and JetBlue Park. Airside is a great addition to our product portfolio and we firmly believe there are other complementary technologies or companies that would enrich and expand our portfolio, disinfecting solutions and open new markets for us. We'll also continue to be diligent about protecting our intellectual property and building a patent portfolio. As of January 25th, 2021, Sterilumin owned eight issued patents in the United States and two issued patents in the European Union covering various aspects of the Sterilumin disinfecting system. We expect our patent portfolio will continue to grow and expand as we develop new applications and add new products. All these corporate activities require support of an experienced and dedicated executive team. We've been very fortunate to have added several talented members to our team, over the past few months and their contributions already being felt. In conclusion, there's still uncertainty around how the pandemic will impact 2021, but we believe the hospitality market is expected to see improvement as we go through the year and opportunities expand as the global economies begin to open safely. And we're very excited about the opportunities underway and in development for our Sterilumin business and our Lumicide We've made important advancements in technical and safety attributes of our portfolio that we believe differentiate us from the competition and set a high bar for safety and efficacy. Finally, we're positive sales trends and increasing inquiries for both loomside and airborne and airside products from a broad set of customers and sectors on a global basis. And we're feeling actually coming off of the call, meeting some of that demand. We believe that Applied UV has a clear strategy and is well positioned to drive revenue, improve our margins, and deliver substantial value for our shareholders. While there are many external issues for us to navigate, our confidence, our positioning, and our ability to meet both the challenges and the opportunities the future represents has never been greater. This concludes my prepared remarks this morning, and I would like to open the call for questions. Matthew, we're ready for any questions if you want to coordinate that, please.

Certainly. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star 1 on your phone at this time. We do ask that while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality. Once again, if you have any questions or comments, please press star 1 on your phone. Please hold while we poll for questions. Your first question is coming from Jeffrey Cohen. Your line is live.

Oh, hi, Q. How are you? Good. How are you doing, Jeff? Great to hear from you. Just fine. So firstly, I want to talk about MUNWORKS, if you could review kind of the status there. It looked like Q4 is a little light. Was there any spillover from Q4 into Q1? And could you talk about Q1 – backlog, sequential growth, and perhaps outlook for Q1 and balance of the year on the Monday work side of the business, please?

Sure. So we actually started seeing the, we were flatlined for the most part in the second half, but right around the holidays at the end of December, it seemed like there was, you know, we saw the kind of the heartbeat start come back on. and the CEO of that division, who you know, Max, has been closely monitoring it. So starting in January, we saw a lot of designers and especially model rooms start coming back online. A lot of these flags are preparing for the future and these luxury properties are ramping up as vaccinations happen. So every month we've seen since January, February, and especially in March, March started almost resembling 2019. I haven't seen the final numbers obviously right now, but it seems to be bouncing back very quickly and backlog is starting to pile up on us. Does that answer your question?

Yeah, that's very helpful. So sequentially higher and possibly tracking like 2019. Correct. Okay. Got it. Can you update us on the status of your access agreement as far as the, um, the UV, uh, implanted in the mirrors?

Yeah. So, um, excuse me, access is, uh, designing a, um, their own unit because of the license and the requirements in the hospital, uh, environment, uh, are in both in design and, uh, a couple other areas. for safety reasons, the bars are higher. So they are in the process of finalizing their design. And Jim, can you add some time where we think they, you know, we can't judge exactly, they still need to get their product UL certified. But I think they will be out in the market in, I won't guess, I'll let Jim say approximately, I think it's when we feel like they're going to be out in the marketplace.

Yeah, Jeff, this is Jim. They are looking at an approximate September launch as part of their balanced care healthcare and hospital program. So that's what they're targeting. They target that for two reasons. One, the process that Q mentioned in terms of UL listing and certifications and hospitals. And the second thing is, They like to do fall launches. That's the optimal launch window for the lighting industry.

Okay, so September. Correct. Okay, got it. That's helpful, Jim. And then lastly for us, Q, give us kind of some flavor and status on the environment out there for stadiums, ballparks, universities, other professional sports arenas. and what you've seen thus far based upon the most recent experience or announcement as far as the Boston Red Sox?

Yeah, that's a great question. You know, I do feel, and I would invite my teammates, both Rhonda and Jim, to follow up with me, but there does seem to be a little bit of a the feeling of just kind of standing up on your surfboard on a wave happening. There's some euphoria. People are getting vaccinated. There seems to be, we have very limited capacity usage of our office here in Denver. And our parking lot is getting a little bit fuller in the building every day. But those things aside, the folks that we're talking to from our customer base in the middle of the sales cycle are seem to be also very bullish about the fact that even on a rotation sort of capacity increasing basis that these ballparks, these arenas, the public areas such as airports and museums, places like Fenway Park and others that we're talking to right now are leaning into investing in cleaner air in the future, which gives us, I feel, the long tail. I think the future also I can see will this whole generation that grew up basically locked up for the pandemic is going to demand both on the corporate side for risk management and on the customer and employee side for safety reasons and health reasons that there will be a much larger demand for a different environment that you're walking into both in buildings, stores, restaurants, arenas, any place where public gathers. Rhonda, Jim, do you guys have anything to add? Rhonda, you go first.

Yeah, I think that's exactly right. We have had a lot of conversations with folks in the sporting venue arena, and they are looking for ways to bring the fans back. So, yeah, I would completely concur.

Okay, and then... Can you give us a better sense of manufacturing and throughput on that front, Jim, as far as being able to accommodate demand or potential demand for these such arenas and parks?

Jim, you may be muted. Can you take that?

Yeah, in terms of the supply chain, we have done some extensive research on ramping up our global supply chain through suppliers around the world. So in terms of meeting demand as it peaks, Jeff, I think we're in very good shape as we start to position inventory at different locations for the optimal delivery for these larger customers. So we're going to be very responsive in that sense.

We are Jeff, so you know, like I said, during my remarks, we just got off of a call. And so we're experiencing airside has a lot of demand on the air purification side. And so we're having to actually gear up and create some extra buffer in supply for some house stock to meet the international demand that seems to be literally popping up but moving at very high velocity in terms of sales cycles.

Okay, Guy, on the error side end of things, are you experiencing more demand from the consumer type of units or the commercial type of units or both?

So I think it's a ready, even mix because on the commercial side, in an office environment here in the U.S. or internationally in grocery stores and everything else, the offices are taking the smaller units and the larger units, just like in our office, are hanging out in the more open areas. based on the size of the space. So it's actually been just like the Boston Red Sox I think is a great proxy and a microcosm of what we'll see is there's going to be a pretty even, the only decision I guess is a filtered and an unfiltered version of our commercial product. And the unfiltered on the Boston Red Sox, for example, and the filtered portions were relatively evenly split. So we're not seeing any specific demand on one side or the other. We are going to be working primarily, Rhonda, and adding some additional talent around creating and launching a consumer-specific direct-to-consumer unit that has all of the same capabilities but at a little bit more accessible price points.

Okay, and you expect that would be introduced during 2021? Definitely.

Jim, you want to throw out a speculative date?

No, I would not like to do that. No, I think it will be this summer, but I don't want to make promises we can't keep. So I would say this summer is probably the optimal point.

Okay, and how would you compare the – consumer unit as you define it compared to the current unit that we think of as the consumer unit?

So I can only we are finishing up sort of design and names and everything else on the marketing side so nothing definitive there but I would characterize it as having a slightly smaller footprint. We want to also be able to offer as as accessories some outer shells that are more decorative from a home environment to match your decor instead of a one-size-fits-all but those will be accessories to sort of match color the outer shell being sort of a again a simple more neutral color something that will more fade into the environment but still do all of the same capabilities in what AeroSign offers in cleaning the air.

Okay, and how might you compare that with the APS 300 and 200 units as far as ASPs or gross margins?

Well, we haven't priced it yet, but I imagine the gross margins would be very similar.

Okay, got it. And the square footage coverage of those would be rated lower. Remind me what the square footage coverage is of the APS 300, approximately 400 or 600 square feet.

Jim, do you want to take that?

Yeah, it's going to be very similar to a square feet to our APS 300 model. So about 2,000 square feet? 2,000 square feet. So room, you know, any kind of office space or room in a consumer location.

Got it. And then lastly for me in the consumer setting with this new unit, what channels will you aim at using? in addition to your own channels through the Aeroside site and the company site?

So we will start the plan right now, a plan of record right now, and I'd like to reserve the right to change our plan as we move forward and we gauge demand drivers more. But right now is to go direct to consumer through our site and create some of the volume. And we hope to create a big problem for ourselves where we need to outsource some of that. So the channel will be through us direct.

Okay. And the manufacturing capabilities currently will be able to handle consumer units as far as the introduction and at least some initial volumes.

Yeah, which is why the time frame is by the end of summer. So we've challenged the team, and we certainly have the throughput and the working capital. We just need to start the pieces that support it on the back end so that we can have everything go frictionless from order to cash.

Got it. Okay, that does it for us. Thanks for holding the call. I appreciate it. You're welcome. Thanks, John.

Thank you. Once again, ladies and gentlemen, if you have any questions or comments, please press star 1 on your phone at this time.

Please hold while we poll for questions. There are no further questions in the queue at this time. Kevin, do you want to help out here? What should we do here?

I think we can conclude, and if you have any closing remarks, go ahead and say that, but I think we're done.

I guess my closing remarks are to our investors out there listening, we really appreciate our shareholder base, and thank you for your time this morning.

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your lines at this time and have a wonderful day. Thank you for your participation.