Applied UV, Inc.

Ladies and gentlemen, my name is Kat, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Q2 2021 Applied UV Financial Results Conference Call. At this time, all participants are in the listen-only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Kevin McGrath, Investor Relations for Applied UV. Thank you. You may begin.

Thank you, Kat, and good morning, everyone. Speaking on our call today will be Q Saeed, Chief Executive Officer, Mike Riccio, CFO, and Jim Doyle, COO of Applied UV. During today's call, we will 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. And with that, I would now like to turn the call over to Q Saeed, our Chief Executive Officer. Q? Thank you, Kevin.

Good morning, and thanks to everyone for joining us. It's once again my pleasure, together with my team, to be with you this morning to review the highlights of our second quarter performance. Second quarter net sales increased by 11% to $1.9 million from $1.7 million in the second quarter of 2020. The net sales and financial results for the current period reflect the impact of the asset acquisition of the manufacturer of airside systems, Akita Holdings, at transaction close on February 8, 2021. Materially, all net sales in 2020 presented were generated entirely from our Munwork subsidiaries. During the second quarter, we experienced an improvement in demand from the hospitality industry as the economy rebounded from the COVID-19 pandemic. And as a result, Monmouth's revenues are slowly but surely returning to what seems like normal operating levels. This normalcy, albeit, is cast in some fits and starts with vaccination progress followed by with setbacks at the end of the quarter given the new variants and the drop-off or plateauing of vaccination rates. We also experience some delays in fulfilling orders for one of our sterilumine product lines due to the current constraints in the supply chain and logistics environment, mostly in shipping delays and container cost and availability. We expect that these orders will be fulfilled in the second half of 2021. Net loss for the second quarter of 2021 was $2.1 million, or 23 cents per share, compared to a net loss of 6,000, or zero cents per share, in the second quarter of 2020. The net loss in the second quarter of 2021 was primarily due to an increase in SG&A costs to improve future operation, expand the disinfection segment of our business, and planning for additional inventory for second half. Our liquidity remains strong, with a cash balance of approximately $7 million, on June 30th, 2021. At the end of the second quarter, we announced the closing of an underwritten registered public offering of a Series A cumulative perpetual preferred stock, raising gross proceeds of $13.8 million before deducting underwriting discounts and other offering expenses. As a result of this offering, we continue to strengthen our balance sheet and cash position, which is expected to support our strategy in investing in innovation, testing, and growing through complementary acquisitions. Now I'd like to talk about the growth trends we see developing our markets and some of the sales and operational highlights for the quarter. Our access to markets were broadly improving domestically and globally given variants and vaccinations. The increasing rate of vaccination at the start of the second quarter, along with the easing of social restrictions, provided further support for the global economic recovery. But we've seen minor delays and setbacks with the emergence of the variants globally, and in pockets in North America, we expect to see steady improvement for our MUNWORK subsidiary for the balance of this year. Our global commercial expansion initiatives for sterilizing business Leveraging both partnerships and distribution is beginning to gain measurable traction, particularly for our airside portfolio of air purification systems. During the second quarter and continuing through the first two months of Q3, we announced significant installations in museums, school systems, hospitals, wineries, and most recently at a U.S. military base. We expect this momentum to continue as tested, proven infection control protocols become standard practice and our distribution capabilities continue to grow. We're also continuing to invest in our growth initiatives and our global capabilities on innovation, self-deployment, education about efficacy of the science and technology, balance with safety, continuous product testing, and investment in our distribution infrastructure to leverage our position as the most innovative leader in this new and growing space. Across the globe, customers are increasingly learning about solutions with no byproducts or unintended downstream consequences to better control pathogens spread in the air and on surfaces while not compromising people's health with solutions causing new health risks. Looking beyond the pandemic, our long-term position remains very solid in the world where air quality and infection risk awareness has reached new levels. Our differentiated value proposition as a leader in air and surface infection prevention technologies positions us uniquely to capture these accelerating growth trends. We will continue to be a leader in infection control and air purification and a step ahead of the competition by advancing our superior science of killing SARS, COV-2, and all other pathogens, leaving no byproducts. We continue to partner with like-minded organizations for innovation and speed to market and revenue, supporting testing of our sterile aluminum portfolio products against the most dangerous pathogens and other volatile organic compounds or VOCs. In addition, we have expanded safety training and safety testing of all sterile aluminum products with UL, ETL, and MRI labs across all relevant standards while also continuously adding and maintaining all relevant regulatory certifications from entities such as the FDA and EPA. The testing and safety initiatives initially began with surrogates of COVID due to lack of access to qualified labs or the virus. But now, we've successfully tested the lumicide surface products against the SARS-CoV-2, And we'll be finishing testing of the AeroSide line with MRI labs, among others, as we are regaining access to the top labs in the U.S., allowing us to invest in efficacy without any byproducts. We stay true to being science-based to validate efficacy of our products and provide important information to our customers and support our sales teams and partners worldwide. Moving to some of our highlights of the second quarter, we're very pleased to see that the sales momentum in Aerosight business continues, and we remain excited about the prospects for growth through the remainder of 2021 based on our current pipeline of commercial opportunities. Progress is slowed by new lockdowns and COVID variants. Aerosight has been a tremendous addition to our product portfolio, and their people are already a great asset to our team. We believe there are other complementary adjacent technologies or companies that would enrich and expand our portfolio of disinfecting solutions and open new markets for us. Our thesis remains to focus on technologies and innovations that work and remove harmful pathogens from the environment without leaving behind byproducts. Inorganic growth remains high priority for the management team, and we're encouraged by the quality and synergies we see in some of the potential acquisition candidates we've engaged with. During the second quarter, we continue to make progress with our steriluminescent disinfecting system product lines, which today includes Lumicide for persistent and automatic disinfection of hard surfaces, above vanities and restrooms, above desks and countertops, plus the lumicide drain, which we believe is the only device that automatically disinfects inside the pipe in the high-contamination risk drain trap. As I mentioned earlier, both safety and independent scientific testing remain our top priority. And during Q2, we confidently announced independent lab tests confirming that a lumicide ribbon kills COVID-19, the actual COVID-19 virus. The study was designed to determine the lumicide ribbon's effectiveness against the actual SARS-CoV-2 virus, as opposed to the COVID surrogate tested in last year's pre-IPO tests. At the time, this was the best available data for testing on hard surfaces. We are and will continue to support additional testing of pathogens and validation and their variants in the air and on surfaces to provide added scientific validation and claims of viral inactivation. In conclusion, we're excited about the opportunities underway in development for our sterilumine business. We've made important advancements in the technical and safety attributes of our sterilumine product portfolio that we believe differentiate us from the competition. We continue to see positive sale trends and increasing inquiries for both our aeroside and lumicide products for sterilumine from a broad set of customers and sectors on a global basis. We believe that applied UV has a clear strategy and is well positioned to drive revenue, improve our margins, and deliver sustainable value for our shareholders. This concludes my prepared remarks this morning. Cat, would you please give any instructions for participants, and we'll get started on Q&A, please.

Certainly. Thank you. The floor is now open for questions. If you do have a question, please press star 1 on your telephone keypad at this time. If your question has been answered, you can remove yourself from the queue by pressing 1. Again, ladies and gentlemen, it's star 1. And our first question comes from Jeffrey Cohen from Leidenberg Thalmann. Go ahead.

Hi, Q. How are you? Good morning, Jeff. How are you? Good, thanks.

I'm good. I kind of have four or five I'll just draw through briefly. Firstly, talk about the wineries a little bit and some of the placements there. I think it was Greece and Hungary, and then talk about average number of units and average winery and what you think that market looks like.

I didn't catch the first part of it. Talk about which part, the

Yeah, some of the recent placements in some of the wineries.

Okay, all the wineries. Gotcha. So we have actually, Jim has been closest to it since we just got somebody returned from Napa with some direct feedback. But essentially, there is, we believe, a great vertical for us in the wineries, both in Europe and here. Jim, can you expand on that, please?

Yeah, absolutely. Jeff, one of the announcements I think you saw in Greece, that was about a $300,000 project. So some of these wineries can be quite large. They tend to use our larger units, our HD series out of Aeroside for their cask rooms and are starting to move out of just the cask rooms and mold removal into the front areas. which is the tasting rooms with some of our APS series and GCS series. So wineries, as you probably know, have been a foundational area pre-pandemic for Aerosight and continue to grow through and into the future for us across the world. Lots of growth in Europe. We're seeing growth in South Africa, and then obviously good growth in France and in the West Coast of the United States.

Thanks, Jim. Yeah, I think the big finding that we're previous to COVID-19 A big part of the business model for these wineries has been the visiting rooms and the ability with social distancing to previously, if you had something there, people were wary of the air. But having the visiting rooms clean of any smell or pathogens as well, both makes the tasting experience and visiting feel better and less anxious as well in terms of spread.

Okay, got it. Can you give us some, For the quarter, Q, can you give us any revenue compositions as far as contribution from Mumworks or Sterilumin?

I would say that, yeah, it's probably relatively even. We were probably down towards the end. Shutdown started happening at the end of the quarter. July was a slower month. Delta was around the world. a lot of holders, orders rather, that were coming in were held either for re-tasking for vaccinations, so delayed for later, but not lost. And also on the Munwork side, same thing with the hotels. There's been some openings and then closings, but mostly openings in general outside of some of the specific areas here in the U.S. And then South Africa, when it got hit, we had a lot of momentum slow down towards the end of the quarter. But that is starting to pick up as people are addressing sort of spot fires on a instance by instance episodic basis. Does that answer your question?

Yep. Can you give us an update on access? Any update from the corridor as far as how the back half of the year might unroll?

The access is actually designing their product on much more elegant and sort of hospital-specific product for patient rooms. And they expect that, I don't believe it has a name yet, that product to be rolled out, which is going to be sort of the run rate product to the hospital's in Q1 of next year.

Got it. Okay. And then I guess lastly for us, could you talk a little bit about your recent announcements out of both Vietnam and Africa and give us a sense of what quarter those commitments may start?

Vietnam has already I believe, received their units. It's for some hospitals in Vietnam, those specific orders. So a distributor there is very much focused on the healthcare vertical. South Africa is a pharma company in general. The distributor will serve the hospitality and healthcare and pharmaceutical space. Their initial orders have totaled The first one was $100,000, I believe, and the second one was for almost Mike, our CFO, will obviously jump on me and correct me, but a total of almost just about under a million dollars is being or has already been delivered or on its way to South Africa. And the majority of that second order, which is close to, I think, Mike, check me, 800,000 plus is probably going to hit our books anyway in this third quarter. Is that right? Correct.

Correct. Okay. Okay. And, Chip, can you clarify, is that for the continent, this deal with 360, or is it for South Africa, the country specifically?

Jim, I think directly.

Oh, I'm sorry. I'm sorry. Yes, it is for all of Africa. A lot of their focus obviously is going to be in South Africa as a South African company, but they do have exclusivity across the continent.

Got it. Okay. I think that does it for us. Thanks for taking the questions. You're welcome. Always.

At this time, I would like to turn it back to management for any closing remarks.

Go ahead, Q. Actually, there are no closing remarks. I'd like to again thank everyone for joining us this morning. We look forward to closing out. We're halfway through the third quarter and closing out this quarter and very positive heading towards the end of the year. Thank you very much for coming in and listening to us and for your time. Thanks, Kat.

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