Applied UV, Inc.

And welcome to the Applied UV fourth quarter and year-end 2022 financial results conference call. At this time, all participants are in a listen-only mode, and a question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Brett Mass of Hayden IR. You may begin.

Thank you. Once again, welcome to Applied UV's 2022 earnings call. With me today on the call are Max Munn, founder and CEO, president and director, Mike Riccio, chief financial officer, and Brian Stern, president of Puro Lighting. As a reminder, all materials for today's live presentation are available on the company's investor relations website at applieduv.com. Sorry, let's say it again, applieduvinc.com. Before we begin, please take a moment to read the forward-looking statements in our earnings press release. During today's call, we'll make certain predictive statements that reflect our current view 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 lists some of the most important risk factors that could cause actual results to differ from our predictions. With that, I'll turn the call over to Max Munn. Max, the floor is yours.

Thank you, Brad, and good morning, everyone. My name is Max Munn. I'm the founder of Applied UV, and I became the CEO about three weeks ago. As it was for most other companies, 2022 was a very challenging year. Our challenge arose from the acquisition of Scientific Air in late 2021. With disinfection products that were substantially focused on one distributor, Scientific Air was also focused on one industry, which was hospitals, and with revenues totally driven by COVID-19. Consequently, sales collapsed for Scientific Air in 2020-22 as the pandemic receded. Unfortunately, our previous senior management's focus did not reposition the company to address this weakness at Scientific Air. Consequently, we recently determined that it was best to write down a substantial portion of our investment in Scientific Air and put this problem behind us. In addition to this non-cash write-down of goodwill, The company has incurred and our 2022 financials include significant one-time integration and acquisition costs related to legal and accounting expenses associated with our more successful acquisitions. Included in our 2022 expenses are other non-cash items such as depreciation, interest, and the issuance of options to key employees. 2022 was indeed a very challenging year, but it was also a turnaround year. We are therefore starting 2023 with our company much better positioned to achieve significantly improved results. Of this, I am extremely optimistic. As a reminder, Applied UV has two operating segments, the pathogen elimination and disinfection segment, which includes the development, manufacture, and marketing of air and surface disinfecting systems. And the hospitality segment, which includes domestic manufacturer of better mirrors and premium furniture specifically for hotels, resorts, and related properties. Now I'd like to take a more detailed review of our hospitality segment. In hospitality, MunnWorks is resuming its pre-pandemic growth as this industry continues to show strong growth fueled by the post-pandemic travel surge, which has accelerated faster than generally forecasted. This market growth has heightened the need for hotels to make capital improvements to facilities in order to maintain their franchise flags, something that was postponed for almost three years due to the pandemic. Hotel operators are now required to catch up on delayed refurbishment. In the last few months, we had several hotel developers place multi-million dollar orders with our company. This surging demand, coupled with our newly acquired 100,000 square foot manufacturing facility located in Brooklyn, New York, has given us a strong competitive advantage due to the demand for domestic manufacturing by these hotel operators. The cost differential between China and domestic manufacturing has decreased significantly considerably due to the 25% tariff, as well as other factors leading hotel management to favor U.S.-based manufacturing. Additionally, there is a significant fear of potentially higher tariffs because hotel developers are concerned with the ongoing negative dialogue between the U.S. and China, worrying that any potential conflict or even a threat of a conflict could result in more global supply chain disruptions as well as incremental and increased tariffs. These factors are driving more hotel operators to domestic manufacturing to mitigate supply chain delays and enable hotels to better manage project timelines and ultimately their revenue generation. Due to this shift and with very limited U.S. competition, we were able to raise prices significantly without displacing orders. which will result in margin expansion, which we expect to accelerate in the first half of 2023. As part of the Brooklyn facility acquisition, we inherited a number of lower margin products due to the fact that 50% deposits were paid in advance of our acquisition of the facility, but paid to prior owners of that business, leaving us with fulfilling those major hotel commitments without the benefit of the associated cash receipts. We delivered on those commitments, and all of our legacy orders have now been fulfilled. Our sales pipeline for hospitality, which is approximately $10 million today, with projects underway and slated in Cleveland, Washington, D.C., Indianapolis, Orlando, and Knoxville. We also plan to increase MunWorks revenues through the installation of our pathogen elimination devices as an option into our hotel guest room furniture to be supplied to better hotels. Now let me discuss the pathogen elimination and disinfection segment of our business. The domestic UV disinfection market is expected to reach $9 billion in 2027. The CDC states that each year, one in 25 patients gets a hospital-acquired infection, resulting in over 3 million serious infections and 100,000 deaths annually. This amounts to losses from contagious pathogens that cost the U.S. economy more than $270 billion, including lost productivity due to absenteeism. The recent CDC warning about the rapid spread of new and deadly drug-resistant superbugs such as C. auris coupled with the urgency for improvements in indoor air quality within HVAC systems in order to control the spread of pathogens will continue to drive adoption of many of our proven systems. Our recent acquisition of Puro and its technology further validates our long-term strategy for developing or acquiring the best technology to protect all of us from deadly pathogens. This strategy is not only correct, but is now firmly in place. Our technology helps keep people safe, but just as important, our technology protects and extends the shelf life of high-value agricultural products. With shortages and purchase restrictions, the resulting food insecurity being reported throughout the world, we have concluded that protecting food from farmers to table is a high priority and a major opportunity for us. Currently, with 15 to 25 percent of shipped agricultural products lost to spoilage during transit to distribution centers and transfer to food retailers, our company, in a venture with Cannon, Virginia, a unit of the Japanese company, will soon introduce a proprietary air purification system that could be incorporated into shipping containers and long-haul refrigeration trucks as well as distribution centers that we expect will significantly reduce food spoilage. This technology is the same photocatalytic oxidation system which we developed for NASA for use in the International Space Station. Our technology is not only currently being used to increase the shelf life for food but we are already generating revenue in the cannabis industry and in wine storage, and we also expect to expand into the preservation of cut flowers during transit and display. We believe that our focus on food security is as urgent as is health care and is also one of the highest investment priorities in the world today. We plan on growing our revenues in post-harvest food security by leveraging our success with our airside product line, because we have already demonstrated the reduction of food, spoilage, of high-value fruit and berries with global companies such as Del Monte, Dole, Whole Foods, and others. Two months ago, we completed the acquisition of Pure Lighting as well as LED Supply. As a result, we are forecasting total revenues of approximately $45 to $50 million for this current year. approximately a 100% increase over 2022. This further positions Applied UV as a fully integrated company, providing a broad pathogen elimination platform with leading technology that can be used by consumers, business, and governments. At this point, I want to also reiterate that I personally agree with the recent projection by a major investment banking research analyst that our common share price will likely reach $2.50 by the end of this current year. Our primary focus for growth in 2023 will be on food preservation, healthcare, and safe building systems, and will include the complete installation utilizing proprietary software and facilities HVAC systems, which will continually monitor indoor air quality. With the merger of Puro complete, our wholly owned subsidiary, Sterilumin, is gaining critical mass to address the ever-challenging and ever-changing challenge of combating air and surface pathogens at hospitals for required infections, protecting businesses and their facilities and their employees and consumers who frequent the facilities. After long delays due to the COVID-19, COVID pandemic. Late in 2022, our company began a clinical trial with our lumicide sink and drain disinfection product at the prestigious Mount Sinai Hospital in New York City. We expect to announce the results of this highly anticipated clinical trial in Q3 2023. To support our plan growth, we formed a scientific advisory board with renowned infectious disease scientists, as well as wine and food preservation experts. The company plans to have these experts speak at leading industry conferences and trade shows, as well as write publications in leading journals regarding the effectiveness of our pathogen elimination product. We plan to announce the details regarding this advisory board in the very near term. Our global distribution of strategic partnership expansion continued throughout 2022 with the company now boasting several established strategic manufacturing partnerships and alliances with Canon, Acuity Lighting, Johnson Controls, Ushio, Siemens, and Grainger. Additionally, our pathogen elimination segments global network has grown to include 89 dealers and distributors in 52 countries, including Southeast Asia, with 47 sales agencies, as well as our having 19 U.S.-based sales personnel. Our global customers will now have access to our complete suite of research-backed and clinically proven best-in-class product, including photocatalytic oxidation, advanced UVC-activated carbon, far UV technology utilizing newly-developed 222 nanometer wavelength radiation, as well as our new air monitoring and reporting software for use in smart building products. We recently announced a significant strategic manufacturing supply chain outsourcing agreement with Canon Virginia, a wholly owned subsidiary of Canon USA, one of the premier global advanced contract manufacturers. This agreement makes Canon the company's primary manufacturer and logistical partner for our entire suite of air purification solutions. Our joint teams continue executing on an accelerating plan to completely transfer our manufacturing to Cannon during this current quarter. We will simultaneously close our existing manufacturing and distribution operations, yielding a significant reduction in our fixed G&A. We believe this partnership will translate into production and logistics cost savings that accelerate development of our next generation product by removing manufacturing execution risk and allowing the company more effectively scale and focus on advanced technology development and marketing. We've also recently expanded our relationship with Canon Japan to include Canon Financial Services as a partner, which allows our company to offer, for the first time, leasing and finance options for our product to our customers. With the Pure acquisition, we're obtaining Pure O-Net software application, which will further differentiate our systems from those of our competitors. Through the introduction of Pure O-Net proprietary systems, our software will accelerate our industry differentiation by adding IoT integration throughout our entire product portfolio with proven software that continually monitors and reports indoor air quality throughout an entire facility. PureNet has recently been installed into almost 100 surgical suites. Puro's HVAC system products allows us to competitively compete in one of the fastest growing air pathogen elimination markets, offering complete systems with our proprietary air monitoring software, which is rapidly becoming a must-have in HVA systems. To conclude, 2023 will be a transformative and extremely positive year for AUVI. Now I would like to turn the call over to Brian Stern, President of Puro Lighting, allowing him to speak more about Puro and LED Supply. Brian?