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spk07: Good afternoon. Welcome to the TOME Environmental Solutions Third Quarter 2021 Financial Results Conference Call. At this time, all participants have been placed on a listen-only mode, and the floor will be open for your questions and comments following the presentation. It is now my pleasure to turn the floor over to your host, John Nesbitt of IMS Investor Relations. Sir, the floor is yours.
spk03: Thank you for joining us today for the TOME Environmental Solutions Investor Update Conference Call. On today's call is Tomi's Chief Executive Officer and Chairman, Dr. Halden Shane, and Nick Jennings, Tomi's Chief Financial Officer. Dr. Shane will provide an overview of recent business highlights and discuss critical financial benchmarks for the most recent quarter before addressing any questions you may have. A telephone replay of today's calls will be available through November 26, 2021, the details of which are included in the company's press release issued this morning. A webcast will also be available at Tomi's website, www.tomimist.com. We remind you that during this conference call, we will make certain forward-looking statements, including discussions of the business outlook and financial projections. These forward-looking statements are based on management's current expectations and involve risks and uncertainties that could cause the actual results to differ materially from such expectations. For a more detailed description of these risks and uncertainties, please refer to our recent and subsequent filings with the SEC. We assume no obligation to update the information provided in today's call. We also note that during this call, we'll be discussing certain non-GAAP financial information because we believe they provide useful information about our operating performance that should be considered by investors together with the GAAP measures that we provide. A reconciliation of these non-GAAP measures to comparable gap measures is included in the earnings release. I will now give the call to TOME's Chief Executive Officer and Chairman, Dr. Alden Shain. Go ahead, Alden.
spk02: Thank you, and welcome to TOME Environmental Solutions' third quarter 2021 earning call. We appreciate you taking time away from your schedule to join us this afternoon, and I apologize for the timing of the call on a Friday. as the company is involved in a very important trade show on Monday, which requires my attendance. The third quarter saw a strong 50% sequential growth from the second quarter. The launch of an exciting new product that is being well received, the opening of a brand new direct-to-consumer distribution channel through Amazon, and significant progress improving logistics and quality control. As we move into the post-pandemic world, a focus on the growth and market opportunities during 2021, we continue to partner with premier quality customers that expand the use of our technology. Our reputation as a leading decontamination solution is validated by many referrals we receive from our existing customers. Pfizer and Merck are on track to become Tomy's top expansion customers, to name a few. LabCorp, Icahn School of Medicine, Mount Sinai, St. Jude Children's Research Hospital, and the Department of Homeland Security's National Lab at Plum Island Animal Disease Center. All are nice additions to our premier customer list. These new customers, along with our long-term customers, partnerships around the world should enable us to continue to obtain referrals to our Sturimus brand. For Sturimus to become the standard in its industry, it's important for us to continue educating the world on quick, non-caustic, environmentally friendly, proper disinfection and decontamination protocols and procedures, and validation from our customer base along with their referrals, are critical to achieving our market position and growth. We believe that our long-term orientated partnership will boost revenue and growth across all our company divisions. We are excited about the launch of the Steripak, our new all-in-one design which brings the power of Sterimist onto your back, weighing approximately 17 pounds. It utilizes a rechargeable battery and a new compact bit solution bottle. The product easily switches between battery and direct power, perfect for maneuvering through all indoor areas. Our initial trials are receiving positive remarks. Another product, the Select Plus, is in the final design phase with a rollout expected by the end of the year. This is a hybrid product consisting of the company's current Surface Select and environment systems. This unit will allow for enhanced flexibility by using a single rotating applicator to decontaminate full room to small space volume with more robust process controls. In addition, this product will be smaller and lighter than its current select model. We developed this product line in collaboration with Catalan, who will validate our new unit this month Our partnership with Catalan has resulted in three Catalan facilities processing our purchase orders for approval within their procurement. Transport, a custom engineered system, or CES, has been designed for transportation market, specifically for the paramedical vehicles and transport ambulances. Transport CES is a time-based fogging system that can be installed semi-permanently or permanently and used for any transport and or cargo vehicle. It will be a key-to-use turnkey integration system. We believe that the implementation of this product and our patented non-corrosive IHP technology will eventually replace the number one competitor in this marketplace. which uses an extremely harsh caustic chemical. The Transport CES already has potential large-size sale pending with one of TOMI's current hospital system customers and has been forecasted in their 2022 budget. The TOMI original models have the option of software updates. We are working with existing customers to upgrade their existing products. As many Industrial companies are reducing R&D and capital expenditures due to the economic impact of the pandemic. TOME continues its capital and operating expenditures. At the moment, our supply chain continues to be managed, and we have ordered our long lead item parts that are required for our building materials in advance, as we expected supply chain congestion and shortages. This will allow us to continue to manufacture our products to meet customer demands. We are experiencing an increase in costs in parts and shipping, which will be reflected in pricing. Further, we hope any risk of supply chain constraint is mitigated by the fact that we have multiple suppliers, outsourced engineers, and software programmers to turn to for the manufacturing installation of our Sturimus products. Long-term ongoing projects and proposals for our permanent custom engineered system decontamination room continue to progress through the user requirement specification stages with many customer facilities. We expect these installations to have a positive impact on our results in 2022 and 23 and thereafter. As released earlier this quarter, Tomy Sterimist won a bid for our IHP CES from a major pharmaceutical company in Europe. The Tomy tech team successfully completed the factory acceptance test, or as known in the industry, the FAT test, on the system last week and is ahead of schedule for delivery and installation. This system will meet the European CGMP requirements, and is anticipated to be TOME's most intelligent system to date with advanced software programming required for operation. We continue to expand the range of bit solution options for our CES system. The latest design CES is being offered with a five-gallon container of bit solution. All our bit solution options remain RFID protected in usage. We are better positioned than ever to meet the needs of our customers going forward, and we expect a strong end to the fiscal year and certainly in 2022 and beyond. Before I continue with operation updates and my closing remarks, let me first turn the call over to Nick Jennings, our CFO, for a review of our financial results.
spk01: Nick? Good afternoon and thanks for joining us today. I'll be providing a brief overview of our financial results for the third quarter of 2021 compared to the prior second quarter of the current year. Since 2020 was an outlier year due to the COVID outbreak, I want to focus on our growth strategy as we move into the post-pandemic world. Therefore, I'll be discussing and comparing our third quarter 2021 to our second quarter 2021 to better illustrate our financial results and sequential growth. We are pleased with our strong fiscal third quarter 2021 performance compared to the second quarter of 2021. Our consolidated net sales for the third quarter were $2.2 million, a 50% increase from the $1.5 million reported in the second quarter. our STERAMIS-based product revenue increased 0.7 million or 70% to 1.7 million compared to 1 million in the second quarter. IHP service third quarter revenues were 0.5 million, 25% growth over our second quarter of 0.4 million. IHP service revenue benefited from our broad-based increase in demand for our corporate managed services and professional services, which include project-based services as well as staff augmentation. Consolidated gross profit increased 44% to $1.3 million in the third quarter from $0.9 million compared to the second quarter. Consolidated gross margin increased one basis point to 60% compared to 59% for the second quarter. Consolidated operating expenses were down 16% to $1.8 million due to a decline in salaries and variable compensation and other G&A expenses. Our consolidated net loss of $0.5 million, or $0.03 per diluted share, decreased 42% or $0.02 per diluted share compared to or 5 cents per diluted share in the second quarter. Adjusted EBITDA loss per share was down 50% to 2 cents per diluted share compared to 4 cents loss per diluted share in the second quarter. Our diluted share count totaled approximately 16.8 million, the same as in the second quarter, Looking at our customer end markets in the technology segment, on a trailing 12-month basis, life science continues to be our largest end market, accounting for 44% of our net sales, followed by healthcare, TSN, commercial, and food, which represented 27%, 14%, 14%, and 1%, respectively. Moving to the balance sheet, we ended the quarter with $5.7 million in cash and cash equivalents, compared to $2.5 million at the end of June, an increase of $3.2 million. Our working capital as of September 30, 2021, was $12.9 million, compared to $8.8 million on June 30, 2021, representing an increase of $4.1 million. We recently closed a registered direct offering of approximately $5 million priced at the market under the NASDAQ rules. The proceeds from the offering will be used for sales and marketing expenses associated with all our products, advertising, new product development, purchase of inventory, and other general corporate purposes. In closing, I am pleased with our strong results for the quarter. Looking ahead, we remain focused on our strategic initiatives, including expanding our products, and growing market share both organically and through partnerships. Now, I'll turn the call back over to Tomi's CEO, Dr. Halden Shane.
spk02: Thanks, Nick. Listeria's product and IHP technology has broad appeal in a variety of settings, and we remain focused on growing our brand recognition as the gold standard in disinfection and decontamination. We all know the world has changed, which has disrupted lead generation via the means of trade shows over the last 18 months. The core of Tomy's new customers include demonstrations and in-person trade shows were key to demonstrating and bringing awareness to the capabilities of our product and our market position. Despite the impact of the panic pandemic on trade shows, we were able to make significant progress in our marketing efforts to generate new leads. Now for the good news. The Tomy sales team did just attend Interfex last month, which was well-received and generated interest for our legacy Sterimus environment systems and IHP corporate service products. We expect to see results in sales in the first half of 2022 from prospects who attended this show. The Sterima sales team, yes, including myself, will be attending ISSA, the International Sanitary Supply Association, which opens to the largest cleaning market in the world. The trade show is being hosted in Las Vegas next week, and Tomi anticipates a positive turnout. This will be the debut of the long-awaited cost-competitive SteriPak. Part of our marketing and sales strategy for our product portfolio, we announced the launch to our Amazon store in the U.S. for a Steripak product line. A leading full-service Amazon agency will build and optimize Tomy's Amazon store and execute advertising initiatives for the product. By adding an optimized digital storefront, On the leading e-commerce platform, Tomi is significantly expanding exposure and distribution for the Steripak. As the most cost-effective Sterimist system, the Steripak is primed to effectively target both businesses and consumer end users, making it an ideal flagship Sterimist product for sale on Amazon. Tomi is also negotiating a general distribution agreement to develop a franchise supplier relationship with Fisher Scientific of Thermo Fisher Scientific to be added to the lab animal science portfolio of their products. Relationships with Amazon and Fisher Scientific, among other similar opportunities to the Tomi team, is exploring Expect2, enhanced marketing strategy and brand awareness, to all Sturimist products. A long-awaited SHIELD study, a four-year successful collection of critical data, UCLA completed comparing Sturimist with manual cleaning methods, will soon be made available to the public. The results, once published, coupled with the SturaPak, will highlight the efficiency of the Sturimist versus manual cleaning, and we anticipate growth in the healthcare market. This report will support changing the industry to a mechanical sterimus standard of disinfection. October 21st of 2021, Applied Biosafety published a paper titled Mechanism of Sporicidal Activity Induced by Ionized Hydrogen Peroxide in the Spores of Bracillus petrophis. I know that's a lot, but in short, the study demonstrated damage to the spore core DNA. This study is really important to our life science customers as they were looking for a peer review study showing that a decontamination product can alter and destroy DNA, and now they have it. Our pipeline has seen an overwhelming amount of interest in SteriMIST. Our domestic environment systems have quotes that are awaiting capital expenditure approvals from current and new life science customers. Tomi expects to deploy environment systems across multiple new and current customers by the end of the year. The studies and publications we reference on these earning calls support winning many of these accounts. One custom installation to note is with a California-based company. The Tomi Tech team and our new customer are working with their environment system to develop an all-in-one three-stage decontamination process with their automated cell. Current timeline is to have the first prototype by the end of the year or the latest early 2022, opening more usages of our IHP technology. This is significant in that the customer performed numerous comparisons between VHP and IHP. VHP is vaporized hydrogen peroxide, and IHP, of course, is ours, ionized hydrogen peroxide. and was able to validate that IHP performed better for 90 percent of their applications. As many of you already know, the EPA has recently registered Sturimus BIT 0.35 percentage, a low percentage solution designed for agricultural applications as well as sites requiring more precise application of IHP. This registration will allow Sturimus' low percentage BIT to be sold as an all-in-one direct application disinfectant across the entire food industry. So I think you may enjoy this next discussion. Chandler Topic Company, this is a driving force as a broker in the produce industry in the Midwest for 47 years, has stated, and I quote, with the capabilities of this new application of 0.35% bit solution, and the SteriMIS delivery mechanism, we can confidentially protect and prevent the food and safety of workers, consumers, and all the supply chain elements in between. With every step in the process from farm to table, there are risks of contamination. But with the new EPA labeling of the 0.35 percent BIT solution combined with SteriPak, for ease of use and cost effectiveness, Sterimist is the most comprehensive and effective food safety solution for farms, packing facilities, food manufacturing, grocery stores, restaurants, and all other areas of the food supply chain. These are the reasons we are proud to be a Tomi Service Network member and partner for development of food safety protocols for all areas in the food chain from farm to table." Our technology has recently passed the EN17272 testing protocol. The EN17272 is a European standard for airborne room disinfection in the form of gas, steam, and or aerosol, and we outperformed all of our competitors. The company can further establish its international presence with Sturimus products with the passing of this protocol. At the end of the third quarter, we have onboarded a new international partner, Critical Scientific Solutions, who are specialists in the Australian New Zealand area who offer products and solutions to the pharmaceutical, biotech, medical device, and research sectors. The TOMI sales team is already working with Critical Scientific who within months has a large opportunity with the Australian government agency responsible for scientific research. In closing, I want everybody to be aware that our portfolio from an IT standpoint includes more than 20 utility patent applications worldwide for both methods and system claims, and two recent obtained U.S. utility patents provide us protection of our technology until the year 2038. And we are pushing further claims to additional capabilities in ongoing US and worldwide patent applications. Our products are sold around the world under various brand names and trademarks. To date, we hold a total of over 200 word and logo registered or pending marks across the globe. This includes all our new products, and we are actively pursuing more. Our core business model, Atomi, is built around our Sturimus technology platform and BIT solution. As companies are now operating in a hyper-transparent world where environment or social vulnerabilities can surface rapidly and will directly impact corporate performance. In the very near future, the SEC has a responsibility which includes engaging management on climate risks, related risks and opportunities, optimizing the governance structure to improve ESG oversight and understanding evolving sustainability standards and framework. We at Tomi are prioritizing the health, safety and wellness of our employees, customers, community and supply chains. A strong ESG performance is important to us and to you as a stakeholder. Our solution and process are environmentally friendly, as the only byproduct from our decontamination process is oxygen and humidity. Our solution is registered as OMRI, organically listed in the US and Canada. It is sustainable as a green product with no carbon footprint. This puts us way ahead of many other companies as having the best sustainability standards because of our environmental-friendly mist and fog. We would like to take a moment to express our gratitude and appreciation for the continued efforts of our domestic and global team who had performed admirably in serving our customers while adapting to changing and often challenging market dynamics. Through their dedication and pursuit of excellence, TOME has grown stronger and more resilient And as an organization, that positions us for continued growth and success in the years ahead. Operator, open the call to questions.
spk07: 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 now. We ask that while posing your question, you please pick up your handset if listening on speakerphone to provide optimum sound quality. Once again, if you have any questions or comments, please press star 1 on your phone now.
spk05: Please hold a moment while you poll for questions. Your first question is coming from Walter Bellinger from Mayflower.
spk07: Your line is live.
spk00: Hi. Thanks for taking my question. Could you give us a little more insight in terms of the response you've seen to the initial launch of this TheraPak? And did you have any stair pack sales during the quarter?
spk02: Yes. Yes to both questions. The initial interest is high. The response is great. I think everybody that has it in their hands to date is very happy with it, and we're getting great reviews from them in using this. It's an amazing instrument, and we're very proud to – to present it. We think it's going to be the number one portable unit for disinfection, decontamination around the world, and we're striving for that. It's an amazing piece of goods. As far as sales, we did have some in the third quarter. I believe we sold all that we received, which was the last week of the third quarter. and we are expecting new shipments coming in throughout this entire fourth quarter.
spk00: Okay. And then how should we think about your sales mix between hardware and solution during the quarter and also going forward?
spk02: So I would have to say we're always looking for a 15% to 20% mix. solution versus technology, a solution being 15 to 20%. You know, we have about a thousand instruments out there in the world, and because of the pandemic, many of them have hoarded large supplies of solution, and they're either running out of it if they've used it, or they're going to be expiring very soon. So we anticipate a big pickup in our solution sales And currently with the Steripak, it's so easy to use, we also anticipate a lot of usage and sales from that going forward. Thank you.
spk00: Great. Okay. That's it for me.
spk06: Thanks for taking my questions.
spk07: Once again, ladies and gentlemen, if you have any questions or comments, please press star 1 on your phone now. Your next question is coming from Todd Felty with Advisory Group Equity Services. Your line is live.
spk04: Thank you for taking my questions today. I just had one if you're able to make an update on your forecast for revenues and a return to profitability going forward.
spk02: Thank you, Todd. You know, we don't forecast. We're seeing good growth going into the fourth quarter. We feel we know we'll have sequential growth. We're hoping to have greater than sequential growth. And, you know, there are unknowns that I can't control. I mean, you know, for one, it's like XBRL being done in time from our IDC. But, you know, otherwise the queue would have been out. But, yeah, outside of any unknown, you know, delays, which I think we have pretty much under control at the moment. We anticipate good growth, Todd, and definitely great growth going into 22.
spk04: That's great to hear. I wasn't sure if you'd given an update on the airline industry earlier in the call as far as the backpacks. I know that was a big potential customer for you. Do you see a lot of backpack sales of the Steramist backpack in Q4 to that industry?
spk02: I think we will. That EN17272 test that we passed was for European Airlines to use it. So we're hoping that that, along with the ongoing, you know, Boeing research of our product, which seems like it's been going on longer than I've been around, We're hoping that we'll have some answers. We're going to go ahead and ship them our new backpack. They've been using our surface unit. So we're working on it, and these things, unfortunately, frustratingly, do take a little bit of time, but we are marching ahead with this industry.
spk04: Well, thanks for all the updates, and I appreciate all the positive commentary, and I look forward to seeing the company turn the corner and continue success.
spk02: Thanks so much for your support, Todd. Thank you.
spk07: We have no further questions from the lines at this time. I would now like to turn the floor back to management for closing remarks.
spk02: Thank you all for your support and for joining us today, and I wish all a happy Thanksgiving.
spk07: Thank you, ladies and gentlemen. This does conclude today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.
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