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spk03: Greetings. Welcome to the TOMI Environmental Solutions Incorporated third quarter 2023 financial results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during this conference, please press star zero on your telephone keypad. Please note that this conference is being recorded. I will now turn the conference over to your host, John Nesbitt of IMS Investor Relations. You may begin.
spk01: Good afternoon. Thank you for joining us today for the Tomei Environmental Solutions Investor Update Conference Call. On today's call is Tomei's Chief Executive Officer and Chairman of the Board, Dr. Halden Shane, Tomei's Chief Operating Officer, E.J. Shane, and Tomei's Chief Financial Officer, Nick Jennings. Dr. Shane will provide an overview of recent business highlights. E.J. will report the company's growth and latest trends, and Nick will review the financial performance for the most recent quarter of before addressing any questions you may have. The telephone replay of today's call will be available through November 28th, 2023, the details of which are included in the company's press release dated November 14th. 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 date of which it was recorded, November 14th, 2023, 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 TOME 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 and could cause actual results to differ materially from our anticipated results. The information provided in this conference call based upon the facts and circumstances known at this time. The company undertakes an 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 it believes they provide useful information about the 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 November 14th, 2023. I will now turn the call over to Tony's Chairman and Chief Executive Officer, Dr. Halvin Shen. Please go ahead.
spk05: Thank you, John, and good afternoon from the West Coast of the United States. Thank you all for joining to discuss some key achievements of our third quarter 2023 performance. During the third quarter of 2023, Our strategic focus on expanding our sales channels and business development persisted worldwide, along with collaborative efforts from key current and new customers. Simultaneously, we diversified our product line to accommodate to the evolving needs of our market segments, leveraging the advanced capabilities of our SteriMIST technology. Finally, our launch of our SteriMIST transport system and the SteriMIST integration system known as the SIS seems to be the answer to the automation requests that many industries are looking for to replace their old VHP decontamination technology. We are now sure SteriMIST is in the right place at the right time and EJ will discuss this in some detail shortly. Revenue declined during the quarter due to the timing of customer orders and the related revenue recognition. That said, our revenue is up 5 percent for the nine-month period, and we are optimistic about our high-margin business model and its ability to drive future sustained profitability as we scale the business. Subsequent to the close of the third quarter of 2023, we agreed to sell and issue convertible notes in a private placement in one or more closings up to an aggregate principal amount of $5 million. As of November 7th, 2023, we sold and issued an aggregate of $2,600,000 to a group of institutional and accredited investors. most of whom are new investors in the company's securities. The note contains no restrictive covenants or restrictions that may impose burdens or limitations on our operations. We intend to use the net proceeds from this offering for working capital, expansion of our existing Frederick facility, and other general corporate purposes, including expanding our sales channel through the addition of distributors, outside sales representatives, internal sales staff, and external consultants. Throughout this year, our strategic emphasis has been significantly geared towards the expansion of additional sales channels. Distinguishing itself from previous years, our approach has evolved to encompass not only domestic but also international partnerships with larger groups. This strategic shift in focus involves collaboration with prominent entities to enhance our distribution network and simplify our market presence. As we continue recruitment of additional independent sales representatives, we have also added consultants possessing key expertise in our targeted market segments. Thus far, in 2023, we have brought on eight distributors, expanding our presence worldwide. Our team has grown to include 11 independent manufacturing representatives, and we were recently onboarded by a GPO, group purchasing organization, Vizient, last week. This collaboration marks a significant milestone in our efforts to broaden our reach and strengthen our position in the healthcare market. Some of the notable additions in Q3 are as follows. We partnered with Colcom Incorporated to offer Sturimist IHP products as part of Colcom's life science and healthcare portfolio of products. With a combined 50 years of technical sales expertise, Colcom Incorporated joined forces with us under the leadership of Bridget Collins. Colcon Incorporated is a trusted supplier of high-quality clinical and laboratory equipment. Given its established customer base and extensive expertise in the decontamination industry, this partnership will be mutually advantageous. In August, we entered into a business development consulting agreement with DAR Incorporated, a company specializing in food safety and food processing spaces. We anticipate the agreement will better position us in providing education to the food safety markets through the education of the advantages of the Sturimus platform of products and expand our sales channels as well as our customer bases on the food safety markets. In September, we entered into a sales representative agreement with Universal Disinfection. to better facilitate growth in the European region in the commercial, aviation, and life science markets. The two partners of universal disinfection are the most knowledgeable about our technology in all of Central, Western Europe, and the Baltic states. Most recently, in November, we entered into an agreement with Patty Olinger, the founder of BEAMS, LLC, who specializes in public health preparedness. Patty is also a director of Frontline Foundation, dedicated to protecting American citizens from bioterror threats. In the past, she was Assistant Vice President of the Office of Research Administration and Executive Director of Environmental Health and Safety Office of Emory University Hospital System, and most recently, the Executive Director of Global Bio Risk Advisory Council, a division of ISSA. Patty will assist, strengthen, and expand the Tomi Sturimus Network and increase business development in the commercial markets. She brings over 20 years' experience establishing executive strategic vision and direction of large institutions and companies spanning multiple industries, including higher education, non-for-profit, healthcare, consultancy, hospitality, and pharmaceutical sectors. We continue to remain active in our marketing initiatives and attended and presented our Sterimus brand of products at six different trade shows during the second quarter alone. The expansion of our sales infrastructure in 2023 has been substantial and we will maintain a strong sense of optimism as we approach the conclusion of 2023. Looking ahead to 2024, we anticipate a significant acceleration in the momentum of our sales network. We continue to see positive signs with our SturyMist IHB service team, as we saw quarter-over-quarter revenue growth of 59% and year-over-year growth of 16% through September. As we announced in August, Pfizer-Rockymount engaged our IHP service to conduct emergency decontamination within their facility, which suffered substantial damage to the tornado. Pfizer-Rockymount has been a long-term, loyal client of Tomi, having commenced their utilization of SteriMIST IHP corporate service in 2014. Since then, Tomi has been performing decontamination services twice a year. during their facilities, routines, scheduled shutdowns, and called on as necessary throughout the years. During the third quarter, we expanded our portfolio of CES systems with the delivery of a three applicator CES system to Ragon Institute of MGH, MIT, and Harvard for implementation in their research and clinical lab located in Cambridge, Massachusetts. I would now like to turn the call over to Tomi's Chief Operating Officer, E.J. Shane, who will provide a comprehensive overview of the company's forthcoming initiatives with both new and exciting partners, insights into our product development endeavors, and the strategies in place to drive revenue growth. E.J.? E.J.
spk00: Thank you, Dr. Shane, and good afternoon, everyone. Our current pipeline and backlog remains healthy. We are encouraged by long-term disinfection and decontamination trends in aseptic manufacturing in the biopharmaceutical sector and general worldwide pandemic preparedness. Within the biopharmaceutical industry, aseptic manufacturing is undergoing several noteworthy developments. The emphasis on maintaining sterile environments in the production process is more critical than ever. There is a continuous integration of advanced technologies, such as automation, to enhance the aseptic manufacturing process, ensuring precision and minimizing human interventions. Stringent regulatory standards persist, demanding adherence to strict guidelines to ensure product safety and efficacy. Biopharmaceutical companies are increasingly adopting a global approach, establishing facilities in strategic locations to meet growing global demand. There is a notable shift toward the adoption of single-use systems, offering increased flexibility reduce contamination risk, and quicker changeovers between production runs. Companies are engaging in collaborations and partnerships to leverage shared expertise and resources to allow for continuous manufacturing processes, providing for more efficient and streamlined productions, reducing the time and resources required for manufacturing cycles. Overall, the landscape of aseptic manufacturing with the biopharmaceutical sector is dynamic. driven by technological advancements, regulatory considerations, and the evolving needs of the global healthcare market. We believe the competitive advantages to Tomi's IHP Sterimus technology is well aligned with these prevailing trends within the biopharmaceutical sector. Furthermore, our expanded range of Sterimus products and applications combined with recent partnerships is poised to reinforce this alignment. These developments aim to enhance awareness among facilities, ensuring IHP technology caters effectively to evolving industry needs. Our partner in Germany, Universal Disinfection, has significantly expanded their list of opportunities in recent months across a variety of market segments, but mainly BioPharm. They maintain a positive outlook on the collaboration with the German biotechnology company referenced during our last call. anticipating the conversion of this partnership into several orders for our CES, or Custom Environment System. On a side note, Universal Disinfection and the German Red Cross, the largest humanitarian organization in the world, recently released its successful implementation of Sterimus IHP, with its project manager stating, and I quote, Sterimus disinfection system could revolutionize hygiene measures in the ambulance service and would make it possible for ambulances to completely disinfect during the return journey from an infection transport. This would be a real milestone, end quote. Universal disinfection purchased two Sterimus transports in quarter three. We are actively engaged with Fresnius Cavi in Brazil, and we anticipate the qualification process to be completed later this month. The next phase involves the assessment of Sterimus IHP in a second location in Brazil, two in South Africa, and one in Argentina. Notably, the technology has already been introduced to key personnel at these facilities. It's worth reiterating that Fresneus CABI extends to 47 countries around the globe. Adhering to the industry trends previously discussed, our innovative product, the Sterimus Integration System, or SIS, is gaining notable traction. This system introduces automation and ensures compliance with necessary guidelines, making it an ideal solution for large manufacturers of enclosures requiring decontamination. This product line meets every noteworthy development referenced earlier. Moreover, it extends to small lab spaces, research universities, and the animal research industry. The SIS is offered in three distinct packaging and assembly options, establishing a standardized product line adaptable for almost any enclosure utilized in life sciences. our strategic collaboration with recent partners and representatives specializing in the industry, position Staramus IHP to market and sell this product line effectively. The past two months have been marked by significant activity, and I am optimistic that the efforts invested will yield positive awareness by the end of this year, with an even greater impact anticipated in the coming years. Our ongoing partnership with Solaris, as highlighted in the press release from the previous quarter, continues to be of significant importance. I'm pleased to share that we are gearing up to advance to phase four of our collaboration. We anticipate unveiling further details, so I encourage everyone to stay tuned for this upcoming announcement. In the current quarter, we initiated discussions with engineers and scientists of another stem cell company based in New England. This company, currently in the design phases of a cell therapy device, is exploring the integration of IHP as its decontamination method. This presents another promising prospect for collaboration in the realm of long-term integration. While quarter three presented timing challenges on the revenue front, we made significant achievements in acquiring new customers, particularly within the industry closely monitored by our shareholders, that of food safety. Notably, we successfully sold our stair pack to Simplot, a leading international food and agricultural company headquartered in Boise, Idaho. Simplat, known for innovations in plant nutrition and food processing, is currently incorporating the Steripak into potato-related processes in Idaho with plans for expansion to other facilities. We have collaborated on drafting their initial sanitation standard operating procedure. Additionally, our Steripak found significance with other notable clients, including Purina Nestle for pet food manufacturing, and Mayorga Coffee, who allowed Tomi to heavily promote their use of the Steripak in their facility. In Michigan, our deformed wing virus study has generated interest in a group of professional beekeepers. We will soon be traveling to the group to assist in its effort to save the bees through the application of our Steripak, marking a meaningful contribution to environmental sustainability. These accomplishments underscore the diverse applications and positive outcomes associated with our innovative solutions. The recent collaboration with Vizant GPO holds promise for expansion in the healthcare sector. The variety of well-established partners, ranging from the collaboration with design and engineering groups of pharmaceutical facilities to the decades of expertise in enclosure decontamination representation, combined with our new product lineup, positions Sterimus IHP for significant growth, especially in the life sciences. Our association with Patty Olinger, a renowned figure in bioresecurity and industry leader for commercial service providers, is anticipated to refresh the Tomi Service Network, or TSN members, and enhance our commercial division. Additionally, the recent additions to our customer base in the food safety sector, acting as referrals for our technology, mark first-time progress for us. I appreciate your patience, and I encourage that our strategic initiatives position the company to drive sustained revenue growth in the near term. I thank you all for your continued support, and now turn the call over to our CFO, Nick Jennings.
spk06: Thank you, E.J., and good afternoon, everyone. I'll provide a brief overview of our financial results for the third quarter of 2023 compared to the same prior year period. For the three months ended September 30, 2023, compared to September 30, 2022, our consolidated net revenue was $1,470,000, compared to $1,760,000. Consolidated gross profit was 55% compared to 61%. The decline in our gross profit was due to our product mix and sales. The consolidated operating loss was $901,000 compared to $654,000. Our consolidated net loss was $901,000 or $0.05 per basic and diluted share compared to $653,000 or $0.03 per basic share. Adjusted EBITDA was a loss of $807,000 compared to a loss of $571,000. A table reconciling adjusted EBITDA to the appropriate GAAP financial measure is included with today's press release. Moving on to the balance sheet, As of September 30, 2023, our cash and cash equivalents were approximately $1.4 million, working capital was $6.9 million, and shareholders' equity was $9.5 million. Now I'd like to turn the call back over to Dr. Hall and Shane.
spk05: Thank you, Nick. As I hope you have garnered from our remarks, a key strategic shift in our business this has been the establishment of a robust partner and reseller network to more efficiently expose our product to the right customers. A few years ago, I tried to establish vice presidents of sales to head up each vertical, and this was just a mistake and cost us valuable time. That being said, we learned from it, and EJ and the team have done an amazing great job building a sales and distribution network that can help us scale Tomi to be a much larger company. It is my belief that we are poised to move through to profitability in the fourth quarter, and if we execute, we should be able to drive sustained profitability going forward. Thank you all for joining us today and for the unwavering support as investors and followers of our company. A big thank you to our team around the world who has laid the foundation. for our company to become the world's leader in the disinfection decontamination space. It is the right time and place to unseat the competition, vaporized hydrogen peroxide, whose technology is at least 33 to 53 years old. We now open the Q&A part of the call. Operator, let's open the call to questions, please.
spk03: At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
spk02: While we poll for questions. And our first questioner is Frank Lewis with Adams Street Capital.
spk04: Hi, thanks for taking the question. How do we think about revenue mix this year by end market? And have we seen a particular shift over the last few years?
spk05: Thank you. Nick, do you want to take that?
spk06: Sure. You know, in terms of a breakdown of that, really, we continue to see growth in life science. that vertical as it's the most mature and food safety is developing quickly so in terms of markets and really if you were to break it further down into how we generate revenue through equipment solution and service if you've been following along you can see the custom engineered systems or The collaboration projects we have with certain companies provide a lot of optimism for us because these are great things we're getting into.
spk04: Got it. Good to know. Thank you.
spk05: Yeah, I think also the CES and the SIS systems will be what drives the company going forward in that specific vertical.
spk04: Got it. Great. Good to know. Thank you. That's all from me.
spk03: Sure. Thank you. Before we hear from our next questioner, a reminder that if you would like to ask a question to please press star one on your telephone keypad. We now hear from John Nelson, private investor.
spk07: Hi, Dr. Shane. Thank you. And I have several questions. The first one is you mentioned at the end of your statements that you expect to be profitable in the fourth quarter. And if that were the case, it must or it should mean that you're expecting a significant increase in revenue from this last quarter. Is that correct?
spk05: We are hoping that. That is correct.
spk07: Okay. And what areas would you think would be driving that increased revenue?
spk05: Well, I think it's the interest in the CESs and the SIS systems that we have out there and our new transportation system, mostly from the life sciences, along with the addition of the onboarding, the education of these new partners that we've taken on who have significant pipelines you know, in the sales end of all verticals.
spk07: Good. Thank you. The next question is related to the convertible debt deal that you did. Is there anything in the documents that prevents the participants from shorting your stock?
spk05: Yes, there is. There are a couple documents that restrict sales and also restrict shorting of the stock. So we are covered from that standpoint. Thank you.
spk07: Excellent. Great. Next question, is there any – can you give us any update on the ethylene oxide replacement market?
spk05: Not really. It's still, you know, these regulatory agencies are still creating a foundation for who's going to be able to use ethylene oxide and who isn't. At the moment, it seems it's just large facilities that they're restricting because of OSHA and some employees' regular standards. But it's going to be a while, John, and I think that this will go out to all users of ethylene oxide once the regulatory agencies start condensing and specifically hitting users of it. We think our product, we know it's the replacement, and we think that it won't be too long until it's used in the food safety industry for the ripening and for prevention of foodborne diseases in fruits and vegetables.
spk07: Okay, thank you. Fentanyl has been in the news a lot concerning a number of people. Is there anything new on the neutralization regarding use of Steramist?
spk05: So we're hoping, you know, you've read, I'm sure, the press release that the AMI did in relationship to other toxoids, and we're hoping that they will do a similar study on fentanyl. You know, as we all know, or all we all should know, it's a significant problem throughout the United States, and It's affecting educational systems, affecting police, and I personally believe, because it's an organic compound, we'll be able to alter the structure of that compound with the use of Steri-MIST in closed areas, which is the most concern for people. And we're pursuing it. We're pursuing also some studies with individuals that know how to do the right studies and collect the right data. So we're on track. to hopefully have something in 2024. I'm not sure what part of it, but within, by 2024. Okay.
spk07: And let's see, any, also any new developments on, with the FDA as far as Sterimist on food treatment?
spk05: We're still working towards that label, you know, in this 1%. We're able to treat it with our 0.35%. We just want to get a little more pathogen kill. And, you know, we're still involved in that process. But many food companies are using our regular 7.8% in non-food areas. to decontaminate space and equipment.
spk07: Okay. And I always ask this, but the UCLA study, anything to report there?
spk05: Nothing published yet, as you and I know. Okay. We know the data is good.
spk07: My next question is related to from the installs with the transport system. Have you been able to – can you give us any metrics as far as – comparison, cost-effective comparison between the use of Sterimus versus the two-hour manual cleaning that ambulances generally require after usage?
spk05: I'm going to let E.J. answer that question. He's primarily involved with the transport system.
spk04: Okay.
spk00: Of course. So currently we are still at a soft promotion on the transport. We have a few sold with our partner in Germany who is working on the next stages with the Red Cross there to install the transports there. We do still are in communication as well with the hospital who is a customer of ours that started the whole transport development and we're hoping to meet with them before the end of the year. We're also working with the Canadian distributor group, Technimount, that we released earlier in the year, and they're gaining a lot of traction on the transport with designers of ambulances in which we're going to work with them on certain mounting devices because that is their specialty. We still have to endure some crash testing that's required in the region, but once that's completed, we'll be able to establish more of a metric.
spk07: Okay. But any preliminary indications as far as a significant cost benefit using the new transport system?
spk00: Of course, it goes in line with our technology and the lack of corrosiveness of use of IHP with comparison of the main competitor in the industry. So there's certainly interest and the speed in which we can turn over an ambulance And that was generated in a case study we've released with the German Red Cross. Okay.
spk07: All right. Thanks. And my last question is related to, again, back to the convertible debt offering. You had a number of, I think it was 28 investors, and that's – a rather large amount for a deal this size. Can you explain why so many investors in the deal?
spk05: Well, I think I've always felt that the more eyeballs we have in our company that understand our technology and that are long-term investors, the better off we'll be. Certainly we raised a small amount of capital and we could have raised a lot more with one or two investors, but I felt that the company started way back when with a group of investors and I think now this group fits the criteria of being what we like to have and what we currently have going forward. So that's why we did it. You know, it's obviously a lot more difficult to bring in many of one or two, just from the standpoint of education and paper. But we did it, and with the help of Agus Capital, they did a terrific job. And, you know, making sure that all investors, including these new ones, are successful years ahead going forward.
spk07: Okay, makes sense. That is all the questions I have. I look forward to a profitable fourth quarter. Thank you.
spk05: Thank you. Thank you all.
spk03: We have reached the end of the question and answer session, and I will now turn the call over to management for any closing remarks.
spk05: I just want to thank everybody for joining and hope everybody has a happy and healthy Christmas.
spk02: This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.
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