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spk02: Welcome, everyone, and thank you for joining us on the call today. Today, you are in the right place for the third quarter results. Investor conference call from IIOT Auxis Incorporated, the companies traded under the ticker symbol ITOX. In just a moment, I will be joined by the CEO of the company, Mr. Clifford Emmons, as well as the Chief Operations Officer of the company, Karen McNamara. But before we start this call, I do need to read you the forward-looking statements, which can be found at the bottom of every press release and every filing the company does at sec.gov. Now, this call may contain forward-looking statements that reflect management's current views about future events and financial performance. Forward looking statements often contain words such as expects, anticipates, intends, or believes. The company's forward looking statements are subject to a number of risks and uncertainties that may cause actual results and events to differ materially from those projected in the forward looking statements. Risks and uncertainties that could adversely affect ITOX include, without limitation, the loss of major customers, the company's failure to obtain new contracts, their inability to patent products or processes, their infringement of patents held by others, their inability to finance businesses, their business and other risks and uncertainties that are discussed in their most recent filings with the Securities and Exchange Commission, also known as the SEC. The forward-looking statements made in this call are made only as of the date of this call. The company undertakes no obligation to update their forward-looking statements, whether as a result of new information, future events, or otherwise." Well, with that, I'm going to welcome Cliff. Cliff, thank you for calling in and making time for your shareholders today.
spk01: Great to be here, Stuart.
spk02: Well, Cliff, I'm excited because here we are with another great foundation for a call, and that's congratulations to you for another strong quarter. If you will, the floor or the call is now yours for your opening comments.
spk01: Thank you, Stuart. We're pleased to announce that we kept our revenue promise for our Q3 quarter that ended September 30, 2022. As predicted, our third quarter revenue exceeded that in our second quarter. This makes two consecutive quarters of revenue, something that we haven't done since before the pandemic. We are pleased that the momentum of the second quarter's revenue continued into the third quarter, and we expect it to continue through the fourth quarter. We also expect revenue for the second half of 2022 will exceed that generated in the first half of 2022. We expect our total revenue for 2022 will be approaching 2019 levels. We're happy that we continue to gain traction with strategic partners, customers, and potential customers in our key two markets, smart manufacturing, also known as Industry 4.0, and structural health monitoring. These are both high-growth markets. Market research shows that the worldwide industry 4.0 market in 2021 was almost 65 billion U.S. dollars. And it's projected to be over 165 billion by 2026. And that's growing at over 20 percent caper. Also, the worldwide structural health monitoring industry was a $2 billion USD market in 2021, and we expect it to grow to $4 billion by 2027. And that's a CAGR of over 14%. Finally, through our collaborations with Airtas Sensor Networks, we have access to a third market, indoor air quality monitors, which was estimated at $3.7 billion USD in 2020 and is projected to reach over $6 billion by 2027, over 8% CAGR. So overall, this was an excellent quarter for us and true momentum for us year to date.
spk02: Outstanding. Congratulations once again to you, and congratulations to you as well, Karen. The call is now turned over to you for your opening comments.
spk00: Great. Thank you, Stuart. Great to be here again. One of the things that I would like to discuss in my opening here is to talk about our expenses, mainly our operating expenses. so as a group we work diligently to minimize our monthly expenses as you can imagine but we have done that and shown that in our 10q if you were to compare 2021 to 2022 and you looked at our operating expenses you could see in the three months that ended september 30th From 21 to 22, we actually had a reduction of 24% in expenses. And if you were to look at the nine month ending on the 930, you would see about a 26% drop. in our expenses from 21 to 22. so definitely some success there uh and you might say well how did we do that so the pro that is primarily due to the decrease in professional and consulting fees we have a limited number of full-time employees and currently we have three and what we do is we strengthen our workforce with part-time contractors when services are required And so this will help us continue to work hard to keep a very reasonable burn rate. But one thing I'd like to leave you with a friendly reminder for all of you, we must maintain a certain level of overhead. We spend approximately 25% of our operating expenses on outside services directly related to being a fully reporting company. It's important that we remain a company that is fully reporting where investors can invest in an early stage company.
spk02: Well, very good. Let's get into the questions. I know, shareholders, you've sent your questions directly to me. I appreciate that. As you know from previous calls, I do take duplicate questions, similar themes, and group them into sort of an easier way to digest it as opposed to asking the same question over and over and over again. And, Cliff, I know you appreciate that. So, Cliff... To start with, let's go ahead and get our first question to you as more of a business update on this quarter and just kind of give us what's going on with bridges, state DOT, and some other things like that. Obviously, they want to know, are you getting more bridges? Are you getting into other states? Let's talk about the business update 101, if you will.
spk01: sure and and actually the short answer to that is yes to all of the above but let's really let's really take a look at all of our our three um major industries that we're into and i'll actually start with uh the smallest one first the indoor air quality uh monitoring business now this is uh the one in which we have a strong uh collaboration with the canadian company eratos sensor networks And the latest facet of this collaboration is a co-marketing and co-selling agreement that we signed a short while ago. The good news is that Karen and I have completed our sales training and that we're actively working on closing sales leads that we're literally sharing now with Eratos and ourselves. And we expect these sales commissions to definitely grow. contribute to our Q4 sales revenue, and we only expect it to grow coming into 2023. The second market, the structural health monitoring, where we have our bridge monitoring systems deployed in a New England state has just really been an excellent performer for us. It's actually been the foundation of the solid revenue we've reported ever since the beginning of Q2 this year, 2022. As reported, we officially received the new contract from that state DOT back in the September timeframe, but the actual contract started in July of 2022 and it will continue through June of 2023. So we absolutely know that it will continue to contribute to our revenue through the first half of next year. But it doesn't end there. We are absolutely going after additional contracts based on the success of this current installation. And we expect that these additional contracts will actually come from the same state DOT and the current structural engineering main contractor that we're working with. In addition to that work, we've also begun discussions with a second structural engineering contractor and another municipality in that same New England state where we have the DOT contract. Also, we're going to be focusing on some of the key conferences where the stakeholders of what we call bridge owners come to annually to promote our capabilities and essentially market our capabilities to these other states and municipalities. Finally, let me end with the smart manufacturing, also known as Industry 4.0 Business Vertical. This is probably the one where we have the greatest amount of excitement because it is by far the largest market of the industries that we are currently involved with. And first and foremost, I just want to thank our new advisor, Robert Mercier. He is a real spark plug and definitely has helped us accelerate our progress in this area. Through Bob and his contacts, we really have signed additional NDAs, had several deep dive meetings, and we actually expect a proof of concept POC to be announced by the end of this quarter, and that that will lead to a SAS contract, which we anticipate, excuse me, that will come about in Q2 to mid 2023. We're also working with IIoT World, a media outlet that helps us connect with customers that are interested in deploying Industry 4.0 technology. And we're going to be participating in a virtual event in early December. I actually just got off a dry run call for the panel that I'll be speaking on. and we expect to generate significant sales leads from this one event. Furthermore, we continue to have excellent collaborations with our strategic partner, Angura, the Spanish IoT company. We're looking to actually generate additional international work with them as their partner, And their capabilities also give us the extra bandwidth we'll need to take on these additional U.S. engagements that we anticipate through 2023. So in summary, a very bright future for us.
spk02: All right. Excellent, Cliff. I appreciate that. And now I appreciate your answer on this as this is a recurring theme from our last call. As you remember, a few shareholders do have a similar question. It's regarding the financing plans, its use of dilutive funding, and how long it'll be used.
spk01: Thanks, Stuart. And we understand that this is a very important question for many of our shareholders, so much so that it actually was one of the questions I answered on our last quarterly call. And for that reason, I want to reemphasize the leadership focus that we have on two very important principles, trust and shareholder value. When it comes to this first tenant, trust, we really believe that we instill trust for our shareholders by making promises and keeping them. And also to continue giving clear guidance and working diligently every single day to continue delivering those results. And that's exactly what we did this past quarter. So I hope that that our shareholders see that we are being genuine in our efforts to meet the expectations that we've set for ourselves. The second point is that we want to show consistency and transparency in all subjects that are important to our shareholders, including this one. In fact, we want to be really clear. The line of equity we have is the main source of funding for our company. So as we stated last quarter, this continues to be the leadership and our board of directors position that we will be using this as our main source of funding. That position has not changed and will not change in the foreseeable future. Relative to how long will diluted financing be used? The answer is simple. We need to be cash positive. And we're very heartened that the top line revenue growth that we are demonstrating is going to decrease the pressure for diluted financing. So we do expect that as revenue grows, that we can begin to taper on this financing. But at this time, I want to be clear, we have no firm cash positive date at this time. And I just would like to continue on that because the point being here is, as I mentioned before, the goal is to become cash positive. And the way we know that we can get there is by holding on to that second tenant that I mentioned earlier, which is shareholder value. So let me just take a moment to kind of paint the picture of exactly the progress that we've made year over year and how much value of the company has increased. So, of course, the first key metric is, as I mentioned before, top line revenue. Now, this time last year, we had very small revenue in Q3 and Q4. And even so, it was still an improvement, you know, that 2021 revenue in Q3 and Q4 was an improvement over 2020, which, of course, was a very difficult year due to the pandemic. But this year, two straight quarters of very strong top line growth. Just in Q2, we generated more revenue than all of that in 2021, and Q3 increased over the revenue that came in in Q2. And we expect that projection to repeat in the fourth quarter. We expect Q4 revenue to be greater than Q3, and we also expect the second half of 2022 to generate more revenue than the first half. And as I mentioned before, we expect that overall revenue to approach 2019 levels. Now, there are other levels that were, excuse me, other levers that we're using to increase shareholder value and actually what is the true valuation of the company. First of all, we know that NDAs, non-disclosure agreements with potential customers, they lead to POCs and proof of concepts, and proof of concepts lead to SaaS, software as a service contracts, for recurring revenue. And again, I want to emphasize, this is exactly what we delivered on this quarter. The DOT contract extension, that annual contract, is a SAS contract. And it started back in July of this year and will continue through June of next year. Secondly, as I mentioned before, with that smart manufacturing process prospect, we quickly moved to an NDA and now have a pending proof of concept that we expect will be announced by the end of this quarter. We also have several other NDAs, partnerships, and even other co-marketing, co-sales agreements that are in the works. And we expect additional announcements on this progress to happen before the end of this quarter. So in conclusion, I want to state that our true valuation is greater than it was at this time last year. And therefore, shareholder value has increased over last year. And quite frankly, our opinion is that the market is currently undervaluing us. In closing on this last point, I want to just bring up one of the related questions that did come from our shareholders, and that was, what are the potential opportunities for uplisting to a major indice and also potential opportunities for mergers and acquisitions? We want to be clear that we've stated before and continue to work on potential inorganic growth opportunities. That includes potential acquisitions, potential mergers, and In those discussions, part of those discussions is how we might uplist to a major indicee. If I was going to pick one for the company that I would choose to be in, I would say probably NASDAQ. However, we will be looking at all opportunities when it comes to what major indicee we might be able to uplist to. And we believe the higher valuation that we believe we're at versus the current market caps is going to be reflected as we move forward and move forward with some of these potential inorganic opportunities, inorganic growth opportunities.
spk02: All right. Thank you for that, Cliff. And Karen, some shareholders are interested in getting an update on the company's existing notes, including the senior secure note. Karen?
spk00: Yeah. So the majority of questions we get around our notes, as you know, are around the senior secure note. And so I want to be very clear on that note in particular. The principal on that note remains at $205,000 as of the end of Q3 of this year. This is a 30% reduction from this time last year. And if we were to look at the other notes that we do have, the principals on those are down 14% from this time last year as well. And then just to close out this question, I'd like to emphasize that all of our note holders, every single one, including the senior secure note, continue to be supportive investors in Auxis.
spk02: Well, thank you for that, Karen. I've got another question for you. A shareholder asked, how many shares do yourself, Karen, and Cliff hold of the company?
spk00: Absolutely. You know, continuing in our transparency, you know, CLIP currently holds a little bit less than 2.3 million common shares. And I have just over 1.8 million common shares. We each receive annual shares from our employee stock plan as part of our compensation. But I'd like to note that neither of us have sold any of our shares since joining the company or plan to sell any of our shares. We continue to believe in the company.
spk02: Well, very good. Thank you for that, Karen. Karen, at this time, I'd like to ask you for any final comments.
spk00: Absolutely. So first, I want to thank you for having us, as always, and to the shareholders that sent in the questions. We want to continue to be transparent with our shareholders through our filings and these calls, very important to us. But I want to leave everyone with a reminder. To read our SEC filings, especially the latest 10Q, you can find lots of details around several of the questions that were asked, plus additional information that wasn't covered in this call. And for everyone's reference, in case you don't know, you can find the SEC filings at www.sec.gov and search for IIOT-OXYS, O-X-Y-S, Inc. Thank you, Stuart.
spk02: You bet, Karen. Thank you so much for your time and thoughtful responses to these questions. Cliff, I'd like to hand the opportunity for you to give us any of your closing thoughts or comments as well.
spk01: Thanks, Stuart. We continue to build trust and shareholder value through top-line growth and building capabilities and partnerships for that rapid growth. The momentum from Q2 and Q3 is expected to continue into Q4 and even into 2023 and beyond. Our year-over-year progress is substantial and it bodes well for that growth in 2023 and beyond. We thank you, Stuart, our shareholders, for their questions and their investment in OXIS.
spk02: Absolutely. And yes, I think the shareholders as well. Quite a few of them I've gotten to know over the past year or two. And I appreciate their stick-to-itiveness in sending me their questions. And like I told them, you're getting a very transparent management team that will step up and answer your questions. So do continue to send your questions in as you do. To the company, directly to myself. You don't have to wait for the press release to come out saying, hey, we're going to have this upcoming investor conference call. Send them in throughout the next few months and we will address them in a timely manner as we always do. For Cliff Emmons and Karen McNamara, this is Stuart Smith saying thanks so much for joining us today and have a wonderful holiday season.
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