TOMI Environmental Solutions, Inc. (TOMZ) Earnings Call Transcript & Summary

[Audio Gap]    From IMS Investor Relations. You may begin.

Thank you, operator, and thank you for joining us today for the TOMI Environmental Solutions Investor Update Conference Call. On today's call is TOMI's CEO and Chairman of the Board, Dr. Halden Shane; E.J. Shane, TOMI's Chief Operating Officer; and Nick Jennings, Interim CFO. A telephone replay of today's call will be available through May 22, 2025, the details of which are included in the company's press release dated May 8, 2025. A webcast replay will also be available at TOMI's website, www.steramist.com. Certain written and all statements made by management of TOMI 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 that could cause our actual results to differ materially from our anticipated results. The information provided in this conference call is based upon the facts and circumstances known at this time. The company undertakes no obligation to update these forward-looking statements after the date of this call. I will now turn the call over to TOMI's CEO and Chairman of the Board, Dr. Halden Shane.

Thank you, Roslyn, and good afternoon, everyone, and thank you for joining the TOMI Environmental earnings call. In this update, we will highlight the key developments since our recent report, which wasn't very long ago on the 2024 figures. Shared less than a month ago, we're excited to share that TOMI is making remarkable progress and is firmly committed to achieving success in 2025 as reflected by the numbers reported for the first quarter. I will also outline our plans for the remainder of the year. We are moving through the year with considerably stronger product line and distribution strategy. We have new and diverse service offerings we launched in 2024 along with our innovative product line, the SIS-SA. Additionally, our recent collaborations with partners like PBSC announced on March 25, 2025, enable us to deliver customized iHP enclosures, chambers and hatches directly to our customers.    In quarter 1 of 2025, we achieved a 42% increase in total sales compared to quarter 1 of 2024. With the upswing continuing into quarter 2, the month of April has reflected a 21% increase in sales when compared to the same month last year. And year-to-date, we've experienced a 169% surge in BIT solution sales compared to the same period last year. That is on the back of 197% increase of solution sales for the first quarter of 2025 compared to 2024. We are optimistic about sustaining this momentum with a dedicated focus on our SteraMist integrated system, the SIS offerings, along with exciting new initiatives for our custom engineered system. To further sustain growth in our consumable bit solution sales, we will continue to expand our customer outreach through targeted marketing initiatives and strategic partnerships. Additionally, we are committed to educating the market on crucial importance of protective disinfection through SteraMist Pro Certified program.    In quarter 1, we saw a significant increase in the use of our handheld devices. We welcomed several new customers, including a new division of the U.S. Army, a Children's Hospital in Philadelphia, additional research universities and quality service providers. The use of SteraMist is expanding within the egg white manufacturing company I referred and referenced during our last call. This company has also established itself as a vulnerable, valuable referral source to us in the food industry and have provided us with essential procedures and protocols, enhancing our expertise in this segment. Notably, our partnership with Algafeed, which successfully tested site contamination has opened a new aquaculture market for SteraMist iHP. In quarter 1, 2 of our international distributors also added SteraMist products to their customer base. A major highlight this quarter was the purchase of both surface units and stainless steel carts by an American Canadian eye health company valued at approximately $170,000.    We are currently collaborating with them in their qualification procedures as they also acquired our validation service package, which we expect to complete in quarter 2. We also expect this health product company to purchase a similar order for a separate location in the short term. We continue our work with a major corporation focused on decontaminating heart monitoring devices. This order valued at approximately $288,000 was received in quarter 1 with further committed orders in the amount of $45,000 to the project since our last call. We are currently in the manufacturing phase of the enclosures. Validation service related to this order is expected to be conducted in quarter 3 of this year. It's important to highlight at the end of 2024, we had an open sales log of approximately $877,000. By the end of quarter 1 or March 31 of this year, that figure has risen to $1.2 million and it currently stands at $1.6 million.    This increased backlog is not only from our iHP corporate service plans, but is also a result of our expanded new service offerings that complement capital equipment purchases. This includes our new product offering in collaboration with partners for made-to-order iHP enclosure equipment and the wins of long-term project bids for our custom engineered system known as the CES. I will now provide a brief overview of our financial results for the first quarter of 2025 compared to the same period last year.    Revenue increased to $1.577 million for the first quarter of 2025, which was up from $1.114 million in the first quarter of 2024, representing a 42% increase in sales driven by heightened demand for our BIT solution mobile systems, SIS and increased revenue from iHP Corporate Services. Our product-based revenues totaled $1 million in Q1 of 2025, reflecting a 35% growth compared to Q1 of 2024.  Our service revenues generated $577,000, a 56% increase from the same prior year period. BIT Solutions sales reached approximately $300,000, marking nearly a 200% increase from just over $100,000 in the first quarter of last year. Additionally, technical support for existing customers' equipment continued to see a notable increase at 42%, indicating that our clients are utilizing our equipment more frequently for their regular operations.    Our gross margin as a percentage of sales for the 3 months ended March 31, 2025, was 60.4% compared to 60.2% in the same prior year period. Operating loss for the quarter was approximately $754,000, an improvement from the operating loss of $1.226 million in the same quarter last year. Our net loss was approximately $256,000 or $0.01 per basic and diluted share compared to $1.310 million or $0.07 loss per basic and diluted share in the prior year. That's really good.    As of March 31, 2025, our financial position consists of cash and cash equivalents of approximately $674,000, working capital of $3.8 million and shareholder equity of $3.8 million. We are very focused on prudently managing our working capital. We have made progress on our accounts payable, particularly subsequent to the close of the quarter. Our accounts payable stands at approximately $700,000, lower than the $1.7 million reported for quarter 1 2025, which puts us in a good position to exit quarter 2 with similar cash positions to quarter 1.    As mentioned, we anticipate a positive trend in sales throughout the year for BIT solution, equipment services and custom designs. Quarter 2 has begun on a strong note, highlighted by other significant wins for our SIS platform, totaling over $180,000 for a university, further device purchases by our Egg White manufacturing customer and the USDA's increased usage of SteraMist.    Additionally, we have a promising opportunity with the service provider franchise. In quarter 1, we welcomed group from Middle Tennessee, followed by 2 additional providers from this franchise this current quarter. While still in the early stages of development, we are scheduled to meet with franchise teams next week regarding our SteraPak. We will keep you updated on these developments, but it's encouraging to see that our targeted marketing initiatives and strategic partnerships are beginning to yield results.    With the recent launch of the SIS platform, the arrangement of our custom systems can become a bit complex. To ensure everyone is on the same page, I would like to take this opportunity to clarify our status regarding the 3 offerings that can be classified as custom or made-to-order to some extent, the Custom Engineered System, or CES, the Hybrid and the SteraMist Integrated System or SIS.    We currently have 8 active fully operational custom engineered systems, including the previously announced 2 systems for Merck, and we anticipate their bid solution orders in the second half of the year. Additionally, we are in negotiations to install the hybrid at another building on the Merck campus with an estimated value of approximately $300,000. Although the time line for implementation is still being determined.    We are at various stages with 4 purchase bids for CES systems either already accounted for in revenue or in open bookings. Regarding the full pipeline reported during our last call, we are actively negotiating $2 million among 5 potential orders for our CES. We are routinely discussing specifications with these 5 and are highly optimistic about securing these wins.    The hybrid currently include 2 fully installed and operational units. Our initial hybrid previously referred to as a modified environment system has been in use for the past 3 years, and this customer consistently purchases approximately $50,000 worth of this solution annually. The second system is just getting started, while the third is in the final stages of customer internal approval.    We are actively engaging with 7 different opportunities for the hybrid, each with varying time lines. It's important to note that this product offering is dependent on and frequently changes during the negotiation process. Otherwise, these companies would likely opt for our CES. As such, it is challenging to provide a precise estimate for the expected outcomes for some of these opportunities and current bids range from approximately $150,000 to $800,000.    The SIS platform can be complex as it may involve a combination of efforts with the new partners we've discussed over the past few quarters. These could entail providing a fully enclosed system utilizing our technology or simply the purchase of our capital mobile equipment. The SIS-SA, along with accompanying services we now provide.    Currently, we have 2 installed and operational SIS systems with one more awaiting the completion of our customers' internal processes, estimated for completion by the end of the year. Additionally, we have 5 systems pending, either waiting for enclosures to be manufactured or for services from TOMI to be scheduled according to customer time lines. The pipeline for SIS and SIS-SA has shown substantial potential since its recent launch.    Although still early to provide concrete numbers with confidence, the 5 already accounted for in either sales or backlogs equate to approximately $950,000. TOMI anticipates this to be a game changer for our brand, keeping pace with industry advancements. Our ongoing communication with enclosure manufacturing companies worldwide reinforces this optimism. We look forward to sharing more formal contracts as the year progresses with even greater developments anticipated in 2026.    Other brief updates from the past month include the ongoing expansion of Fresenius Kabi across various locations. which I anticipate will be officially announced shortly. We are diligently working on enhancing our sales infrastructure by establishing new distribution channels, recruiting independent representatives and most importantly, bringing in qualified business developers to effectively manage our growing customer base and support new sales initiatives. These efforts are expected to positively impact our revenue in 2025 and beyond. Additionally, we are actively seeking strong global partners for 2025 and continuing our discussions with those mentioned during our last call. Our focus remains on rebuilding our brand presence in Panama, Nigeria and Israel with new partnerships as well as establishing a new relationship in Australia and Chile and adding distributors in Costa Rica and Brazil. We will continue to capitalize on the positive momentum in iHP corporate service deployment, which has generated approximately $633,000 for the year from deployment service jobs alone. The iHP Corporate Service deployment pipeline currently stands at $1 million in open proposals for 2025. We are excited to announce that we hope to finalize a new partnership with a company we recently engaged with for the first time in quarter 3 of last year. This partnership would involve contracting the TOMI iHP corporate service team for 2 separate buildings, servicing them twice a year and has the potential to make them our highest service customer. Our first service under this arrangement is expected at the end of May, followed by the second service in July. We anticipate finalizing our arrangement with this customer and commencing services at the end of the current quarter. In summary, we are encouraged by significant progress TOMI has made in the first quarter of 2025 with substantial increases in total sales and bit solution sales that showcase the effectiveness of our strategies and product offering. Our ongoing efforts to enhance our sales infrastructure, expand our distribution channels and establish strategic partnership positions us well for continued growth throughout the year. As we look ahead, we remain committed to advancing the innovations of our SIS platform and custom engineered systems and offer to our impressive customer base and new customers while also strengthening our presence in key and new markets. As always, we thank all of you for your continued support and belief in TOMI. I know it's been a long road, but together, and as always, we will embrace the opportunities that lie ahead, and we look forward to sharing our successes with you in coming quarters. Operator, let's open the call to questions.

[Operator Instructions] Your first question for today is from John Nelson, a private investor.

Great job on the quarter. Thanks very much as a shareholder. And it sounds like you're making tremendous progress and the future looks bright. So I've got a couple of questions. First one is, do you have any financial goals for the year 2025 that you can share with us?

We know that 2025 is going to be a great year, John. We're trying not to go forward and project, but we're pretty confident that we're going to improve on our last year numbers.

Okay. Good. And anything -- do you anticipate any effects from the tariffs trade policy?

Well, it's hard to tell. Basically, it's changing daily. We had one minor problem with South Korea, where they had a 15% tariff and our distributor got back to us and wanted to split that with us. And I'm not sure if we made a decision yet. But we'll work with them. We're not having any problems with international sales because of the tariffs. And I certainly hope that -- and today was a very encouraging day that a lot of this tariff stuff will come to an end shortly or within the next 60 days.

Okay. And then with the government's recent budget and staff cuts at various agencies, do you anticipate that being of any significant problems for TOMI?

No, not at all. In fact, I think we're seeing an increase in the right aspects of the government that utilize our product. There will be doing a lot more critical testing and studies on everything. And I think that it should be -- this should be good for us in relationship to filling the government's needs. And I think that they definitely need our product in all aspects of government for the best disinfection decontamination. But from the lab standpoint, I see increasing this year.

Okay. And I ask these questions every quarter just because I know that they could open up significant new markets for TOMI over the long run. Anything new on food safety?

We have -- we're getting flooded with interest and requests for quotes and in all aspects. And our companies, as I mentioned, are very large, and they seem to like our product and are using it. And I truly believe that food safety will surpass life sciences in time. And we're even getting requests from researchers and universities that want to use our product and test it for food safety in various areas, further than what I mentioned on the call.

Okay. Has anything materialized as far as either number of requests or progress on the use of SteraMist for prevention of bird flu transmission?

Nothing that I'm recently aware of. We do have remediators and professional cleaners that are using our product for that. But governments, I believe that treating it just as a flu and not overcompensating for it, which is fine. But there's an increase in individuals that want to use it for disinfection decontamination for the treatment of bird flu and other related viruses.

And then any new developments on SteraMist as an ethylene oxide replacement?

We have and we are in talks with companies that would replace ethylene oxide with SteraMist and we are negotiating in those space.

Was the order that you got for treating pacemakers by the medical device manufacturer, was that used in replacement of ethylene oxide or just for another layer?

Elissa, do you know the answer to that?

Certainly. So that one company is using us for disinfecting their heart monitoring devices. What was stated is we think it will be a good foot in the door to work on our 510(k) to get fully registered as a medical device disinfection product. And so encompassing iHP into a full enclosed chamber will lead to an easier way in to replace ethylene oxide. So, with time, I absolutely do think so. That one particular win was not in replacement. We actually helped them develop an entire new protocol for their use.

And then you had mentioned again, it's critical that TOMI continues to educate the market with information about your superior product. Have you developed any new ways to try to educate the market or to spread the word?

Yes, of course. So that's what the SteraMist Pro Certified Program is all about not to have it just be for our service providers, but our entire customer base and our distributors and their representatives as well. So it is held all our information on a learning management system, which has ongoing training, protocol developments regardless of the segment or industry they find themselves in, and we update it routinely and weekly.    So, it creates more of an education platform and communication outlet to really get involved in using SteraMist and getting out there. So it is newly developed. We have moved pretty quickly on it. I expect real results coming from it in terms of the amount of users come next year, but it has shown already some results, especially around usage of the technology and different segments.

And is the... I wasn't sure if I caught it right, but is the SIS system being used by the heart monitor company to treat devices? Or is that another form of hybrid or CES?

No, you're absolutely right. It's the SIS stand-alone. So they did purchase the Capital Mobile piece of equipment, which will integrate within the chamber that we're designing with our partners.

It might be useful to the shareholders and listeners just to describe how the SIS actually works as far as sterilizing equipment like the heart monitors. I'm assuming it's not just a stick it in the container and push the button and that's it.

It is actually. It would be very similar to our environment system. So, the key aspect of the technology is it all runs off the same science. So in essence, it's just the amount of applicators that they would require. The stand-alone sells the applicators, which houses the cold plasma arc, the basis of our technology separately because they can use it elsewhere within the facility. So trying to promote more use out of machines where they can connect it to the enclosure and then also use it on a handheld spray should they want. So it's all encompassing the unit itself very similar to our building, but only houses one applicator, so for smaller areas.

And this is just me speculating, but is there a use or need for something like this in hospitals?

Yes. I do believe there would be. We sell 2 of our SteraBox, which is something we're marketing towards hospitals with the stand-alone. It's a new initiative, but it's getting put out there. So yes, it would be accretive for us.

Your next question is from Jeff Ficelli, Ficelli Capital.

Just a quick one here. Solutions sales, they've been pretty strong as of late. Can you just provide a bit more color there, kind of background on what's driving that?

So the model itself has always been this razor-razor blade model where we get technology out being the razor and we sell a lot of razor blades. And it's taken a while to get the razors in the hands of the right people that constantly use razors. And we have recently gotten large orders from people that are currently using our product more. And we anticipate this to increase going forward in the year to come. So we're very, very thrilled about the usage and about the increase in solutions. And we're just constantly working at selling more razors out there, more technology so they can utilize more of our solution or blades.

[Operator Instructions] We have reached the end of the question-and-answer session. And I will now turn the call over to Dr. Shane for closing remarks.

Well, I want to thank you all for joining us today, wherever you might be in the world and look forward to presenting our next quarter results and look forward to a great year at TOMI. And I hope everybody has a wonderful day, and I want to thank my TOMI team for all the hard work that they've done.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.