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

Good day, everyone, and welcome to the TOMI Environmental Solutions, Inc. Second Quarter 2026 Financial Results Conference Call. [Operator Instructions] It is now my pleasure to hand the floor over to your host, John Nesbett. Sir, the floor is yours.

Thank you for joining us today for TOMI Environmental Solutions Investor Update Conference Call. On today's call is TOMI's Chief Executive Officer and Chairman, Dr. Halden Shane; Chief Operating Officer, EJ Shane; and Interim Chief Financial Officer, Niro Srirathan. A telephone replay of today's call will be available through August 21, 2026, the details of which are included in the company's press release. A webcast replay will also be available at TOMI's website, www.steramist.com. Certain written and oral 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 actual results to differ materially from our anticipated results. The information provided on this conference call is based upon the facts and circumstances known at this time. Please refer to our filings with the Securities and Exchange Commission for a discussion of these risk factors. 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 Chief Executive Officer and Chairman of the Board, Dr. Halden Shane. Please go ahead.

Thank you, John, and thank you all for joining us today. Since signing our definitive agreement with Carbonium Core at the end of June, we have stayed closely engaged with their company. The integration of these 2 complementary technologies, each delivering exceptional performance in its respective markets continue to advance as planned. But first, let me start with this. TOMI's SteraMist decontamination business has now delivered growth for 3 consecutive quarters. Our second quarter 2026 results reflect another healthy quarter for TOMI with continued positive momentum for the strategic initiatives we have implemented. And as always, we remain committed to keeping shareholders informed as these efforts progress. In the second quarter of this year, we saw growth across 4 key metrics compared to both the first quarter of this year and the second quarter of last year. Those 4 areas were BIT Solution sales, mobile equipment, single applicators, which is where TOMI's patented iHP intellectual property resides and support services, including qualifications, acceptance testing and training programs. The increase in applicator sales and support services stem directly from initiatives introduced in late 2024 and early 2025, further validating our strategic focus. We continue to pursue new opportunities and additional growth strategies throughout 2026 without interruption. Our second quarter results demonstrated a revenue increase of 118% year-over-year and 36% sequentially from the first quarter of 2026. BIT Solution sales exceeded $700,000 for the first half of the year and continue to trend upward, which we believe positions us to finish the year with higher sales than in each of the prior 2 years, reaffirming our full year revenue guidance. On the cost and cash front, our disciplined overhead management drove a 10% year-over-year reduction in quarterly operating expenses to $1.63 million, led by significant savings across general and administrative costs. This cost discipline, combined with $1.92 million in net proceeds raised through our equity line of credit, strengthened our balance sheet, expanding our working capital to $1.82 million and increasing cash and cash equivalents to $322,000 at quarter end. Additionally, we continue to make substantial operational progress towards remediating our historic material weakness. During the quarter, we strengthened our finance leadership with dedicated CPA oversight, formalized close and revenue recognition procedures and instituted rigorous inventory and treasury controls. These proactive actions reflect our strong commitment to full remediation, operational discipline and robust financial reporting. The ongoing health of the company continues to be reflected in a growing sales backlog. At the end of last year, TOMI reported a backlog of $1.6 million that grew to $1.7 million by year-end of this year's first quarter, then $2.2 million by the end of the second quarter and currently stands at $2.6 million. This steady expansion in our sales backlog reflects the strength of our automated integrated system and the expanded service offerings we have implemented. The backlog continues to grow even as we fulfill existing orders, demonstrating both sustained demand and strong execution across our sales efforts. We are pleased to report the delivery of SteraMist iHP chambers to a Fortune 500 medical device manufacturer, marking an important milestone. This represents our first fully designed, manufactured and assembled chamber engineered specifically for integration with our SteraMist stand-alone system, part of our integrated SIS platform. This is different from the pass-through system announced last year. This chamber is a distinct advancement in our technology platform and enables us to formally advance our 510(k) submission process with the FDA. Achieving 510(k) clearance would authorize the marketing of our technology for specific medical device applications in the United States, significantly expanding our addressable market, enhancing regulatory credibility and opening new commercial opportunities in the health care and life science sector. In parallel, we've been actively collaborating with 2 additional partners to develop a next-generation, all-in-one fully autonomous iHP chamber. This system is designed for the decontamination of medical devices, electronics recycling, pharmaceutical components, laboratory equipment, biotech materials, food packaging, aerospace components and other high-value items requiring reliable enclosed decontamination. This new chamber is more intelligent than our original SteraBox and operates without the need for a separate mobile equipment attachment, offering a streamlined, fully integrated solution. One partnership is focused on serving our international customers, while the other targets the domestic market, allowing us to grow both sectors in tandem. April began on a strong note with a significant win in INTERPHEX, where we secured a new partnership with a top-tier American health company renowned for its innovative premixed ready-to-use medication formulations. We have since joined forces with this organization on a range of projects and collaborations, closing the quarter with additional sales. The customer purchased equipment at the show, and they've continued to expand its requirements throughout the implementation of the project as it moved forward. While we are unable to share further details at this time, we anticipate this company will become one of our top customers. In addition, one of their senior technical leaders has joined TOMI in an advisory capacity, lending their expertise on the scientific and engineering front. We look forward to leveraging this individual's expertise across multiple integration projects for similar customers seeking to implement SteraMist iHP technology within their proprietary mechanical systems. Also in April, we completed the installation of a SteraMist hybrid system at a highly respected private research university on the East Coast. The customer has already placed a second order scheduled for next year. In May, one of our newly associated government agencies purchased significant amount of accessories in preparation for the deployment of their environment system. Also during that same month, we onboarded several new food safety customers using the SteraPak. Moving to June, it continued this positive momentum with additional government orders from the Department of Health, expanded iHP adoption among existing food safety customers and the installation of another fully automated custom system in the United Kingdom, the second pharmaceutical company in the region to implement our CES product line. We expect our U.K. partner, TCA, to drive further adoption in the near term across markets. Also in June, we expanded our domestic distribution network by adding new partners with established relationships and familiarity with our technology. This includes a distributor specialized in emergency services, contacts on the East Coast and on the West Coast, our iHP corporate service partner secured a meaningful opportunity in health care sector and expanded its arsenal of iHP equipment and BIT Solution. In the health care sector, we have seen growing adoption of iHP technology by special pathogen units throughout the first half of this year with additional opportunities developing for the second half of the year. These special pathogen units manage high consequence infectious diseases and require rapid, validated and comprehensive decontamination of rooms, equipment and personal protective equipment. They require a solution that delivers broad spectrum efficacy against resilient pathogens and reduces manual intervention while maintaining the highest safety standards, capabilities that align directly with the strengths of our SteraMist iHP platform. We also secured a purchase from a health care facility for our first NV+ all-in-one stainless steel cart featuring a rotating applicator, integrated lights and full automation, which is scheduled for delivery by the end of the third quarter. It continues to be an active period on the registration and regulatory front. TOMI's innovative disinfection product is now approved for use in Austria, Italy, the Netherlands, Belgium, Denmark, Germany, Hungary, Spain, Great Britain, Northern Ireland and Ireland. We have also added Switzerland through an amendment, and we expect additional approvals for France, Poland, Portugal and Romania. NSF is rewriting the rules on biosafety cabinet decontamination. TOMI played a key role in advancing this decision at the NSF meeting in June. The industry is shifting away from listing legacy known methods and brands such as paraformaldehyde and moving towards strict performance-based criteria focused on efficacy, validation and material compatibility, areas where SteraMist iHP technology excels. We continue to strengthen our intellectual property portfolio, submitting 4 new utility patent applications in the second quarter, giving us additional worldwide protection for our technology. This month, the EPA has granted a new unconditional registration for AgriMist, TOMI's fourth EPA label. This expanded label significantly broadens our approved use sites to include a wide range of food safety applications. The registration authorizes direct application of iHP to indoor grown plants and fruits such as avocados for the prevention, control and suppression of common plant pathogens. The label also permits applications up to and including the day of harvest, a key advantage consistently identified by cultivators. I will now turn the call over to our Interim Chief Financial Officer, Niro, for a review of TOMI's SteraMist Q2 financial results.

Thank you, Dr. Shane. Our complete financial statements are included in our Form 10-Q filed with the SEC and detailed in today's press release. I will now walk through our key financial and operational metrics for the 3 months ended June 30, 2026, comparing our results to the prior year period. Revenue for the second quarter of 2026 was $2.25 million, representing a 118% increase compared to $1.03 million in Q2 2025. And a 36% sequential increase over Q1 2026 revenue of $1.65 million. Revenue and commercial performance. Our top line acceleration was driven by growth across both our product and service divisions. Product revenue reached $1.86 million for the quarter, a 42% sequential increase over Q1 2026 and a 185% increase or approximately $1.2 million compared to Q2 2025. This growth was fueled by strong demand for capital equipment, Custom Engineered Systems, or CES and expanding adoption of our SteraMist applicators. Service revenue also saw gains across both comparative periods, reaching $389,000 up 13% sequentially from $344,000 in Q1 2026 and up 3% year-over-year compared to $378,000 in Q2 2025. Geographically, U.S. revenue expanded 132% year-over-year to $1.91 million, while international revenue grew 62% to $339,000, bolstered by new customers onboarding in the U.K. Gross margin. Gross profit for Q2 2026 more than doubled to $1.39 million, up 105% compared to $677,000 in Q2 2025. Gross margin was strong at 61.7%, representing an increase from 50.3% in Q1 2026, while remaining healthy compared to 65.7% in Q2 2025. The sequential expansion was driven by higher revenue volume and an optimal mix of equipment deployments alongside high-margin BIT Solution consumables. Applicator sales reached $355,000 for the quarter, up from $13,000 in Q2 2025, validating the momentum of our high-margin recurring razor and blade model. Operating expenses and operating loss. Total operating expenses for Q2 2026 were $1.63 million, a reduction of approximately $180,000, or 10%, compared to Q2 2025. This reduction reflects our continued overhead discipline across general and administrative costs, offset slightly by transaction-related professional and consulting fees associated with our strategic growth initiatives, including our reverse stock split, Schedule 14C filings and the pending merger. Our loss from operations for Q2 2026 improved by 78% to approximately $244,000 compared to an operating loss of approximately $1.13 million in Q2 2025. This approximate $889,000 year-over-year reduction in operating loss demonstrates meaningful operating leverage and puts us within clear striking distance of operating breakeven. G&A savings were further supported by improving -- by improved collection activity and a credit loss reserve benefit of approximately $144,000 during the quarter. Net loss and transaction impact. Net loss for the second quarter of 2026 improved by 69% to approximately $382,000 or $0.05 per basic and diluted share compared to a net loss of approximately $1.24 million or $0.19 per share in Q2 2025. On a 6-month basis, net loss improved 20% to approximately $1.19 million compared to $1.49 million in the prior year period. All share and per share figures retroactively reflected our 1-for-3 reverse stock split effected on July 20, 2026. It is worth noting that Q2 2026 operating expenses included approximately $300,000 in elevated advisory, legal and diligence costs tied to the signing of the Carbonium Core agreement and plan of merger. Excluding these transaction-related expenses, our core operating performance underscores the solid trajectory of our underlying SteraMist business, cash flow, balance sheet and capital access. We ended Q2 2026 with $322,000 in cash and cash equivalents, up from $88,000 at December 31, 2025. Working capital expanded to $1.82 million compared to $1.02 million at year-end 2025, while stockholders' equity increased significantly to $1.43 million, up from $589,000. As of June 30, 2026, we maintained approximately $18.1 million in remaining contractual capacity under our ELOC facility. Following majority shareholder approval in June to waive the exchange cap under relevant NASDAQ rules, the ELOC remains an available tool to support ongoing working capital requirements. Additionally, post-quarter on August 12, 2026, we entered into an omnibus amendment with holders of our 2023 convertible notes, lowering the fixed conversion price from $3.75 to $1.50 per share, subject to adjustment in accordance with the terms of the notes and as adjusted for the reverse stock split. As of today, we believe we have met the NASDAQ stockholders' equity requirement. Backlog and forward guidance. Looking ahead, our financial visibility remains robust. Our total sales order backlog stood at $2.2 million at quarter end and has expanded to $2.6 million post quarter. Booked orders and expected completions before year-end exceed $6.2 million, supporting an active integrated project pipeline of $4.3 million across 13 projects and a broader commercial sales pipeline of approximately $35 million. Based on this visibility and our second half trajectory, we comfortably reaffirm our full year 2026 revenue guidance of at least $12 million. Furthermore, our agreement and plan of merger executed on June 29, 2026, with Carbonium Core includes a $10 million minimum concurrent financing condition prior to closing, which we expect will transform the combined company's balance sheet and growth trajectory. Investors are encouraged to review our quarterly report on Form 10-Q in full, including the risk factors and notes to the condensed consolidated financial statements. I will now turn the call over to our Chief Operating Officer, EJ Shane, for an update on what to expect in the upcoming months and rest of the year.

Thank you, Niro, and good afternoon, everyone. TOMI's sales pipeline remains robust with the total identified interest currently standing at approximately $35 million. Of this amount, $8.6 million is in its advanced stages and are expected to close in 2026, assuming there is no material shifts in customer budgets. Several high-quality opportunities within this pipeline show the strength of our competitive positioning. A large-scale custom engineered system or CES project that is currently out for bid is valued at approximately $1 million. Originally anticipated to reach a decision in June, the time line has now shifted to September. This opportunity involves an existing customer, one that prioritize innovation and quality over lower-cost alternatives, and we believe the opportunity is well positioned for a favorable outcome. This remains the only project included in our previously communicated integration projections. New additions to the pipeline include another $1 million project that was initiated in the second quarter. This is the one Dr. Shane mentioned earlier, involving the installation of 4 applicators per proprietary machine line at a major multinational health care manufacturer. Additionally, we have one of our Canadian partners who has secured access to a bid for a potential order of 8 hybrid systems. The hybrid system has proven to be a highly successful product development initiative. An early semi-hybrid configuration delivered to a customer in 2020 prior to the full commercialization of our latest hardware and software platform continues to generate strong reoccurring demand. That customer routinely purchases 2 full pallets of BIT Solution twice per year and is now planning a purchase of a second system and upgrade their previously purchased hybrid to the latest configuration. The core advantage of the hybrid platform lies in its flexibility, not only in the underlying science and technology, but also in the expanded product ordering options we have developed over the past 2 years, giving our customer base greater adaptability to meet their operational needs. TOMI continues to expand its presence in the defense sector, having recently received approvals from defense contractors in Korea and defense agencies in Canada. While confidentiality agreements limit the disclosure of specific details, these relationships represent multiyear efforts with a significant long-term potential. We have developed a very detailed strategic plan specific to these 2 accounts, which we have been in contact with for years. TOMI has also authorized a local representative to distribute to the Defense Logistics Agency, or DLA, which manages the global defense supply chain for the U.S. military services and allied partners. This partnership established in the second quarter is expected to streamline and accelerate government procurement of SteraMist iHP technology. In one of our largest markets, life sciences, we have received approval for one site of a long-standing global pharmaceutical partner for approximately $500,000 in SteraMist systems with delivery scheduled for later this year. TOMI's iHP corporate service is also experiencing an increase in new opportunities. While year-over-year results to date are slightly lower due to a production change at a large customer that no longer requires decontamination services, TOMI has partially offset this impact and is actively expanding service opportunities. We are now developing pathways to deliver direct corporate services internationally to end users, building on our strong domestic relationships. We look forward to sharing additional updates on this initiative in the coming periods. TOMI's recent expansion of SteraMist registrations across the EU and United Kingdom has significantly strengthened our established European network. In Poland, through our partnership with Medline, we expect to be able to sell SteraMist under the DeconLine brand once mutual recognition is approved. Additionally, TOMI has deepened its commercial pipeline through dedicated partners in Germany, the United Kingdom and the Netherlands, many of whom bring well-established commercial, life sciences, health care and military networks. In the Americas, TOMI has added a new strategic partner to capture growth in life sciences and industrial sectors. Located in Puerto Rico, Integrated Services for Productivity and Validation, or ISPV, is focused on driving adoption within the region's strong life sciences and food manufacturing industries. In Argentina and surrounding markets, TOMI is collaborating with new partners to pursue shared opportunities with major global accounts, including Pfizer, Fresenius Kabi and Merck. This expansion complements our long-standing partnership with Bacteria Free in Chile, which is now extending its reach from life sciences into the food safety sector. I would like to reiterate the strong signal that the SteraMist applicator purchases send. Year-to-date, applicator sales alone totaled nearly $400,000, representing approximately a 1,100% increase year-over-year, a trend we never needed to capture before. This growth clearly demonstrates that customers are expanding their deployment of our patented cold plasma technology. The applicator is a critical component that enables iHP cold plasma technology to be utilized, whether paired with a mobile delivery system or installed in a permanent or semi-permanent configuration. We only began emphasizing the strategy less than 2 years ago, and it builds on our consumable-driven model. In many ways, the applicator functions as a second razor in a razor-and-blade framework. It carries a longer replacement cycle than pure consumables such as our BIT Solution, yet it has a significantly shorter sales cycle than full capital equipment when integrated accordingly. This allows TOMI to capture meaningful revenue and margin today while simultaneously locking in long-term reoccurring BIT Solution demand. We continue to make progress on the regulatory front through additional approvals, we still require to fully unlock the opportunities tied to these requirements. Our food contact notification, FCN, efforts with the FDA, both broadly and specifically for baby formula production remain ongoing. We secured a significant win in June with NSF Standards Department for Biological Safety cabinets and are targeting a second milestone in October. On the FDA 510(k) medical device pathway, we advanced, as Dr. Shane referenced and are now focused on compiling the necessary studies. Meanwhile, EU registrations continue to come in. Collectively, these initiatives hold substantial potential given current market demands. The food safety sector remains promising, and we expect the approval of the -4 EPA label to accelerate sales in this division. Through further progress, we depend on ongoing regulatory developments. Nestle's planned expansion, for example, is contingent on securing additional international registrations beyond the EU and on updating EU registration requirements to include an alternate class. These efforts remain actively underway. However, Nestle has now also added specific South American registrations to their original international requests, and our new partners referenced earlier are assisting with them. In summary, we see our strategies are working. We are actively supporting the resources required to advance our integration pipeline across all products, not solely the CES, along with our services offerings and growing momentum we are seeing from partners, both domestically and internationally. This is in addition to the regulatory advancements already underway. And while I shared only a high-level view earlier, we are currently conducting numerous additional use site scenario tests that we expect will further unlock value. I thank you all for your time today. We hope this provides useful insight into the continued direction and opportunity ahead for the SteraMist iHP brand. I will now return the call back to our CEO, Dr. Halden Shane.

Thank you, EJ and Niro. Before we open the call to questions, I want to leave you with a bigger picture. SteraMist isn't a story about potential anymore. It's a story about proof, 3 consecutive quarters of growth, a backlog that keeps expanding even as we fulfill it. Our regulatory footprint already spans a wide range of countries now across Europe, and we're continuing to add to it, an expected pipeline of $35 million and growing faster and a technology platform that is now trusted in some of the most demanding, highest consequence environments on the planet, from operating rooms and clean rooms to national labs and next-generation energy infrastructure. Every division, every geography, every product line I've walked you through today is moving in the same direction forward. We are investing in people, partners and product needed to meet the demand. I am also very happy to announce the improved financial performance this quarter and the recent agreement with certain noteholders to convert approximately $2.3 million of their outstanding convertible notes into shares. We believe we will be able to regain compliance with stockholder equity requirements under NASDAQ's continuing listing rules subject to final review and approval by the NASDAQ hearing panel. In reference to Carbonium Core potential merger on August 7, President Donald Trump convened a historic roundtable at the State Department with over 200 mining executives and university officials to announce $3 billion in federal investment aimed at securing U.S. critical mineral supply chains and reducing reliance on China. Trump declared the initiative a step towards reclaiming America's status as a "mineral superpower," emphasizing that these resources are essential for national defense, advanced weaponry and economic independence. Carbonium Core will produce nuclear graphite and lithium. Based on President Trump's coalition founding principles and recent U.S. investment announcements under the Trump administration, the scope explicitly includes battery and energy minerals, lithium, cobalt, nickel, graphite, magnesium and silicon. The combined value pegged by independent valuations companies between Carbonium Core and TOMI is $180 million. Carbonium Core has a valuation of $120 million and TOMI has a valuation of $60 million, thus the combined value of $180 million. As far as SteraMist, we will be building a better, bigger company, hiring more personnel, expanding our product line to deploy for preventive disinfection using robotics for autonomous vehicles, along with drones for biosecurity. My take on the current worldwide view on preventive preparedness for the future is everyone has a fear of infection. As AI can simply produce a blueprint for biological weapons, the fear is worth being prepared. Then to be prepared for the next release of a biological weapon is going to be key to surviving in the future in the world that we all live in. SteraMist is your go-to biodefense weapon for survival. I want to take a moment to thank our investors, both old and new, for their continued support of TOMZ. All of you have been amazing. Last but not least, our amazing small team of 20 in Frederick and our partners around the world. We hope this team will grow to 200 in the next 3 years. However, the 20 has kicked some a** to get us in the direction we're going in. Operator, please open the call.

[Operator Instructions] Your first question is coming from Amit Dayal from H.C. Wainwright.

Congrats on all the progress on many different fronts. Question around the AgriMist offering. Is this -- is any of this part of the pipeline? Or will this add to the pipeline when you start commercializing this product?

It's going to add to the pipeline. Everything discussed thus far does not include the AgriMist potential.

Understood. And then with respect to the medical device clearance, what are the next milestones on that front?

So it's all going to be related around studies with this one customer base. So now that it's delivered and installed, we have to create protocols and then establish and then conduct them and then report them to the FDA. So there's still some time ahead of us.

Is this like a 12-month, 18 months or less sort of time line?

Give me another quarter, and I'll have a better idea for you.

Okay. And then with respect to the Carbonium deal, I mean, at what state of diligence are we? And what are the next milestones on that front?

So we are -- we really have 2 levels of completion that need to occur. One is for NASDAQ to go ahead and give us a clean bill of health in relationship to listing. I believe we've been well over $1 for the last 4 weeks, and I believe we're in compliance with that. And just recently, we went ahead and created enough shareholder equity. I believe it's a little over $3.3 million at this moment, provided the notes that have converted or are in the process of converting. So I think that's one aspect. And the other aspect is raising $10 million for the joint companies, and we're still in negotiations with doing that.

And then from the diligence you've done so far, Doc, on Carbonium, are they already sort of positioned to generate revenues in the near term? Or is the company still in sort of product development phase?

So I think that they are going through their prototype, which is going to be underway shortly. The contract between Oak Ridge Nuclear and Carbonium Core is in its final stages. Also, I believe there's a contract between the Department of Energy and Carbonium Core that's in its final stages. Once that occurs, the prototype will produce, I believe, enough graphite to create revenue. I am not sure the exact timing. I think a lot of the specifics would be terrific to have the CEO of Carbonium Core on a call or a fireside chat with you guys, and we can go over some information.

[Operator Instructions] Your next question is coming from John Nelson.

Congratulations on delivering a terrific quarter and to you and your team. I have several questions. The -- you had just kind of wrapped up with some comments on SteraMist and the biodefense sector of the government, how would you envision SteraMist could be used in biodefense?

Well, for one, a lot of equipment, both military and nonmilitary is having increased demands put on it for disinfection and decontamination. So that's where the concept of the drone program would come in where the drones are equipped with our unit, kind of similar to the backpack, and they're able to decontaminate large pieces of equipment aerially and up close.

Okay. And then in the news, at least one area of news, where I always think about how useful SteraMist would be is in the FEMA disaster area, especially with the floods in Indiana, for example, and other parts of the country. Have you been able to make any inroads with FEMA as far as supplying them with SteraMist for treatment of things like mold and other contaminations that come along with the disasters that they've had to deal with?

So I'll let EJ answer that. But like -- take Kansas, I know in Kansas, the state has our equipment. Whether they use it or not in mold post disaster, I'm not positive. But maybe EJ has some more information about federal disasters managed by FEMA.

Yes, of course. I mean, as Doc said, Department of Health own our equipment for emergency response to their individual counties and states. But yes, FEMA has been a long-term customer of TOMI. We're just not allowed to share everything that they use our equipment for, but they have quite a few of our foggers.

Question -- tariffs. Have tariffs had any effect on TOMI's income statement or balance sheet? And are you paying tariffs now? Or when would you expect any refunds from tariffs?

Niro?