Good day, ladies and gentlemen, and welcome to the TOMI Environmental Solutions Second Quarter 2021 Financial Results Conference Call. At this time, all participants are in a listen-only mode and we will open up floor for your questions and comments after the presentation.

It is now my pleasure to turn the floor over to your host, John Nesbett of IMS Investor Relations. Sir, the floor is yours..

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 and Nick Jennings, TOMI's Chief Financial Officer. Dr.

Shane will provide an overview of recent business highlights and discuss critical financial benchmarks for the most recent quarter before addressing any questions you may have. A telephone replay of today's call will be available through August 23, 2021, the details of which are included in the company's quarterly press release.

A webcast replay will also be available at TOMI's website at www.tomimist.com. I'll remind that during this conference call, we will make some forward-looking statement including discussions of the business outlook and financial projections.

These forward-looking statements are based on management's current expectations and involve risk and uncertainties that could cause the actual results to differ materially from such expectations. For a more details descriptions of these risks and uncertainties, please refer to our recent and subsequent filings with the SEC.

We assume no obligation to update the information provided in today's call. In addition, in this conference call, we will discuss certain non-GAAP financial measures.

We use non-GAAP measures, because we believe they provide useful information about our operating performance that should be considered by investors in conjunction with the GAAP measures that we provide. The reconciliation of these non-GAAP measures to comparable GAAP measures is included in our earnings release.

I will now give the call over to TOMI's CEO and Chairman of the Board, Dr. Halden Shane. Go ahead, doctor..

Thank you. And welcome to TOMI Environmental Solutions second quarter 2021 earnings call. We appreciate you taking time away from your schedule to join us this summer afternoon. Second quarter of 2021 revenue was disappointing. There's no doubt about it.

This was due to the hospital healthcare, TOMI service network and our commercial industries seeing less demand for disinfection equipment, and cleaning protocols as COVID vaccine was deployed.

Obviously, it was very difficult comparison against last year's record second quarter, but we expected second quarter revenues to come in a bit higher than they did.

That said, we knew second quarter would be a transition quarter as the company focused on longer term objectives, large opportunities and also getting ready to launch many new products that would positively impact sales in the back half of the year and into 2022 and beyond. These initiatives have seen tremendous progress over the past few months.

So we are very confident about our ability to drive what could very well be substantial growth in the back half of the year.

While the surge and recent contraction in our revenue has been frustrating, the pandemic has had a dramatically positive impact on our business, which we believe will enable us to deliver stronger financial performance in the long run. First, it's significantly expanded our customer base with our razor, razor blade model.

Those not familiar with that term, the razor being our technology and razor blade, our BIT solution. More customers in the field now have an understand the quality of our razor, and overtime will presumably order more blades or BIT solution, which is the higher margin portion of our business.

Our customer count went from around 350 pre-COVID to over 800 today within our CRM. Hundreds more directly through our distributors worldwide with thousands of successful treatment applications. There was a tremendous amount of solutions sold into the channel and some of these customers overbought.

Overtime, particularly given the recent surge of cases resulting from the spread of more contagious COVID-19 variants, we believe that these customers will be reordering SteraMist BIT solution from us. Second, we have worked hard to stay in touch with our expanded customer base and listen to their requests for future advancement in our product lines.

Our research and development department has done a tremendous job since the third quarter of 2020, building and updating our SteraMist product offerings based on these evaluations.

These new products will keep us in competitive in the disinfection and decontamination industry as it continues to be disrupted by COVID-19, its current variants, and future variants and of course, all those other dangerous lurking pathogens that will impact the health and safety of all of us.

Our SteraMist iHP technology is effective against all of these pathogens, and in reducing cross contamination and spreading.

Upcoming 2021 product launches are SteraPack, which we are launching now, Transport Custom Engineered System or CES product, which we plan to launch before the end of the year, and the Select Plus, which we plan to launch just before the end of the year. The launch of our backpack is very exciting.

We already have over 100 interested parties, some POs with deposits, and having done very little marketing on the product to date as it was in pre production. This product would demonstrate the flexibility that our BIT platform provides to its customers.

It will allow all our verticals to operate more nimbly and reach areas that they could not reach before.

In the B2B and B2C marketplace, the backpack will allow companies and consumers to have at their fingertips, a state-of-the-art disinfection device to use when a co-worker or a relative comes down with the flu and their workstation, break room, restroom or a family member's bedroom that needs to be quickly disinfected with six-log assurance.

Our new SteraPack product will help solve all the disinfection business and consumer challenges that we have currently and will have long-term. The SteraPack has cordless portability utilizing a rechargeable battery and a new compact BIT solution bottle.

The product easily switches between battery and direct power, perfect for maneuvering through small areas, outside children's playsets to picnic tables, restrooms, kitchens, yachts, locker rooms, even attics and crawl spaces, all covering larger areas during one treatment.

The SteraPack exclusive of any direct marketing to new customers has orders in the queue with deposits for delivery. And we have received indications of interest to purchase from our current hospital healthcare, TSN and commercial customers.

This product is set to roll out at the end of this month with a majority of our initial order to be secured in our Frederick facility throughout September. Other new products that have been incorporated into our product line include the Select Plus, which is a hybrid product consisting of the company's current Surface Select and Environment System.

The unit will allow for enhanced flexibility by using a single applicator to decontaminate full room to small space volume, while maintaining the size of the current surface select unit with more robust process controls. This product is in the design phase with a rollout by the end of the year.

The Transport Custom Engineered System or CES has been designed for the transportation market, specifically ambulances and boxcar emergency service vehicles. The Transport CES is a timer based fogging system that can be installed semi-permanently or permanently and use for any transport and/or cargo vehicle.

It will be an easy to use turnkey integration system. The implementation of this product and our patented noncorrosive iHB technology should replace the number one competitor in this marketplace, which uses an extremely harsh and unsustainable chemical.

This product is also in design phase with the rollout mid fourth quarter of this year, and potential larger size sale with one of TOMI's current hospital system customers.

I will detail a bit later in my remarks, but our pipeline has seen a substantial amount of interest in SteraMist with dozens of our SteraMist domestic environments system spoken for, and waiting for capital expenditure approvals from current and new life science customers, which we'll expect by the end of TOMI's 2021 fiscal year.

These new products are Life Science division opportunities, outstanding customer engineered system proposals, coupled with the commitment of the TOMI team. The strength of our service providers, representative and domestic and international partners will expand the SteraMist brand and positively turn revenue growth.

We will be better positioned than ever to meet the needs of our customers going forward, and we expect a nice rebound in our business by the end of the 2021 fiscal year. Before I go further in detail, let me first turn the call over to Nick Jennings, our CFO, who will quickly run through the numbers..

Good afternoon, and thanks for joining us. I'll be providing a brief overview of our financial results for the second quarter of 2021, compared to the prior year period. Total net revenue was $1.5 million compared to $10 million. Gross margin was 64.3% compared to 55.5%. The increase in gross margin is attributable to product mix.

Operating loss was $1.2 million compared to operating income of $3.7 million. Net loss was 800,000 or $0.05 per basic and diluted share compared to net income of $3.7 million or $0.22 per basic share. EBITDA was a loss of 700,000, compared to EBITDA of $3.8 million. Adjusted EBITDA was a loss of 700,000 compared to adjusted EBITDA of $3.9 million.

Looking at a few key balance sheet items, cash and cash equivalents were approximately $2.5 million compared to $5.2 million at December 31, 2020, a decrease of $2.7 million. Working capital of $8.8 million at June 30, 2021. Shareholders' equity was 11.1 million compared to 13.2 million at December 31 2020. Now, I'll turn the call back over to Dr.

Shane..

Thanks a lot, Nick. The SteraMist products and iHB technology has broad appeal in a variety of settings, and we remain focused on growing our brand recognition as the gold standard in disinfection and decontamination. We all know the world has changed.

And during much of the pandemic, we were not able to generate leads and sale opportunities through attendance of trade shows, which has been a critical component of our market strategies. Many of the shows TOMI was prepared to attend have been cancelled, delayed or switched to many unfortunate remote platforms that I'm sure we're all fed up with.

TOMI quickly refocused the strategy of lead generation by other means for its sales team. As part of our marketing and sales strategy for our product portfolio, especially our new backpack, we are utilizing professionals that work in the digital selling space such as B2B and B2C verticals.

We believe this strategy provide us with greater global exposure and quicker sales cycles in all our verticals. World statistics is another lead generator. COVID-19 infections are still arising in 93 countries. Of every 100 infections last reported around the world, more than 55 were reported from countries in Asia, Southeast Asia and the Middle East.

The region's reporting a million new infections about every four days and has reported more than 66,168,000 since the pandemic began. The number of positive COVID cases in the United States topped in August of 2020, but the potential of new waves of infection with many of them being vaccine resistant remains.

Candida Auris is an emerging fungus that presents a serious global health threat. CDC is concerned because it is often multi drug resistant. It is difficult to identify and it spreads throughout healthcare settings. SteraMist kills the fungus. Let's not forget the seasonal flu C.

diff, neurovirus, salmonella and disease X, all which continue to be concerns worldwide and SteraMist is a solution to stop the spread. As many industrial companies are reducing R&D and capital expenditures spending due to the economic impact of the pandemic, TOMI is moving ahead in capital and operating expenditures.

We have orders for supplies and materials that are required in our equipment and are prepared to continue the manufacturing of all our products and should not be impacted by supply and material shortages.

Further TOMI has multiple suppliers, outsourced engineers and software programmers to turn to for the manufacturing and installation of its SteraMist products. Now let me give you a brief overview of some highlights from each division. Healthcare. UCLA completed the fourth and final year of the shield study.

The data has been turned over to independent statisticians, a successful collection of the critical data was made. As a reminder, this multiyear study compared SteraMist mist with manual cleaning methods.

TOMI looks forward to the peer review published paper by two world renowned infectious disease authors, and to announcing the full results as soon as we are authorized to make them public.

A new opportunity but worth reporting, we are currently in discussions with a public company in the industrial, healthcare, life science, aerospace and defense sector. This company has experienced a hyper growth in repurposing of medical devices of all sizes.

TOMI is working with their representatives discussing which SteraMist product would best fit their business providing them a quicker, cost effective, less corrosive method of disinfecting these medical devices.

Our Life Sciences division, majority of the new customers onboarded both domestically and internationally during the second quarter of 2021 were in the Life Science market. We expect this trend to continue throughout the remainder of the year.

It is worth a reminder that cost and time to assist customers in implementation protocols and validation procedures immediately after purchase is a lengthy one. Thus, TOMI's BIT solution sales may show an initial slower increase from these new clients. For example, Catalent, purchased originally in 2018.

It's now showing an increase in use, a 10,000% increase since their initial purchase recorded by the end of the second quarter of 2021. Long-term ongoing projects and validations continue for Life Sciences, along with proposal and interest for our CES permanent decontamination room. The pandemic has highlighted the SteraMist product line.

Our CES in Pfizer, Missouri, was recently showcased in a New York Times article, and they featured their COVID vaccine processes. These are longer lead time sales that can take months to close with additional time to design, build, validate and implement.

We expect these installations to have a positive impact to our results in late 2021, '22 and even 2023. TOMI's SteraMist won the CES proposal we referenced in our previous call. A purchase from our iHP CES from a major pharmaceutical company in Western Europe is set for an installation date of December 2021.

This system will meet the European current good manufacturing practice regulations enforced by the FDA and the EU or is known in the industry, CGMP requirements, anticipated to be TOMI's most intelligent system to date with advanced software programming required for operation.

This same opportunity has led to additional testing with their facility in Germany and interest in a full package SteraBox and SteraMist environment system in Mexico. Another important trend is the replacement of chlorine dioxide with SteraMist due to its length of time of treatment, health safety standards and now it's limited availability.

TOMI expects an increase of sales of our Environment Systems across multiple new and current customers by the end of the year.

TOMI also expects a huge interest in the Select Plus product line set to be completed in the late fourth quarter of 2021 and being developed in collaboration with one of our biggest customers who already have a purchase order in approval for three units. Pfizer and Merck are on track to become TOMI's top expansion customers.

This year, TOMI added Pfizer, Kalamazoo to its list of SteraMist and Pfizer facilities, bringing it to a total of eight Pfizer facilities using SteraMist.

TOMI has had a relationship with Merck, West Point for the past three years, and as of few weeks ago became a formal customer purchasing their first environment system for one building and assuring no further delays, a pipeline of additional five by the end of the year and six next year.

TOMI currently is working with three additional Merck facilities worldwide, implementing SteraMist as their decontamination solution. These opportunities are in addition to our original Merck Animal Health customer. Another recent large opportunity began this quarter is validation of SteraMist with a fully automated gene therapy manufacturing cell.

The manufacturer currently uses a VHP type system to sterilize all incoming products that enter their sterile cells for robotic handling. And they have found that VHP in the decontamination of the products with the higher concentration of hydrogen peroxide is causing premature degradation of equipment.

TOMI technicians have completed numerous comparisons testing between VHB and TOMI's iHP within the past month, and has found that iHP performs better for 90% of their applications.

In addition, our iHP corporate service team treated one of four fill lines in a North Carolina pharmaceutical company that manufactures one of the COVID vaccines, with the remaining three lines set to be decontaminated in the future with SteraMist. This company has used our service for the past two years for their older buildings.

The TOMI iHP corporate service team treated the same company's Carlsbad, California facility earlier third quarter of 2021. And as of last week, their Florida sister site has plans to use us in the third quarter. They want to standardize their decontamination services across all locations. TSN and commercial industries.

As stated, we expect our SteraPak release to be an important factor for these markets. TSN provided our two consulting out of Oklahoma City, has recently earned a contract for a federal facility of over 75,000 square feet for weekly disinfection replacing their current manual disinfection.

This TSN member has invested in two additional machines this quarter and is projected to begin purchasing 40 gallons of BIT solution per month. We are seeing a slight uptick in BIT solution orders across the two divisions as the virus variant sees its uptick in spreading.

Our publications for these divisions continue to bring in quality leads and the SteraPack should fit nicely in closing these interests ranging from new service providers, education, entertainment arenas, transportation and of course, emergency services.

Although no formal marketing has taken place with SteraPak as of this date, we have some deposits and pre orders for our backpack, and are currently working hundreds of new leads that potentially can be converted into sale orders.

All this movement is from existing customers to our technology, and just for being informed of the imminent release of the backpack by our sales. Based on the feedback from these clients, we believe that the lower pricing of the backpack fits better in their budgets and business plan. Food safety.

Due to the pandemic, there have been significant delays by U.S. regulatory agencies in approving new submissions, including TOMI's new 1% registration, focusing on direct food and agricultural applications.

The 1% label has been delayed by the EPA due to the reallocation of staff resources responding to an influx of product submissions to deal with COVID-19, significantly delaying all other pre-actions, well documented delays caused by staffing vacancies and the continuing prohibition of in person meetings.

We have finished an additional set of tests with our USDA ARS partner and our next manuscript is on track for being published in October of 2021. In summary, 2020 was the year that dramatically expanded our brand name SteraMist. With the fall and winter around the corner, people will be spending more time indoors.

Not like we haven't been indoors enough already. It's going to be more important than ever to make sure that high touch surfaces and the air in the business and homes are mechanically disinfected. People are seeing germs in a different way now, and want a mechanical way of killing them.

There is a permanent shift as a result of this coronavirus, and infection control protocols have been changed forever. We believe that SteraMist line of products is very well positioned to realize our vision to become a disinfection standard in all verticals, which we will add value to our shareholders.

We love our shareholders, the more pieces of equipment that we get into the hands of end users, the greater revenue from solution sales. Solution sales is our model and we are encouraged by innovative ways customers are utilizing our platform and how that aligns with our vision.

TOMI's current CRM customer base of over 800, compared to just 350 before the pandemic are becoming influences in the disinfection to decontamination market, promoting and providing case studies and their experience with our technology and in many ways have become our Company educators.

TOMI operations are ready to assure quality support and onboarding for the projected new customers waiting for the SteraPak.

Based on the momentum we're seeing thus far this quarter across our product platform as well as the third quarter launch of our new SteraPak, we are targeting strong sequential growth in Q3 over Q2, and double digit revenue in Q4. Thank you for your support and for joining us today.

We look forward to speaking with you in the next quarter in which we believe will be encouraging updates in revenue growth with results of the expansion of our SteraMist product line. Operator, let's open for calls..

Your first question is coming from. .

Thanks for taking my question. So obviously, this has been a frustrating quarter.

But just trying to recalibrate and get a sense of where you can see this business a few years out? What do you think is going to be the, going to drive the long-term scale of the business?.

So long-term, I think we're going to be driven by the fact that number one, is our razor, razor blade model which is selling more solution for the existing razors or technology that we produce that are out there.

We have got amazing customer base, from Pfizer to Merck to Catalent, to many hospitals, hundreds of TSN members throughout the country in Canada, and a growing commercial division covering first responders, aviation, restaurants et cetera. So, the market has changed new product innovation is going to be a focus of this company.

And also I think that's going to help drive us for years to come..

Your next question is coming from from Comstock Partners. .

Thanks for the update and I appreciate the long-term view.

I was curious that you provided the target of sequential growth for Q3 versus Q2 and I'm just -- if you could give us a little more color on what makes you so confident about that growth?.

So, thanks. That's a difficult question. But we're sitting halfway through the quarter already. And we're in an excellent position to deliver based on the orders that we have received, and the orders that we're currently waiting for in our pipeline. Everything we have right now, the majority of it is off our core business.

It doesn't include the backpack. I believe the backpack's going to be out there that are the one we're making is going to be the standard backpack that one's going to want to use, its cost competitive to the ones that have been out there that are Chinese made.

There's been a big recall, as you read in February, by the consumer advocates about explosion in batteries and other problems and issues with damaging to furniture, fabrics, paintings, et cetera, where our backpack doesn't have any of those issues.

So I think that our growth, and I'm confident about this, is going to be carried into the fourth quarter and throughout the year and give us a good start to 2022, which unfortunately believe it or not, seems right around the corner..

You mentioned the fourth quarter.

So if I could just ask a quick follow-up? Could you give us a little, again, just a little bit more detail around some of the building blocks to what I think you said, would be a double-digit revenue target for that quarter?.

So we have many customers out there right now that have ordered and are ordering committed some purchases. They're waiting for the capital allocations, these will come before the end of the year. We're going to receive our first shipment in the backpack.

We're going to start receiving them at the last week of August and throughout the beginning of September, throughout September, that's going to be our initial order of 500.

We're anticipating additional orders of thousands -- two thousand before the end of the year, and that will be shipped in the fourth quarter, which when I look at the backpacks that were sold that don't have the effectiveness of our products, and the fact that we don't damage materials, they sold hundreds of thousands.

So I think that conservatively we're in a good position to drive the fourth quarter. And we have already interested in 100 of these backpacks without any marketing.

Once we're out there and able to market this on the B2B and B2C platforms that we plan on marketing it along with good placed ads, I think that's the reason that I'm telling that's expecting double-digit growth in this fourth quarter of 2021..

There are no further questions in the queue. I will now hand the conference back to management for closing remarks. Please go ahead..

All right. Thanks everybody for joining today. Hope you all have a safe and wonderful summer..