10-Q: TOMI Environmental Solutions Reports First Profitable Quarter Since 2020, Driven by Strong Revenue Growth

TOMI Environmental Solutions achieved profitability in the second quarter of 2024, marking a significant turnaround driven by increased revenue and reduced operating expenses.

Summary

• TOMI Environmental Solutions reported a profitable second quarter of 2024, the first since 2020, with a net income of approximately $30,000.
• The company's revenue for the quarter reached $3,013,000, a 9% increase compared to the same period last year and a 170% increase compared to the previous quarter.
• Mobile SteraMist equipment sales accounted for over 60% of the revenue in the second quarter of 2024.
• International revenue grew by 130% in the second quarter, driven by new customers in Canada, Mexico, the Philippines, and the United Arab Emirates.
• The company's total recognized revenue and backlog for the first and second quarters of 2024 amounted to $5,100,000, with a backlog of approximately $1,000,000 at the end of June 2024.
• Operating expenses were reduced by 3% compared to the same period last year and by 9% compared to the first quarter of 2024 due to cost-cutting measures.
• BIT solution sales increased by approximately 36% compared to the second quarter of 2023 and by 185% sequentially over the first quarter of 2024.

Sentiment

Score: 8

Explanation: The document shows a strong positive shift with the company achieving profitability and significant revenue growth. The cost-cutting measures and new partnerships are also positive indicators. However, the company still has some challenges, such as the net loss for the six months and the need for potential future financing, which prevents a perfect score.

Positives

• The company achieved profitability for the first time since 2020.
• Revenue increased significantly, driven by strong sales of mobile equipment and international expansion.
• Operating expenses were reduced through cost-cutting initiatives.
• The company secured new partnerships and expanded its customer base.
• There is a growing demand for the company's Custom Engineered Systems (CES).
• The company is seeing increased sales of its BIT solution.
• The company received the Gold Safety Award from Highwire.

Negatives

• Service-based revenue decreased by 43% in the second quarter compared to the same period last year.
• Domestic revenue decreased by 12% for the six months ended June 30, 2024, compared to the same period in 2023.
• The company experienced a net loss of $1,280,000 for the six months ended June 30, 2024.
• Cash used in operations for the six months ended June 30, 2024 was $1,558,000.

Risks

• The company's revenues can fluctuate due to various factors, including the length of the sales cycle and the timing of orders.
• The company could incur operating losses and increased costs related to product development, sales, inventory, and compliance.
• The company may need to raise additional capital through equity or debt financing, which could dilute existing stockholders or impose restrictions on operations.
• The company's success depends on its ability to obtain and maintain proprietary protection for its products and technologies.
• The company is subject to legal and product liability risks.

Future Outlook

The company expects that the cash generated from core operations will be sufficient to cover future capital expenditures and near-term debt obligations. They may consider financing transactions to fund operations if opportunities arise. The company anticipates continued growth in sales of its CES systems and recurring BIT solution sales, which should improve operating margins. They also expect new products and service introductions to positively impact net sales, cost of sales, and operating expenses.

Management Comments

• Management believes that they possess the best technologies in the world in the disinfection and decontamination space.
• Management believes that the COVID-19 pandemic along with the needs of the pharmaceutical and vivarium space has provided them with the opportunity and experience to implement a clear strategy to develop and manufacture additional products to add to their portfolio.
• Management believes that moving their BIT technology as a standard in disinfection and decontamination globally should lead to increased market share, profitability, and capability strength.
• Management believes that their products are an environmentally friendly solution, and their processes address the concerns of sustainability.
• Management believes that using a proven and trusted disinfectant for emergency outbreaks and daily for preventative maintenance, such as SteraMist, can alleviate the threat of infections from spreading and could stop a possible outbreak.

Industry Context

The company operates in the disinfection and decontamination industry, which is experiencing growth due to increased awareness of hygiene and infection control. The company's focus on environmentally friendly solutions and its patented technology positions it well in this market. The shift towards modular cleanroom requirements also benefits the company's business operations. The company is also seeing a change in the service decontamination sector with one of its primary competitors, which has resulted in an influx of additional leads.

Comparison to Industry Standards

• TOMI's SteraMist technology, utilizing ionized Hydrogen Peroxide (iHP), is unique in the market as it is an EPA Registered Solution + Equipment combination.
• Unlike traditional methods, SteraMist produces a germ-killing aerosol that works like a visual non-caustic gas, leaving no harmful by-products, which is a key differentiator compared to competitors using harsher chemicals.
• The company's technology achieves a 6-log (99.9999%) and greater kill rate, which is a high standard in the disinfection industry.
• The company's focus on a proactive approach to disinfection, rather than reactive, aligns with the evolving needs of various industries post-COVID-19.
• The company's expansion into the food safety market, with studies on reducing salmonella and listeria, positions it well against competitors who may not have such specific applications.
• The company's development of the SteraMist Integration System (SIS) and SteraMist Hybrid products demonstrates innovation and a focus on meeting specific customer needs, which is a competitive advantage.
• The company's growing portfolio of CES systems and its focus on turnkey solutions provide a competitive edge in the Life Sciences market segment, similar to how companies like STERIS and Getinge offer comprehensive solutions.

Stakeholder Impact

• Shareholders will benefit from the company's return to profitability and revenue growth.
• Employees may benefit from a more stable and growing company.
• Customers will benefit from the company's innovative and effective disinfection solutions.
• Suppliers may benefit from increased orders and business opportunities.
• Creditors may benefit from the company's improved financial position.

Next Steps

• The company will continue to expand its internal sales force and manufacturer representatives.
• The company will continue research and development and add new products to its Stera product line.
• The company will source alternative lower-cost suppliers.
• The company will expand its international distributors.
• The company will continue to grow in all of its verticals.
• The company will continue to pursue innovative solutions and new markets for its technology.
• The company will continue to implement cost reduction initiatives.

Key Dates

Keywords

SteraMist, disinfection, decontamination, Binary Ionization Technology, iHP, Life Sciences, Healthcare, Food Safety, Custom Engineered Systems, BIT Solution, profitability, revenue growth, cost reduction