10-K: TOMI Environmental Solutions Reports Full Year 2023 Results, Focuses on Strategic Growth and Product Diversification

TOMI Environmental Solutions experienced a revenue decrease in 2023 due to order timing, while expanding its distribution network and product line.

Summary

• TOMI Environmental Solutions, Inc. reported a net loss of $3.4 million for the year ended December 31, 2023, compared to a net loss of $2.9 million in 2022.
• The company's total revenue decreased by 12% to $7.355 million in 2023 from $8.338 million in 2022, primarily due to the timing of customer orders.
• Product revenue decreased to $5.695 million in 2023 from $6.864 million in 2022, while service and training revenue increased to $1.660 million from $1.474 million.
• Domestic revenue decreased slightly to $6.125 million in 2023 from $6.261 million in 2022, while international revenue decreased to $1.230 million from $2.077 million.
• The company's gross profit margin was 58.3% in 2023, compared to 60.7% in 2022.
• Operating expenses decreased slightly to $7.639 million in 2023 from $7.942 million in 2022.
• Research and development expenses increased to $492,000 in 2023 from $352,000 in 2022.
• The company's cash and cash equivalents were $2.339 million as of December 31, 2023, with working capital of $7.903 million.
• TOMI issued $2.6 million in convertible notes in late 2023 to support working capital and general corporate purposes.
• The company delivered four Custom Engineered Systems (CES) in 2023 and has 16 orders for CES systems to date.

Sentiment

Score: 5

Explanation: The document presents a mixed picture. While there are positive developments such as new partnerships and product launches, the financial results show a decrease in revenue and an increase in net loss. The company is also facing challenges related to competition, supply chain, and compliance. The sentiment is neutral to slightly negative due to the financial performance.

Positives

• TOMI expanded its distribution network and sales channels, which is expected to positively impact revenue in 2024 and beyond.
• The company secured a contract with Vizient, Inc., increasing its presence in the U.S. healthcare system.
• TOMI's iHP service revenue increased by 13%, demonstrating a growing demand for its services.
• The company launched new products, including the SteraMist Hybrid and SteraMist Transport, diversifying its product line.
• TOMI completed multiple research studies demonstrating the effectiveness of its technology in various applications.
• The company is actively engaged in marketing and submitting bids for Custom Engineered Systems (CES) projects, which are expected to drive long-term recurring solution sales.

Negatives

• TOMI experienced a 12% decrease in total revenue in 2023 compared to 2022.
• The company reported a net loss of $3.4 million for the year ended December 31, 2023.
• International revenue decreased by $847,000 in 2023 compared to 2022.
• The company's gross profit margin decreased to 58.3% in 2023 from 60.7% in 2022.
• Cash used in operations increased to $3.599 million in 2023 from $1.234 million in 2022.

Risks

• The company has a history of losses and may not be able to achieve profitability in the future.
• TOMI's success is heavily dependent on the success of its SteraMist brand.
• The company does not have long-term customer contracts, and sales history cannot be relied upon as an indicator of future sales.
• TOMI faces significant competition in the disinfection and decontamination industry.
• The company relies on third-party manufacturers, which increases the risk of supply chain disruptions.
• The company's stock price is volatile and there is a limited market for its shares.
• The company may be unable to maintain compliance with Nasdaq's listing standards.
• The company is subject to a variety of risks associated with doing business internationally.
• The company's operations are subject to environmental laws and regulations that may increase costs.
• The company may be unable to enforce its intellectual property rights throughout the world.

Future Outlook

TOMI anticipates substantial benefits from its expanded distributor network and expects increased sales in 2024 and beyond. The company also expects that installations of its CES permanent decontamination rooms will have a positive material impact on its results in the upcoming year(s). TOMI plans to continue to innovate and develop tailored products to meet the specific needs of each industry, ensuring seamless implementation and optimal performance. The company also plans to expand its IOQ/PQ services in the latter half of 2024.

Management Comments

• Management continues to focus on expanding our sales channels through the addition of distributors, outside sale representatives, internal sales staff, and external consultants.
• We believe that we possess the best technologies in the world in the disinfection and decontamination space.
• Our products are an environmentally friendly solution, and our processes address the concerns of sustainability.
• Customers are requesting and discussing the positive results of our product and the environmentally friendly results compared to the caustic and environmentally unfriendly results of many other disinfectants.
• SteraMist has established a successful track record in fighting pandemics and outbreaks and implementing SteraMist for emergency preparedness is vital.

Industry Context

The document highlights TOMI's position in the competitive environmental infectious disease control industry, noting the presence of large and small competitors. The company emphasizes its technology's superior efficacy compared to other products, particularly in achieving a 6-log kill rate. The document also notes the increasing demand for automated decontamination solutions, which aligns with industry trends towards efficiency and speed. The company's focus on expanding its presence in the life sciences, healthcare, and food safety markets reflects the growing need for advanced disinfection technologies in these sectors.

Comparison to Industry Standards

• TOMI's SteraMist iHP technology offers a 99.9999% or six-log kill rate, surpassing many competitors that offer 99.9% (sanitizing) or 99.99% (disinfection) kill rates.
• Unlike competitors that use harsh chemicals, SteraMist iHP leaves only oxygen and water (humidity) as by-products, aligning with the growing demand for environmentally friendly solutions.
• The company's technology is EPA-registered and has a unique equipment + solution combination, setting it apart from competitors.
• TOMI's SteraMist iHP offers a single consistent, repeatedly validated solution with various application choices, unlike some competitors that offer multiple products with varying efficacy.
• Compared to competitors like Steris, Bioquell (Ecolab), and Clorox, TOMI emphasizes its speed, comprehensive coverage, and safety for equipment and personnel.
• The company's focus on custom engineered systems (CES) and integrated systems (SIS) positions it to compete with companies that offer permanent decontamination solutions.

Stakeholder Impact

• Shareholders may be concerned about the decrease in revenue and the increase in net loss.
• Employees may be impacted by the company's efforts to expand its sales channels and product line.
• Customers may benefit from the company's new products and services.
• Suppliers may be affected by the company's efforts to source alternative lower-cost suppliers.
• Creditors may be impacted by the company's issuance of convertible notes.

Next Steps

• TOMI will continue to expand its sales channels through the addition of distributors, outside sale representatives, internal sales staff, and external consultants.
• The company will continue to innovate and develop tailored products to meet the specific needs of each industry.
• TOMI will continue to offer protocol development and implementation services for SteraMist iHP.
• The company plans to expand its IOQ/PQ services in the latter half of 2024.
• TOMI will continue to use research and testing to inform the marketplace of the effectiveness of its products.

Key Dates

Keywords

SteraMist, disinfection, decontamination, hydrogen peroxide, Binary Ionization Technology, iHP, Life Sciences, Healthcare, Food Safety, Custom Engineered Systems, distribution network, revenue, net loss, product development, intellectual property