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

Good day, everyone. Welcome to TOMI Environmental Solutions, Inc. Third Quarter 2026 Financial Results Conference Call. [Operator Instructions]. It is now my pleasure to turn the floor over to your host, John Nesbett of IMS Investor Relations. The floor is yours.

Thank you for joining us today for the TOMI Environmental Solutions Investor Update Conference Call. On today's call are Tony's Chief Executive Officer and Chairman, Dr. Halden Shane; Chief Operating Officer, EJ Shane; and our Chief Financial Officer, Niroshan Srirathan. The telephone replay of today's call will be available through November 19, 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 in this conference call is based upon the facts and circumstances known at this time. Please refer to our filings with the SEC 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 Tony'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. What a day it is. We delivered another consecutive quarter of sequential revenue growth, extending the upward trend we have maintained throughout 2026. Revenue increased approximately 36% from the first quarter to the second and a further 11% from the second quarter to the third. Third quarter revenue now stands approximately 51% above the first quarter. This is a steady sequential progress built across the year, not a 1-quarter result. We generated positive operating income for the first time since the third quarter of 2024 and the strategic initiatives we have implemented are working. Revenue for the third quarter of 2026 was approximately $2.49 million. That's up about 24% from the $2.01 million in the third quarter of 2025. And as stated, 11% from the $2.25 million last quarter. Our sales order backlog is approximately $2.5 million as of September 30 and has since increased to approximately $2.8 million the company expects shareholder equity at September 30, 2026, to be in a range of $3 million to $4 million. The company and its independent registered public accounting firm have not yet completed the review of the accounting treatment for the company's convertible notes including the conversion of $2.5 million of notes during the third quarter. Accordingly, we will not review the financial results that may be affected by that review. Including any gain or loss associated with the conversion to net loss per share and the related liability in stockholders' equity balances. Based on the information currently available, we expect any impact from this accounting treatment to be a noncash and the company does not expect the review to affect the revenue, gross profit, operating expense or income from operation figures. However, all the results remain subject to change until the company files its quarterly report on Form 10-Q for the period ended September 30, 2026. BIT solution demand is showing steady increase as well this year. The levered BIT Solutions sales year-to-date could together with orders that remain open, have already surpassed bit solution sales for all of last year. As we reached that mark with 2 months still ahead of us, service continues to trend higher. The sharpest break from recent years is mobile equipment. Mobile equipment year-to-date, together with open orders is above last year's full total by almost 107%. For the past 2 years, we have said that continuous growth depends on each of our departments rising together, not one or two of our offerings carry in the year. We expect 2026 to end on that basis, providing us good visibility into near-term revenue. We are continuing our razor-razor blade model and the applicator is now a core part of it. The applicator is the component that enables IHP, whether it's paired with a mobile system, or installed in a permanent or semipermanent configuration. We began emphasizing the strategy less than 2 years ago as an extension of our consumable-driven model. It, of course, has a longer replacement cycle than BIT solution but a much shorter sales cycle than full capital equipment. So it generates revenue and margin now, while it supports recurring bit solution demand down the road. Our current sales opportunity pipeline is projected value of approximately $35 million. It includes opportunities at every stage of the sales process from proposals to negotiations to purchasing and is supported by continued growth in integrated system opportunities involving our SteraMist Integrated System Platform or SIS, hybrid and custom engineered system or CES configurations. I want to be clear that these represent potential future revenue. They're not committed orders yet or guarantees of future performance. We remain focused on our goal of $12 million in sales for 2026. Our sales team is small, but is dedicated and is working hard to reach that benchmark. On the cost side, our disciplined overhead management continues to pay off. Operating expenses for the quarter were approximately $1.44 million, down 7% from a year ago, led by savings in general and administrative costs and working capital increased to approximately $1.95 million, up from $1.02 million at the end of 2025. Now let me update you on several last quarter items. First, the nearly $1 million project we introduced last quarter, adding applicators into proprietary machine lines at a major multinational health care manufacturer is underway. And that customer is now expanding into additional facilities, taking advantage of our recently received European Union regulatory acceptances. Tommy continues to expand its presence in the defense sector, following approvals from defense contractors in Korea and defense agencies in Canada, we've developed a very detailed strategic plan for these accounts. and have provided 1 of the 2 agencies with systems that are ready to be deployed. TOMI iHP corporate service continues to grow. We now have contracted decontamination service engagements with customers, including Integra Farm, Catalent, Cleveland Clinic, and LF USA, and our team is providing on-site support about 4 times a month, including at the Centers for Disease Control and Prevention in Atlanta. A production change as one large customer that no longer requires decontamination services has weighed on our year-over-year comparison and service revenue. But we have partially offset that impact, and we are actively expanding our service deployment business, including pathways to deliver corporate services directly to the end users internationally. In the third quarter, we continued to add partners, SteraMist IHP activity across the Americas increase in life sciences, food safety and health care. We brought on additional partners in Mexico and a new one in Argentina. While we completed further business in India, and the European Union. We continue to work with our legacy partner in Mexico on our previously announced cheese factory. That work is still generating strong data on extending the shelf life of cheese and we have expanded into other food groups and applications with them. older customers, including Thermo Fisher, continue to expand capital equipment purchases. We also expanded our relationship with a leading global eye health company. This customer onboarded in 2025 at 2 locations, placed an additional equipment order late into quarter 3 and combined revenue for the two sites is approximately $750,000, and they have a recurring bit solution agreement with TOMI. Further orders at both facilities additional equipment systems and a custom engineered system for integrated automated decontamination are still perspective. We anticipate that some or all of them could be received before year-end, in a range of approximately $960,000 to $1.7 million. We are putting resources behind the pipeline and behind customer requirements across our product and service line. We expect that focus to hold through the close of the year, and we look forward to reporting our 2026 finishes. I'm going to now turn the call over to our Chief Financial Officer, Niroshan Srirathan for a review of TOMI's third quarter financial results.

Thank you, Dr. Shane. Q3 marked an important financial inflection point for TOMI. Revenue increased 24% year-over-year and 11% sequentially to approximately $2.49 million compared with approximately $2.01 million in 2025 and $2.25 million in Q2 2026. We generated approximately $30,000 of positive operating income, our first positive quarterly operating result since Q3 2024. Revenue growth was led by product sales, which increased approximately 30% year-over-year to approximately $2.8 million compared with approximately $1.6 million in Q3 2025. U.S. revenue increased 50% to approximately $1.92 million. For the first 9 months of 2026, total revenue increased 38% to approximately $6.39 million, including 61% growth in product revenue. Gross profit increased 19% year-over-year to approximately $1.47 million compared with approximately $1.23 million in Q3 2025. At the same time, operating expenses declined 7% to approximately $1.44 million from approximately $1.55 million including a significant year-over-year reduction in general and administrative expenses. This combination of higher revenue, increased gross profit and disciplined expense management resulted in approximately $30,000 a of positive operating income compared with operating losses of approximately $321,000 in Q3 2025 and $244,000 in Q2 2026. Importantly, we achieved this despite continued elevated professional and consulting costs associated with strategic and financing activities. Overall, Q3 demonstrated meaningful progress across the business double-digit revenue growth, positive operating income and substantially improved operating income. We believe these improvements provide a stronger financial foundation entering Q4. I will now turn the call over to our Chief Operating Officer, EJShane, for an update on our commercial priorities and outlook for the remainder of the year.

Thank you, Niro. It has been a busy year, and the work ahead is both commercial and operational. For the most part of the year, we have maintained a full pipeline of $35 million and an active pipeline meaning those considered late-stage deals and expected to close in the near term of $8.5 million to $10 million, while of course, fulfilling and receiving orders for the current standing $9.3 million. Revenue plus open book sales for 2026. We expect to receive approximately $5 million in purchase orders before year-end. Because the hybrid and the SIS platform is more standardized product proofing, it has reduced the need for fully custom enclosure builds and made it easier to retrofit IHP into equipment our customers already own. And as Dr. Shane referenced, we are experiencing growth across all our key offerings. The company has also had a heavy focus on manufacturing upgrades, internal compliance, safety and quality controls and regulatory affairs. The latter of these driven mainly by the interest in our Food Safety division. On the regulatory side, we continue to strengthen our registration portfolio and made further progress toward NSF certification for biosafety cabinet decontamination. During our last meeting in October, volunteered to help rewrite the revision to that standard, which gives TOMI a direct voice in how it takes shape. Food safety is not yet a driver in our revenue results, but it has been a regulatory focus. To support our work in Meat and Ready-to-eat Applications, we engaged Josh Hasty, PhD, CEO of FH Services. Dr. Hasty was Director of Food Safety and Quality Assurance and Director of R&D at Tyson Foods Ingredient Solutions Group and a technical lead on Cargill's McDonald's beef program. He brings deep industry expertise to our food safety initiatives. On October 15, we announced an independent laboratory study showing that SteraMist IHP sharply reduced a specific type of listeria, a foodborne pathogen that can grow under refrigeration. On flat surfaces, treated samples showed an average reduction of greater than 7 log at or below the lab detection limit. In processing facilities, this type of listeria often forms a biofilm a protective layer that lets it claim the services and survive routine sanitization. Food safety is a priority growth market for TOMI. And this independent data gives our sales team and partners validated evidence for food processors. In [ Varian ] infant formula, our work with Nestle and [indiscernible] continues as we pursue the applicable international registrations and food contact notifications with FDA. Nestle has added additional locations, thus further registrations have been submitted worldwide. We also continued related work with another nutritional company and received initial testing data this past quarter. We are working with this company and their domestic facilities seeking the use of IHP with international locations to follow suit. Their use depends on FDA acceptance. Submissions have been completed and this customer is assisting us in gathering the additional evidence required. All three of these companies are in it for the long haul. They understand the regulations, they want SteraMist IHP, and they are working with us to obtain the required authorizations. This effort is very active. There is a specific strain of Clostridium, which is one of the most significant contamination control challenges in infant formula. The issue is not the organism is particularly difficult to eliminate. It is compatibility and regulatory hurdles in the manufacturing environment. Effective control requires sporicitol-level efficacy plus approval for food contact surfaces, no rents requirement and compatibility with dry manufacturing environments. That combination has historically been very difficult to meet. That is the opportunity we see for SteraMist IHP. We are working with some of the largest names in infant formula to address it globally. Beyond infant formula, we see a broader opportunity in food processing. Sterilization level, microbial reduction that stays compatible with food contact surfaces and with food manufacturing requirements, including ready-to-eat facilities, where contamination control is critical and daily disinfection is part of operations. The opportunity is reoccurring. Food manufacturers run daily cleaning procedures, not one-time dissenection. Integrating bit technology into those procedures can mean consistent high-volume product use. We are already seeing that with several food manufacturers where repeatable protocols support ongoing product consumption. As we work through the regulatory requirements to expand these applications, we believe food safety can become one of the most significant growth verticals for SteraMist IHP. Once that pathway is established, we believe the addressable opportunity in food processing and food safety could exceed anything we have pursued in other industries. This is not another disinfection product. It is a response to a substantial largely unmet need with technology that can become part of everyday disinfection. In summary, in food safety, we have narrowed our focus within the broad market and all within the market of food processing, meat and ready-to-eat general nutritional products, very an infant formula and poultry. For poultry and related food contact use, hydrogen peroxide may qualify under a very specific 21 CFR section, but only under specified conditions. That regulation does not establish the status of the complete SteraMistSteris formulation. Each component and each intendant use still needs its own lawful FDA basis, whether an applicable regulation, a food contact notification or another recognized pathway. We do not yet have poultry use residue data sufficient to support a nondetectable residue claim. We are developing that data now and determining the applicable regulatory path. FIS is the USD agency that inspects meat and poultry plants. Thus, in the short term, we have filed an FSIS new technology notification as the technology supplier, seeking a no objection letter. This letter, unfortunately, would not establish antimere efficacy that would not by itself allow the use of IHP, but it would provide each establishment the ability to validate IHP in its own process and HACCP system or hazard analysis and critical control points. The food safety system and inspected plant must be used to identify hazards and control them in its own process. In health care, special pathogen units remain an important area for us. These units manage high-consequence infectious diseases and require rapid validated and comprehensive decontamination of rooms equipment and personal protective equipment. We saw growing adoption through the first half of 2026 and the first NVs was delivered to one of these units. In October, we also confirmed that we're ready to support increased requests for preparedness planning equipment and decontamination services with systems ready to deploy our on-site service team and our global partner network. The Democratic Republic of the Congo is experiencing its 17th Cibola outbreak. The CDC describes it is spreading substantially faster than previous Ebola outbreaks and as the second largest on record. It passed the 1,000 confirmed cases within 40 days of responsive activation. The 2018 DRC outbreak took about 235 days to reach more than 1,000 cases. Cases have also been reported in Uganda, Kenya and Nigeria. Through contacts and our customer base and a long-standing partner in Angolia, who continues to experience high rates of POP, we are in discussions with the Africa Centers for Disease Control and Prevention about possible support for response efforts. There's enough interest in front of us that we expected to support sales over the coming years. Now narrowing to the remaining months of 2026. The Life Sciences remains our largest division for the time being. It includes pharmaceutical manufacturers, universities, research laboratories as well as health care product manufacturers. Leverage sales plus open orders for 2026 stand at $9.3 million. Separate from that figure, we expect approximately $5 million in additional purchase orders before year-end. Within that $5 million, and as Dr. Shane previously referenced, we expect the customer to order more than $1 million in a mix of mobile capital equipment in a custom engineered system. The remainder of this project includes expansion orders from 6 other customers for either mobile capital equipment or IHP deployment service work and a second large-scale custom engineered system. Those two systems are scheduled for installation in February and April 2027. The year is ahead of last year because revenue has grown quarter-to-quarter. Mobile capital equipment demand is running well above 2025, while our other offerings continue to increase at a steady pace. and established customers continue to expand their use of SteraMist IHP. Life Sciences remains the core of the business. Food safety is moving forward on its regulatory path, and I'll keep you current as that work develops. The pipeline is held. We expect to finish the year in line with what analysts have reported and installations are already scheduled for early 2027. I thank you all for your time this afternoon. I will now return the call back to our CEO, Dr. Halden Chan.

Thank you, EJ. Good report. TOMI has been built with limited capital and a small team similar to how Apple started guided by a clear purpose, to be number one and SteraMist is the company that modernize the 40- to 50-year-old technology that are used for disinfection and decontamination. steraMist has certainly matured. It is now being adopted by many of the largest companies in the world as a replacement for the 40, 50-year old legacy technologies, and it is increasingly used by major food groups both nationally and internationally. As EJ noted, there are regulatory steps we need to complete, and we are actively working through them. If we are successful, and we believe we will be, Serums could become a leading technology in food safety, food packaging, food security, and food transportation, and we also believe it may help extend the shelf life of many foods. SteraMist has a pipeline is $35 million and is growing every week as we know our product is in extreme demand. The application for this product is endless whether it's securing a worldwide problem [indiscernible] that might affecting honeybees or biodefense weapon used in drones. We know we have positioned ourselves to be in the battle of controlling pathogens of all types around the world and now the space. We think that -- our goal is to build towards steadier, more predictable performances. I think that the unevenness and the lumpiness of this company is over. We have some hurdles to work through but we're doing them, and we're moving the company forward to sustain profitability ongoing into the near future. I want to thank most of my staff for doing a splendid job in accomplishing these goals. This is a small company with a big heart but a great product. Thank you to our investors, bankers, partners and customers from Fortune 500 companies to smaller organizations where your continued support. We remain focused on delivering mission-critical results as we work to build our position in the disinfection and decontamination market and to help make the world a safer place to live and work. We look forward to updating you on our progress. Thank you, and have a good morning, afternoon or evening, depending upon where you are listening from. Operator, open the call to questions.

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

Congrats on the quarter, guys. It looks like the execution is starting to come through. Just one question on the purchase order for this $5 million purchase order. Is this expected to be delivered over the next 6 months or sooner? Like how should we think about our recognizing revenues from this purchase order?

Sure. So the $5 billion is across a few different accounts. It's not just one purchase order. Two of them are custom engineered systems. So two that are within that $5 million will be delivered in the first quarter and some in the second quarter of next year. But a good amount of them are mobile pieces of equipment environment systems.

And then of the $35 million in the pipeline, are these high probability sort of discussions you're having with the customers? Just want to get a sense of how that could develop into purchase orders and actual revenues.

Of course. I mean the high probability are within that $12 million mark, right? That's kind of how we've been reporting all year and are the active accounts where we have deadlines set for when purchase orders will be received. The $35 million is our entire database. Which keeps maintaining itself at such even as orders are delivered. The probability within that $35 million varies from account to account. But as food safety is picking up and the customers are working with us on these regulatory affairs, I expect it to continuously increase substantially.

Understood. And on the service revenue side, we saw this 1% growth. Is this -- should we assume that this should be tied to the product sales that are ongoing or do you see a path for service revenues to accelerate a little bit going forward?

I believe IHP deployment service revenue, you'll start to see increase going forward, especially as we start to work with partners and deploy internationally because we're getting quite a few of those requests. Our service financial reports also do include our support services, which is about 10 different offerings that we can help customers on. So that's the -- it definitely will continue to increase as our buildings and our integration and stand load items get implemented in these facilities.

Understood. Just last one for me. On the working capital side, are we constrained a little bit to execute on the growth mandate because of what the working capital set of is? And how are you sort of going to manage through that?

Working capital has always been an issue with the company having enough for the growth we see we're currently discussing with multiple facilities to expand our credit in these areas or do a pipe type offering going forward. So we feel that with our deposits that come in on these large accounts, which is about 50% at times, we're able to handle the capital moving forward.

Your next question is coming from Todd Felte with Stonex Wealth.

Congratulations. I talk to you and your team on achieving the positive operating income. I know you worked hard for that. Just had a couple of questions referring to some events that E.J. spoke of, the first was the Tyson Cargill study with independent result basically stating that SteraMist was the best option have either those companies contacted you since that study? And are you in negotiations with them?

Yes, we are. We're in communication with them through our new partner, Josh, who knows them incredibly well. So it's just a matter of establishing cleaning protocols with companies such as Tyson and the like.

And I know it's -- you're probably not able, but is there any way you can quantify what maybe orders from those type of companies would be?

It's yes, a little too early. The study was just completed in October, but as we continue to build our evidence base of IHP within the food industry on top of the regulating affairs that we're pursuing, then it's -- it will be very large. It's just I can't quantify it at the exact moment. But there is interest and we are in communication with quite a few -- and it's not just 1 or 2 facilities. It's -- they're looking at it as a standard for all their locations. So I can't report on that.

Okay. And on those food safety studies, if you're able to use SteraMist directly on the food products with SteraMist have been able to prevent the lettuce cyclospor recalls that we all saw in the names over the last couple of months.

Yes.

Okay. One other news item that I was hoping you could address, there was a huge article on an FDA warning letter to Baxter. They issued on September 29, when they detected a lot of contamination through their production facilities as Baxter reached out to you for any work with them?

We are very familiar with the FDA warning and are aware of the issues that Baxter is currently looking to fix.

Okay. I didn't mean to put you on the spot here. Finally, last easy question with the estimate of the significantly increased revenue and after achieving positive operating income in this quarter, do you expect to have -- given your razor, razor blade model, positive earnings per share in operating income in quarters moving forward consistently.

Yes, Todd. I think the way we are going now, especially from a too pronged in fact. We are definitely improving our revenue. So we're expecting our gross profit to be increasing going forward. And yes, we're tightening our operating expenses and also with the other conversion of some noteholders, our interest expense will be dropping as well. So anticipating from of profitability going forward.