Business Overview
TOMI Environmental Solutions, Inc. (NASDAQ:TOMZ) is a global leader in bacteria decontamination and infectious disease control, offering environmentally friendly solutions for indoor air and surface disinfection and decontamination. The company's flagship product, SteraMist, uses its patented and registered Binary Ionization Technology (BIT) to deliver a low-percentage (7.8%) hydrogen peroxide-based fog or mist to affect all indoor environments and surface areas.TOMI's operations consist of five main divisions based on its current target industries: Life Sciences, Hospital-Healthcare, TOMI Service Network, Food Safety, and Commercial. The company's innovative SteraMist technology has been designed to address a wide spectrum of industries using its patented ionized hydrogen peroxide (iHP) solution.
In the Life Sciences sector, TOMI's SteraMist iHP is tailored to provide a complete solution to address the regulatory inspections of disinfecting/decontaminating and Installation Qualification (IQ)-Operational Qualification (OQ)–Performance Qualification (PQ) validation processes within the pharmaceutical and biotech industries. The company's current portfolio of life sciences customers, including Fortune 100 companies, has been able to overcome the constraints imposed by outdated practices, paving the way for enhanced efficiency, safety, and productivity in their operations.
TOMI's focus on the Hospital-Healthcare market is to provide high-quality safety to patients and personnel by disinfecting operating rooms, pharmacies, ambulances, and emergency environments throughout healthcare facilities. Effective disinfection measures, including the use of advanced technologies like SteraMist, are essential for reducing the incidence of healthcare-associated infections (HAIs) and safeguarding patient health.
The TOMI Service Network (TSN) is an expansive network consisting of professionals who are exclusively licensed and trained to use the SteraMist products. TOMI trains and services a wide array of professional remediation companies in the use of SteraMist, playing a significant role in facilitating and maintaining disinfection protocols that changed permanently due to the COVID-19 pandemic.
In the Food Safety division, TOMI, in cooperation with the USDA, has demonstrated that its SteraMist technology offers a consistent, quick, and effective solution for sanitizing the food processing chain, including proper cleaning and sanitizing of food preparation areas, storage facilities, transportation vehicles, and equipment used in food production.
TOMI's Commercial division includes a wide range of use sites such as aviation, airports, police and fire, prisons, manufacturing companies, automobile, gymnasiums, cruise ships, shipping ports, preschool education, primary and secondary schools, colleges including dormitories, all modes of public and private transportation, regulatory consulting agencies, retail, housing and recreation, and emergency preparedness for counties and cities.
Financials
For the fiscal year ended December 31, 2023, TOMI reported annual revenue of 7,354,564 and a net loss of 3,402,592. The company's annual operating cash flow was -3,598,585, and its annual free cash flow was -3,815,275.In the first quarter of 2024, TOMI reported revenue of 1,114,000, a decrease from 1,582,000 in the same period of the prior year. The company's consolidated gross profit was 60.2% compared to 59.5% in the prior-year quarter. The consolidated operating loss was 1,226,000 compared to 1,188,000 in the first quarter of 2023, and the consolidated net loss was 1,310,000 or 0.07 per basic and diluted share, compared to 1,187,000 or 0.06 per basic share in the prior-year period.
TOMI's management acknowledged that the first-quarter revenue was disappointing and below their expectations, noting that the company's revenue remains susceptible to the timing of large orders as it scales. However, the company's backlog, which reflects firm orders, was 900,000 at the end of the first quarter, much of which was closed during the period. The company's total sales activity for the quarter, combining sales and backlog, was approximately 2 million, which represents a 27% increase over the first quarter of 2023.
Guidance and Outlook
TOMI's management expressed optimism about the company's sales pipeline across multiple end markets given its expanded base of distribution partners. The company expects to see sequential growth and reduced losses in the second quarter of 2024 and is currently focused on driving the business to profitability as soon as the third quarter of this year.The company received news that two of its Custom Engineered System (CES) installations with a U.S.-based multinational pharmaceutical customer are qualified and scheduled to begin use in the fourth quarter of 2024. Once these systems are operational, TOMI expects annual solution revenue of approximately 250,000, highlighting the long-term evolution of its razor-razorblade economic model.
TOMI also disclosed two groundbreaking studies showcasing the efficacy of its SteraMist solution against foot-and-mouth disease virus (FMDV) and African swine flu virus (ASFV), reinforcing the company's pursuit of an additional EPA label. Furthermore, the company received notification from the Department of Homeland Security that its SteraMist technology has been included in their Science and Technology Directorate Budget overview for the purchase of 16 SteraMist Environment Systems in the approximate amount of 2 million.
Geographic and Revenue Breakdown
TOMI's revenue is generated both domestically and internationally. For the first quarter of 2024, the company's domestic revenue was 1,283,000, while its international revenue was 299,000. This represents a decrease of 12% in domestic revenue and an increase of 35% in international revenue compared to the same period in the prior year.The company's revenue is primarily derived from two main categories: SteraMist product-based revenue and service and training revenue. In the first quarter of 2024, SteraMist product-based revenue was 743,000, a decrease of 2% compared to the same period in 2023. Service and training revenue was 371,000, a decrease of 19% year-over-year.
The decrease in SteraMist product-based revenue was attributable to the timing of customer orders and the related revenue recognition. The decline in service revenue was due to the timing of emergency service work that occurred in the same prior-year period.
Liquidity
As of March 31, 2024, TOMI had cash and cash equivalents of approximately 1.1 million, working capital of 6.6 million, and shareholder equity of 7.1 million. The company's debt and liquidity positions were affected by the issuance of 2.6 million in convertible notes during the fourth quarter of 2023.TOMI's management believes that the cash it generates from its core operations will generally be sufficient to cover its future capital expenditures and pay down its near-term debt obligations. However, the company may consider financing transactions to fund its operations if opportunities arise.
Risks and Challenges
TOMI faces several risks and challenges that could impact its future performance. These include the company's susceptibility to the timing of large orders, the lengthy sales cycle in the life sciences industry, and the need for continued investment in research and development, sales, and marketing to drive growth across its target markets.Additionally, the company's reliance on a limited number of large customers and the potential for increased competition in the disinfection and decontamination market could pose risks to its business. TOMI's ability to maintain its technological edge and regulatory approvals, as well as its success in expanding into new geographic regions and industries, will be critical to its long-term success.