Applied UV Inc (AUVI) Q1 2021 Earnings Call Transcript

Applied UV Inc  (NASDAQ: AUVI) Q1 2021 earnings call dated May. 17, 2021

Corporate Participants:

Kevin McGrath — Investor Relations

Keyoumars Saeed — Chief Executive Officer & Director

Mike Riccio — Chief Financial Officer

James L. Doyle, III — Chief Operations Officer

Analysts:

Jeffrey Cohen — Ladenburg Thalmann — Analyst

Presentation:

Operator

Good morning. My name is Kate and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Q1, 2021 Applied UV Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr Kevin McGrath, Investor Relations for Applied UV. Thank you. You may begin.

Kevin McGrath — Investor Relations

Thank you, Kate, and good morning, everyone. On today’s call we have Keyou Saeed, Chief Executive Officer of Applied UV; Mike Riccio, CFO of Applied UV; Jim Doyle, COO of Applied UV; and Rhonda Wallen, Vice President of Marketing and Corporate Development of SteriLumen, a wholly-owned subsidiary of Applied UV.

During today’s call, we will make certain predictive statements that reflect our current views about future performance and financial results. We base these statements in certain assumptions and expectations on future events that are subject to risks and uncertainties.

And with that said, I will now turn the call over to Keyou Saeed, our Chief Executive Officer. Keyou?

Keyoumars Saeed — Chief Executive Officer & Director

Thank you, Kevin. Good morning, everyone, and thanks for joining us. I’m very pleased with our first quarter and even more so because it is in line with our expectation. Net sales for the three months ended March 31st, 2021 increased 157.1% to approximately $2.3 million from approximately $1.5 million in the three months ended 2020. Our net sales and financial results for the current period reflect the impact of VAT that holding the asset acquisition that we closed on February 8th, 2021.

Last year, our net sales for Q1, 2020 were generated entirely from the Company’s MunnWorks subsidiary, which supplies custom-designed mirrors to global luxury hotel chain like Four Seasons, Marriott and Hyatt. During the first quarter, we saw an improvement in the hospitality industry as the economy showed signs of a rebound from the pandemic, and as a result, our MunnWorks business revenues are indicating a return to normal operating levels.

Our net loss for three months ended March 31st, 2021 was approximately $1 million compared to a net loss of $78,000 in the three months ended March 31st, 2020. The net loss in this past quarter of 2021 was primarily due to an increase in SG&A cost to invest in improve and ramp up future operations. Our liquidity remained strong with a cash balance of $8.9 million on March 31st, 2021.

Now, I would like to move on to talk about the growth trends we see developing in our markets and some of the sales and operational highlights for the quarter. Our markets are broadly improving and increasing rate of vaccinations along with the easing of social restriction provides further support for the globally economic recovery.

We expect the continuing improvement trends for the MunnWorks subsidiary and also continued success leveraged by our investment to further our value with critical innovation at SteriLumen. New products like Airocide will help drive a strong year and a positive year-over-year comparison against 2020 results. We’re continuing investment in our major growth initiatives and growing our domestic and international sales capabilities, signing up new distributors in the U.S. and across the world, plus opening and focusing new channels to leverage our position.

Our customers are increasingly seeking solutions to better control pathogen spread in the air and on surfaces. We’ll be releasing some of these new distribution agreements and sales wins in the coming weeks and months. We expect strong growth in the second quarter driven by improving markets and accelerated underlying growth momentum. We expect these trends to continue to deliver and growth in the second half of the year.

Our objective was to start this year from a position of strength with a noticable year-over-year revenue growth to meet demand for our — to meet demand and our Q1 shows we clearly achieved this. For looking beyond the pandemic, a long-term position is better than ever in a world where air quality and infection risk awareness has reached new levels.

Our differentiated value proposition as a product category leader with proven and tested air surface prevention of infection technologies position us uniquely to capture these accelerating growth trends. For 2021 and beyond, our operational priorities will remain consistent around delivering revenue growth, improving margin, and building a scaled efficient and profitable company.

Moving to some of the highlights of the first quarter, we announced in early February that Applied UV had acquired the assets of Akida Holdings, manufacturer of the Airocide System of patented air purification technologies and their suite of products and their IP. The acquisition has been a success and provided us with an instant presence and significant scale, and a world-class product in the critical air purification markets. And the integration of the business is on track.

In fact, today, I’m heading to Atlanta with our team for our first global sales meeting that will bring together the entire sales team and marketing team to ensure we are executing on our plan for growth. Joining at that meeting will be the newest member of the executive time Mike Riccio who was appointed Chief Financial Officer of the Company in early April. He happens to be on the call today as well.

Mike is a highly accomplished CFO who brings an extensive array of financial experience to Applied UV, including background with global public companies in corporate finance, operations, and M&A planning and integration. We welcome him to the team.

As I believe I mentioned earlier, we were very pleased to see that the sales momentum in the Airocide business continued to show positive trend sequentially from the fourth quarter of 2020 coming into 2021 and we remain excited about the prospects for growth through the remainder of 2021. Based on our current pipeline of commercial and consumer opportunity, the future looks bright.

Confirmation of the trends in demand we’re seeing for air purification solutions was delivered with our announcement during the first quarter that we’ve partnered with the Boston Red Sox to install the Airocide System in Fenway Park and JetBlue Park with the project valued at approximately $700,000. The Airocide units are being installed in all play areas, luxury suites as well as various points of contact in each facility where fans congregate indoors throughout the course of the year.

We are excited about opportunities we have underway or in the pipeline for other large public spaces where air purification solutions can help protect the employees who work at these facilities and their visiting customers. Airocide is a great addition to our product portfolio and we firmly believe that there are other complementary and adjacent technologies or companies that would enrich and expand our portfolio of health promoting solutions and open new markets for us.

During the first quarter, we continued to make steady progress with our SteriLumen Disinfecting System product line, which today includes the Lumicide Ribbon for placement above hard surfaces like sinks and vanities in restrooms, above desks, or under a TV in hotels and along countertops.

Also the Lumicide Drain [Technical Issues] pardon me, I was muted for a second there. Also the Lumicide Drain we believe is the only device that is automatic — that automatically disinfects the less — lesser reported but highly contamination risk drain trap, as shown by the hospital infection studies. These drains like our Lumicide line are U.S. certified and will be in the market and growing volumes over the summer and beyond. Our sales team is actively ramping in the summer to generate revenues pursuing opportunities in hospital, the retail and commercial markets.

Finally, we continue to pursue the protection of our intellectual property. As of April 7th, 2021, SteriLumen owns eight issued patents in the United States, one issued patent in the EU, and one patent in China. We expect our patent portfolio will continue to expand as we develop new application and add new products.

In conclusion, we are very excited about the opportunities underway and in development for our SteriLumen business. We’ve made important investments in efficacy and continue testing to lead this space with the technical safety attributes of our SteriLumen product portfolio that differentiate us from the competition.

We’re seeing steady incremental growth at MunnWorks pre-pandemic levels, but more importantly, a very positive sales trends and increasing inquiries for both SteriLumen product lines, Airocide and Lumicide from a broad set of customers and sectors on a global basis. We believe that Applied UV has a clear strategy and is well-positioned to drive revenue, improve our margins and deliver sustainable value for our shareholders.

This concludes my prepared remarks this morning and I would like to open up the call for questions. Kate, we’re now ready for any questions.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, the floor is now open for questions. [Operator Instructions]And our first question today is coming from Jeffrey Cohen at Ladenburg Thalmann. Sir, your line is live.

Jeffrey Cohen — Ladenburg Thalmann — Analyst

Hey, good morning. Keyou, Mike, James and Rhonda, how are you?

Keyoumars Saeed — Chief Executive Officer & Director

Good, thank you. Good morning, Jeff. How are you?

Jeffrey Cohen — Ladenburg Thalmann — Analyst

Good. So, firstly, could you tell us the contribution from Airocide versus the traditional business, as far as the net sales for 2021? I know that the acquisition closed in the early part of February?

Keyoumars Saeed — Chief Executive Officer & Director

Right, the majority of the contribution was Airocide because they came in, kind of hot. But we haven’t actually broke — we don’t break it out by product and individual SKU or line. But in terms of contribution between SteriLumen and MunnWorks, Mike, do you want to do your debut and meet Jeff by answering that?

Mike Riccio — Chief Financial Officer

Sure. Yeah, good morning, Jeff. The — as Keyou mentioned in the call, MunnWorks is kind of returning to normal levels, so that — basically you can see that last year Q1 results. But for this year, for the first quarter anyway, most of the contribution is coming from our Airocide product line as we continue to develop the Lumicide line. So the answer is, if you look, probably about, I want to say one-third of the sales is coming from Airocide at this point.

Jeffrey Cohen — Ladenburg Thalmann — Analyst

Got it. Okay, that’s helpful. And then I can look at the core business year-over-year. That’s perfect. Can you talk about Airocide and the manufacturing and supplies and transportation and how that’s flowing. Now I know that there is perhaps some thoughts on issues as far as not being able to acquire enough product a few months ago?

Keyoumars Saeed — Chief Executive Officer & Director

Yeah, I’ll get us started and hand it off to Jim because we were I think probably fortunate to close in the beginning part of the year, we had some time to spend with the team at Akida prior to close and get down to the bottom levels for production purposes. So, Jim had a chance and we put in some orders early forecasting for success for the beginning of the year and doing some lead orders. I don’t want to steal too much thunder from you — from Jim. Jim, do you want to explain sort of some of your tactics in trying to smooth out a bumpy supply chain?

James L. Doyle, III — Chief Operations Officer

Yes. Good morning, Jeff. Yes, we — right after the acquisition, we quickly placed some purchase orders. Part of our working capital plan to get product moving, we’ve got two manufacturing facilities in the States and one in China. So, especially the one in China with all, as you probably know shipping import issues, we wanted to get product moving as fast as possible, so we placed orders upfront, was Phase 1. Phase 2 was strengthening the supply chain and the processes around the supply chain, so that we would have better and improved visibility from factory to customer especially our international distributors.

We’ve implemented all that and we are on a monthly cadence related to supply chain and we have decent amount of product coming in country and going overseas to fulfill our demand. As Keyou mentioned, the Red Sox was a rather large order, and because of this, we were able to bring that product in faster than Airocide would have been able to do on their own.

Jeffrey Cohen — Ladenburg Thalmann — Analyst

Okay, got it. And is that approach other sports team or other venues comparable to what we saw in Boston?

James L. Doyle, III — Chief Operations Officer

Currently, we are looking at additional partnerships across the sports and entertainment world. So hopefully we’ll have some announcements coming up here soon.

Keyoumars Saeed — Chief Executive Officer & Director

Yes, thank you.

Jeffrey Cohen — Ladenburg Thalmann — Analyst

Okay, got it. And then, could you talk about the MunnWorks subsidiary specifically? I know you had some previous contracts that were delayed and there were some talk about them coming back online perhaps during 2021. Can you walk us through what’s there now, how that pipeline looks and how should we be thinking about that cadence and uptake on MunnWorks through the back half of the year?

Keyoumars Saeed — Chief Executive Officer & Director

Yes. So it’s interesting to have kind of a standard business as well as the technology business that is very pandemic related and cleanliness related. So, MunnWorks coming into the end of 2020, as we mentioned, was slowing down and hitting a lot of headwinds in terms of orders and financials and an erosion of backlog. But coming into the year, we saw in that business, what they call model rooms for hotels as designers in these larger flags Marriott, Hyatt, Four Seasons are required to build and create new rooms and new room designs and refurbish.

And in January and February, the initial meetings were held. But in March, we started — starting to — in March we started seeing numbers hop back to around where they were in 2019 before the pandemic. So, if there is any indication at least graph [Phonetic] wise that it looks like in the second quarter, it has continued to keep that same momentum going that they are starting to bounce back to generally normal levels of business.

Jeffrey Cohen — Ladenburg Thalmann — Analyst

Okay, got it. And then lastly for me, could you review for us and talk about the Mount Sinai valuation or if there’s any others going on and then talk a little bit about how that relates to Axis and launching in the fall? Thank you.

Keyoumars Saeed — Chief Executive Officer & Director

Jim, do you want to — you’re closest to Mount Sinai and Axis, I think we’re — do you want to go ahead and do that?

James L. Doyle, III — Chief Operations Officer

Sure. Sure, I can talk about that. In terms of Mount Sinai, we are running a little behind and that’s due to the pandemic load on the hospitals within the Mount Sinai network that we’re using. But we have our units in their centralized shipping facility to be installed by their contractors. So we’re going to get back on schedule here shortly. Baseline testing has been completed with our third-party testing lab, just waiting for the installation of our products into the Mount Sinai network.

And then in terms of the Axis relationship that, we continue to work on that relationship. They are running independent design and development process using our patented technology right now. So that is progressing.

Jeffrey Cohen — Ladenburg Thalmann — Analyst

Okay. Perfect. That does it for me. Thanks for taking the questions.

Keyoumars Saeed — Chief Executive Officer & Director

Sure.

Operator

Thank you. We have no further questions in the queue at this time. Do you have any closing comments you would like to finish with?

Keyoumars Saeed — Chief Executive Officer & Director

No, I’m okay. Thank you.

Operator

[Operator Closing Remarks]