Revenue up 73% to $20.1 Million
Applied UV, Inc. (NasdaqCM: AUVI ) (“Applied UV” or the “Company”), a global leading provider of patented, scientifically and clinically proven surface and air pathogen elimination and disinfection technologies (fixed, mobile, and HVAC), LED lighting products and premium hotel furnishings, announces today its financial results for the full year 2022.
Recent Business Highlights
- Completed acquisition of Puro Lighting, LLC (“PURO”) and LED Supply Co. (“LED Supply”) effectively doubling the size of the Company, with revenue expected to be between $45 and $50 million in 2023
- Expanded air pathogen elimination and disinfection product offering to include fully integrated systems within systems for facilities HVAC
- Crossed the Bridge to the Internet of Things (“IoT”) – Company expects to incorporate and launch PURONet indoor air monitoring software across all air disinfection devices
- Launched Mt Sinai Lumicide™ Clinical Trial
- Signed strategic manufacturing and related services agreement with Canon Virginia, Inc. (“Canon”), a wholly owned subsidiary of Canon USA to establish Canon as the Company’s primary manufacturer, assembler and logistical authority for its air purification solutions
- Expanded global distribution reach, which now includes 89 dealers and distributors in 52 countries, 47 manufacturing representatives and 19 U.S. based internal sales representatives
- Launched a research collaboration withJohnson Controls, USHIO and Applied UV subsidiary Puro Lighting to study the efficacy and safety of filtered far UV-C disinfection technology
- Strengthened the management team with the addition of Brian Stern and Andrew Lawrence, highly talented and experienced executives from the PURO and LED Supply teams, respectively
Max Munn, CEO of Applied UV, Inc., commented, “2022 was both a difficult year and pivotal year for Applied UV. We acquired Scientific Air late in 2021 with a mobile disinfection product suite that was client centric to one industry and distributor specific to COVID-19. Unfortunately, previous senior management’s focus did not timely re-position the Company to address this. Consequentially, we determined to write down a substantial portion of our investment and put it behind us. In addition, the Company has incurred significant one-time integration and acquisition related costs associated with the more successful acquisitions, thereby exiting 2022 with a Company better positioned to achieve improved results in 2023.
Through strategic transactions and partnerships, we have positioned the Company as a fully integrated solutions provider offering total air and surface pathogen elimination and disinfection platforms, and specialty LED lighting and custom premium furnishings for the hospitality sector. We completed our acquisition of Puro Lighting, LLC (“PURO”) and LED Supply Co. (“LED Supply”), effectively doubling the size of the Company, and signed a strategic manufacturing and related services agreement with a wholly owned subsidiary of Canon USA (“Canon”) to establish Canon as our primary manufacturer, assembler and logistical authority for our air purification solutions. Integration of these assets is progressing, and we are beginning to realize cost savings across all of our divisions.”
Munn continued, “In Pathogen elimination, we recognized the accelerating shift in demand for complete systems within a system solutions that play a more permanent role in improving Indoor Air Quality (IAQ), standards which were outlined by the U.S. Government last year. Increasingly, enterprises are seeking end-to-end systems across entire facilities that include software monitoring capabilities. Accordingly, we altered our marketing, merger and acquisition, and research and development activities as well as accelerated our IoT development, manufacturing processes and next generation product development roadmap.”
Munn continued, “Hospitality is experiencing a rebound as hotels resume scheduled upgrades, remodel, repair and maintenance activities that were postponed due to the pandemic and subsequent closing of the U.S. economy. Hotels are seeking onshore manufacturing alternatives to mitigate supply chain and geopolitical risks, and we have established well-performing manufacturing capabilities that can meet this demand. Our acquisition of VisionMark further enables us to design-assist, fabricate, deliver and install high-end hotel living space furnishings and expands our reach into the luxury hospitality market beyond our core mirror business. Our Hospitality segment revenue was $13.6 million in 2022, up $7.7 million or 130% as compared to the prior year, with approximately 22% of the increase derived from our base MunnWorks business.”
Munn concluded, “Integration of the assets we acquired is progressing, and we are beginning to realize cost savings across all of our divisions. Looking ahead in pathogen elimination and disinfection, we are building a pipeline of new opportunities across a number of verticals, primarily education, food preservation and cannabis, that we believe will drive future growth and improve financial results.”
Segments
The Company has three reportable segments: the design, manufacture, and distribution of disinfecting systems for use in healthcare, hospitality, food preservation, education and winery verticals markets (pathogen elimination and disinfection segment); the manufacture of fine mirrors and furniture specifically for the hospitality industry (hospitality segment); and the corporate segment, which includes expenses primarily related to corporate governance, such as board fees, legal expenses, audit fees, executive management and listing costs.
2022 Summary Financial Results
Net Sales
Net sales of $20.1 million represented an increase of $8.5 million, or 72.6% for the year ended December 31, 2022 as compared to net sales of $11.6 million for the year ended December 31, 2021. This increase was primarily attributable to the hospitality segment, with sales of $13.6 million, representing an increase of $7.7 million, or 129.5%, as compared to 2021. This was largely due to the VisionMark asset acquisition, accounting for $6.0 million of the increase, plus the increase in sales in the base MunnWorks business of $1.7 million, or 28.5%. The hospitality segment is currently experiencing a rebound in the markets it serves due to hotels resuming their scheduled upgrade, remodel and repair and maintenance activities that were postponed due to the COVID-19 pandemic and subsequent closing of the U.S. economy. The pathogen elimination and disinfection segment had sales of $6.5 million in 2022, which represented a 13.6% increase over 2021. The disinfection-related markets have not yet rebounded from the initial “buy-in” during the early stages of the Covid-19 pandemic. Additionally, due to macro market shifts, the Company saw major global trends towards end-to-end systems across entire facilities that include software monitoring capabilities. This allows facilities to implement standards included in the current Environmental Protection Agency (EPA) “Clean The Air” initiatives and guidelines announced in early 2022. These guidelines set the standards that are focused on improving IAQ, including indoor air ventilation and HVAC systems in all public spaces. With these shifting macro trends, the Company altered its marketing, merger and acquisition, and research and development activities to address these changes. Additionally, the Company accelerated its IoT development, manufacturing processes, and next generation product development roadmap. The PURO acquisition, coupled with the strategic manufacturing partnership with Canon, further addresses this shift in focus.
Gross Profit
Gross profit was $4.0 million, which was 20.1% of sales for the year ended December 31, 2022 as compared to $4.1 million, which was 35.1% of sales for the year ended December 31, 2021. Gross profit as a percentage of sales decreased primarily due to the higher sales mix of the hospitality segment. The hospitality segment’s sales for the year ended December 31, 2022 were 67.7% of AUVI’s total as compared to 50.9% for the year ended December 31, 2021. Additionally, the hospitality segment’s gross profit as a percentage of sales decreased from 24.5% for the year ended December 31, 2021 to 9.3% for the year ended December 31, 2022, largely as a result of the lower gross profit on the completion of projects that were in process when the Company acquired the assets of VisionMark, which was a non-recurring event. The Company is focused on streamlining both manufacturing and distribution operations across both segments.
Operating Expenses
Selling, General, and Administrative – S,G&A costs were $14.8 million for the year ended December 31, 2022, which represented an increase of $3.5 million as compared to the year ended December 31, 2021. This increase was driven primarily by the asset acquisitions of VisionMark in the hospitality segment in Q1 2022 and the asset acquisitions of KES Science and Technology (“KES”) and Scientific Air (“SciAir”) in the pathogen elimination and disinfection segment at the end of Q3/beginning of Q4 2021: payroll and sales commission costs increased $1.5 million; amortization costs increased $1.0 million; marketing increased $0.4 million; professional fees increased $0.3 million; rent increased $0.3 million. The Company anticipates efficiency gains in the coming year as all three acquisitions have been fully integrated and synergies are being leveraged.
Loss on Impairment of Goodwill and Intangibles – The Company determined that a triggering event had occurred as a result of a settlement agreement with Scientific Air. A quantitative impairment test on the goodwill determined that the fair value was below the carrying value and as a result the Company recorded a full non-cash goodwill impairment charge of $1.1 million on the Consolidated Statements of Operations for the year ended December 31, 2022. Subsequently, as of December 31, 2022, we evaluated potential triggering events that might be indicators that other Scientific Air intangibles were impaired. We saw a significant decrease in the number of orders and demand of our Scientific Air product lines. As a result of this impact due to the shifting market trends described above in the Net Sales commentary, an additional non-cash impairment on intangibles of $5.9 million was also recorded in the Consolidated Statements of Operations for the year ended December 31, 2022.
Other Income (Expense)
On March 31, 2022, there was a dispute between the Company and Scientific Air (“Old SAM Partners”) regarding certain representations and warranties in the purchase agreement which resulted in a settlement and mutual release agreement pursuant to which Old SAM Partners agreed to relinquish such Old SAM Partners’ right, title, and interest in the previously issued 400,000 shares of AUVI common stock that were part of the consideration in the original asset acquisition. The Company recorded a loss on change in fair market value of contingent consideration of $240,000, and as a result of the settlement, the Company recorded a gain on settlement of $1.7 million during the year ended December 31, 2022. The Company had previously recorded a loss on contingent consideration of $574,000 for the year ended December 31, 2021 as a result of the decrease in our stock price from the date of acquisition of Scientific Air and the reporting date.
Other Income includes $205,000 in the year ended December 31, 2022 for the Employee Retention Tax Credit.
Net Loss
The Company recorded a net loss of $16.6 million for the year ended December 31, 2022, compared to a net loss of $7.4 million for the year ended December 31, 2021. The increase of $9.2 million in the net loss was mainly due to the non-cash Loss on Impairment of Goodwill/Intangibles of $7.0 million and an increase in S,G&A costs of $3.5 million as explained above. Loss per common share is $(1.41) for 2022. Excluding impairment loss, loss per common share is $(0.86) as compared to $(0.86) in 2021.
Liquidity
On July 1, 2022, the Company filed a $50 million shelf registration on Form S-3 with the SEC which allows for flexibility to raise funds as needed. Additionally, in December 2022, the Company entered into a Loan and Security Agreement with Pinnacle Bank, which provides for a $5 million secured revolving credit facility. The Company had approximately $2.7 million of unrestricted cash available on its consolidated balance sheet as of December 31, 2022 compared to $7.9 million as of December 31, 2021.
Conference Call/Webcast Information
Applied UV’s management team will host an investor conference call and live webcast at 9 a.m. ET on April 3, 2023.
Investors can access the live webcast via a link on Applied UV’s web site or at https://www.webcaster4.com/Webcast/Page/2626/47804 .
For those planning to participate on the call, please dial +1-888-506-0062 (for domestic calls), or +1-973-528-0011 (for international calls), passcode 115108.
A replay of the conference call will be available online on the Applied UV web site, and a dial-in replay will be available for one week following the call at +1-877-481-4010 (for domestic calls) or +1-919-882-2331 (for international calls), replay passcode 47804.