IIOT-OXYS, Inc. (ITOX)·Q2 2023 Earnings Summary

Executive Summary

• Q2 revenue was $35,289, up 113.6% year over year from $16,500, but down 18.5% sequentially from $43,283; gross margin improved to ~76.0% vs ~60.8% in Q1, while operating expenses fell to $130,080 from $229,962 in Q2 2022 .
• Management reiterated that FY 2023 revenue is expected to exceed 2022, but cautioned Q3 2023 revenue may be below Q3 2022 due to funding constraints; CEO/COO have deferred compensation since mid‑April, highlighting liquidity pressure .
• Strategic progress: SHM (DOT bridge monitoring) is the revenue foundation, with favorable extension/expansion discussions; Smart Manufacturing converted a successful CNC POC into a signed SaaS contract in June and is leveraging customer endorsements to drive additional POCs/contracts .
• Cost discipline: operating expenses were lowered 24% in the first half of 2023 vs the prior year, partially offsetting limited access to financing since February .
• Near‑term stock catalysts: resolution of funding (debt conversion/extension or equity), DOT contract extensions, and visibility into Smart Manufacturing SaaS revenue ramp and endorsements .

What Went Well and What Went Wrong

What Went Well

• SHM momentum: “Our current DOT Bridge Monitoring Contract and overall Structural Health Monitoring…is the foundation of our revenue momentum…discussions…for extensions and expansions have been favorable.”
• Smart Manufacturing win: CNC POC concluded in May and converted to a SaaS contract in June; public endorsements and videos are underway and expected to drive additional POCs and SaaS contracts .
• Cost control: Operating expenses declined 24% in 1H23; management emphasized being “responsible with our funding” and reducing OpEx by “a little over $100,000” year over year .

What Went Wrong

• Liquidity constraints: Since February the company has been unable to raise operational funds through financing agreements; CEO and COO have not received compensation since mid‑April, limiting sales/marketing .
• Derivative mark‑to‑market drag: A $155,398 loss from change in fair value of derivative liabilities weighed on Q2, driving a larger net loss vs Q1 .
• IAQ vertical discontinued: The company exited the Aretas IAQ arrangement to reallocate resources to SHM and Smart Manufacturing, and issued a notice of default to Aretas for a missed interest payment on the unsecured note .

Financial Results

KPIs and balance sheet indicators:

Wall Street consensus vs actual (S&P Global):

Notes: S&P Global consensus estimates were unavailable for ITOX at the time of this analysis due to data access limits; values not shown are unavailable via S&P Global.

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “First half year of revenue in 2023 was a significant improvement over the same period in 2022 (an increase of 376%)…We expect this momentum…will continue through the remainder of 2023 – given adequate funding.”
• “Our Smart Manufacturing…CNC Proof of Concept…successfully concluded in May 2023, and has resulted in a signed SaaS contract in June 2023…endorsements and promotional videos…will lead to other paid CNC POCs and additional SaaS contracts.”
• “We have decided to discontinue our efforts with Aretas Sensor Networks in the Indoor Air Quality…vertical and re‑direct those resources to our better performing verticals.”
• “We haven’t been able to get additional funding…since February…On a personal level…the CEO [and] the [CFO] not receiving compensation since mid‑April. Lack of funds has also significantly limited sales and marketing efforts.”
• “Our type of AI is free from hallucinations…we use traditional machine learning techniques to analyze time series data in real time.”

Q&A Highlights

• M&A/valuation: Management outlined repeat customers, multi‑version IIoT software deployments, multi‑year SHM and manufacturing data sets, and “crown jewel” algorithms with planned patent filings as valuation pillars attracting potential partners .
• Debt and shareholder protections: The company extended a senior secured note maturity, balancing incentives for conversion with retail clauses to protect shareholders; targeting full conversion to eliminate debt .
• Broker‑dealer role: J.H. Darbie renewal clarified as required by SEC for investor transactions, with counsel oversight to ensure fairness .
• Sales/marketing execution: Emphasis on converting project successes into collateral (videos, use cases), website updates, and a Q4 road‑trip sales push along the East Coast to drive new business .

Estimates Context

• Wall Street (S&P Global) consensus estimates for ITOX were unavailable at the time of this analysis; therefore, no beat/miss assessment vs consensus can be made. Management’s qualitative guidance indicates FY 2023 revenue should exceed 2022, while Q3 2023 may be below Q3 2022 due to constrained sales/marketing funding .
• Implication: In the absence of Street coverage, investors should anchor on reported revenue trajectory (Q2 2023 up 113.6% YoY; 1H23 revenue up 376% YoY) and near‑term liquidity resolution as the primary drivers of narrative and potential pricing reactions .

Key Takeaways for Investors

• SHM contract continuity and potential extensions are a core driver of stability; watch for formal extension/expansion announcements as near‑term catalysts .
• Smart Manufacturing has crossed key milestones (POC→SaaS); customer endorsements/videos may accelerate pipeline conversion to paid POCs/SaaS—monitor for additional signed contracts and revenue contribution in H2’23 .
• Liquidity is the critical risk: inability to access financing since February has constrained growth investments; any funding agreement, note conversion, or strategic transaction could materially change the trajectory and de‑risk operations .
• Q3 revenue caution: management flagged Q3 2023 revenue may be below Q3 2022; model near‑term softness unless funding improves, with upside optionality tied to SHM and Smart Manufacturing execution .
• Cost discipline provides partial cushion: operating expenses down 24% in 1H23; maintain focus on operating leverage as revenues scale .
• Derivative liabilities introduce P&L volatility: non‑operating swings (e.g., $155k Q2 loss on derivative fair value) can obscure operating progress—focus on revenue, gross profit, OpEx trends for core performance .
• Strategic focus sharpened: exiting IAQ to concentrate resources on SHM and Smart Manufacturing should improve capital allocation and execution efficiency .