BioLargo, Inc. (PNK:BLGO) Q2 2023 Earnings Call Transcript

BioLargo, Inc. (PNK:BLGO) Q2 2023 Earnings Call Transcript August 18, 2023

Operator: Greetings. Welcome to the BioLargo Second Quarter 2023 Earnings Results Conference Call. At this time all participants’ are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Brian Loper. You may begin.

Brian Loper: Thank you, John. Good afternoon, everyone, and welcome to BioLargo’s Q2 2023 quarterly results conference call. By now, everyone should have access to the earnings press release, which was issued yesterday prior to market open, and the 10-Q report filed with the SEC. This call is being webcast and is available for replay. In our remarks today, we may include statements that are considered forward-looking within the meaning of the securities laws, including forward-looking statements about future results of operations, business strategies and plans, our relationships with our customers, market and potential growth opportunities. In addition, management may make additional forward-looking statements in response to your questions.

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Forward-looking statements are based on management’s current knowledge and expectations as of today and are subject to certain risks and uncertainties, and may cause the actual results to differ materially from the forward-looking statements. A detailed discussion of such risks and uncertainties are contained in our most recent Form 10-Q, Form 10-K and other reports filed with the SEC. The company undertakes no obligation to update any forward-looking statements. And with that, I’ll now hand the call over to BioLargo’s Chief Executive Officer, Dennis Calvert.

Dennis Calvert: Hey, Brian, thank you very much. This is Dennis Calvert. I appreciate everyone joining us today. And as usual, we got a lot to share, so we’re going to plow through a lot of information quickly. And again, it’s our privilege to have the chance to talk to you today. So BioLargo, we make life better, sustainable, innovation, focused on making a better clean air, clean water, cleaner earth, making life better across a number of fields as an innovator and solution provider. Our strategy is pretty basic: invent it, prove it and partner it. And we have gotten multiple platform technologies in cycle, with a couple of commercial endeavors under our belt and more coming. So we’re going to highlight those today. We’ve already covered the Safe Harbor statement by Brian.

Thank you very much for that, Brian. Part of our messaging is very important. Who are we? What are we doing? Well, we’re scientists, engineers, entrepreneurs, passion by making a difference in health and sustainability, focus on a mission of making life better. How do we do that? We focus on best-in-class, very important, best-in-class solutions with engineering-forward technologies, heavy science, heavy engineering, focused on solutions, without problems without good solutions. That’s the emphasis of the company, and we got a number that are really significant in terms of making a high-impact, impact-driven company. This is a pretty new slide. We’re often asked the question, how do you got so much going on, how do you explain it in one shot?

Well, this is an attempt. This is an attempt. You have to stay. I’m not going to go through all the words, but really, if you think about it, the parent company is focused on finance and strategy. The engineering group supports all of the operating units and innovators. The Water company is primarily focused on R&D. And the engineering company does have some clients while we’re building support for our technologies and commercial endeavors. And now as a result of all this innovation, putting this together for a commercial assault, we have four commercial operating entities. Clyra, of course, we talked about. Our Energy, a new subsidiary with a new battery technology and development, not yet commercial. ONM Environmental, where our odor and VOC control products are housed.

Then Commercial, now, well over eight years, and now breaking records. And then, of course, this new enterprise called BioLargo Equipment Science and Technology. Colloquially, we would say, best — the best equipment, focused with an emphasis on PFAS, but also the entire catalog of technologies and solutions focused on primarily the water industry. And so this is a nice way to think about the company, an innovation engine with resources to support the development, the commercialization and, ultimately, the exit focused on either spin out, merger and acquisition or licensure. At the 5.5-year mark, we’ve done 88% of what we did last year. That represents 127% period over last period, so that’s six months ending this year. Over last six months’ ending period, we’re up 127%.

Notice that, that 88% takes us to a total of about $5.9 million, and we’ve still got half the year to go, and we’ve got some exciting news about the expansion going on at Pooph. We’re going to talk also about the quarter-over-quarter. So give me a minute, we’ll get to that in a second. Pooph is a very exciting product line. Remember, this is a product that’s sold through our partnership. It’s an extension of our industrial products that we’ve been selling for about eight years and continuing to grow organically. Made a partnership with a marketing group, Ikigai Marketing, developed a brand called Pooph. We secured the supply chain agreement as the manufacturer. We licensed technology with a very discrete specific license focused on pet odor control.

And we bargained for 20% of the brand exit eventually, when Pooph decides to exit and sell the company. Their stated mission is to ramp it up to about $100 million a year in sales and looking for an exit of 3.5 times to 7 times on the exit. That’s their stated mission. The rollout at Walmart, there’s about 2,000 stores that are currently carrying the product. That’s a rough estimate. It is very difficult to keep up with the logistics as it rolls out. It did take a little longer than anticipated. And as a result, there’s still about 1,000 stores to still achieve the fulfillment of inventory, so it can be sold on the shelves. Now the good news is there’s an addition of about 12 additional retailers, who come on board recently and that number is expanding.

So we do believe the Pooph revenues will continue to expand significantly, and we would really say dramatically. And to that point, they’ve informed us that they believe that by the end of the year 2023, they’ll have approximately 20,000-plus retail stores under contract to carry the line. Now we always hesitate just a bit, because the logistics associated with securing these agreements sometimes can take a month, sometimes can take three and, in the biggest case, we’ve seen it take even five to six months. So really, I think the way everyone should consider this is it’s exciting because it represents a big broad distribution plan. Contracts are already in place to carry much of that along the way. There will be additional retailers that will come on in the next three to four months plus.

But as you reach maturity at that kind of impact, 20,000-plus retail outlets, assuming minimums, it becomes a force to be reckoned with plus DTC, that’s direct-to-consumer, Amazon and Walmart, which are already under contract. So as these are achieved over the coming months, we’d like to say four to, let’s call it, nine, something like that, we don’t know exactly, we’ll see this impact translate to revenues. And it represents about a 10 times over current selling resources that are in place for this product. Remember, as a supply chain partner, as they grow, we grow. As they make money, we make money. It’s a very good situation, and they’ve shown some brilliance. As we said in our press release, they are a company that executes with precision.

We’re here to support them any way we possibly can. And we think the financial implications of this alone, as these numbers are achieved, it holds the good prospect of heading towards certainly positive cash flow and even surpassing our overhead on a fully loaded GAAP accounting non-cash basis. The spike. The spike from Q1 to Q2, right? So Q1 was a huge, huge performance. And to give Ikigai and Pooph credit, they properly stocked up in preparation of a national account with a big national footprint, so that they have the inventory on hand to meet the demand and the time frames, whatever that was, for deployment as Walmart rolled out the product. As a result of having such a high level of inventory, we saw a falloff in the purchase orders from Pooph in Q2.

And now as we’re into Q3, we’re watching those numbers come back to stabilizing and beginning to increase again. And of course, that’s reflective with the additional retail accounts, the logistics catching up with the launching of these retail stores. And so we’re going to watch that number trend backwards in a nice growth trend that we believe is reflective of their historical, which is averaging about 20% quarter-over-quarter growth on the Pooph side. And of course, that represents historically 80-some percent of our total revenue performance, and so that’s a big deal for the company. So more to come. Of course, our cash position reflects that. Q1 was such a big quarter. ONM produced positive cash in excess of $1 million. So that was a big deal for the company.

Q2 was down. As a result, we used more cash, but we have been able to increase our net shareholder equity, which we’ll talk about in just a second, and so very much in line with the Pooph sales. Our cash used and cash generated is marrying that trend. And again, we’re going to watch the trend head back north here in Q3, which we’re very happy for, of course. Net stockholder equity increased to $4.12 million as a result of the end of the second quarter, that was primarily attributable to Q1’s excess revenue, of course, a big impact. And then Q2, we also brought in additional capital to support our battery technology and the medical company, which is really good. Because what that does is it lessens the burden on the corporate office, if we can allow for direct investment into those opportunities, which we have, because we believe this is so substantial and the investors believe so, too.

So that’s been a very good situation for the company as well to leverage those assets with direct investment rather than dilution at the parent to give us that diversity and capital to grow. I’ll remind everybody that, that $4 million, as the company evaluates potential uplifting strategies, those are very important numbers. In addition, of course, reducing the burn rate is very, very critical. And so as most people look at the company with these trends, we’ve got a lot of analysts talking about Q4, Q1, heading into that positive cash flow scenario where our existing commercial success is sufficient to actually carry the company to the point where it may not need to raise much capital to sustain itself, if at all. And of course, we’re careful because we think that the current valuation is low, and we want to minimize dilution.

And we do believe that these commercial endeavors will raise our profile and increase awareness for the company. So in summary, the additional final information is important, 5.188, 127% year-over-year for the same period, critical number, and 88% of last year — last quarter — last year’s revenue in the first six months. So in six months, we’ve done 88% of what we did last year. Now we did see a big drop off at 61%. So that number was big in Q1 and low in Q2. Think the explanation is right in front of us. Stocking up at Walmart and the delay in fulfillment really did impact us all, but that number is already turning. And so we’re pleased for that. I think the other critical numbers, engineering, we’ve talked about this before. As we’re ramping up infrastructure for these developing assets, the engineering group is spending quite a bit of time supporting those.

So that creates internal billings, all of which is eliminating the consolidation. So they did the work that, if built, would have been approximately $550,000. But from a revenue perspective, for third-party contracts, that number is $131,000 for the Q2. And of course, BioLargo is supporting many of our endeavors with R&D work and, of course, supporting the AOS for its commercial launch. And then on the Clyra side, you’ll notice an increase in the loss at Clyra, that’s because money has come into Clyra, giving it the tools to expand for sales and marketing and its efforts to get the word out about technology and products throughout their industry. So they are very aggressively now marketing around the industry. Okay, the family of companies.

I’ll just reiterate that the company, as we mentioned, essentially — let me go back to it real quick. As we mentioned in slide number five, here it comes, the company has a portfolio of technologies in various stages of development. We believe each one of these has a chance to be a disruptor in their space. They’re all moving forward in some meaningful way. and I’m happy to answer some questions about those in the Q&A. So I think, for the moment, we’ll stop, open this up for Q&A, and see if we can get some more detailed information for all of you. Brian?

A – Brian Loper: Great. Thank you, Dennis. Excellent overview of what we have going on here. So some general questions about BioLargo and how things are coming along. Can you talk about full-time employees at BioLargo and any hiring plans?

Dennis Calvert: Yes. I can verify our exact number. I want to say 32 or 33, something like that, on full-time employees. The — we have a number of people that also share some time. So consultants that also give us talent to do some very specific things that are of high value for the company. And then we have a cadre of contractors that we bring them under the engineering group when we win some of these large bids. So that’s the team. Relative to hiring, I think the concept is pretty simple. We want to hire as we grow, not before. It’s easy to say. It’s very difficult to do. But that is what we’re doing. We don’t want to expand our overhead until we see commercial adoption with some traction on our AEC for PFAS and our Water Technologies and Clyra, the same thing.

We just want to keep it lean and mean until we get that first market adoption that starts to propel into repetitive business. And we believe that’s here in front of us. And so it will put some pressure on our team. As you can imagine, in particular, the engineering group is supporting old technology, innovating new and serving clients. They’ve got a lot on their plate. And so I can see us really focusing on hiring additional staff in the engineering group as either these long-term contracts are secured or we see the swell of commercial activity to justify that additional staff. And again, given the relationships, we think that’s doable in the short run, and it needs a more strategic plan in the long run, subject to capital and revenue.

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Q&A Session

Brian Loper: Okay. Thank you very much. So everyone knows, BioLargo is segmented, right? That new slide that you put in there is great visual to get a sense of the different divisions, how the subsidiaries work with the mother ship here? So on the topic of water, can you talk a little bit more about the AEC? Are any other projects waiting on the results or completion of that? Are there other adopters that will get their own projects underway? Have the results so far at the Midwest customer achieved non-detect status? A little bit more on the AEC.

Dennis Calvert: Sure. Yes, sure. We could just give a short update on the business in general. So up until now and for the next quarter or so, we’re going to be transitioning from incubating the AEC asset at the parent and at the engineering level into BioLargo Equipment. So that’s the idea. And on the P&L basis, that’s going to take us a little bit of time to make the full integration. But from a selling and positioning perspective, it happens pretty quick. And so the way to think about that is when you look at what Tonya Chandler has done, a couple of very important things. She’s now being asked to speak all over the country on a regular basis. And I think it was about a week ago, maybe five days ago, she did a seven hour continuing education class in Las Vegas to a group of engineers for continuing education credit on PFAS, for seven hours.

That’s a lot of PFAS for seven hours. Anyway, it’s quite special that, and in addition, we’ll be at WEFTEC coming up in the fall, and we’ll make a big presence. We’ll have a whole team there, a very large booth, multiple assets, demonstration units and our data. And it really is the first time that we’ve been in a position to present ourselves on a unified front as a technology and solution provider to that industry. On the floor, on the deck, at one of the largest trade conferences in the world, WEFTEC, in Chicago coming up in, I think, it’s October. Anyway, relative to the selling channel, we’ve got about eight agreements representing now, pushing 100 reps that are qualified and in process of taking our information to the marketplace. And we have a number of projects that have indicated an interest in moving forward with us, and we’re hoping that in the very near future, we’ll have some of these head into secured contracts.

It’s interesting, with the regulatory change and the increased awareness, and then with some of the settlements that are going on, on these very large class actions, multistate class actions, I think the last settlement was almost $10.2 billion for group and a class action of water agencies suing for PFAS contamination as one of the polluters, There’s a swell of interest going on in PFAS, and we’re extraordinarily well positioned. Having said that, there’s still this regulatory threshold that has not become mandate, which won’t occur until Q1 of 2024. So that’s another six to nine months away. Now Tonya and the team are on the cutting edge of knowledge about the interface with hazmat drinking water versus wastewater or versus product treatment technologies, what you do with the waste stream, we are expert in these areas.

And as a result of that knowledge, we believe we’re very well positioned to succeed in a dramatic way. What we’re watching on early adopters is still very much old technology. We don’t see new technology being adopted. We see old carbon ion exchange systems, which we know will not achieve the specifications that are being prescribed for performance, and they have other practical limitations in cost and waste disposal. So as we watch that market, we have yet to see a competitor bring forth the technology that could compare to the value proposition that we set forth in ours. Now I will also say that from a technical advancement perspective, our technology continues to advance and get better. We’re not prepared to make a lot of disclosure about that, but our performance economically and our performance relative to the significant small waste stream as compared to the alternatives is multiples of what we thought it would be in our favor.

That’s the key. So it’s better than we thought it would be. And so our performance results on all these trials that we’re doing continue to enhance our claims. But some of that may be patentable, so we’re really keeping some of that close to the vest until we can get our enhanced patent activity on record. But it’s very exciting because it also means that our economic proposition becomes even that more compelling. So remember, when we started, we were 1,000 at the waste stream. We think it’s multiples of that. And again, we haven’t seen competition really knock on the door with that kind of claim. Now there’s a lot of companies talking about innovation in the space, and it’s — and there’s a lot of venture capital swelling, and the government is swelling with capital.

But the truth is early adopters have moved. Many of the early adopters have adopted technology that will not meet the mark. And the market is as ripe as it ever was. The other thing that’s interesting is when you talk about the future of this market, the future, we said it one time, some people are saying it could be a $1 trillion market. That’s a lot more common now than it was even nine months ago. There’s a swell of activity that’s going on at PFAS because of all the litigation, all the settlement, all the public outcry an awareness. And the impact of PFAS is going well beyond drinking water, well beyond. It’s almost ubiquitous in the environment. So I’ve said before, this is going to keep us busy for 20 years. No question. We’re going to be busy for 20 years on this one.