BioLargo, Inc.
Q2 2023 Earnings Call Transcript

Published: 18 Aug 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. 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

[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.

[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. So while it's frustrating that it doesn't adopt fast, and it's hard-slugging to get those first adopters, we're confident that we will and that we're in a good position. And we're anxious also, as everyone knows, for the go forward on Phase 2 of our large project, our industrial account that we announced approximately almost nine -- about none months ago, maybe more, where we did Phase 1 and we're waiting for Phase 2. It has not moved forward. And I'll tell you that I think the read on that -- two things that I'd comment for people to be aware. The first is that the regulatory front is still moving very much. And people wait and wait and wait until someone makes them do it. That's the first thing. Second thing, and again, the mandates are here. They're going into effect. The testing limits are extraordinarily low. And the identification of PFAS as a hazmat is uniform throughout the market. That's one. Second is, with the financial times, there's a lot of people hanging on to money waiting to see what holds in the future with the Fed rate and what's going to happen on the next market dynamics, especially coming into the fall, to see if we're in an inflationary period or whether they need to put capital to work in a problem that they just assume not fixed until they have to. So there's a little bit of both going on. I think the capital market's impact is probably greater than we realized. We are witnessing across the Engineering group and the Water group, there's a lot of customers who said yes, who've scoped and priced and bid and shook our hand and said, we're in, we're in, we're in, and we still don't have a signed contract. So that can be very frustrating. But we know, in the end, our technology can prevail. We've got good relationships with these customers, and we'll find our start and get going in a more meaningful way. So that's my update on PFAS and the Water venture for now, Brian. Next?

[Brian Loper:]

Great. Great. On that front, can you talk any more about sales with Garratt-Callahan?

[Dennis Calvert:]

Yes. Again, long cycles, much longer than anticipated. Everybody hear it all the time. We were forecasting success last summer. And here we are coming into the mid-summer and we're still waiting. The good news is that the whole series of things have been accomplished. One, as you know, we did a demonstration device in our location with customers -- can't remember when -- recent history. We've also built a commercial unit that's capable of going out on a portable trailer that can now be taken to client locations and performed and demonstrate its efficacy. So that's a big deal. We also know from Garratt-Callahan that there's a renewed vigor to see this get into a commercial mode. And so a number of clients are in process. And we believe that, again, we're really near the mark of having success in moving forward with the customer. The other thing, of course, is that Garratt-Callahan, because of the advancing of PFAS globally as well as everyone's awareness, including any industry has heard about PFAS now, they're particularly excited about representing the PFAS technology into their customer base as well. So our work with them is live, continuing, very active. And prospects, again, very much like PFAS, coming to the table, looking for the first successful ventures. And we're knocking on the door, so hopefully, it's very, very soon.

[Brian Loper:]

Great. Great. So switching channels here. We have some questions about the sodium-sulfur battery. So BioLargo Energy Technologies, Inc. is the subsidiary in charge of that, of looking at. Can you give us a bit of an update on the prototype or commercialization? What's going on there?

[Dennis Calvert:]

Yes, it's very exciting, actually. So recall that we acquired the technology we raised, just under $1 million, from direct investors into the subsidiary. Sold a small portion of the company to capitalize those efforts. And then we've now taken that money dedicated to the building of a prototype production line. So that's in our building, our building complex in Oak Ridge, Tennessee, adjacent to our Engineering group. And we're building a prototype line. A line -- this is a series of tools and machines that make batteries. So the general contracts were hired. We're now coming in on the final stages of the construction of the facility. So that's HVAC, electricity, lights, power, ventilation, all the things necessary to support that line, and requisition of all the requisite equipment, a lot of equipment. All that equipment is being delivered, including supplies and materials. We'd like to be in the moment to say the line is live, something like 45 to 70 days, something like that. A little grace required because we're waiting for people to deliver. But once all that is in one place, they'll go through some preliminary testing start to make prototypes. So I'd like to say that we'll be in the prototype delivery business hopefully before the end of the year or thereabouts. Again, a lot of stuff is hitting us. And some of this is impacted also by the increase in contracting for engineering services and the other endeavors. But we're really focused on getting those prototypes out. Because once the prototypes are in our possession, we can do verification testing to verify claims and then also begin marketing and positioning those for adoption with client partners. And so that's where we're at.

[Brian Loper:]

Okay. Excellent. All right. Let's change channels again to Clyra. So at the Annual Shareholder Meeting a few months ago now, Steve, the executive over Clyra, was alluding to -- yes. So we're wondering if we're allowed to talk about that news or what's going on there?

[Dennis Calvert:]

Yes, there's a lot going on there. Remember, Clyra is the full -- another full-circle story for the company like ONM. This is something we've been talking about since inception. And we finally got the money and regulatory approval and then the first clients in the marketplace. So there's a couple of things going on. First is that there's an independent sales force that's been assembled, and they're very interested in moving forward. And Steve and his team have started participating in marketing shows, where they're presenting to physicians who can make yes decisions. And then there's logistical things that have to happen behind that, like getting approved on formularies at surgery centers and hospitals. So there's a lot of work in the setup before you can really go to scale, okay? So that's ongoing. And now with a little bit of capital, we've got resources to execute on that front. Second, the strategic partners that we've identified are very interested in moving forward. We're very excited about it. The idea that the product could leap into an international -- national adoption with global partners is something that's very exciting to us. And we believe the innovation deserves to be positioned at that level. So we're in deep in discussions on logistics terms, pricing, rights that you would expect with a potential program like that, and we're very optimistic about its success. Of course, subject to being patient, while we negotiate with some very, very large companies to get their attention and get in the queue to launch product. The beauty about this one is, as we said since inception, we believe the claims are disrupted by nature. And as we now are positioned for significant commercial success, we can see how the market over the last decade has been pushed towards us, as competitive products that have market share and have achieved some financial success are now falling under great pressure because of their potential toxicity, whether localized or systemic. And that market is shifting very rapidly, and it's shifting towards Clyra. So just -- let me just illustrate that for just a second. If you're a company that has a product that's creating a market, most companies die. If you're creating a product that dislodges incumbents because of technical advance like ours, the proposition for success is exponentially higher, and that's where we're at. We're not having to create the market. The market has been established as a result of now the leaders having trouble with the basic technology of their solution and the extraordinary claims of Clyra's product, namely biofilm efficacy, sustained release, up to treating antimicrobial residual activity, no cyto and no systemic tox, with performance that matches all rivals from a performance efficacy perspective, it stands out as the number one in the market. There's a gap in that market, and we're going to fill it. So we believe the most prudent thing for us to do is to negotiate for strategic partners that can really see that vision come real in a short period of time -- shorter period of time and find the right partners that are culturally the same mindset and also will treat us in a fair way. So we think that's the vision for big success, and we think it's right in front of us. So stay tuned, more information to come.

[Brian Loper:]

All right. Appreciate that, Dennis. Yes, that -- those are all the questions for now. So I appreciate you going over those.

[Dennis Calvert:]

Yes. So do you want to do a closing then?

[Brian Loper:]

Sure thing.

[Dennis Calvert:]

Okay, everybody. Thanks for your time. We're coming in just about 35 minutes, so hopefully, we're succinct and complete. We welcome you to reach out, of course, e-mail us at [e-mail]. You can reach me directly. This is a very exciting time. I think the trending towards that 100%-plus growth rate is something that we're striving for, for the year. And if the trend continues as represented, and with a little luck, some of these big contracts will come in. We're going to see ‘23 and ‘24 shape up to be the best year in the history of the company. So we think it's worth the wait and worth the effort, and I want to appreciate everyone for their support. Go, BioLargo.

[Brian Loper:]

Thanks, Dennis.

[Dennis Calvert:]

Thank you.

[Operator:]

Thank you. This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.