Q2 2022 BioLargo Inc Earnings Call

Good afternoon, ladies and gentlemen, and welcome to the Biologics second quarter 2022 earnings results Conference call. At this time, all participants have been placed on a listen only mode and we will open the floor for your questions and comments after the presentation. It is now.

My pleasure to turn the floor over to your host Bryan LOE per Investor relations the floor is yours.

Thank you operator by now everyone should have had access to the earnings press release, which was issued on Tuesday prior to market open and the 10-Q report filed with the SEC.

Call is being webcast and is available for replay in our remarks. Today may include statements that are considered forward looking within the meanings of 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.

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-K Form 10-Q and in 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 Biologics Chief Executive Officer, Dennis Calvert.

Hey, Brian . Thank you very much and thank you everyone for joining US again. This is a very exciting time for the company. We're pleased to be here to talk about the second quarter. We're also going to cover some of the <unk>.

Catalysts that are emerging and underway and we believe the important for our future. So a biologic and we make life better right.

Science and engineering solving some of the biggest problems that face our planet focused on sustainable solutions with a heavy emphasis on air water and Earth.

And they buy better really describes our mission quite simply.

Good do something great.

We really have two operating units for those who may or may not be fully aware of the company.

These two groups one is what we call. The environmental group is actually formed in a couple of subsidiaries with specialty talent and tools biologic engineering bottler water and O&M environmental.

For the record they all work very closely together also projects that incorporate pieces of the puzzle from each of these teams and we really are joined at the hip announced solving some of these great problems and building the business for the company. We also have medical company called clearer medical care medical as an emerging company cleared FDA theres, a whole detailed going to give a brief overview when we get to the end of the.

Presentation don't count it out it's a very significant opportunity.

We believe poised for significant future.

The financial highlights are compelling.

A great quarter coming in at just over $1 3 million.

Significant growth over the last few years. These charts show a three year curve, we see a dramatic increase in revenue of course and a reduction in debt can you help explain a lot to look at that cycle. We took great risk a few years ago and now we're seeing the fruits of the investments bear out and the fruit is significant.

We have a little bit of that but not much SBA loan at 3%.

Fixed price convertible.

Nothing that's materially negative in terms of the balance sheet treatment and also certainly not been the threats. The company. We're in a really great position on a balance sheet perspective.

And that has proved significant as we emerge commercially in so many ways.

The numbers kind of speak for themselves all day revenue from Q2, 2021 to Q2, 2022 up 185% coming out $1 3 million.

The engineering group has seen a substantial increase by 237% year over year quarter over quarter from last year.

O&M is breaking records as well and it's important to note in this moment that the borrowing engineering and O&M Navarro both profitable.

This is really a significant moment it allows us to really know and look forward to how these operating units can move to the next step which is throw off cash flow to support corporate.

Actually support some R&D as we make some strategic moves on growing the business and really generating.

Positive cash flow first and then ultimately profit.

As you know that we're out to do.

There's a number of key catalysts will give a brief overview. Each one of these you could write a little a little story about our book.

What I can do that today, but they are significant and they move forward in good ways and so we want to highlight that because we believe a couple of these have significant impact for our near term future.

And we're going to talk a little about what near term needs because we want to get a handle on it.

But again a lot of work has gone into being in this position. So let's start with <unk> <unk> and the largest privately held water company in North America over 100 years of history, just an excellent company dedicated to serving customers.

Robley, right, probably something like 20000 customers.

250 to 300 sales reps I mean really a significant business.

And they came to us of about almost two years ago I think.

And we started this development project.

We called the MLB minimum liquid discharge.

And this is just about to go commercial just about we did our first scaled up significant version for a specific project.

We're launching this product through the selling efforts appear Italian.

At first of course, it was one now there's six or seven in the process.

And again I always remind everyone you have to really just think about what it means for someone like <unk> to launch launch right National company. When they launch they are preparing to have sales reps all over the country get busy and so it's a methodical process precise as we say 90 999.

It's just got to work, it's got to work well the thing that we love about this is it really captains as one of our core competencies of our ability to design and execute supply. So we're positioned as a supply chain partner on essentially a co developed machine, which we assume the manufacturers will make a markup on manufacturing and provide technical support and there.

<unk> something like 30% to 50 units a year somewhere in the 300 to 500000 per system once it launches once.

Once it launches.

That's not a forecast what that really is saying is we think we can do this.

Let's get our first one knocked out and then start stacking amount after that and so we're very close and.

That means that we don't know exactly when but we are in process with a number of customers and from our perspective.

It's only a matter of time, it's a great solution. It really serves a unique void in the market.

And we don't see a lot of competition in this area, it's a modular system Roger recycle.

Hi, mineral content water and white water cooling towers, and if you think about that in manufacturing a huge portion of manufacturing uses water for heat exchange and things like data centers right.

Hi Tech data centers that really want to reuse the water as much as possible, especially in places like California, great opportunity.

We believe it's going to be successful we believe the first tool.

Macau and then that Domino will kick off the other so standby.

Callahan.

Next is the <unk> product with <unk> holdings.

That's a pet odor control products.

As just an extraordinarily exciting situation and so we're going to give it I've got a little video on the show you real quick and just give you a highlight so this was a pet odor control product right. They are testing other products by the way and with the success Theyre, having were really anxious to expand some of the product line with them.

Because they are just showing such an incredible skill taking product to market and how to position for a national brand a national acceptance for adoption. So in this we are working on a manufacturer's margin and it's a cost plus type arrangement and a royalty on sales.

And that's a great thing it really allows us to work hand in hand with the company.

As the supply chain partner and we've also outsourced for large scale.

Contract manufacturing co Packer as the lingo that's used in the industry and that allows us to scale to essentially any national we believe and again.

Figuratively.

In theory, we can supply enough volume to meet national demands for major major mass retail and it gives us the ability to scale relatively quickly.

A little pain and trouble as possible. So we're very excited that that infrastructure is in place that's the point.

Structure in place, we also negotiate but 20% of the exit so we're a partner in the brand we think thats important aligns our interests were pulling together in out of park.

They do their specialty talent, and we do ours and we land together.

It's just been incredible and I can't say enough about their team, which you're going to what youre going to see especially as you see the product continue to expand.

All over North America.

This product has been so well received.

And the.

The team at Picky Guy for proof.

Just execute as expected right exceeding expectations on time to hit their targets to hit the forecast or exceed them.

They've just become a great partner and we're thankful to have them be with them products are trending on Amazon getting great response, and I want to show you a little video Thats a brand new one I want to point out to you on this video.

You've probably seen some of the earlier videos. This is a new one.

So you haven't seen this so make sure you watch it when I play. This if you have trouble on your viewer for this conference call just push the play button if it pops up on your computer.

You can come back later, hoping army technical difficulty, but this is awesome. So I'm going to play this for a minute and.

Take two minutes.

Write backs.

We get more information about moving to phase II.

Okay.

Can't help it mentioned the AOS. There is continued advancement the commercialization has been slow we all know that.

But we're still very optimistic and confident actually because the data just continues to stack up in our favor. So this this montreal pilot they've been working on for a number of months is coming to a point at which the data.

Verifies that.

Plant performance on the ability to move micro pollutants that wasn't UV right better than UV at a sufficiency level efficacy that's remarkable.

Literally an improvement sometimes of 80 and 90% is a significant improvement over the status quo and.

Through regular process of maintenance and cleaning as we've all systems normals.

It has lasted a very long time and I don't know the exact I don't want to say, it's seven or eight months with a long time and that's a big deal because when the market starts to adopt systems I want to make sure. Some last so we have our fourth peer review paper coming out of new manuscript for the pilot results, which which we believe will be peer reviewed.

And again, a very important piece of positioning.

Theory high tech piece of equipment for adoption in the marketplace. So.

Again alive moving forward slow significant technical advancement, we believe has been refined commercial success.

When that is not is certainly longer than we had expected.

But rest assured we believe that's going to land.

That takes us to clear.

Uh huh.

Okay remember, we own 58% of this company.

Started years ago extraordinarily difficult journey to get through regulatory expenses very very expensive very special.

That company is built to spinoff built to spill. So that's the strategy. That's why we say it that way when well when it makes sense to win win is that well when you've got some sales and you've got a significant valuation the capital that's come in.

As of the last valuation was about $32 million, we believe that will increase and then the process of doing so so that will be validated by additional investments as new investors come in to support the national National and international rollout of product. The first emphasis is really on orthopedics and wound and burn which is awesome because both.

Those are really fully vetted on the current five 10-K approval.

Clearly, we just hired a national sales director.

A number of key opinion leaders.

If anybody has been part of a startup company launching medical products is extraordinary level of detail required on the FDA compliance all of that is in place. So clear is set to go. It does have its first few customers not financially significant yet, but significant from the perspective of adoption right.

Adoption that hospital and physician level.

Again, a very exciting opportunity that we believe will create significant value for shareholders, especially as it creates a spinoff opportunity.

Okay. So here's where we are what do you do right. We talk about this accelerated growth how do you how do you as a company go from organic growth to <unk>.

Rapid accelerated growth well the answer is yes.

The things that we're doing.

Find their time their traction and they got like proof right.

A great example.

We went out and did the heavy lifting on.

Validating technical efficacy and finding the market learning to train becoming expert to allow for an opportunity like for example, it's a great. It's a great validation of the business model and all of a sudden boom.

Things start having a really dramatic way when you find the right partner to right. So don't don't Miss that Theres not just you've done the hard work now you found the right channel. So we've talked a lot about channel partners right time, the right channel Garrick, Alan It's a great channel partner right. The <unk> team's great channel partners more coming.

Got three channel partners on <unk>.

Early stage right and just getting started and a lot more coming in each of those creates an opportunity for leveraging the reputation of our product design and getting your your product to market in a very significant exponential sort of way right.

So what are we doing well, we're still organically growing.

We think the key the key focal points on these catalysts is really critical just know that there's new technology coming in by the way that's never going to stop.

The innovation cycle here is alive, and well and we've got just an expanding portfolio and those all create new economic significant commercial economic opportunities and the adoption cycles are setup. So just remember that the first one was the hardest and then the second third fourth then they are all getting easier getting easier because we have more.

Or credibility.

Have more infrastructure in place to support them, we have more precision in the execution.

All good and then of course lean in the channel partners can do without channel partners. We think the leverage in that model is one of the things that <unk> will be known for great technology Smart people.

Right incredible technical people that know this though these the art.

They're science and engineering in their field.

Channel partners that really have the ability to ramp up and move quickly to capture economic opportunity to serve customers in a way.

Small emerging companies just can't grow fast enough to get into and.

And by doing it this way across the company.

We have exponential growth opportunity.

It's proving out.

I'll take on that debate with anyone [laughter] by the way Okay. So a family of companies I can also just as I mentioned, our joint venture in South Korea slugging away still still confident in the team there great relationship.

Meaningful financial yet, but significant because it creates manufacturing ship point in southeast Asia for some of our products and that will continue to expand we believe as well so.

I think for the moment I'm going to wrap it up.

And let me kick this back to Brian and maybe we can field some questions and see where we're at.

Fantastic. Thank you Dennis.

A lot of forward momentum.

<unk> got some really exciting to see for those who have stuck around.

And <unk>.

So yes, we have a number of questions.

A lot about P fast it looks like we'll hear more about that channel partner questions.

Some about proof but.

I wanted to ask you, though so we had a pretty exciting press release come out yesterday about revenues up 185%.

Can you talk a little bit more about where that's coming in.

Kind of where we're going on revenues.

Yes sure.

Certainly as a combination of organic growth.

And leverage growth through channel partners. So it is both it is both so let me let me describe that for example.

The way, we think about organic growth would be.

O&M gets another customer that's organic growth plans in the industrial.

For engineering group, they get recruited into projects like U S nuclear and Latin America. Those are those are in the engineering speak right there they're organic.

You have to do a lot of work by the way those are those both all of those are hard work, so don't forget that but.

So what what we see from in terms of improving financial performance is just that so those those two accounts are significant.

Even at the phase one or significant don't Miss it.

The big numbers phase twos, even bigger phase III is even bigger.

And so just doing that business moves the needle on that side of the equation the.

The other side, unlike O&M with the proof product I was called out as a channel partner leverage that's a leverage expansion why is that so great well because the incremental cash flow. So good.

That has a chance to reap the reward of such a significant development cycle.

Somebody asked me one time, how much do we invest in the odor control technology and products and infrastructure that whole thing.

You add it all up it's probably about $10 million, there's a lot of money.

And so you say what was it worth it.

The first I mean, not only do they build this business right from their from the grassroots sort of that organic growth, but also created that opportunity for extraordinary leverage and.

Replication through co Packers and channel partners to go Big Big Big.

Right Big and so notice.

The poof infomercial or the little video we watch.

$26 million a year run rate.

Okay, and then remember their stated goal is to get to a $100 million well they've done that in like seven months.

That's extraordinary.

Is extraordinary and we're getting we're supplying them as a supply chain partner and also receiving a small royalty and then of course participating the exit on the brand.

That is a model that we should replicate as often as possible.

And I think it centers on finding the right partner and in this case, we certainly have found the right partner and so we're very thankful.

So yes.

Yeah. So the numbers are going to use.

In our opinion right, it's not a straight line, so don't Miss that either Theres bumps along the way, but the truth is right.

You sort of analyze how it goes we're in a spot where the the.

The company has momentum.

It has credibility.

Scott refinement in its business models, it's also that refinement as technologies and.

Just think about we've got clear accounting coming on I.

It's not even launched yet and we've got our first <unk> customer and Theres thousands out there.

And this current technologies just are not going to pull weight. Okay. So we're in a we're in a great spot to now.

With our.

Our critical mass critical mass of knowledge talent people reputation.

Average these opportunities and to exponential growth.

Personally we think it's already happening.

And again that goes back to proud, but not satisfied.

Even if we if we come in at four and five and $6 million.

It's a significant improvement over last year, but only scratched the surface.

This is these are numbers that have.

Enormous opportunity for expansion as evidenced in the simple way by the way, we accreted into the project in Latin America.

That alone.

I asked one of our lead engineers when you spend your careers you get contracts like this the answer is no.

We've been awarded a contract that would normally go to a global multinational.

Why are they picking us well.

Well, there's a reason.

I think Theres a reason I mean.

What is that well as we say we help our customers hit the target.

Hit the target what is the target hit the target do it on time on budget.

Do it phased in over time to minimize capital risk to minimize execution risk to minimize credit risk.

When you do it that way that's what we're doing you do it that way right low slower.

But it's so much better for everyone, including the client and so that's what we're doing and that that model is going to show out over and over and over in biologics.

Next question.

Yeah, Yeah, and we have seen.

Consistent revenue growth right quarter over quarter.

Excellent.

So yes, we have a big question here.

A lot in one, but it's really about.

The AUC right so.

Hey, when will we know the name of that channel partner, but then can you also share any more details regarding the size of the channel partner.

Distribution National Regional International folk.

On a particular sector can you give us any details.

I'll try we are yeah, as you might imagine I hope everyone can sort of.

Get their head around the concept of confidentiality.

This is a situation so understand.

That.

There is a move Congress as a move afoot in the mall.

So designate <unk> as it has that.

That has been hazardous material.

That's got a whole bunch ramifications.

It impacts.

Perception.

Acute toxicity.

The medical response, the legal response the liability response, the government's response everything everything triggers off that sort of moment and it's happening. Okay. Why is that important it means nobody wants to talk about this stuff.

If you've got a P fast problem you shut your mouth.

And guess, what so do we.

I mean, that's just the way it works and so.

So the truth about sort of when and how is we don't know.

Alright, we don't know what we've got is a situation where we're being a trusted.

To come in and help the customer hit the target.

And that's number one help that customer had started.

So I suspect that we won't have much information other than the continued progress of the relationship.

Now the channel partner, we will have some disclosure soon enough, they're organizing for a national national rollout and they they have bargained for and we've given them the arrangement to represent us.

With some exclusive rights to focus on the very specific segment of the market that we're not talking about yet.

I know thats difficult.

But that is out of concern for our customer.

Who is obviously an early adopt right. Obviously they are an early adopter they've chosen to move forward with us for a reason.

We think it's a wise reason because we're going to hit the target.

And they did choose other technologies that are not meeting their needs and those are important things right and it is a big project.

It's a very large customer with a very discrete special situations involving P pause in water.

And so I think other than that that's probably all I got for the moment, but I can assure you that as the.

The company is able and as the customers comfortable will.

It will be more than happy to share more information.

And of course, the other thing to remember is financially as it progresses through the development of a full treatment solution right and the adoption is if and when it moves through all of that.

The financial implications are significant so we will disclose it we'd have to.

We're obligated because you'll see the numbers slowed through the flow through the income statement. So.

Yeah, and this is not new for us by the way I'm going to point out in our journey, but can't tell many times.

Our customers our partners don't want to talk about their business. So we have learned to just respect it and execute in the most excellent way.

So not quite what you want but hopefully not bad for the moment and we'll have more soon.

Yeah fair enough well look at that we will stay tuned for more details on that.

Yes. Another question here about the Pos in general can you compare and contrast, the expense for AOS versus other water systems like what is Capex and what is cost savings other than west versus other water systems.

AOS. So now we're talking about micro pollutants for example, disinfection.

Alright, I just want to.

Sure AOS not AUC are we talking about AUC for P pause.

Switching gears.

No. He did switch gears AOS, okay, great. So let me sure yes.

The competitive profile, so here's the thing that it starts with.

And again I'll say it rhetorically, but this is with emphasis show me a show me a technology that will do with the AOS does.

They don't have them.

So right there is not one.

So you have to start there right.

If the government comes out with a mandate to take out micro pollutants and pharmaceuticals already drinking water because they're worried that humans. The living population is drinking estrogen everyday.

I mean, that's what that's what we're talking about this is this is a situation that has not been addressed I mean, we're at.

It is being addressed globally Europe's ahead of the curve.

And so in that regard.

There's not a solution available.

Okay. So when you do a comparison there is no comparison.

I mean, just that's the problem. That's why we were cutting edge right, that's a cutting edge technology.

So if you were to compare it to UV ultraviolet light as a disinfection tool. It's comparably priced right. So we can compete on Capex capex of the cost of the machine, but its performance is 100 fold.

So don't Miss it.

You know don't Miss it this is not a price thing this.

This is a this is a situation where you start where you do something that no one else can do.

And that's what we're doing that's why we stuck with it and then it's also very difficult is that to everybody knows that it's taken a long time to get it to the spot, but but the reality is we are doing something no one else can do.

So it starts there and then the second is can we make them.

Better faster comparably priced yes of course, I mean, the monies in the R&D.

Right monies in the R&D and the patents and the things that make it protected I mean, when you when you cut to the Chase and you look at it what is it flat.

Plastic and resins, and wires and electrodes and filters.

Theres nothing in there that's exotic.

It's not exotic.

Not like the cost is something some special thing it's about in design.

Almost eight years to perfect the to the point of being proven beyond a shadow of a doubt, but it does something no one else can too.

So so I think the answer the other thing to think about one of the things that our company has evolved we've become really skilled at it being a solution provider.

Alright, really skilled which means when we go into a client situation that has a water treatment challenge or a desired outcome that they're not satisfied with.

We focus on the solution not the technology right and it's a good mantra and we say it all the time inside the company.

Don't sell in AOS sell clean water right, what we're doing.

As we're working with customers to deliver the desired outcome.

And that includes a whole menu of tools and.

And in many cases, it's in AOS in some cases some AC some cases in fact, we have another customer we're working on right now and it's a project where the water is so huge.

<unk> with such a difficult challenge tests it difficult like Theres No answer there's no answer in the market.

We looked at it and we said there is no answer. This is a this is a problem that demands a solution and so we said that the customer we have ideas about building the solution for you.

Man you're talking about.

Our relationship the customer list as you know goes Oh My God your Goldman.

That's what we do.

That toolkit may include some components of the tools that we've already developed but the bottom line is we've got a customer needs to hit a target we're going to hit the target.

Okay. So right. So it's not easy to do a side by side comparison, because again, we're doing something in order to do so if you compare it to this infection sure. We can compete on price. That's what we want to do I'm not sure that's where you want to really get your future too.

What you do on early on the adoption cycle is you pick a spot that you land and expand right land and expand where you land in a situation where you've got something to offer that no one else can compete with.

Quote priceless.

Okay not literally.

Figuratively prices some prices there is a budget. Okay, you got to compete and the way to think about equipment. The other thing that you learn.

<unk> right as we go and we positioned these things for wide scale adoption there as expected margins on Capex generally speaking the industry works on about a 30 or 40% margin generally speaking, okay. Some are higher or similar lower it depends on the competition, but if youre pricing yourselves and those range no one thinks you're too greedy right.

And if you can do something no one else can do then you really a prime yourself for massive adoption well that's what we do.

No we don't gouge customers all right.

I hope that answers the question.

Yes.

A lot there thank you for that.

Just one more question here back to P fast.

How would you compare the magnitude of the PFS problem cause something like asbestos.

Yeah.

It's a great comparison.

If you think about asbestos right.

Everyone.

Everyone not everyone.

The world has been conditioned to understand what asbestos was and is and.

The dangers of the health concern right. So.

Great to have something to have a number of things that column. One is that they are both manufacturers than they were used for decades, and we also know that.

Both of those contaminants can hurt people, especially over time right.

I think one of the uniqueness or unique characteristics in asbestos. It was probably narrowed to a lot of trade people people that were up in the up in the rafters and come into contact with a lot of this material or.

Episodic exposure. So I'd say the biggest comparison is that P forces quote everywhere. It is it is all over the world and.

And it was used in so many products so widely.

<unk>.

They're testing rainwater and women's breast milk and ice ice cream.

Chocolate cake.

Finally, the line and the seal blinding of food and popcorn bags I mean this stuff is everywhere.

So that's another the other is that from a remediation perspective, especially if it was a pretty low tech remediation process.

<unk> is not a low tech.

<unk> is a very high tech solution.

It is youre talking about parts per trillion and if theyre talking about gone to a level of amount of attack 1234 parts per trillion.

It's crazy right.

Okay.

The other is the way that it is.

It can migrate right. So <unk> is something that migrates in the water stream. So.

Anyway, the punch line to all of that is regulation moves forward I think that the comparisons will become more and more.

Aman, commonly aware.

Visible to the population and.

We're in a good spot to really.

And deliver a great solution for the marketplace and for the world. So it's very exciting time.

Excellent. Thank you for sharing all that those are all the questions we have for today.

Yeah. Thank you so much are driving it.

Well, then let's wrap up I want to thank everyone for being here a great call. Please reach out to the company.

Again, very exciting time, and we're looking forward to great results on a go forward. Thank.

Thank you everyone.

Thank you ladies and gentlemen, this does conclude today's conference call. You may disconnect. Your phone lines at this time and have a wonderful day. Thank you for your participation.

Okay.

Okay.