Biolargo Inc

Good day, ladies and gentlemen, and welcome to the BioLargo third quarter 2021 earnings results. At this time, all participants have been placed on a listen-only mode, and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Brian Loper, Investor Relations. Sir, the floor is yours.

Thank you, operator. Good morning, everyone, and welcome to BioLargo's third quarter 2021 earnings results conference call. By now, everyone should have had access to the earnings press release, which was issued yesterday prior to market open, and the quarterly report filed at 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 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. 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-K, Form 10-Q, and other reports filed at 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.

Hey, thank you, Brian, and thank you, everyone, for joining us. We've got a lot to cover, and we're going to move very rapidly through this and, again, point you to some of the press release and the website, a lot of information about the company. The quarter was an excellent quarter. Significant progress on many fronts. We're going to highlight those and also dig a little deeper into the detail on some. So remember, BioLargo is a solution provider, right? We've evolved from becoming a technology company only to become a full-service solution provider, really centered around this significant knowledge base embodied in our engineering group and our experts. and odor and DOC control, and our R&D team, who's worked diligently to advance the AOS to a commercial status, which is very exciting. I'll remind everyone we also have a minority interest in a subsidiary, Clear Medical. We believe they have an extraordinarily exciting future as well, but we're going to focus primarily on the environmental group. Our mandate's pretty simple, make life better, focus on all things sustainability, and there's a number of developments that we're very excited about. Number one, engineering revenues climbing, PFAS testing is successful, AOS validation at Montreal. We'll talk about some of the details. Our consumer product partnership focused on an odor-controlled product that's being test marketed now. We're about to go live with Derek Callahan, and, of course, there's much more embedded in our portfolio. From a financial perspective, Q1, we did have a dip, mostly surrounding COVID and the logistics that were going on, which is also we've experienced prior years. The magnitude was greater because the numbers are greater. But as the graphic obviously shows, our engineer group is breaking records in particular, and the trending is back on the climb, which is most excellent. We always point out, that the debt reduction over the last year and a half to two years is quite substantial, bringing us down to a level at which there's no remaining convertible debt that has any sort of variability to it, which is very important. So we've eliminated that pressure on the stock, which we think is critical. We also have financing in place to support our near-term capital needs. And, of course, we're heading into what we think is significant commercialization opportunities that can drive revenue and ultimately profit. These are dramatic curves and represent a significant amount of work, and we're quite proud of the trending. It bodes well for our future. We think that these can continue. The PFAS technology... and our PFAS extraction. We've talked about this a number of times. Just briefly, these are the contaminants of the decade, often called forever chemicals. They're extraordinarily significant. A bill just passed at Congress, the PFAS Action Act, essentially making these forever chemicals now classified as a hazardous material. Hazardous material designation means that a lot of federal funding becomes available to people around the country who need to clean up these contaminants, linked to adverse health effects like birth defects and cancer. These forever chemicals were used in nonstick coatings. They were sold for 38 years. And it takes a brief Internet search to really get your head around the magnitude of the impact of these chemicals that are now in drinking water and our soil and our earth. And, of course, in concentration, they're particularly dangerous. They're even tested in the polar ice caps. They're in your food. They're in your cosmetics. And there's been a concerted effort to change that trend over the last few years, of course, but now the contamination into parts per trillion is significant and creates this adverse health problem. Most people say it's an $80 billion a year market. The consensus is not in. But what you'll find when you do that internet search is people are taking action very rapidly. They're using incumbent technologies, primarily carbon. Our thesis is really simple. Our AEC has now been scaled to a commercially feasible design. It is scalable. It works. It's now been tested with our first client waters that have validated the fact that it can meet federal and state regulatory requirements on reduction. It also has this unique feature that allows for optimization. That means that we can dial in the level of contaminant extraction the client wants to focus on, giving it quite a bit of economic flexibility. Fundamentally, the AEC is an efficient extraction technique focused on isolating and selective extraction. Number one, saving money. Number two, it's available in a wide range of waters. It's going to work for most situations, but not all. And then fundamentally its value proposition is that the waste stream can be up to one-one-thousandth, one-one-thousandth of the contaminant stream of an incumbent competing technology like a carbon technology. So this is a very exciting moment. With the heat that's coming from the regulatory front, our timing really couldn't be better. We've been at this about two years preparing for commercialization. We're in the first phases of that commercialization with third-party testing, validation with client water. And the way this will go is that the next step will head into the field, validate it at a scaled level, and then that will put us in a position to begin bidding on projects, and we believe winning. So that's our future. There's the testing program we just mentioned. A very unusual approach to the market, you know, by taking on a testing program, what we're saying to the marketplace is we're here to deliver a solution that works. If ours doesn't work for any reason, which most cases it should work, right? If it doesn't work for any reason, we have the skill, the knowledge, the access to alternatives to guide the client in making the best choice to solve their problem. That special knowledge makes this test program particularly valuable. What you realize is the magnitude of these decisions are so great, if they can get an early screen, an early screen in or an early screen out, that's a very valuable program. And for us, of course, it really focuses on data. The bottom line is it has to work. Whatever we put out in the field has to work. There's no margin of error. And so this is a great way to basically go into the market, provide something of great value, and also have an opportunity to really prove that our solution is a viable economic and technical validated solution for them. It's a great program. We've got a couple of early clients that are just significant, major municipal clients and major federal clients. Early stage, again, as we said, testing first, then field trial, and then commercialization. Announced just, I don't know, in June, just a few months ago, that we'd secured about 1.2 million contracts. You know, and again, just to point out, people often say, you know, is 1.2 million a big number? Well, the concept is that 1.2 million came in in new contracts in literally, you know, like a week or two, right? So it's pretty significant in that regard because it shows the significance of sort of our group finding their way in the marketplace with great reputation and opportunity. And so about half that has been completed. One of the larger contracts will extend into Q1. But, you know, a significant value proposition in terms of increasing our revenue rate, 92% quarter-over-quarter increase, pretty remarkable. It also means that that group has to grow. So as we always point out, some of the challenges that the world is facing with logistics and supply chain and hiring, you know, some of those issues will come to us. But we're very excited about it because, of course, Our clients want our services, and they want our technology, and the opportunities are expanding dramatically. So we're encouraged and very excited. I always want to remind the engineering group, too. Sometimes people forget, but the engineering group, remember, is 30-plus years' experience. A team that's been together for over 20 years joined our group as owner-operators about three years ago, a little over three years ago. and have world-class experience. And so as a result of their experience, our technology, and the combination of sort of the entrepreneurial spirit to focus on significant problems that face our world, the opportunities can almost appear endless. Now, the reality is, right, that it takes manpower, it takes time, energy, and money. And so, again, we think that the powerful combination of of significant knowledge and expertise at the scale-up, integration, design, full service has really given our company a significant boost to help us sell through the market our technology innovations, but primarily focus on serving the customer first. Why is that important? Well, one of our partnerships, Serving Customers First, brings us to Garrett Callahan. About nine months ago or so, we started a relationship with Gary Callahan. They are the largest privately held water company in America since 1904, and customer service is number one. This is a group that has built 100 years of history, clients throughout the country, one of the largest, and a significant footprint and relationship and reputation of excellence. So we came together to build a minimum liquid discharge system. That system has been built. It's actually in our water lab. It's being tested. And we're now starting testing with client waters. And this is most excellent. So just think about that. That's about nine months or so, hard work. Now we're in the go mode. Go mode means test it with client waters and begin taking orders. It's that simple. This is a product that's geared up to go to market. So we're targeting first sales in Q1. And this is an opportunity of significance. Garrett Callahan has mentioned a number of times they think they could do 20 or 30 units. Those units would sell for between $200,000 and half a million project orientation. It's significant business. We are the manufacturer. We'll be working on manufacturer's margins, working with our distribution partner, Garrett Callahan, who will then work on distributor margins. And this is just a very nice win-win to leverage the talent pool by a large on our skill set. and, of course, rely on their most excellent sales and distribution capabilities. It's a big deal, and we're very excited about it. And it's about to go live, so that's exciting. O&M, our most mature unit, has really continued to work hard. I mean, this is a tough business. I always say it's gritty. It's a gritty business. It's working with waste and waste handling industry players. Their response to odor and DOC control is largely driven by regulatory mandate. We have a great solution, and we just recently secured a three-year exclusive supply contract with one of the major municipal clients in Southern California. That's a big deal. What people don't realize is it took us about four or five years just to get in the door. And it's amazing how that happens. It happens because we just keep showing up. We earn our reputation every day. by solving a big problem, most excellent in terms of system integration and builds, you know, really high-quality construction, you know, technical assets like misting systems and pumps and sprayers and all the things that make it work. And we've done it over and over and over. And then the second is that we're getting reputation advancements because engineering firms are beginning to specify our solution into the marketplace. That's pretty remarkable. And then one of these really happened because of that, our continued showing up, delivering quality product, quality solution at affordable price. It's just given us a great boost in the market. So that's a big deal. I always say we're working with two of the largest municipal clients west of the Mississippi, and you can imagine who those are. We're based here in Southern California, and it's a big deal. We announced recently this partnership with Ikigai Holdings. The CEO is Jane Pack, and she's just awesome. And she and her partners really come from this world of significant success, developing marketing campaigns, launching products with an array of blockbusters under their belt. Big names, Febreze, Swiffer, Flawless. Flawless was a recent win. They took Flawless from two sales the first day of testing, Almost 2 million sales within 60 days. The exit there was close to a billion. So this is a group that has operated at that level for a very long time. And so the way this program works is we've done a business deal with them in which they are launching a product campaign based on our technical solution for odor control based on group 9 technology. They're test marketing it. They're not testing the product. Make sure we're clear. They're testing the marketing. And what they're looking for is response to their campaign that translates to a call to action. So they're going through a methodical process as we speak. That's one of the reasons we don't talk a lot about the brand yet. It will come public soon. And the reason is we don't want anyone really to go out and buy the product. We want to watch the response from the marketing campaign primarily through television advertising. It's underway. And so the early response is awesome. James, we talked to her just yesterday and the day before, and she said, we're just so highly encouraged by what's happening. And, of course, everyone knows, loves the product. We've been selling it for years. And what we've learned, all of us, over time, over this extended journey, now Icky Guy as well, is that it is incredibly effective and safe. It works, and it's not going to hurt anyone or anything. So that combination is pretty powerful, and then they put their particular skill and their art to the program of marketing. So this is the kind of program that could, you know, really move the needle. It's not yet. It's in testing. So until that test is complete, it's premature to anticipate, you know, a blockbuster. But I can assure everyone that that's what we hope and are working for. And if we didn't think it was possible, no one would be doing this work and spending the time, energy, and money. So stand by for more information. Their program will focus primarily on driving customers to big box retailers. It's really important. It's not about a web sale. It's not about an Amazon sale. That's just not it. The idea here is to drive response and then ultimately move those customers into big box retail. And so stand by for more activity and results soon. Very exciting. And our work with ICKEY guys has been great. It's really raised our bar. We've had to perform at very high levels in anticipation of a scale-up. And so our supply chain partners are super critical here. Again, I think the testimony that I want to share from my perspective is this opportunity is the culmination of significant work over a significant number of years. It doesn't just happen. You know, the idea of safety, having proven it, the data to support our claims, the real-life experience, to know how and where it works, the ability to scale manufacturing in a rapid fashion, the various tools that make it effective in the way you package and supply, all that knowledge is so critical. And really, in many respects, we're expert at it. And now these experts with marketing and distribution capabilities and driving that consumer activity come together and makes for an incredible combination. I can say that had we not done the things that we've done over the extended period of time, this opportunity would likely never have presented itself. It's critical. It's just critical. And the testimonies that come with our historical performance are also critical. So, again, timing meets opportunity, lots of hard work and preparation. Opportunity to write moments. Here we go. Pretty good. The AOS, we just wrapped up this, and we've got a couple slides on this to talk about the technical validation that's going on in Montreal. It's pretty significant. I mean, pretty significant is understated. It is significant. We've gone through an exhaustive study in real life at a wastewater treatment operation focused on micropollutants by pharmaceutical byproduct products. In other words, these products of pharmaceuticals are stuck in wastewater and successfully extracted them. And so in that regard, it's a very successful performance. The way to think about that is it's a very high mark. That's a category of extraction that most people can't compete with. It's a very difficult technical challenge, and we're successful. The idea they're showing, it's extraordinary value in that emerging and significant market. This is a significant market. But what it also points to, as you go through this process, is some of the flexibility as a disinfection device as well, not just a contaminant destruction or extraction technique, but also efficient disinfection that we've also validated. So that combination is going to work really well in a number of markets, especially in some of the mid- to smaller-tiered wastewater treatment operations around the world who are faced with these significant technical challenges. This is quite exciting. And that validation, as a result of this third-party nature, now continues to optimize. Optimize means figure out where it doesn't work, what are the limits. And also it's a great tool as we head into commercialization. And so we're very excited about that. So remember, we did this work up in Canada with Sunworks Farms, okay? Sunworks Farms' pre-commercial planning was incredibly successful. We got a lot of data, refined our system, proved it was effective for field work, confirmed that it was affordable and cost-effective. Fortunately, our Sunworks Farm project is not moving forward. There's a host of reasons that are really beyond our control, timing, customer needs. One of the delays that we faced was actually cost us one of our financial supporters had a program that ended that made some significant negative financial impact on the funding that was available. And just a host of issues, and I think, you know, really you can talk some of it up to COVID as well, just the logistics. Remember, Canada really shut down during COVID. Here's the good news. Nothing is lost. The government funding, the primary funder, actually has come to us and said, we want to make sure this funding is available to you to get this commercial. So we're already in the process of working with a number of clients, one in particular that we think is going to move forward on another farm and processing facility to really replicate what we built and be in go mode. And the thing that's significant about that is the new client actually is under a regulatory mandate to make change. And so that's a big deal. So this is good news. We took a couple of hits here. It took a long time. The good news is nothing's lost. I wish it was faster. You know, compressed this faster would have been better. The good news is we're emerging alive and well. And, of course, the technology has a great commercial future. There's a number of commercial activities on the AOS, all in development stage. But we're out bidding projects, working with partners, working with distributors, hiring reps. I mean, there's a lot going on. And we'll have more information as that unfolds. We mentioned the Quebec project. Again, super technical paper. This paper is years in the making. The image on the right is sort of a conceptual graphic of what it represents from a chemistry perspective on how our device delivers this extraordinarily highly oxidative and energetic iodine molecules. This has been proven. This paper is a confirmation of technical leap forward. It is an absolute confirmation of a technically forward. And technically forward means what? It's number one. It's number one in its category, right? It has this extraordinary performance metric and extraordinarily low energy. So, you know, it's been validated. Now, what do you do with it? You find the market where it fits. You get that thing into the marketplace. And that is happening, and it's been a long, long, long, expensive journey. But I think these confirmations just continue to stack up, and we'll see additional commercialization coming soon. Here's a brief video to show you this. This will help you a lot.