BioLargo, Inc. (BLGO) Earnings Call Transcript & Summary

Greetings. Welcome to the BioLargo Annual Fourth Quarter 2022 Earnings Results Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference to your host, Brian Loper. You may begin.

Thank you, operator. Good afternoon, everyone, and welcome to BioLargo's 2022 Annual Results Conference Call. By now, everyone should have had access to the earnings press release, which was issued prior to market open and the 10-Q filed report with the SEC. This call is being webcast and 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 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 BioLargo's Chief Executive Officer, Dennis Calvert.

Hey, Brian, Dennis Calvert. Thank you very much. Hello, everyone. Glad you're here. We're going to plow through some financial performance metrics very quickly. And of course, this is a great time in the company's history. And so I think you're going to be quite pleased as we dissect that performance. As you look at the company, we are an innovator solution provider, focused on some of the greatest challenges that face our planet, clean air, clean water, really things that make life better, including odor, clean air. And it's a very exciting time. As you remember, we have an environmental group, which is composed of 3 operating units. We've just added our fourth, which is a battery company. We'll talk about that in a bit. And then Clyra, remind everyone, Clyra was a spin-off -- excuse me, was a company that was formed as a subsidiary, leveraging the core technical competency and patented innovations that we have under the BioLargo technology. That company is organized and its plan is to spin out when ready. And we're going to be breaking down the revenue segments and financial performance very carefully, including both those operating units. Quarter-over-quarter, we're coming on the seventh quarterly increase in revenue, 7 consecutive quarters. And we have published in early January, the estimate that we would exceed our growth for Q4 to Q1 by at least another 50%, making that 7 quarters of growth -- top line revenue growth quarter-over-quarter. If you run those numbers, that's about 32% per quarter. So it's a pretty good number. And of course, that represents a 132% annual increase over the same period for 2021 to 2022. We broke down the comparisons here to give you a glimpse, so you can see them visually of the trend line for key metrics that are associated financial performance. I want to remind everybody on the revenue side, of course, we have an estimate on Q1. Those numbers are not published. They will be subject to the review by the auditor, and we'll be coming out with those numbers soon as we complete the review with the auditors assistance. So they are preliminary estimates subject to change. But we do have confidence in those numbers as we've stated in our press release. Big thing, debt. We're almost down to SBA. I think we've got an SBA loan. Clyra has got a lot of credit. That number is just inconsequential to the daily operation of the company, and we're proud of the ability to retire such a significant amount of debt as revenues are climbing. Our net loss is decreasing as well. Of course, you would expect that as long as we can maintain our SG&A, which we're going to talk about in a second, but as the revenues have climbed, our net loss is shrinking and it's been shrinking pretty dramatically. I want to make note that from Q3 to Q4, those also included some nonrecurring charges -- onetime charges that totaled about $473,000. And without those, the net loss number would have been just under $1 million for the quarter. Again, by far, the strongest performance thus far, as we always say, we're proud, but not satisfied and we think that the trends will continue in our favor, although we must give everyone the proper notification trends don't necessarily reflect future performance, but we are very optimistic, and we believe that sales will continue to ramp and we'll continue to maintain our operation status as we have in the past. SG&A versus revenue. These some big numbers. We've gone from 308, 337, now to 95% of revenue, 90% of revenue, again, representing the ability to maintain SG&A at a relatively flat level. So our numbers have not changed dramatically. As a result of the rising revenue without adding staff, we're watching our free cash flow increase in a significant way. And we do warn that as we expand some of the different revenue buckets, like engineering services and project orientation, we will need some more staff. So we're not suggesting that it will remain flat forever. But certainly from a historical perspective, given our basic operations, we've not had a dramatic shift in the way that we've hired, maintained and continued our operating status. And that -- those numbers are going to continue to bear out for us for quite some time. But again, as the revenue mix shifts, we will see some additional staffing required. This is a big number. Net cash used in operating activities. I just want to point out that the lowest number in the history of the company, $2.8 million was used in 2022. But notice in the fourth quarter, with revenues rising, our net cash used in operation actually went to a negative. So what that means is, for the first time in the history of the company, we actually generated cash from sales that were greater than net cash used in operating activities, and that occurred in the fourth quarter as the revenues continue to rise primarily from Pooph. So we're going to talk about that as well. It's a big deal to take a note. And net shareholder equity increased about $4 million over 5 years. Again, as revenues continue, new product lines expand with revenue base, we think that number is going to continue to grow, and it's -- we think it's also going to be dramatic. And so we're anxious to improve that. To share some additional financial information, all of which can be traced to the 10-K specifically. We just want to point out that consolidated revenues had 167% versus Q3 to Q4 -- excuse me, yes, 2021, 167%, 40% growth Q3 to Q4, representing 132% year-over-year comparison from 2021. When you break that down by our subsidiaries, which again is published in our K, where we talk about segment reporting, of course, the engineering group is slightly down, not as big a number, but still had a record year. 51% year-over-year increase in the first half of 2021 and we think that, that's reflective of the lumpiness and the nature of very large capital projects that our engineering groups involved in. And so as we mature, we can level out some of that lumpiness, but we would attribute most of that to that sort of arrangement. On Environmental that handles all of our odor and VOC products, of course, they're knocking out of the park, primarily because of the Pooph product and its national expansion, which we're going to talk about in detail. 82% year-over-year, 403% increase from Q4 2021 and 56% growth quarter-over-quarter from Q3 to Q4. BioLargo Water, of course, is our R&D group. Everyone knows that. The net loss is about $604,000 and 94% of that number was attributable to R&D. And then Clyra is just out of the gate with the customers. It's been about $1.4 million all in, that's cash and noncash charges last year, and we think that it's got an incredibly great opportunity for expansion now as the sales network is being put in place and first client options are starting to get some traction. So it's a very exciting time. Just want to point out that in the preliminary revenue estimates for Q1, we expect that rate of increase to exceed 50% in Q1 from Q4. We just -- as we pointed out, in Q4, it was the first time we generated positive net cash from operating activities in the first time in the history of the company. Working capital is good, and it's improving continually based on sales as well capital influx, which is great. And then I just want to point out that 50% of the net loss in 2022 was attributed to noncash expenses and roughly half that or 26% is represented in research and development, R&D. And R&D is a critical part of our business as we all know. Our AEC, the battery tech, enhanced settlements Clyra, all are a result of significant R&D investments. I want to show you an image. We're in the process of building portable units for the AEC now for PFAS. We've got a couple of units that have been fully built and now we're putting those into trailers and including all sorts of technical pieces that make a function of the market. We're very excited about this. It will allow us to get in the field pretty quick, not as fast as we like, but it is certainly on track. And as we know, we've got our first customer engaged. We've made proposals on a scale up, a commercial piloting process that would be Phase 1, including some enhanced technology to be used in a system for treating water, and that would be Phase 2. We're in the process of finalizing the go forward with Phase 2 now. And Phase 3 would be a full-scale system, which would be quite large. And that system is probably about 9 to 12 months away from the go decision something like that. We don't know exactly, but it is moving forward. We also have a backlog of prospective customers. At this stage, as you might imagine, early adopters is where we're focused, primarily early adopters or industrial clients, not necessarily as a rule, but that's what you would expect. And we've got a number at the table, which is good. And so we're in the process of pricing, scoping, essentially developing a design profile for the customers, and then working with them to get to the questions and answers that they may have. I just want to point out before we move on, the PFAS opportunity. The EPA has just recently published the testing limits, the guidelines for drinking water that came in at 4 parts per trillion for a number of the PFAS compounds. That 4 parts per trillion is such a remarkably low number. It is -- it means that 4 parts per trillion would be like 2 or 3 grains of sand in a couple of swimming pools, extraordinarily low. And because that testing limit is so low, it means that the marketplace is highly sensitized to the technical challenge that's been presented. Our system has evidence in its 9 or 10 trials that is able to achieve a non-detect status as far as we know. We're the only solution that can meet that chest to achieve a non-detect. Remember, non-detect is equivalent of we've removed all the PFAS Layman's terms to a level at which science cannot detect any residual. It's a big deal. So we're busy. We've also developed a national selling channel, and so we're busy processing those opportunities and what that means in terms of processing opportunities, it means scoping, full design, preliminary testing, pricing, quoting, permitting, regulatory and they're quite large capital investments as well. So there's a lot going on there. We're excited about it. And of course, we went it faster. But nonetheless, our after that our value proposition is -- has been only enhanced with the increasing regulatory pressure that's being put on the system. We're also seeing a lot of people that jumped early, a lot of customers that jumped early for compliance. And now they have installed systems that have no potential to achieve 4 parts per trillion testing limit. They just can't do it. It's not going to be possible. So we think the opportunity has got a -- there's a lot of opportunities. It's expanding, number one; and number two, it's got a lot of increased pressure to make wise move. So we're in a good spot, anxious to move faster, but we're doing good. Much about Pooph briefly. They announced that in Q2, they will start rolling out in Walmart nationwide. Preliminary tests were very successful. Remember that we're the supply chain partner here. We make the product. We delivered on a wholesale basis with a cost plus margin and a small royalty on sales, and we participate in their eventual exit, 20% of the exit. This has been a full circle example of the business, the business plan, what can be done. We believe that this product can take us to profitability. It has very much that potential and the numbers speak for themselves. And so this has been a great situation. Of course, we're thankful for the partners at Ikigai and the team at Pooph who's executing. Their special skill is it telling us a compelling story in such a way that people can rapidly recognize the value proposition and make a buy decision. I always tell the story, I like to watch people watch the infomercial. And 9 times out of 10, after they watch it, someone will say, I'd buy that product. That's the point. That's exactly the way it's working. So they're now in Chewy, which is the largest nationwide online retailer for pet products. Of course, Amazon, of course, direct-to-consumer. The ad budgets have been expanding. We expect that to continue, and everyone is very excited about Pooph. haven't seen it, go to pooph.com. If you haven't tried the product, you should. Make sure you try it. The battery technology is very exciting. This is something that we worked on quite a significant amount of time. There was a group of people that were acclaimed experts who had developed this battery, at least 5 years, we think up to 8 years of design work that went in to making this battery feasible for the marketplace. And I would say they're at least 10 years ahead of their time. And now that Tesla has really opened up the market for battery energy storage. Everyone knows about that with the ramp [indiscernible] all for renewable energy, balancing the grid, storing renewable energy, recharging electric vehicle batteries, accessing inputs and output so that you can arbitrage the cost of electricity at the lowest time, meaning peak and off-peak loading. There's a huge opportunity. Morgan Stanley was quoted as saying that they thought the battery industry would be bigger than the chip industry over the next 10 years. This is a very dynamic space. So this battery is a sodium-sulfur battery that has a series of features that make it competitive and more attractive than a lithium battery in many ways. Now we're talking about fixed line batteries, batteries that might go alongside of EV charging station, one that you might put it next to your house or a building or next to a windmill, someone generating wind energy or any sort of renewable energy. This is a great way to store that energy. It's also a great tool for balancing the peaks and valleys of demand on the grid. And that's -- so that's a long duration energy storage is identified as one of the key markets for batteries over the next 10 to 20 years, a big deal as the world is moving towards renewable sources and essentially electrifying the nation. So the trick here is to now get into production. So we believe the project -- the team that developed this battery has done the R&D. So we believe that we're going to be able to now replicate that work, use prototypes and move immediately in a pretty short time frame into a commercial mode. Now to us, commercial mode is to first build these prototypes; second, validate the claims that we have -- we had the privilege of receiving from the developers and we also announced in our public announcement that one of the co-developers and builders and engineer has joined our team as well. So we're in the building batteries mode. I think is very exciting. So it's a huge market. It fits a niche market. And the simple takeaway is that it's a better battery -- it's a better battery for certain applications that are currently not in the market. And one of the big things that really is attractive about this batteries, there's no risk to run away fires. So when you -- if you haven't seen, go to an Internet search, put in lithium battery runaway fire risk and you're going to get an education. It's pretty amazing what's going on. So you'll be learning more of that as this advances, it's early stage, but we're very excited about opportunity for the company. Okay. In summary, I'll just say, and we'll open this up for questions. It is the greatest -- it's a great time in the history of the company. We're proud of our success. We think we're still just scratching the service of the opportunities and we're anxious for the marketplace to recognize us, recognize our financial performance. And we think that, over time, the market will recognize in many ways that our company is undervalued. So let's pause for a moment and focus on Q&A.

Great. Thank you, Dennis. Excellent overview and kind of status report of where we're at. So we put together a number of slides here on just the financial health and strength of the company. Can you spend a little time talking about just like the general market and what's going on there, if there is going to be a recession, how is the financial strength of BioLargo going to endure a storm like that?

Yes. Thank you. So yes, of course, macroeconomic impacts touch everyone at some level. I think the good news is that the business -- our revenue-generating assets are not so sensitive to recession. One of the beautiful things about the pet industry, for example, is even when there's a recession, people still will spend money on their pets. And the other, PFAS, of course, PFAS is agnostic to that because it is a mandate [ fill ] and EPA is -- and the federal government is coming down hard and they're also putting billions of dollars of subsidy into the marketplace so that the customers can get this contaminant out of their water because human health is at risk, okay? So not too sensitive. I'd say in the capital markets, we're always sensitive. If everyone is afraid of the capital markets, then they'll look at a small stock like ours and say, "Oh, should I be letting this right or not? I think the good news is with our performance that's so remarkable and the prospects of near-term performance, I think that we'll be one of those companies that can actually rise up as the market is under pressure. So that's my basic take.

All right. Excellent. Okay. So we got some great questions here. One in particular, I mean, I might be able to answer this, but we have a question here about stock price and valuation and our Investor Relations efforts. What are we doing in the investment community to increase awareness.

Yes. I mean we do a lot actually. We spend real money on getting the word out. We communicate whenever there's, of course, material news, we're obligated to make announcement, but we're also doing quite a bit on our blog and our social media. And it's funny because I hear this a lot from investors, they say, I need more press releases. And I say, have you read our blog, have you looked at our Twitter? No. If you look at all the other things that we're doing to put the information out and you often hear no. And so we would encourage everyone to really plug into all those networks because we are very active. There's also some really interesting chat rooms in social media that talking about BioLargo and have hundreds and hundreds of people following us. So we're doing more and more. And I think with the financial performance also, we'll be in a position to evaluate new opportunities to get the word out, including conferences and having more tools and resources to promote awareness of the company. So I expect it will rise up naturally, and we're certainly committed to it. So -- and if somebody has specific ideas and they want to tell us what they think it is, I'm happy to review those as well. So just send me an e-mail.

Okay. Great. And yes, just to follow up, we have active promotional campaigns going for IR. We did a really solid [ smell men ] campaign at the beginning of the year. That was well received, and interviews that we're trying to get dentists on a weekly basis. So we were just on for example. So look for those video interviews and articles about BioLargo there, are quite a few online that we continue to add every day. Another question here is do we have a ballpark guess on when we'll realize some significant non-Pooph revenue?

Well, we think so. As you may recall, back in August, we announced the start of some engineering services projects that were quite large. And so our client informs us that they'll be moving forward in Q2. So we think that those can be significant. Of course, we're waiting for our clients to pull the trigger and say go. Very similar to the Garratt-Callahan situation. That's at least a 6- to 9-month delay, but it is moving forward. And there are significant projects on the table, and we're anxious to get the first win, and I think they're going to be quite meaningful. So those -- so all of those are potentially in the very near-term basis. Some of them are long projects that I will point out, you don't get all the money at once. You engage for work that could take 1.5 years. But they are significant. And I think relative to historical financial performance, they can match or certainly a multiple of the historical revenue for the engineering group. So they'll be quite meaningful, and we're optimistic and confident. So I'd say we're knocking on the door.

Great. Great. Another question around Pooph. So we understand we don't control when Pooph might get sold. However, what is the current thinking in regard to what BioLargo would do with funds from an event like that?

Well, that's a good question. The -- yes, right now, the way we generally think about opportunities like that is the longer we go, the better it gets. We found a channel, we found a farm goods working. It's right. The tide is making all ships rise. And so we'd like to see that mature. Remember the stated goal of inception is to get to about $100 million before they would seek an exit. And so estimating something like 3 to 7x on a multiple of revenue, it's big numbers. The beautiful thing is that when that happens, if and when that happens, which we believe has a good chance to do, it will fully qualify the company for, let me say, better, we'll certainly qualify the net shareholder equity cash requirements to uplift the company to a national exchange, which by itself would be a significant value proposition for the shareholders, to be able to then market the investment opportunity to the broader marketplace of institutional shareholders, by and large, which now represent at least 90% of the marketplace are prohibited from purchasing our equity. So being able to move up to that level would be a big deal. It also would give us the kind of capital to accelerate sales and infrastructure for some of the longer-term assets like PFAS. Remember that in the odor and VOC control category, we do have many product designs for multiple markets that would also give us tools to execute on selling channels for that. We really like the business model of leveraging partnerships because these partnerships often have significant distribution capability, sort of like we've done with Garratt-Callahan and the Pooph. So we like those a lot because they create leverage. Sometimes they're harder to get started. They're slower. They're sometimes not as predictable. But when you find the right partner, and we've done the hardest work to get that product position to the marketplace, leveraging it through distribution, we think the marginal cash flow and profit opportunity are most of what it would take to do itself. So we'd like to continue that. So I hope that answers the question. It's a hypothetical. But having that kind of capital base would be certain valuable for everyone, including our shareholders.

Yes. On to a more specific question. So we had announced a distributor for sale, CupriDyne in the auto paint industry. Is there any update on sales for that?

Yes. It's actually occurring. There are sales occurring and a couple of accounts are under our belt as best I can recall the detail. The numbers are not huge yet. If they were meaningful, we'd be reporting them. But what I can say is that the response from our distributor and from the marketplace is surprisingly good. And so it's early, and it's going to take some time to really build traction there, but we're doing it. And so our internal sales team has really attached themselves to that channel so that we can mature it out and make it success -- financially successful, and we're predicting that it will be. So not really much else to report other than that the efficacy has been confirmed on a number of occasions, including trials with the customers. And the distributor is now promoting and assisting and introducing us and our solutions to that marketplace. So it's early stages. I'm often amazed when you talk about these big distributors. They're busy. They sell a lot of product, and they focus where they make the most money. So when a distributor takes on a new product, sometimes it flow to get them to focus and redirect their energy to a new product that doesn't have significant history or sales traction. But they all like something new. And then what happens on days they look back and say, hey, we've got a hard one and all of a sudden it gets adopted within the network. So that's kind of what's happening and that's very common. We're facing the same kind of obstacle. So I hope that answers the question.

All right. There are a number of questions about PFAS and AEC, which we'll get to. But before we do, can you give us the outlook for Clyra. with other hospitals, even how does the price of Biocleanse compared to the established products?

Yes, it's a great question. So again, another full circle story. We -- people may or may not realize that we were -- had our brains tuned on the role in medicine for this chemistry 15 years ago and the barrier to entry is so high. And so we found our way through that barrier to get FDA clearance. We now have a couple of hospital systems that have purchased the product. It's called a physician -- and let me describe the mechanics of that. It's called a physician preference item. What that means is that a surgeon or a wound care professional prefers that item, and they choose it because of its feature group. And in our case, the future group is -- as we say, checks all the boxes as compared to competition. So I think we've done some things really smartly actually. One is that we invest in manufacturing. A lot of companies in that space start with building factories and we didn't. We leveraged existing outsourced capabilities so that we keep our capital requirements low, and that does cost a little bit of margin, but it gives us flexibility on the nationwide footprint. That's 1 smart move. Second thing we did is we focused on key opinion leaders. You got to clear you'll see a pretty impressive group there, very impressive group. And key opinion leaders go through a process of understanding and learning just like everybody else. And what's happening now is they have experience. They're doing some clinical work. They're talking about it. They have personal experience to be able to call the person that controls the formulary of a surgery center or at a hospital or a wound care clinic and say, hey, you really need to know about this one. I want to use it. Once that happens, you then end up with a committee and the committee goes through a technical review process. And in some cases, that can take 5 or 6 months. Now the good news is, once you're in, you're in. And so that's happening. We're in that process. In the meantime, Steve Harrison, the CEO at Clyra has gone out and built a sales channel with reps, I want to say the number is about 35 or so reps now on board. And there's a couple of channel partnerships that are in negotiation, which if they happen, can be quite significant. And we're, again, very optimistic about them because the feature group of the product checks all the boxes. I won't go to the whole technical explanation that gentle broad spectrum, biofilm efficacy, residual -- this idea of sustained antimicrobial activity and wound bed is a big deal. It continues to perform, in many cases, up to 2 and 3 days after, that's 72 hours proven residual antimicrobial efficacy, while maintaining non-cytotoxic claims, I mean it doesn't destroy tissue. Remember, the FDA approved it as a non-rinse out product. You don't have to rinse it out. You put it in and you leave it. And that's a big deal for surgeons, right? Because they're all looking at the edge, the edge for better patient outcomes and edge for reduced infection rate. And so this is a product that checks all those boxes. The other thing that's happened, I want to point out to the world because you may not realize it, I mean unless you know this world, you might not know this. The idea that we've known about for these products is 10-plus years. But the marketplace has shifted. And the reason it shifted over this time frame is the competition sometimes had really loud voices. They had lots of money in loud voices. But guess what, their products are falling out of favor. And the reason they're falling out of is because now there's enough history in marketplace to realize that in many cases, their cytotoxic the skin tissue and many have shown systemic toxicity for human bodies. And so what was once a great product in the eyes of the marketplace is now not a safe product. And so as that regulatory awareness and the clinical example, 2 things have happened. One is people are more aware of the need for these tools is infection control tool. And the second is the products that they've been using have some drawbacks that they just may or may not fully have realized that are now very obvious, clinical papers being published. So when we walk in, right, there's already a market that's established for these products, and we have a selling differential to check the boxes where the competition could not. It's a big deal. And so as they say, timing is everything, being patient, getting through the barrier, understand the differential, the feature group special, other people start to fail. We didn't overinvest in infrastructure like factories, and now we're in a position where we can bring a really high-value product to a marketplace. And the thing I just want to remind everyone is this is a product that's sold by technical professionals to an MD or a wound care nurse or technical professionals. So it's a very technical I've had a chance to participate in a couple of -- with like a lunch and learn for engineering, very similar where the products are produced. And the response is kind of universal. It's like they go, Oh, my goodness, I didn't even know it was possible, right? And that's sort of the beauty of the product. So it's got a great future. We've always said 1 day, Clyra is going to grow up, have a bunch of revenue and make its own standalone company. I think that's a lot closer than people will realize, but we have to perform first, and that's what's about to happen. So I'll be anxious to see those revenues start to grow, and we'll all have a cheer.

That's great. So let's change speed here. We've got a number of questions about some water products. So AEC is able to get PFAS down to non-detect levels. And Tonya is becoming one of the leading voices speaking on PFAS. In light of that, is the BioLargo name well-known in the PFAS community and our capabilities to provide low-cost, low-carbon footprint solutions.

That's a good question. It's getting there. If you think about the things that we're doing right now, I would say the general reaction would be a great idea have they built a full-scale system yet in the field that's solved a problem at a major level. And that's probably the #1 universal objection at the moment. And so that won't be solved until we do it. And that's what we're doing with our first project. And so it's very important. We also have others that are what we call early adopters that we can do the same thing with. And there's also a number of industrial sites where you don't have to do 3,000 gallons a minute. Smaller projects, where you can really control the size of these units and the CapEx. Those big units are just massively significant. We've seen systems installed in the $30-plus million range, okay? So when the municipal clients are making decisions so often they're going to go with what the engineers know to be historically proven and scalable, and they're has to take an early adopter technology hasn't scaled up yet to very high volume. So that's an inherent objection that we face. So the answer is with our rep organizations and channel partners, we're not worried about the volume of prospective customers. What happens though is out of that menu of large numbers, we're focused on meeting the needs where the client has the ability to be an early adopter at this and that narrows the pool, right? So generally, you'd say municipals are not going to do it. Although, we have a couple of municipals that may be able to move forward sooner. I think the mobile units going to be very important as well to be able to go out on a mobile unit because once you see it, you can see that it's scalable. This is a replication of modules. If you need to do twice volume, you do twice the modules. If you do 100x the volume, you do 100x the modules. It's not rocket science, okay? But you have to do it. And at some level, you have to answer those questions from a credibility perspective, so people can feel comfortable that they're not going to get hurt. For performance guarantees, for some people that will work, for others it might not. So again, are we satisfied? Well, we're doing pretty good. I mean we're a recognized expert with Tonya's work. Again, we, as a company, decided that, that was really critical to understand the regulatory activity, what it means to a customer, teach them. So we're out teaching. We're actually teaching engineers for continued education requirements. Amazing. And going through what it is, what it's not, what's going to happen, what the future looks like and then how to make good technology choices. And then, of course, in that, they realize that we have a technology that fits a void in the market. And so it's working quite well. I think broad adoption is going to be a function of getting those first couple of big wins under our belt, and then we'll watch that really expand dramatically. So that's the way we think about it.

All right. Any update on Aquaco. You indicated there has been a proposal out there to prospective customer? Are we close to any deals with that?

We think so. The work there has been pretty intense. Aquaco has been great. They've got a thriving business and committed to the water space, and -- but not quite in the same business that we are, but they come across opportunities with clients. And so yes, it's very exciting still. And we've got a quite large project that appears to be in the running -- so I'm hopeful, in the next quarter, we can make some successful announcements about those moving forward, but we're working very closely with our channel partners to see if we can get them done.

All right. how many AEC projects can be in motion at any time, given the number of channel partners we have. Are they able to deal with the customers with little or no resources needed from BioLargo team?

Yes. So far, so good. I mean the way to think about that is there are some -- only so many hours today. So we do -- we want to grow that department. We have more engineering support. And when we say engineering support, we're talking about selling engineers, talking on bidding and scoping and project proposals. These proposals, people may or may not realize, but when you make a proposal for a capital expenditure of this nature, you're talking about little books that you write and little book you're talking about specing -- specifying treatment trains, design elements, design, costing, time lines, it's quite robust, and it takes a lot of work. So we are able to meet that need with the projects that are coming in. But the first thing we do is really try to figure out if it's capable of being an early adopter, right? I mean everybody comes in with their wish list. And then the question is, does that wish list make sense, and are they going to be able to get through their political decisions at this stage of our game. And if not, we're going to focus on the ones that we think we've got a chance to do that. So yes, today, it's working. I can see in the relatively short order that we're going to continue to grow the staff. We like to grow the department with sales in hand as opposed to grow the department and hope to get sales. And so we're sticking with that strategy for today. There's a lot of pressure on the company to show financial performance. And to me, that means that we spend our money very carefully, and we find our way into that market and then we have a swell of demand and then we're backfilling to grow. And that right now is the strategy. I think if we were sitting on $30 million that we could certainly grow those departments with the teams and staffing and push it into the market in a bigger way at extraordinary cost -- at extraordinary costs. So right now, we're focused on the Pooph. The other thing I'll mention, too, is that the Garratt-Callahan relationship has really expanded, and it's funny. We were a good year ahead, 1.5 years, maybe 2 years ahead on the PFAS business. And now the market is catching up to the awareness side. And so because of our intimate work with Garratt-Callahan through all these different projects, they've actually moved forward with the adoption of our AEC for their industrial clients to focus on PFAS removal as well. It's a big deal. You've got to remember, they've been in business 100 years and with thousands of customers. And again, given the new reg coming in on PFAS, anybody that's in an industrial setting -- I shouldn't say anybody, historically, many of the people in an industrial water in a setting of an industry that uses water is going to have to tend with wastewater and likely PFAS. So it's a big one. So I'm pretty excited about that. And we're so thankful to be with that team. They're just at what they do. So we should have some wins under our belt soon, and put that question to rest. And we also should see the level of PFAS activity really increase. And that's pretty new on the PFAS expansion. It's pretty new decisions.

Yes. And in that vein of thought, question here is can you comment on when BioLargo could be ready for a second PFAS client?

Yes, we're ready now. I mean we're doing it as we speak. So ready is a funny word. Ready is in intellectually, ready technically, ready staffing, I'm not sure what that means. We're commercial now, and we can build commercial systems that work. So if somebody has a problem and they're capable of saying, yes, at this stage based on where we're at as a company, then we should do it. Nothing holding us back.

Great. Yes. Certainly. I'd like to hear that. You recently said that Phase 3 on AEC project is 9 months away. When will we be going -- that's the big client revenue. Yes.

Well, yes, so Phase 2 will be a pretty nice revenue. So on Phase 1, we got some revenue booked in for the consulting project, the scoping, the bidding, the pricing, all the things that go into that for the customer as well as some preliminary testing on their water, which we did, and validate that we can indeed take care of the PFAS. Phase 2 then is a field unit with staff to begin a treatment process to run over time and do the validation work on the design side because that will set the stage for a very large system. And so in this case, those proposals have recently been fully delivered and scoped. It also includes the treatment system for some of the large water outlets that they have. No additional equipment, right? So that's -- so it's a big project, and we're hoping to hear from them soon about their desire to move forward with that. They've indicated that they are interested in moving forward promptly. But of course, that's up to the customer to pull the trigger. So we should know soon. And then once that's done, it's about 9 months to get to the full scale project or so, let's say, 9 to 12 months, and that's assuming everything stays on target with the time line. So we're not positive on that. But based on what we've described in the proposal, we can meet that time line if they're ready to meet it. And so that's a big deal. So the scope of Phase 3 could be easily north of $15 million, just so you get perspective. Phase 2 is probably low end $0.5 million, high end would probably be about $4 million depending on the choices that the customer makes. So we should have revenue assuming they move forward.

Great. And last question here today. Can you talk about licensing AEC to big water companies?

Yes. I mean, we're open to channel partnerships. So that might work. Licensing is a funny -- there's a lot of ways you do licensing. We like the supply chain part of that, to deliver design because we'll continue to refine, optimize, expand the AEC in perpetuity. It's kind of the nature of the beast. So we wouldn't be anxious to make somebody a license for them to reinvent it and give up our edge. So what we would do is look at a supply chain agreement and a support agreement where we're part of that. That's our intellectual property. It's not theirs. So would we work with big engineering companies, big water companies? Sure, of course. And that's -- to me, it's only a matter of time. We've already got a number of interested, which is good. Everyone has the same basic read. I mean just kind of cut to the chase. You got to show them that you've scaled the technology and you can go to a very high volume flow rate, and that's in process as we speak. We are not afraid, just to be clear, we're not afraid. We're not concerned. This is what our engineers have been doing their whole career. And this one, in particular, is it's really easy to make an argument of its scalability. But having said that, many clients will have a hard time saying yes, until it's done. It's just way it is.

All right. Yes, I think those are all the questions for today. 1 last one just came here. What is going on with the BKT partnership, can we expect the revenue there?

It's hard to know, actually. So this is our partners, including Odin tell us that their customers like the product and that they're having success on trials, and the same thing for Garratt-Callahan. The reports we get from our partners is mostly good. And I say mostly because what's missing is sales. And so it's hard to predict. That's the unfortunate nature of this business at this stage is we are heavily reliant on them, not the other way around. And so if we can support them, we do. If we can help them selling, we do, expand the scope to help them, push through the barrier to entry like we had to do, right? We had to do that, too, just like the other control business. We had to go vertical and do everything so that when came in to make a deal, all of the work was done, all the work was done. And because all the work is done, they got immediate adoption and turned into revenue blink. The blink is in 90 days. 6 months -- 90 days to 6 months, pretty quick. And then, of course, there singularly focused on marketing a product with the big potential. So -- and they're very scale. So all of that plays out to So yes, so our relationship with is great. Of course, we want more revenue. They pay us some. It's not really material. They have struggled to get adoption. I think COVID hit them pretty hard, now that's kind of over. And then the question is, are they -- how focused are they, and do they want to see it thrive and prosper. We do talk to them probably about every 60 days, which is good, and we're constantly helping them and supporting them with intellectual knowledge and testing data and support. And so it's active. And then the question -- the million-dollar question is being asked is when can we expect revenue. I have no idea to answer that. We don't know. If we do, we tell you, they need to go out and get their market. And I think eventually they will, by the way. Just like us, when we launched our vertical strategy in the other VOC market, especially on the industrial side, that first customer is, man, is it hard to get. So we got it. And of course, we now have the proof of claim and technical support. So again, we remain optimistic in all these. It's just the sort of the nature of breaking in the way I would characterize it. But as they say, work hard for [ some years ] and have some faith and we're doing all those things.

Very good. Well, those are all the questions for today. I really appreciate you taking the time of being thorough in the presentation, any question and answer.

Sure. Yes. Let me just close real quick. It's a great time of the year, great time of the season for BioLargo. We believe the trending will continue as it has now for a number of years. And so they're becoming material. And so we'll keep our nose to the grindstone and keep pushing this through and then know that our interest from other parties and partners is expanding dramatically, and we're getting -- we have a really good reputation in the industry, and so we're going to protect that and then look for ways to leverage exponential growth and margin. That's the key. And we've now got enough historical evidence to really be very discerning about how to take those next steps. So it's a very exciting time in the company and say a prayer that the world economic crisis doesn't block everybody. And I think there's a lot of optimism there, too, even in the face of those hurdles. So here we go. Go BioLargo.

Thank you, Dennis.

Thanks, everybody.

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