Cleantech Co. Increases Revenue, Cash Flow in Q2/24
Research Report

1. BioLargo Inc. is a billboard sponsor of Streetwise Reports and pays SWR a monthly sponsorship fee between US$4,000 and US$5,000.
2. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of BioLargo Inc., BioLargo Energy Technologies, and Clyra Medical Technologies. 
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Disclosures for Oak Ridge Financial, BioLargo Inc., Aug. 16, 2024

Analyst Certification:

I, Richard Ryan, certify that the views expressed in this research report accurately reflect my personal views about the subject company and its securities. I also certify that I have not been, am not, and will not be receiving direct or indirect compensation related to the specific recommendations expressed in this report.

Important Disclosures:

The analyst or a member of his/her household does not hold a long or short position, options, warrants, rights or futures of this security in their personal account(s). As of the end of the month preceding the date of publication of this report, Oak Ridge Financial did not beneficially own 1% or more of any class of common equity securities of the subject company. There is not any actual material conflict of interest that either the analyst or Oak Ridge Financial is aware of. The analyst has not received any compensation for any investment banking business with this company in the past twelve months and does not expect to receive any in the next three months. Oak Ridge Financial has been engaged for investment banking or advisory services with the subject company during the past twelve months and does anticipate receiving compensation for such services in the next three months. Oak Ridge Financial has not served as a broker, either as agent or principal, buying back stock for the subject company’s account as part of the company’s authorized stock buy-back program in the last twelve months. No director, officer or employee of Oak Ridge Financial serves as a director, officer or advisory board member to the subject company.

Valuation and Price Target Methodology:

Based on our estimates, we believe that the projected success of Pooph, alongside the current valuation of Clyra Medical, provides investors with underlying support and a conservative degree of upside, while the diverse array of technologies within BLGO’s portfolio offer investors an interesting “call option”, if you will. We are reaffirming a Buy rating and a $0.38 (base case) Price Target. Our PT is based on a FY25 Revenue multiple of 4.2x, which is in line with historical industry valuations and transactions, and an independent valuation of Clyra Medical based on recent equity valuations. When considering our “bull case” scenario, we believe the PFAS technology has enough commercial interest to support 2025 revenues of $14M. Based on a FY25 Revenue multiple of 3.5x, which is in line with historical valuations within the water filtration industry, we believe the AEC can support a bull case PT of $0.50.

Oak Ridge Financial does not make a market in the subject security at the date of publication of this report.

Other Disclosures:

The information contained in this report is based on sources considered to be reliable, but not guaranteed to be accurate or complete. Any opinions or estimates expressed herein reflect a judgment made as of this date and are subject to change without notice. This report has been prepared solely for informative purposes and is not a solicitation or an offer to buy or sell any security. The securities described may not be qualified for purchase in all jurisdictions. Because of individual requirements, advice regarding securities mentioned in this report should not be construed as suitable for all accounts. This report does not take into account the investment objectives, financial situation and needs of any particular client of Oak Ridge Financial. Some securities mentioned herein relate to small speculative companies that may not be suitable for some accounts. Oak Ridge Financial suggests that prior to acting on any of the recommendations herein, the recipient should consider whether such a recommendation is appropriate given their investment objectives and current financial circumstances. Past performance does not guarantee future results. Additional information is available upon request.

BioLargo Inc.'s (BLGO:OTCQX) Q2/24 results exceeded topline expectations and showed the company is moving closer to profitability, reported Richard Ryan, an analyst at Oak Ridge Financial Research, in an Aug. 16 research note.

"We believe, that with several promising quarters under their belt, a rewrite of the story is at hand," wrote Ryan, referring to BioLargo's ongoing cash burn to fund its technologies and the resulting share dilution. "The most recent quarter with solid positive cash flow from operations provides growing confidence."

The company invents or acquires cleantech solutions to global environmental problems, prototypes or proves them out, partners with a third party then commercializes them.

Potential or 58% Price Uplift

Oak Ridge reiterated its base case target price of US$0.38 per share on BioLargo, currently trading at about US$0.24 per share, noted Ryan. The target implies 58% upside.

The company remains a Buy.

How Q2/24 Numbers Stack Up

In his report, Ryan reviewed BioLargo's Q2/24 financial results.

The company reported overall revenue growth in Q2/24. At US$5 million (US$5M), revenue was up 257% from US$1.4M a year ago and up 4.2% from US$4.8M in the previous quarter.

As for Q2/24 revenue from individual solutions, BioLargo's engineering, or BLEST, segment had record performance, yielding US$878,000 from sales of water treatment equipment. The odor control segment generated operating income of US$1.4M, or a 37% margin.

Revenue from sales of Pooph, a line of pet odor eliminating products, was down quarter over quarter, at about US$3.5M versus US$4.2M previously "due to timing," noted Ryan. This product accounted for 70% of BioLargo's total Q2/24 revenue. Q2/24 performance aside, Pooph sales have been on "an aggressive trend of growth since 2021," the analyst pointed out, moving BioLargo closer and closer to profitability. The products on offer have been expanded to include dog and cat wipes, puppy pads and litterizer, and two more national retailers, Ralphs and Target, now sell the brand.

The company's Q2/24 gross profit was US$2.1M reflecting a 42.6% gross margin. In Q1/24, gross profit  was US$2.2M, for a 47.2% gross margin, and a year ago, it was US$819,000, for a 56.6% gross margin. Ryan attributed the lower margin in Q2/24 to "a less favorable sales mix toward water treatment equipment."

BioLargo again posted a net loss in Q2/24 of US$780,000, down from US$1.6M the prior year.

As for cash flow during H1/24, BioLargo generated US$330,000, up from (US$1.5M) in H1/23. The company ended Q2/24 with US$4.8M in cash and US$184,000 in debt.

Near-Term Revenue Estimates

Ryan presented updates on and near-term revenue expectations for each of the various business opportunities BioLargo is pursuing.

"BioLargo has a unique diversified portfolio of solutions that can address the needs of very large end markets, thus allowing the company to have 'many shots on goal,'" he wrote.

As for Pooph, BioLargo's marketing partner expects strong product sales through the rest of this year, Ryan reported and agreed. He estimated Pooph product sales in all of 2024 will approach US$20M.

Recent developments position Bioclynse as BioLargo's next product in line for commercialization. It is a wound healing irrigation solution of Clyra Medical Technologies Inc., of which BioLargo owns 53%. Clyra placed more than US$1.3M in specialty equipment orders, and manufacturing partner Keystone Industries invested even more, in preparation for taking the product to market.

"This infrastructure build is for significant anticipated growth, likely in later 2025," noted Ryan.

Regarding BioLargo's PFAS, or perfluoroalkyl and polyfluoroalkyl substances, remediation, the company is working on its first project, for a New Jersey municipality, and installation is slated for November 2024. Interest in this technology is growing, Ryan reported, and federal and state funding is now being allocated to PFAS remediation and the company has a large, growing pipeline of potential projects. Ryan forecasts this segment to generate US$14M in revenue next year.

"The large emerging market for PFAS removal and BioLargo's growing validation in this opportunity should not be overlooked," Ryan wrote. "We endeavored to incrementally include PFAS-related revenues and developed a bull case price target of US$0.50."

As for the company's battery business, in the early stages, BioLargo built about a $1M pilot-scale facility in Oak Ridge, Tennessee where it now is prototyping its liquid sodium cells for testing and refining the manufacturing process.

"BLGO's strategy is to sell factories, not batteries, and this puts them in a position to receive a royalty (about 6%) and carried interest on the project," explained Ryan.