SG Blocks, Inc. (NASDAQ:SGBX) This autumn 2021 Earnings Convention Name April 18, 2022 4:30 PM ET
Firm Members
Stephanie Prince – PCG Advisory
Paul Galvin – Chairman and Chief Government Officer
Gerald Sheeran – Performing Chief Monetary Officer
Convention Name Members
Operator
Good day and welcome to SG Blocks Fourth Quarter and Yr-Finish 2021 Earnings Convention Name and Webcast. Right this moment’s convention name is being recorded. At the moment, I wish to flip the convention over to Stephanie Prince of PCG Advisory.
Stephanie Prince
Good afternoon. Thanks all for becoming a member of us for the SG Blocks fourth quarter and year-end 2021 earnings name. With me on the decision right now are Paul Galvin, Chairman and Chief Government Officer and Gerald Sheeran, Performing Chief Monetary Officer. A press launch detailing the corporate’s outcomes was issued after the market closed at 4:05 p.m. right now and is now accessible on the investor relations part on the corporate’s web site at sgblocks.com.
A replay of this convention name will be accessed within the IR part of the web site as nicely. Earlier than I flip the decision over to administration, please do not forget that varied remarks about future expectations, plans, and prospects made on right now’s name represent forward-looking statements for the needs of the Secure Harbor provisions beneath the Personal Securities Litigation Reform Act of 1995. SG Blocks cautions that these forward-looking statements are topic to dangers and uncertainties which will trigger their precise outcomes to vary materially from these indicated, together with the dangers described within the firm’s filings with the SEC. Any forward-looking statements made on this convention name converse solely as of right now’s date, Monday, April 18 2022. SG Blocks doesn’t intend to replace any of those forward-looking statements to mirror occasions or circumstances that happen after right now.
With that, I will now flip the decision over to Paul Galvin, CEO of SG Blocks. Paul?
Paul Galvin
Thanks, Stephanie, and hi there, everybody. Thanks for becoming a member of us right now. 2021 was an historic 12 months for SG Blocks and its subsidiaries by each metric. Each quarter of the 12 months had increased income and constructed on the success of the earlier quarter. We ended 2021 with $38.3 million in income, 12 occasions increased than the $3 million that we reported simply two years in the past in 2019. We’re proud that we achieved this progress whereas sustaining our low share depend, which stays at roughly 12 million shares on a totally diluted foundation. Gerald will assessment the monetary leads to a couple of minutes.
Now let’s flip to a number of the many highlights of the previous 12 months. Throughout 2021, we elevated our asset base considerably by reinvesting $3.75 million of the distributions generated from our clear COVID testing lab at LAX into improvement tasks. To this point, we have invested over $9 million of capital in different corporations, tasks and factories that we anticipate will yield manufacturing income and money move over time.
Within the first quarter, we established SG Creating Corp. which has grown tremendously since then. We’ve got established a residential unit pipeline in extra of 4100 houses and residences. We anticipate so as to add considerably to that, with the signing of further tasks at present being invented. We’re persevering with to execute on our manufactured within the USA manufacturing technique. At the moment, we have now roughly 1 million sq. ft of producing area both open or in improvement. These new manufacturing traces will produce the modules for our improvement firm and our medical phase, which is known as Readability Cell Ventures. We additionally manufacture items for different certified third social gathering purchasers.
That is a part of our fill our factories with our personal undertaking technique, which has a number of advantages for our firm that I will focus on in additional element in a couple of moments. Within the third quarter, we accomplished an environment friendly capital increase that netted us $10.5 million of recent capital. With this money and different anticipated inflows, we imagine that we have now enough money balances to execute our progress plans, whereas nonetheless having the peace of thoughts that comes from having enough working reserves.
At year-end, our money totaled roughly $13 million. In February of 2022, SG Improvement Corp. introduced that it listed Lago Vista web site in Austin, Texas on the market at $15 million multiples of what we paid for it lower than a 12 months in the past. Throughout the time that we have on this stunning waterfront web site, we superior all points of pre-construction, and now have a particularly enticing shovel prepared asset. We had introduced final quarter that we have been planning to refinance this asset. Nonetheless, subsequent to year-end, we obtained a brand new and materially increased appraisal of the positioning, and as a substitute elected to pursue a complete asset sale and seize the numerous elevated worth for our shareholders, whereas eliminating improvement danger. On the time of this name, SG Block’s has a building pipeline of roughly $750 million, which grew from zero in lower than a 12 months.
Now, earlier than I focus on a number of the current exercise in every of our verticals, I might love to do a fast replace for these new to our story. SG Blocks entered the medical testing enterprise within the depths of the pandemic and This autumn 2020. The modular amenities that we construct have been a pure match for a cell lab that rapidly could possibly be arrange. And my background and my prior expertise lend itself to operational and humanitarian components of the undertaking. As such, as a substitute of finishing a design construct contract for the LAX CLIA-lab, we made the strategic resolution to companion on lab operations. Since that point, we have constructed a observe file of success that generates vital money move, which was funded a lot of our investments. This success additionally demonstrates our vertically built-in income technique, which receives loads of assist from shareholders.
In 2021, the medical phase generated $31.5 million in income and was very worthwhile. We reinvested this money move into our improvement tasks and elevated our asset base considerably. We proceed to imagine that our system of point-of-care medical testing and providers represents the way forward for this trade, and we plan to proceed to take a position on this enterprise.
At December 31, SG Block’s had 11 tasks beneath contract with the development backlog that is valued at roughly $3.2 million. This doesn’t embody any tasks associated to SG Improvement Corp. and doesn’t embody any on-going medical testing. Whereas our tasks would require further capital funding, we have now a plan to herald the required capital in a non-dilutive method. As a number of the largest shareholders, the administration workforce is conscious about the problem of dilution. So together with the $13 million in money on the stability sheet, and the rising money from operations, we imagine that Lago Vista is priced to promote at $15 million. There may be nice curiosity within the web site to this point and powerful exercise on the dealer stage.
As well as, we’re planning to promote a minority stake in SG Improvement Corp. to a certified platform investor with a ten,000 unit backlog in our websites. We imagine that this stake has a worth within the $20 million to $30 million vary. Altogether, that is probably over $40 million to $50 million in money that is not together with the money move from the medical phase. And in addition with the proceeds from the Lago Vista promote we’re planning to fund and provoke a share buyback program to assist the share value, which we predict doesn’t pretty worth or strengths, belongings and progress alternatives.
Gerald goes to assessment the financials in a couple of minutes. However earlier than that, I wish to say that we have now a really thrilling 12 months forward for SG Blocks. Our rising income over thrice increased than final 12 months and we’re waiting for one other 12 months of robust income progress and being money move optimistic for the 12 months. To offer the strongest platform for that progress, we aggressively acknowledge prices, bills and losses lingering on the books within the fourth quarter, which can pave the best way for a clear 12 months forward from an growing variety of income streams. We additionally lately started a seek for an skilled public firm Chief Monetary Officer. The timing is correct to on-board a seasoned skilled who has the expertise within the debt and fairness markets. We look ahead to regularly on boarding expertise commensurate with the rising alternative. These are simply a number of the the explanation why we’re enthusiastic about SG Blocks future progress.
I’ll now focus on every vertical in additional element. Beginning in our medical phase, the Readability Cell Ventures Lab is a container based mostly point-of-care CLIA lab for COVID-19 testing at LAX airport. The lab acts as each a multi windowed pattern assortment level and likewise homes the precise license lab, which permits for velocity, effectivity and ease of use by vacationers. The Lab provides a wide range of PCR and antigen checks and is totally compliant with HIPAA and different rules. Our clients embody normal vacationers, in addition to the employees and crew of the airways and airport. We even have a programmatic relationship with a number of particular person airways.
For 2021, medical testing and providers income totaled $31.5 million, a 644% improve from 2020s income. Gross revenue was $8.9 million for the 12 months. This worthwhile progress has strengthened our perception in point-of-care testing and providers that enable suppliers to fulfill sufferers within the extraordinary course of their lives. We subsequently plan to proceed to develop this enterprise by aligning ourselves with companions and merchandise that match our ethics and technique. We have added many innovative applied sciences to find out those who is likely to be greatest deployed in modular level of care items and have selected the next.
Within the diagnostic area, our particular areas of curiosity are in superior most cancers detection strategies, similar to breast, lung and prostate most cancers, in addition to Alzheimer’s illness. Within the remedy area, we envision wellness facilities, main care items and specialty care items, like dialysis items, for instance, working in communities and strategic areas the place a big affected person base will be engaged due to shut proximity, elegant design and courteous employees. We imagine this mannequin will work in dense city areas in addition to underserved rural areas. We have fielded loads of inbound curiosity in our actions on this area, and we’re very excited in regards to the alternatives for progress on this enterprise.
Turning to SG Improvement Corp. We established this division in Q1 2021 to develop the methods and greatest practices for SG Blocks to develop its personal websites. We did this as a result of too typically we would look forward to the builders in our pipeline to get the required debt fairness or different approvals, and too typically, regardless of all the social gathering’s greatest efforts, tasks would endure delays and eventual cancellation costing us money and time. So we made the choice to develop our personal tasks and fill our personal factories with them.
Throughout the 12 months, we acquired property or pursuits in a number of actual property tasks, together with the next; Lago Vista, Austin, Texas, 58 lakefront acres for 227 residential items and a marina. That is the property that’s now listed on the market for $15 million. Cumberland inlet Georgia 1280 acres for a number of thousand residential items, amenity areas and a marina. Norman Barry, East Level Georgia, this web site will yield over 100 residential items and a midrise in Atlanta. McLean, Oklahoma this web site will assist 300 single household houses. Waldron Durant, Oklahoma we’re renovating this manufacturing facility web site and add capability we anticipate it to generate practically $50 million per 12 months per income. St. Mary’s Georgia, this can be a 32-acre web site that we anticipate will yield over 110,000 sq. ft of recent manufacturing area. Monticello Mews, Catskills, New York this can be a 187 unit townhouse improvement that broke floor in 2021 the items started arriving and being set in January of 2022.
McLean Oklahoma, we closed this web site early in 2022, it can yield 680,000 sq. ft of recent manufacturing facility area. Please observe every particular person undertaking can have a particular restricted companion on the undertaking stage, whose function will probably be to offer fairness and mezzanine financing, in addition to debt ensures. What does all of this exercise imply for SG Blocks?
First, our complete improvement prices of SG DevCo tasks is approaching $1 billion. We’ve got the contractual proper to fabricate the items for these tasks, which equates to roughly $750 million in manufacturing income. Moreover, we estimate gross proceeds from the sale or refinancing of those belongings to exceed over $100 million through the lifetime of the tasks.
Second, SD DevCo tasks are manufactured at value plus 16% margin. We don’t embody developer charges or earnings from any asset gross sales in our forecast mannequin, as they’re usually one time. Nonetheless, we do undertaking a median developer charge share of two%, which represents unbudgeted money move. These charges will probably be acknowledged over time as we work by way of our pipeline, and can assist to additional diversify our income streams.
As of right now SG DevCorp has roughly 4100 residential items in its pipeline. We hope to succeed in 10,000 items within the pipeline throughout 2022, which can present roughly $1.5 billion in manufacturing income over the life of those tasks. We’re perpetually vetting alternatives.
Turning to industrial gross sales. We additionally proceed to pursue excessive worth third social gathering gross sales for modular tasks to be constructed inside our ecosystem. Most of our purchasers come to us for the mixed good thing about high quality, velocity and value. Lots of our purchasers like the flexibility to relocate their buildings similar to Taco Bell’s in and South by Southwest. Many of those clients are executed with legacy building strategies which can be costly, proper with value and time overruns, and are environmentally poor.
Simply a few weeks in the past, we introduced SG ECHOs largest contract to this point, which is valued at roughly $6 million. The contract for greater than 100 items are scheduled for supply by the tip of the present second quarter. There may be loads of exercise on this division, which serves many verticals. And we’re in discussions for brand new tasks throughout all of them. The verticals with essentially the most exercise embody hospitality, which incorporates Mo Residing, and our Everglades undertaking, housing and tiny houses, Single T specialty items, meals and beverage items, blue chip QSR eating places, army items, medical labs and remedy modules.
We imagine that the excessive curiosity and potential for tiny houses, Mo Residing and different confidential engagement is so nice that mixed they may produce over $50 million in income within the subsequent 12 months to fifteen months.
Now, turning to manufacturing. As a lot of , SG Blocks entered the direct manufacturing market in 2021 after a few years of using third social gathering factories for manufacturing. Leveraging our decade lengthy physique of expertise, we began with a terrific workforce, a strong infrastructure and an ESR quantity, which is our approval from the Worldwide Code Council to make use of delivery containers in building.
Development and engineering income totaled $6.8 million for the 12 months and accounted for 18% of complete income. At year-end, we have been beneath contract for a 11 manufacturing tasks exterior of our remaining legacy tasks representing $3.2 million in potential gross income. We’re glad to have accomplished all of the legacy tasks we inherited with SG ECHO and we look ahead to making manufacturing income a cornerstone for our P&L profile. We at present have near roughly 1 million sq. ft of Made within the USA manufacturing area both open or in improvement throughout 4 areas.
A number of of those manufacturing amenities have been financed with forgivable loans based mostly upon hiring and employee retention. We anticipate that our second manufacturing facility will probably be working and producing income in Q3 of this 12 months. SG Blocks possession of those factories advantages the corporate in a number of essential methods. We envision that they may execute on all improvement firm tasks the place SGBX has the contractual proper to construct. It can additionally assist to draw further excessive finish third social gathering industrial alternatives. The amenities will probably be eligible for re-financing upon asset stabilization, however most significantly, they’re anticipated to generate vital and regular income and margin progress and supply further earnings offsets the asset depreciation.
Lastly, these are very enticing belongings that we imagine will solely improve in valuation. Taken collectively, we’re very excited in regards to the alternatives and potential of our improvement, industrial and manufacturing divisions, all of which serve and feed the opposite. Lastly, in March, we introduced the formation of a brand new entity, SG Environmental Options Corp. To satisfy market wants for sustainable eco-friendly waste administration and recycling infrastructure tasks. We created this division to assist a brand new 10-year unique distribution settlement with Sanitec Industries, a sustainable waste administration firm that’s the international patent holder for the Sanitec Microwave Healthcare Waste Disinfection System.
The system is designed to shred and disinfect biomedical waste, rendering the waste, disinfected, unrecognizable, and don’t have any larger danger to the general public well being than residential family waste. We’re very enthusiastic about our partnership with Sanitec. Their state-of-the-art expertise is totally automated, self-contained, extraordinarily environment friendly, environmentally appropriate, and an ideal match for our modular cell items.
In an effort to assist our anticipated progress, we’re persevering with to construct out our workforce with skilled trade consultants. We lately executed three essential worker agreements that guarantee long run providers for our succesful COO, interim CFO, and the medical director of gross sales. And we’re persevering with so as to add high quality individuals and companions to assist our progress and growth plan.
I will now flip the decision over to Gerald for a monetary assessment. Gerald?
Gerald Sheeran
Thanks, Paul. Let’s start with the earnings assertion. Income for the fourth quarter was $8.5 million, a rise of 15% in comparison with $7.4 million for the fourth quarter of 2020. Medical phase gross sales elevated 80% year-over-year to $7.6 million. Gross revenue for the fourth quarter of 2021 was roughly $200,000 in comparison with $1.6 million within the fourth quarter of 2020.
Gross revenue was decrease as a result of increased year-end value changes and a $1 million accrued loss chargeback associated to further value of products bought, bills for 2 tasks, that are anticipated to be full by the tip of the second quarter of 2022.
Working bills for the fourth quarter have been $2.4 million, a lower of twenty-two% and in comparison with $3.1 million within the fourth quarter of 2020. Common and Administrative bills decreased 35.5% in comparison with the 12 months in the past fourth quarter.
The online loss attributed to widespread shareholders was $3.4 million or detrimental $0.31 per share, in comparison with a internet lack of $1.6 million or detrimental $0.19 per share within the fourth quarter of 2020. The online loss attributed to widespread shareholders included the next objects roughly 155,000 in non-cash depreciation and amortization expense, 900,000 in non-cash, inventory compensation expense and one million {dollars} in accrued loss cost prices.
For the 12 months income was $38.3 million, a 338% improve in comparison with $8.8 million in income for 2020. The medical phase accounted for 82% of complete income, and the development phase accounted for 18%.
Now turning to the stability sheet, SG Blocks continues to have a powerful and versatile capital construction that we imagine will assist our close to time period monetary necessities. At December 31, the corporate had money and money equivalents of roughly $13 million. This contains internet proceeds of roughly $10.5 million from the fairness capital increase that we closed in October of 2021.
Complete belongings have been $34.9 million at year-end in comparison with $26.9 million at December 31, 2020. Throughout 2021, the corporate’s money had been deployed into strategic investments and included each the acquisition of land improvement and tasks totaling roughly $9.2 million. At year-end, long run liabilities included one observe excellent for $750,000 and the lease legal responsibility of $772,000.
Shareholders fairness totaled $21.7 million in comparison with $18.4 on the finish of 2020. And there have been roughly 12 million shares of widespread inventory excellent.
I will now flip the decision again to Paul.
Paul Galvin
Thanks, Gerald. In closing, 2021 was an historic 12 months by nearly each measure. We ended the 12 months with nice momentum and have rather a lot to look ahead to within the 12 months forward. This contains our plans for launching our first non-COVID-19 testing and repair modules, working to develop our SG DevCo pipeline to 10,000 residential items, advancing the preliminary improvement firm tasks into our factories, and over the subsequent 24 to 30 months, activating roughly 1 million sq. ft of further made within the USA manufacturing area.
Finally, our purpose is to attain robust and constant income progress from a diversified pipeline of tasks the place we management the technique of supply. And we’re getting nearer each quarter. The investments made during the last two years to construct a powerful basis have introduced us to this essential junction, and we imagine that we’re on the cusp of attaining our objectives, together with being money move optimistic for all of 2022.
Thanks to everybody who has helped us attain this level. That completes our ready remarks. Thanks on your curiosity. For those who have questions. Please contact Stephanie Prince at sprince at pcgadvisory.com. Stephanie will probably be scheduling 15 minute calls with traders with administration. We look ahead to talking with you once more on our first quarter name in mid-Might. Be nicely, keep protected and have a terrific day. Thanks.
Operator
This concludes right now’s convention and you might disconnect your traces at the moment. Thanks on your participation, and have a beautiful day.
Query-and-Reply Session
Finish of Q&A
