Safe & Green Holdings Corp (SGBX) 2018 Q2 法說會逐字稿

Good day and welcome to the SG Blocks second-quarter 2018 conference call and webcast.

Today's conference is being recorded.

At this time I would like to turn the conference over to Chris Tyson, Managing Director of MZ North America.

Sir, please go ahead.

Thank you and good afternoon.

I'd like to thank you all for taking time to join us for SG Blocks' second-quarter 2018 conference call.

Your hosts today are Mr. Paul Galvin, Chief Executive Officer, and Mr. Mahesh Shetty, the Company's President and Chief Financial Officer.

Paul will provide a business update which will cover customer and partner announcements, while Mahesh will discuss the financial results.

A press release detailing these results crossed the wires this afternoon at 4 PM Eastern and is available on the Company's website, SGBlocks.com.

Following management's prepared comments we will open the floor for questions.

Before I turn the call over to management, please remember that certain statements contained in this release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

All statements other than statements of historical facts contained in this presentation, including statements regarding our future operations and financial position, business strategy and plans and objectives of management for future operations are forward-looking statements.

In some cases forward-looking statements can be identified by terminology such as believe, may, estimate, continue, anticipate, intend, should, plan, expect, predict, potential or the negative of these terms or other similar expressions.

We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs.

These forward-looking statements are subject to a number of risks, uncertainties and assumptions described, including those set forth in our various filings with the Securities and Exchange Commission, SEC which are available at www.SEC.gov.

You should not rely upon forward-looking statements as predictions of future events.

We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or occur.

This presentation also includes non-GAAP financial measures.

SG Blocks uses certain non-GAAP financial measures in assessing its business and operations.

Reference to these non-GAAP financial measures should be considered in addition to GAAP financial measures, but should not be considered a substitute for results that are presented in accordance with GAAP.

Finally, this conference call is being webcast.

The webcast link is available in the Investor Relations section of our website at www.SGBlocks.com.

At this time I would like to turn the call over to Paul Galvin.

Paul, the floor is yours.

Thank you, Chris, and welcome to the SG Blocks second-quarter 2018 financial results conference call.

The second quarter of 2018 was highlighted by notable project wins including a 6,000 square foot food and beverage venue in South Carolina, a 27,000 square foot affordable housing project on the West Coast, and a 3,500 square foot food and beverage park in Orlando.

We believe these projects when complete built will deliver almost $10 million in revenue.

In addition, two of the large projects in our backlog have made material progress on planning, (technical difficulty) approvals, financing and initiated sourcing for site work.

We announced our strategic partnership with Grimshaw Architects, a globally renowned architecture firm, with the talent and pipeline needed in a large firm.

We did not hit our projected Q2 revenue numbers primarily due to a single variable.

Site readiness at our HOLA [school] project location and additional work on the site delayed progress and added unanticipated additional costs.

As we have indicated in previous earning calls, when this project was signed we expected very low margin.

However, we expect the project to be substantially complete in Q3 with the exception of final punch list items.

Revenue more than doubled from 2017 to 2018 both on a Q2 and in H1 basis.

The Company is on track to be cash flow breakeven or better in Q4.

Aside from the HOLA project, our margins on all other projects have averaged 20% through the second quarter of 2018.

We expect those margins to hold for our current backlog and on new projects.

One key accomplishment during the quarter was the signing of an exclusive Master Services Agreement with Grimshaw Architects, an award winning international architecture and design practice.

Modular design is a key component of Grimshaw's architectural history and extends into their products offering.

Under the terms of the agreement, SG Blocks will incorporate Grimshaw as its premier design partner for utilization across its current projects and pipeline of future opportunities.

In return this partnership will allow Grimshaw to incorporate SG Blocks' container-based structures into its global and award-winning industrial design portfolio.

As we expand SG Blocks' footprint both nationally and on a global scale and work on larger more impactful projects, we look forward to working with Grimshaw to create container-based facilities of the future that set the highest possible standards of excellence.

We are currently assessing our mutual pipeline opportunities as well as RFPs to be completed.

Our newly announced projects are diverse in size, use and locale.

We continue to see a high level of interest from the Southeast, South and West Coasts of the US.

Our backlog as of June 30, 2018 increased to approximately $102.9 million, or approximately 685,000 square feet across 16 unique projects.

Finally, on the PR front, during the second quarter we held a successful construction site tour of our Heart of Los Angeles product with Kathy Ireland, our brand ambassador, for approximately a dozen institutional investors and five leading media outlets including the LA Times, California Business Journal and Fox Business News.

I'm happy to report that we garnered extensive coverage on TV based on this project as well as print and radio with the outlets mentioned above.

Our continued recognition in the media has certainly been a driver of increased inbound interest on the commercial side and we are immensely grateful for the media coverage we have received to date.

In conjunction with the HOLA construction site tour event, we completed our first SG Blocks corporate video.

I would encourage all shareholders and prospective customers to view it in the Media and Investor Relations sections on our website.

It comprises a full overview of our business including footage from the HOLA site tour.

As we move forward I couldn't be more excited about our pipeline of opportunities, which now stands at over $250 million, including multi-family residential, humanitarian residential, schools and hospitality from the United States and abroad.

We continue to see inbound requests from developers to replicate some of our previously announced projects across the country.

We believe adoption of our construction model is gaining momentum in the industry as the value proposition as compared to traditional construction remains very compelling.

I will now turn the call over to our President, Mahesh Shetty.

Thank you, Paul.

Revenue in the second quarter of 2018 totaled $2.3 million, up 130% compared to $1 million in the second quarter of 2017.

This increase of revenue was primarily a result of revenue being recognized on additional projects that when progress are completed during three months ended June 30, 2018 as compared to June 30 of 2017.

The revenue in the second quarter of 2018 included approximately $1.1 million from work in progress on a contract in the amount of $5.6 million.

As Paul mentioned earlier, construction backlog totaled $102.9 million at June 30 or 2018 compared to $9.7 million at June 30 of 2017.

We believe the increase in backlog, particularly in architect and engineering projects, is encouraging because a construction element of those projects is going to be significantly higher.

As of June 30, 2018 we have 16 projects or approximately 685,000 square feet in our backlog.

Gross profit totaled $31,000 in the second quarter of 2018 compared to $146,000 in the second quarter of 2017.

Gross profit margin as a percentage of revenue decreased to 1% in the second quarter of 2018 as compared to 15% in the second quarter of 2017.

Gross profit margin in the second quarter of 2018 was negatively affected by an additional unanticipated cost on a legacy contract in the amount of approximately $5.6 million.

Gross profit margin as a percentage of revenue for projects excluding the $5.6 million contracts had average margins of approximately 20% in Q2 of 2018.

Operating expenses increased to $1.3 million in the second quarter of 2018 from $0.7 million in the second quarter of 2017.

The increase in operating expenses was primarily due to increased headcount, professional fees and business development related travel expenses.

Net loss totaled $1.2 million, or $0.29 per basic and diluted share in the second quarter of 2018 compared to a net loss of $1.7 million in the second quarter of 2017.

For the six-month period ended June 30 of 2018 the adjusted EBITDA loss totaled $1.52 million compared to $0.64 million in the six-month period ended June 30, 2017.

A full reconciliation of the GAAP to non-GAAP financials can be found in the financial tables at the end of our second-quarter 2018 press release issued today as well as in a quarterly report filed today on Form 10-Q with the SEC.

Cash at June 30 of 2018 totaled $3 million compared to $4.9 million at December 31 of 2017.

The decrease in cash was a result of a $1.5 million loss from operations and a $0.35 million decrease from changes in working capital.

As of June 30 of 2018 we had approximately 4.2 million shares basic and diluted shares outstanding.

In summary, we expect subsequent quarters to transition from legacy low-margin projects to a targeted margin of approximately 20% as we commence projects that are fully modular and encompass design, architecture, engineering and construction and delivery phases.

Based upon progress to date, including our new revenue visibility, we expect the Company to reach cash flow breakeven in fourth quarter of 2018.

The Company also has approximately $[14] million and carry-forward operating losses which will reduce the tax burden in future years.

The net loss operating carry-forward expires in 2037.

The Company's net operating loss carry-forward may be subject to annual limitations.

We entered the second quarter of 2018 with a stable balance sheet, no debt, record backlog of $102.9 million and a project pipeline of over $250 million, positioning SG Blocks for significant performance in 2018 and beyond.

I will now turn the call back over to Paul.

Paul?

Thank you, Mahesh.

Since our initial public offering last year we are focused on three primary areas which we believe we are on schedule to reach in 2018.

These include achieving cash flow positive operations, which is on schedule for this year; growing our backlog and pipeline of opportunities, which is occurring; executing on our current backlog to drive top-line revenue with a consistent 20% margin profile on non-legacy projects.

We continue to look for innovative new ways to expand the operating platform and believe that as a result we are closer than ever to achieving our goal of sustainable cash flow positive operations.

Our backlog of high-margin projects continues to grow and we believe that upcoming quarters are setting up to deliver significant top-line revenue growth and today's results are a clear indication of the future.

So let's talk about the future.

The third quarter of 2018 is off to a strong start as we are participating on an elevated number of project referral opportunities through Grimshaw.

Due to this activity and our growing backlog, we recently hired Scott Hill as our new Vice President of Operations.

Scott is a leading modular construction expert and we believe his expertise will ensure an accelerated conversion of our backlog and efficiently scale our rapidly growing platform business.

He will bring 30 years of experience in all aspects of the construction industry including recent modular construction projects to SG Blocks.

He has overseen all elements of the industry including architectural design, facilities management and construction management.

Scott's appointment is also a testament to the level of inbound interest we are receiving regarding potential partnerships utilizing our sustainable method of construction.

In fact, we recently secured several new container-based projects across the United States during the month of July, construction and delivery contracts for 3,500 fully modularized food and beverage parks in Orlando, and an architect and engineering services contract for a 27,000 square foot affordable housing project on the West Coast, and initiated container procurement on a 242 car parking garage in the Southwest that was in progress in the first quarter of 2018.

For all of these wins it's important to note all of these comprise of low duration to completion and we anticipate all of the new project towards will be completed in 2018.

In addition, we are working on several strategic initiatives to expand our footprint in larger addressable markets.

We will keep you informed on those initiatives.

As CEO of SG Blocks I have never been more optimistic about our long-term growth prospects than today.

We continue to deliver new innovative ways to expand the operating platform and I believe today's announcement is another testament to our aggressive approach.

We are now closer than ever to achieving our goal of sustainable cash flow positive operation, our backlog of high-margin projects continues to grow, and we believe that upcoming quarters are setting up to deliver significant top-line revenue growth that will achieve our stated year-end goals for fiscal year 2018.

We look forward to sharing more on our developing story at several institutional investor conferences in the fall and the upcoming Heart of Los Angeles Community Arts and Recreation Center ribbon-cutting.

At this time I'd like to open up the call to questions from our listeners.

Operator?

(Operator Instructions).

We have no questions at this time.

I would like to turn the floor back over to Mr. Paul Galvin for closing remarks.

Thanks to everyone for joining us on our call today.

We have many dedicated and hard-working people throughout SG Blocks from our sales, marketing, international and business development folk, to our architectural, engineering and manufacturing partners who keep our container-based solutions constantly evolving.

A sincere thanks from management to all of you; we could not do it without you.

Lastly, if we weren't able to address all of your questions today, please feel free to contact us or our Investor Relations firm, MZ Group, we'd be happy to answer them.

We look forward to keeping you up-to-date on our progress as the year unfolds.

Thank you.

Operator?

This does conclude today's teleconference.

You may disconnect your lines at this time.

Thank you for your participation.