Safe & Green Holdings Corp (SGBX) 2019 Q3 法說會逐字稿

Thank you and good afternoon.

And thank you all for joining us for SG Blocks' Third Quarter 2019 Conference Call.

Your host today is Mr. Paul Galvin, Chief Executive Officer.

A press release detailing these results was issued this afternoon at 4:00 p.m.

Eastern and is available on the company's website, sgblocks.com.

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 the company's 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 terminologies 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 filings with the Securities and Exchange Commission, 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.

Finally, this conference call is being webcast.

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

With that, I will now turn the call over to Chief Executive Officer Paul Galvin for his prepared comments.

Paul?

Thank you, James, and welcome to the SG Blocks Third Quarter 2019 Financial Results Conference Call.

During the third quarter, we made significant strides in reshaping the residential portion of our business, clearing the way for residential to be a meaningful contributor to our financial results and eliminate its drag on our overall portfolio going forward.

We have modified our approach to this important market by changing the terms and structure of residential transactions to a royalty fee model as opposed to a project-based construction model.

By designing and adopting a repeatable and scalable royalty model that licenses our residential platform, we expect to materially reduce our corporate operating costs, lower project-level risk by outsourcing execution, reduce our cash burn rate and free up resources and talent to focus on quality delivery, the pursuit of other verticals and the additional growth opportunities.

Under this new royalty model, which we may consider expanding to other vertical markets at some point in the future, we have shifted project delivery responsibilities and the associated expenses to the licensees of our residential platform.

We believe we can significantly reduce our operating expenses and insulate our business from project cost overruns and schedule delays that could erode margins and increase working capital requirements.

Our projects can be challenging because project time lines are dependent on other parties in terms of zoning, permitting, financing and other variables.

In addition to reducing corporate operating expenses, shifting to a royalty model allows us to shift the project execution risk.

Based on our current book of business and qualified deals in our pipeline, we believe this model will allow us to increase the number of projects in development with relatively modest increases in overhead and negligible increases in working capital, creating significant operating leverage and, more importantly, reducing our cash burn rate.

Pivoting our residential strategy also provides us with the flexibility to focus more of our resources and efforts on new business development and lead generation for the benefit of future growth.

This strategy was tested and implemented with the signing of our first residential licensing agreement for Phase 1 of the Monticello project, a 302-unit multifamily housing project in Sullivan County, New York.

Projected construction costs in the first phase of this project are approximately $15 million, of which SG Blocks is expected to be paid a 5% royalty fee in 2020.

Phases 2 and 3 of Monticello, which are each expected to be larger than Phase 1, employ the same fee structure.

At this point, the project is in the design phase.

Next steps will include securing loan approval and building permits, followed by procurement and ultimately fabrication and delivery for the completion of Phase 1.

Just after the end of third quarter, we also signed an agreement for The Ridge Avenue project, a 100-unit $15 million affordable housing project in Atlanta.

It is the first deal of a new partnership between SG Blocks and CMC Development Group.

CMC Development Group is in the business of developing and managing residential and commercial real estate in metropolitan New York and Atlanta area markets with a focus on developing properties that focus on solid economic returns, affordability and green building sustainability.

SG Blocks will provide design-build services at traditional margins as this project falls outside the licensing agreement.

Also and just as important, as a part of the agreement, we have access to CMC's deals and pipelines with exclusive right of first refusal, subject to reasonable limits.

Based on our best estimates, we believe these 2 transactions, Monticello Phase 1 and Ridge Avenue, set us up on a path to being cash flow positive in 2020.

So while our financial results for the current periods do not reflect the potential magnitude of our shift in residential strategy, we expect the benefits of this shift to be more evident in our financial statements in the next 2 to 3 quarters as these 2 projects progress.

On the commercial side of our business, we have a strong and growing pipeline of projects that is diverse both in size and scope.

We recently signed 3 projects, the first of which involves the creation of containers for a 5,000-square-foot multimillion-dollar media center in the New York City area.

Fabrication for this project is expected to start by the second quarter of 2020.

Second, we signed a contract to design and fabricate a fully modular, small mixed-use development featuring a retail space on the ground floor, with the residents on the top level, to be located in Pennsylvania.

This project is currently in the design phase and is expected to be delivered in the next 6 to 8 months.

And third, we have been engaged to design and fabricate a new office space for a large multinational company based in Maryland.

The margin profile of our commercial business remains solid.

And with the shoring up of our residential business model and completion of recent financing transaction, which I will discuss in just a moment, we have strengthened our balance sheet, positioning us to competitively pursue and convert a number of commercial opportunities in our pipeline.

I am not going to spend time today discussing the details of financial results we reported today.

As I mentioned earlier, our financial statements for the third quarter and year-to-date do not yet reflect the progress we have made to reposition our residential business, shore up our balance sheet; or the impact of recent new business signings.

I look forward to having a more meaningful discussion about our financial results in the coming quarters when the results of our efforts will be more evident.

However, I will say the actions we have taken to strengthen our balance sheet are material not only to our day-to-day operations but also to our prospective customers and licensing partners.

Through the end of the third quarter, we have secured permanent financing for 2 secondary offerings, which only reinforces our ability to execute on our backlog, convert our pipeline to new business and address concerns from clients and licensing partners about ability to perform.

In the second quarter, we completed an equity offering with certain institutional investors for approximately 848,000 shares of common stock at an offering price of $1.10 per share for aggregate gross proceeds of approximately $933,000.

And in the third quarter, we closed a public offering with ThinkEquity for 900,000 shares of common stock at an offering price of $0.85 per share for aggregate gross proceeds of $765,000.

In addition and subsequent to the end of the third quarter, we closed additional financing with a single investor for gross proceeds of $375,000.

As a result of these financing activities, our balance sheet is significantly stronger than it was at the start of this year.

With a stronger balance sheet, the strategic shift in our approach to the residential business and a solid contractual backlog and pipeline of identified new business, we believe we are well positioned for improving financial results as we wrap up 2019 and look towards 2020.

Thank you for joining us today.

As I mentioned at the start of the call, if you have specific questions or would like to speak with me or our investor relations team, you can e-mail us at sgbx@haydenir.com or call the SG Blocks hotline number on our website, and we'll get back to you to arrange a call.

Operator?

This concludes today's conference.

You may disconnect your lines at this time, and we thank you for your participation.