Safe & Green Holdings Corp (SGBX) 2021 Q4 法說會逐字稿

Good day, and welcome to SG Blocks' Fourth Quarter and Year-End 2021 Earnings Conference Call and Webcast. Today's conference call is being recorded. At this time, I would like to turn the conference call over to Stephanie Prince of PCG Advisory.

Good afternoon. Thank you all for joining us for the SG Blocks' Fourth Quarter and Year-End 2021 Earnings Call. With me on the call today are Paul Galvin, Chairman and Chief Executive Officer; and Gerald Sheeran, Acting Chief Financial Officer. A press release detailing the company's results was issued after the market close at 4:05 p.m. today and is now available in the Investor Relations section of the company's website at sgblocks.com. A replay of this conference call can be accessed in the IR section of the website as well.

Before I turn the call over to management, please remember that various remarks about future expectations, plans and prospects made on today's call constitute forward-looking statements for the purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. SG Blocks cautions that these forward-looking statements are subject to risks and uncertainties that may cause their actual results to differ materially from those indicated including the risks described in the company's filings with the SEC.

Any forward-looking statements made on this conference call speak only as of today's date, Monday, April 18, 2022. SG Blocks does not intend to update any of these forward-looking statements to reflect events or circumstances that occur after today.

With that, I'll now turn the call over to Paul Galvin, CEO of SG Blocks. Paul?

Thank you, Stephanie, and hello, everyone. Thank you for joining us today.

2021 was a historic year for SG Blocks and its subsidiaries by every metric. Every quarter of the year had higher revenue and built on the success of the previous quarter. We ended 2021 with $38.3 million in revenue, 12x higher than the $3 million that we reported just 2 years ago in 2019. We're proud that we achieved this growth while maintaining our low share count, which remains at approximately 12 million shares on a fully diluted basis. Gerald will review the financial results in a few minutes.

Now let's turn to some of the many highlights of the past year. During 2021, we increased our asset base significantly by reinvesting $3.75 million of the distributions generated from our CLIA COVID testing lab at LAX into development projects. To date, we've invested over $9 million of capital in other companies, projects and factories that we expect will yield manufacturing revenue and cash flow over time.

In the first quarter, we established SG Development Corp., which has grown tremendously since then. We have established a residential unit pipeline in excess of 4,100 homes and apartments. We expect to add significantly to that with the signing of additional projects currently being vetted.

We're continuing to execute on our Made in the USA production strategy. At this time, we have approximately 1 million square feet of manufacturing space, either open or in development. These new manufacturing lines will produce the modules for our development company and our Medical segment, which is called Clarity Mobile Venture. We also manufacture units for other qualified third-party clients. This is part of our fill our factories with our own project strategy, which has multiple benefits for our company that I'll discuss in more detail in a few moments.

In the third quarter, we completed an efficient capital raise that netted us $10.5 million of new capital. With this cash and other expected inflows, we believe that we have adequate cash balances to execute our growth plans while still having the peace of mind that comes from having adequate operating reserves. At year-end, our cash totaled approximately $13 million.

In February of 2022, SG Development Corp. announced that it listed Lago Vista site in Austin, Texas for sale at $15 million, multiples of what we paid for it less than a year ago. During the time that we've owned this beautiful waterfront site, we advanced all aspects of preconstruction and now have an extremely attractive shovel-ready asset. We had announced last quarter that we were planning to refinance this asset. However, subsequent to year-end, we received a new and materially higher appraisal of the site and instead elected to pursue a total asset sale and capture the significant increased value for our shareholders while eliminating development risk. At the time of this call, SG Blocks has a construction pipeline of approximately $750 million, which grew from 0 in less than a year.

Now, before I discuss some of the recent activity in each of our verticals, I'd like to do a quick update for those new to our story. SG Blocks entered the medical testing business in the depths of the pandemic in Q4 2020. The modular facilities that we built were a natural fit for a mobile lab that quickly could be set up. And my background and my prior experience lent itself to operational and humanitarian parts of the project. As such, instead of completing a design-build contract for the LAX CLIA lab, we made the strategic decision to partner on lab operations.

Since that time, we've built a track record of success that generates significant cash flow which has funded many of our investments. This success also demonstrates our vertically integrated revenue strategy, which receives a lot of support from shareholders.

In 2021, the Medical segment generated $31.5 million in revenue and was very profitable. We reinvested this cash flow into our development projects and increased our asset base significantly. We continue to believe that our system of point-of-care medical testing and services represents the future of this industry, and we plan to continue to invest in this business.

At December 31, SG Blocks had 11 projects under contract with a construction backlog that's valued at approximately $3.2 million. This does not include any projects related to SG Development Corp. and does not include any ongoing medical testing. While our projects will require additional capital investment, we have a plan to bring in the necessary capital in a non-dilutive manner. As some of the largest shareholders, the management team is acutely aware of the issue of dilution. So including the $13 million in cash on the balance sheet and the growing cash from operations, we believe that Lago Vista is priced to sell at $15 million. There is great interest in the site so far and strong activity at the broker level.

In addition, we are planning to sell a minority stake in SG Development Corp. to a qualified platform investor with a 10,000 unit backlog in our sites. We believe that this stake has a value in the $20 million to $30 million range. Altogether, this is potentially over $40 million to $50 million in cash. That's not including the cash flow from the Medical segment. And also with the proceeds from the Lago Vista sale, we are planning to fund and initiate a share buyback program to support the share price, which we think does not fairly value all strengths, assets and growth opportunities.

Gerald is going to review the financials in a few minutes. But before that, I want to say that we have a very exciting year ahead for SG Blocks. Our growing revenue, over 3x higher than last year, and we're looking ahead to another year of strong revenue growth and being cash flow positive for the year. To provide the strongest platform for that growth, we aggressively recognized costs, expenses and losses lingering on the books in the fourth quarter, which will pave the way for a clean year ahead from an increasing number of revenue streams.

We also recently began a search for an experienced public company Chief Financial Officer. The timing is right to onboard a seasoned professional who has the experience in the debt and equity markets. We look forward to continually onboarding talent commensurate with the growing opportunity.

These are just some of the reasons why we are excited about SG Blocks' future growth. I'll now discuss each vertical in more detail. Starting in our Medical segment, the Clarity Mobile Ventures Lab is a container-based point-of-care CLIA lab for COVID-19 testing at LAX Airport. The lab acts as both a multi-window sample collection point and also houses the actual license lab, which allows for speed, efficiency and ease of use by travelers. The lab offers a variety of PCR and antigen tests and is fully compliant with HIPAA and other regulations.

Our customers include general travelers as well as the staff and crew of the airlines and airport. We also have a programmatic relationship with several individual airlines. For 2021, medical testing and services revenue totaled $31.5 million, a 644% increase from 2020's revenue. Gross profit was $8.9 million for the year. This profitable growth has reinforced our belief in point-of-care testing and services that allow providers to meet patients in the ordinary course of their lives. We, therefore, plan to continue to grow this business by aligning ourselves with partners and products that fit our ethics and strategy.

We've added many cutting-edge technologies to determine those that might be best deployed in modular point-of-care units and have decided on the following. In the diagnostics space, our specific areas of interest are in advanced cancer detection methods such as breast, lung and prostate cancer as well as Alzheimer's disease. In the treatment space, we envision wellness centers, primary care units and specialty care units like dialysis units, for example, operating in communities and strategic locations where a significant patient base can be engaged because of close proximity, elegant design and courteous staff. We believe this model will work in dense urban areas as well as underserved rural areas. We've fielded a lot of inbound interest in our activities in this space, and we're very excited about the opportunities for growth in this business.

Turning to SG Development Corp. We established this division in Q1 2021 to develop the systems and best practices for SG Blocks to develop its own sites. We did this because too often, we'd wait for the developers in our pipeline to get the required debt, equity or other approvals. And too often, despite all of the parties' best efforts, projects would suffer delays and eventual cancellation, costing us time and money. So we made the decision to develop our own projects and fill our own factories with them.

During the year, we acquired property or interests in several real estate projects, including the following: Lago Vista, Austin, Texas, 58 lakefront acres for 227 residential units and a marina. This is the property that is now listed for sale for $15 million. Cumberland Inlet Georgia, 1,280 acres for several thousand residential units, amenity spaces and the marina. Norman Berry, East Point, Georgia. This site will yield over 100 residential units in a mid-rise in Atlanta. McLean, Oklahoma, this site will support 300 single-family homes. Waldron, Durant, Oklahoma. We're renovating this factory site and at capacity, we expect it to generate nearly $50 million per year per revenue. St. Mary's, Georgia. This is a 32-acre site that we expect will yield over 110,000 square feet of new manufacturing space. Monticello Mews, Catskills, New York, this is a 187 unit townhouse development that broke ground in 2021. The units began arriving and being set in January of 2022. McLean, Oklahoma. We closed this site early in 2022. It will yield 680,000 square feet of new factory space.

Please note, each individual project will have a special limited partner at the project level whose role will be to provide equity and mezzanine financing as well as debt guarantees. What does all of this activity mean for SG Blocks?

First, our total development cost of SG DevCorp projects is approaching $1 billion. We have the contractual right to manufacture the units for these projects, which equates to approximately $750 million in manufacturing revenue. Additionally, we estimate gross profits from the sale or refinancing of these assets to exceed over $100 million during the life of the project.

Second, SG DevCorp projects are manufactured at cost plus 15% margin. We do not include developer fees or profits from any asset sales in our forecast model as they are typically onetime. However, we do project an average developer fee share of 2%, which represents unbudgeted cash flow. These fees will be recognized over time as we work through our pipeline and will help to further diversify our revenue streams. As of today, SG DevCorp has approximately 4,100 residential units in its pipeline. We hope to reach 10,000 units in the pipeline during 2022 which will provide approximately $1.5 billion in manufacturing revenue over the life of these projects. We are perpetually vetting opportunities.

Turning to commercial sales. We also continue to pursue high-value third-party sales for modular projects to be built inside our ecosystem. Most of our clients come to us for the combined benefit of quality, speed and price. Many of our clients like the ability to relocate their structures such as Taco Bell did at South by Southwest. Many of these customers are done with legacy construction methods that are expensive, wrought with cost and time overruns and our environmentally deficient.

Just a couple of weeks ago, we announced SG ECHO's largest contract to date, which is valued at approximately $6 million. The contract for more than 100 units are scheduled for delivery by the end of the current second quarter. There is a lot of activity in this division, which serves many verticals, and we're in discussions for new projects across all of them.

The verticals with the most activity include hospitality, which includes MoLiving and our Everglades project, housing and tiny homes, Single T specialty units, food and beverage units, blue-chip QSR restaurants, military units, medical labs and treatment modules. We believe that the high interest and potential for tiny homes, MoLiving and other confidential engagement is so great that combined, they could produce over $50 million in revenue in the next 12 to 15 months.

Now turning to manufacturing. As many of you know, SG Blocks entered the direct manufacturing market in 2021 after many years of utilizing third-party factories for manufacturing. Leveraging our decade-long body of experience, we started with a great team, a solid infrastructure and an ESR number, which is our approval from the International Code Council to use shipping containers in construction. Construction and Engineering revenue totaled $6.8 million for the year and accounted for 18% of total revenue. At year-end, we were under contract for 11 manufacturing projects outside of our remaining legacy projects, representing $3.2 million in potential gross revenue. We're glad to have completed all the legacy projects we inherited with SG ECHO, and we look forward to making manufacturing revenue a cornerstone for our P&L profile.

We currently have close to approximately 1 million square feet of Made in the U.S.A. manufacturing space, either open or in development across 4 locations. Several of these manufacturing facilities have been financed with forgivable loans based upon hiring and worker retention. We expect that our second manufacturing facility will be operating and generating revenue in Q3 of this year.

SG Blocks' ownership of these factories benefits the company in several important ways. We envision that they will execute on all development company projects where SGBX has the contractual right to build; will also help to attract additional high-end third-party commercial opportunities; the facilities will be eligible for refinancing upon asset stabilization; but most importantly, they are expected to generate significant and steady revenue and margin growth and provide additional income offsets via asset depreciation. Lastly, these are very attractive assets that we believe will only increase in valuation. Taken together, we're very excited about the opportunities and potential of our development, commercial and manufacturing divisions, all of which serve and feed the other.

Lastly, in March, we announced the formation of a new entity, SG Environmental Solutions Corp. to meet market needs for sustainable, eco-friendly waste management and recycling infrastructure projects. We created this division to support a new 10-year exclusive distribution agreement with Sanitec Industries, a sustainable waste management company that is the global patent holder for Sanitec Microwave Healthcare Waste Disinfection System.

The system is designed to shred and disinfect biomedical waste, rendering the waste disinfected, unrecognizable and of no greater risk to the public health than residential household waste. We're very excited about our partnership with Sanitec. Their state-of-the-art technology is fully automated, self-contained, extremely efficient, environmentally compatible and a perfect fit for our modular mobile units.

In order to support our expected growth, we're continuing to build out our team with experienced industry experts. We recently executed 3 important employee agreements that ensure long-term services for our capable COO, interim CFO and the Medical Director of Sales. And we are continuing to add quality people and partners to support our growth and expansion plans.

I'll now turn the call over to Gerald for a financial review. Gerald?

Thank you, Paul.

Let's begin with the income statement. Revenue for the fourth quarter was $8.5 million, an increase of 15% compared to $7.4 million for the fourth quarter of 2020. Medical segment sales increased 80% year-over-year to $7.6 million. Gross profit for the fourth quarter of 2021 was approximately $200,000 compared to $1.6 million in the fourth quarter of 2020. Gross profit was lower due to higher year-end cost adjustments and a $1 million accrued loss chargeback related to additional cost of goods sold expenses for 2 projects which are expected to be complete by the end of the second quarter of 2022.

Operating expenses for the fourth quarter were $2.4 million, a decrease of 22% compared to $3.1 million in the fourth quarter of 2020. General and administrative expenses decreased 35.5% compared to the year ago fourth quarter. The net loss attributed to common shareholders was $3.4 million or negative $0.31 per share compared to a net loss of $1.6 million or negative $0.19 per share in the fourth quarter of 2020. The net loss attributed to common shareholders included the following items: approximately $155,000 in noncash depreciation and amortization expense, $900,000 in noncash stock compensation expense and $1 million in accrued loss charges.

For the year, revenue was $38.3 million, a 338% increase compared to $8.8 million in revenue for 2020. The Medical segment accounted for 82% of total revenue and the Construction segment accounted for 18%.

Now turning to the balance sheet. SG Blocks continues to have a strong and flexible capital structure that we believe will support our near-term financial requirements. At December 31, the company had cash and cash equivalents of approximately $13 million. This includes net proceeds of approximately $10.5 million from the equity capital raise that we closed in October of 2021. Total assets were $34.9 million at year-end compared to $26.9 million at December 31, 2020.

During 2021, the company's cash had been deployed into strategic investments that included both the acquisition of land development and projects totaling approximately $9.2 million. At year-end, long-term liabilities included 1 note outstanding for $750,000 and a lease liability of $772,000. Shareholders equity totaled $21.7 million compared to $18.4 million at the end of 2020 and there were approximately 12 million shares of common stock outstanding. I'll now turn the call back to Paul.

Thank you, Gerald.

In closing, 2021 was a historic year by almost every measure. We ended the year with great momentum and have a lot to look forward to in the year ahead. This includes our plans for launching our first non-COVID-19 testing and service modules, working to grow our SG DevCorp pipeline to 10,000 residential units, advancing the initial development company projects into our factories, and over the next 24 to 30 months, activating approximately 1 million square feet of additional Made in the U.S.A. manufacturing space.

Ultimately, our goal is to achieve strong and consistent revenue growth from a diversified pipeline of projects where we control the means of delivery, and we're getting closer every quarter. The investments made over the last 2 years to build a strong foundation have brought us to this important junction, and we believe that we're on the cusp of achieving our goals, including being cash flow positive for all of 2022.

Thank you to everyone who has helped us reach this point. That completes our prepared remarks. Thank you for your interest. For those that have questions, please contact Stephanie Prince at sprince@pcgadvisory.com. Stephanie will be scheduling 15-minute calls with interested investors with management. We look forward to speaking with you again on our first quarter call in mid-May. Be well, stay safe, and have a great day. Thank you.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.