Safe & Green Holdings Corp.
Q4 2019 Earnings Call Transcript

Published: 30 Mar 2020

[Operator:]

Good day and welcome to SG Blocks’ Fourth Quarter and Full-Year Results 2019 Earnings Conference Call and Webcast. Today's conference call is being recorded.At this time, I would like to turn the conference over to James Carbonara of Hayden IR. Please proceed, sir.

[James Carbonara:]

Thank you and good afternoon. Thank you all for joining us for the SG Blocks’ first quarter and full-year 2019 earnings call. Your host today is Mr. Paul Galvin, Chief Executive Officer. Press release detailing these results was issued this afternoon just after 4 pm Eastern Time 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 and uncertainties and assumptions describe 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 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.

[Paul Galvin:]

Thank you, James, and welcome to the SG Blocks fourth quarter and full year 2019 financial results conference call. Everyone in the SG Blocks family wishes, health and safety to all those who are impacted directly or indirectly by the pandemic and we are most grateful for your time today. This was a strong end to a transformative year for SG Blocks, and due to the Company exhausted efforts over the previous year, we anticipate being cash flow positive by year end.We entered 2020 position to receive the benefits of the activities and strategies implemented in our transition to a residential license model. During the past year, we took steps to capitalize our business, keeping dilution to a minimum, enabling us to enter the New Year with a clean cap structure. Our new business model for our residential business enabled us to focus on what we do best, evangelizing the benefits of our technology, while appropriate third parties take on the responsibility and the financial burdens of deployment.As a result, we significantly streamlined our corporate operation, shedding fixed costs and reducing our cash burn rate. As we begin to recognize net margin royalty revenue streams, we should be positioned to scale the Company through the execution of additional licenses. We are clearly at an inflection point at SG Blocks and our commitment to product distribution and shareholder value has never been stronger.The most impactful achievement to our business operations in 2019 was the transition of our residential business from project based construction model with a heavy initial investment to a royalty based fee model. This change effectively eliminated the drag on our overall portfolio and enabled this portion of our business to be a meaningful contributor to our financial results almost immediately.The residential market represents an important sector of our target market. By changing the terms and structure of the projects we participate in, we have materially reduced the need for upfront capital investment by SG Blocks, reduced our corporate overhead expenses and enables a repeatable and scalable model from which we can grow.Under the royalty model, we now license our residential platform which enables the transfer of project level execution risk to the licensee materially reducing our cash burn rate and frees up resources to pursue opportunities for growth in other vertical markets such as healthcare, education and hospitality.Under the new model project delivery commitments and associated expenses are now the responsibility of the licensee of our residential platform. This mixed shift, we have reduced our operating expenses and expect to yield a significant royalty stream. Just as importantly, we have shifted the risk of cost overrun and schedule delays away from SG Blocks.As you may recall, we are selling our first residential licensing agreement for the Monticello project, a 302 unit multifamily housing project in New York. The project is to be completed in three phases with SG Blocks entitled to a 5% royalty fee on private rent. The developer owns the site and is nearing completion of the preconstruction stage, which consisted of entitlement site plans, layouts, environmental impacts and financing. We will continue to keep you informed when important milestones are achieved.SG Blocks also executed a design build contract for an approximate 1.3 unit affordable housing project in Atlanta. The project is being developed by CMC with design build support from Grimshaw and SG Blocks. Please note this project is approximately 70 million in gross revenue and is excluded from our licensing agreement and it will be delivered at more traditional margin.Collectively, we continue to believe that these two residential transactions combined with our activities in Puerto Rico will be primary drivers of self sufficiency. Subsequent to year end, we launched a new container-based project Ranchbox valued at 50,000 per unit in Dallas, which represents our first go-to-market residential unit.The Ranchbox was featured in the March and April issue of the real estate network, offers homebuyers and outdoor enthusiasts, turnkey solutions for temporary and long-term living that are adorable, affordable and easily deployed in remote locations.With this unique design and the strength and use of field, these containers can function as permanent home using city services or operate remotely off the grid with optional generators and portable water and waste systems for extended periods. They can be deployed rapidly installed in a single day and are flexible enough to increase capacity for future expansion.Most recently, we closed on our first project in Puerto Rico, where we have been hired to construct some projects to help address the housing crisis following Hurricane Maria in 2017, both of which are subject to the royalty agreement. The land has been acquired as a development site and began the work to complete and bring to market 55 concrete shells and the construction of 128 to a three-bedroom, two-bathroom homes.Our backlog in commercial business was 17.6 million at the end of 2019. December was a particularly busy month of new commercial contracts signing. Our pipeline increased including a new contract with the design and construction of a fully modular space for a food and beverage provider located in Detroit, Michigan. The project which has been funded by the developer is valued at nearly $560,000 and is expected to be completed and delivered to the owner developer in the year.We were also awarded one new contract and architectural and engineering design requests for a modular office expansion for a union in California, with a completion expected by the end of the second quarter of 2020. More recently, over the past few weeks, we launch the series of container-based health and safety modules to help support the response to the novel coronavirus pandemic. Our container-based products are an ideal application to help patients, health professionals and others exposed to COVID-19 to isolate in a safe place.Beyond the transition of our residential business model, new contract wins in our commercial business and overall general improvements in our operation, we made several key financings decisions in 2019 to bridge the gap in our cash flows. Most recently, we closed an underwritten public offering of 857,500 shares as adjusted to affect a 1 to 20 reverse stock split of our common stock raising net proceeds of approximately $2.1 million.We use the portion of the proceeds to repay $481,000 of outstanding debt and another portion to fund an obligation to the licensee and are using the remainder for general working capital purposes. As a result, the materially strengthened our balance sheet, which combined with a significant reduction in our cash burn rate, provide us with the runway to grow our business to a point of sustainable cash flow generation.SG Blocks is happy to report that the above step has restored our NASDAQ minimum price compliant. Revenue in the fourth quarter of 2019 was 337,000 compared to 185,000 in the prior third quarter of 2019, an increase of 82%, this increases primarily due to a $252,000 office contract that was recognized in the fourth quarter, which was offset by as a decline of $115,000 in retail contracts that were completed in the third quarter of 2019.Gross profit in the fourth quarter of 2019 was 48,000 compared to a gross loss of 182,000 in the prior quarter. Payrolls and related expenses in the fourth quarter of 2019 were 560,000 compared to 540,000 in the prior quarter, roughly flat quarter-over-quarter. Loss from operations was 4.1 million for the fourth quarter of 2019 compared to the loss of 1.3 million in the third quarter of 2019. Without the impairment charge, the loss from operations for the fourth quarter of 2019 would have been 1.2 million, a sequential improvement over the prior quarter.Looking at the balance sheet, we had cash and cash equivalents of 1.6 million as of December 31, 2019, which compares to approximately 2000 at the end of the September quarter. The increase is a direct result of the finances we recently completed. We have a significantly stronger balance sheet and capital sufficient to support our day-to-day operations and the pursuit of business operations as we moved towards positive cash flow generation in 2020.Thank you for joining us today. If you have specific questions or would like to speak with me or our Investor Relations team, you can email us at [e-mail] or call the SG Blocks hotline number on our website and we’ll look forward to arranging a call.Once again, we want to wish everyone health and safety during these uncertain times, and we look forward to keeping you inform as the SG Blocks story unfold. Operator.

[Operator:]

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time and have a great day.