SG Blocks, Inc. (NASDAQ:SGBX) Q2 2023 Earnings Call Transcript August 14, 2023
SG Blocks, Inc. misses on earnings expectations. Reported EPS is $-0.37313 EPS, expectations were $-0.23.
Operator: Greetings. Welcome to the Safe & Green Holdings Second Quarter 2023 Business Update Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Ted Ayvas, Vice President of Investor Relations. You may begin.
Ted Ayvas: Good afternoon, and thank you for joining Safe & Green’s second quarter 2023 conference call and business update. On the call with us today is Paul Galvin, Chairman and Chief Executive Officer of Safe & Green; and Tricia Kaelin, Chief Financial Officer of Safe & Green. Earlier today, the company announced its operating results for the quarter ended June 30, 2023. The press release is posted on the company’s website, www.safeandgreenholdings.com. In addition, the company has filed its quarterly report on Form 10-Q with the U.S. Securities and Exchange Commission, which will be accessible on the company’s website as well as the SEC’s website at www.sec.gov. If you have any questions after the call, would like to arrange a one-on-one discussion with Mr. Galvin following the call, please contact Crescendo Communications at (212) 671-1020.
Before I turn the call over to Paul, please remember that various remarks about future expectations, plans and prospects made on today’s call constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Safe & Green 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 risks described in the company’s filings with the SEC. These forward-looking statements are subject to a number of risks and uncertainties which were 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, August 14, 2023.
Safe & Green does not intend to update any of these forward-looking statements to reflect events or circumstances that occur after today. With that being said, I am now pleased to introduce Paul Galvin, Chairman and CEO of Safe & Green. Paul?
Paul Galvin: Thanks, Ted. Good afternoon, and thank you to everyone for joining us today. I would like to begin by extending our sincere thanks to our investors for your unwavering belief and support of our vision. We remain committed to creating long-term value for our shareholders and are clearly executing on that strategy. In the second quarter of 2023, Safe & Green built on the momentum from previous quarters and achieved a 21% year-over-year increase in manufacturing revenue. While many competitors in our industry faced challenges, often downsizing and, in some cases, filing for bankruptcy, we have set ourselves apart as we continue to execute on our business model as a vertically integrated developer and manufacturer of modular structures.
Importantly, we didn’t just weather the storm. During and post-pandemic, we flourished. This success is evident in the growth of both our asset base and the Safe & Green team. Additionally, we’ve channeled significant resources into our business and have zeroed in on four key verticals. Each of these holds promising opportunities for revenue growth, business development and the enhancement of shareholder value. I am pleased to report that we have made substantial headway with our plans to spin off SG DevCo as an independent entity listed on NASDAQ, and we anticipate setting a record date shortly. We have previously discussed our plans for the distribution of SG DevCo shares following the spinoff and listing on NASDAQ. The company plans to allocate 30% of SG DevCo’s shares to our existing Safe & Green shareholders with Safe & Green Holdings retaining the remaining 70% of the shares.
This strategy is to design to generate significant value for our faithful longtime shareholders given the fact that an independent third-party appraisal has valued SG DevCo’s fair market value at an impressive $74 million, a figure many times higher than the Safe & Green Holdings current market capitalization. SG DevCo currently has a project pipeline valued at more than $800 million, which includes more than 4,200 units slated for development. This is just a piece of our overall goal of developing 10,000 units over the next 7 years. This lofty goal is anticipated to utilize almost our entire in-house manufacturing capacity within SG Echo. While we recognize that market dynamics can vary over such a period, our projections indicate potential returns surpassing $200 million from these projects over the lifetime of the initial phase of 7 years.
In July, building on the successful design, delivery and installation of 2 quick serve restaurant units in Arkansas for a franchise of the largest pizza company in the United States, Domino’s, SG Echo agreed to deliver and install three additional units in Oregon on behalf of a second Domino’s franchisee, Noble Food Group. We are pleased that another Domino’s franchisee has recognized and embraced the substantial value of our modular solutions following a thorough evaluation of the SG units that SG Echo supplied earlier this year. Domino’s is not nearly a global leader in the quick serve restaurant sector, they also appreciate the potential in creating a network of sustainable green modular storefronts. This aligns perfectly with our mission to enhance operational efficiency while promoting environmental sustainability for our clients.
Our partnership with Domino’s is a mutual one filled with advantages for both sides, and we are optimistic about expanding the relationship to additional Domino’s franchisees in the future so long as we continue to service the existing ones well now. The company continues to build out its production capacity to support growth among both our existing and new clients. Moreover, we are integrating state-of-the-art technologies and refining our processes to boost efficiency throughout all of our manufacturing facilities. Our strategic focus is aimed at fine-tuning production processes, minimizing waste and increasing overall productivity. This not only equips us to handle increasing demand, but also underscores our unwavering dedication to innovation, superior quality and excellence in every aspect of our operations.
As the demand for modular solution grows, we are happy to report that the McLean Manufacturing facility, our third production facility, has transitioned into its design stage. This vast site spans a staggering 1.1 million square feet with a dedicated 120,000 square feet carved out for our newest manufacturing facility. The remaining area has been carefully mapped out for diverse functions we anticipate in the near term such as distribution, cold storage and industrial purposes. We’re actively onboarding talent and exploring potential collaborations for this facility. Located on a 114-acre property owned by the company, the McLean Manufacturing facility enjoys a location adjacent to the Magnolia Residential project. This facility will not only support the development of 800 units at the Magnolia Residential project, but also caters to the manufacturing needs of SG Echo in the Dallas, Oklahoma City and surrounding markets.
At Safe & Green Medical, we’re driven by the vision of creating a widespread national footprint with clinics and labs that address the unique needs of individual communities. Our partnership with The Peoples Health Care and Teamsters Local 848 is progressing, and we are on track to roll out our first 4 modules by year’s end. Moreover, we are working on an exciting project to provide a native American tribe with a comprehensive, more cost-effective, accurate and less invasive integrated health care approach compared to traditional clinical, diagnostic, laboratory and imaging models. Spearheaded by Delphine O’Rourke, the recently appointed President and Chief Executive Officer of Safe & Green Medical, this project is quickly taking shape.
Under her astute leadership, we’re making swift progress with plans to have the units up and running by the fourth quarter of 2023. Our efforts in this area further emphasize our dedication to transforming health care delivery through advanced technology and responsive community engagement. In summary, as we leave the challenges of the pandemic behind, Safe & Green has not only re-established its core capabilities but has also grown into a vertically integrated developer and manufacturer of an environmentally friendly modular structures. Setting aside our COVID-related earnings, the company’s financial trajectory over the past several years is nothing short of impressive. From $3 million in 2019, we climbed to more than $12.5 million in 2022.
Looking ahead, we are poised to achieve a milestone of $30 million in revenue in 2023, more than double our revenue from the previous year. Our prospects for the business have never been more promising. We are attracting key talent to our senior leadership team as well as our Board of Directors. The interest from such quality professionals stands as a testament to all the positive strides we are making at Safe & Green. Our business continues to expand, and we are diligently balancing the growth of our asset base with sensible expense management. We’re confident that in the third quarter of 2023, SG Echo will reach a pivotal turning point and achieve positive cash flow, which would represent a key milestone in our mission of achieving long-term profitability for the entire company.
I would now like to turn the call over to Tricia Kaelin, Chief Financial Officer of Safe & Green, who will review the financial results for the 3 months ended June 30, 2023. Tricia?
Tricia Kaelin: Thanks, Paul. During the second quarter, we sought to utilize our solid asset base to secure non-dilutive financing, thereby lessening the company’s reliance on the equity markets for further expansion. We have also substantially reduced our cash burn. In fact, we reduced our cash burn used in operations for the 6 months by over $2 million. As we continue to grow revenue, we look forward to generating meaningful cash flow from operations. Now turning to the results for the quarter. Revenue for the second quarter of 2023 was $5.1 million, compared to $7.6 million for the second quarter of 2022, reflecting the discontinuation of COVID-19 testing facility, which was partially offset by the increase in manufacturing for construction services revenue.
The manufacturing for construction services segment generated $5.1 million in revenue, a 21% increase compared to the same period last year. Total gross profit for the second quarter of 2023 was $34,000, compared to $771,000 of gross profit in the second quarter of 2022, reflecting the decline in the medical revenue, offset by increased revenue within the manufacturing for construction services segment. Operating expenses for the second quarter of 2023 were $5.6 million, compared to $2.1 million for the second quarter of 2022. This increase was primarily attributable to an increase in head count and salary expense during the 3 months ended June 30, 2023, as well as the vesting of additional restricted stock units during 2023. The second quarter of 2023 also included significant expenses allocated to the buildout of SG DevCo and the medical segment that were not incurred for the same period last year.
The net loss attributable to common shareholders was approximately $5.6 million, or $0.37 per share, in the second quarter of 2023, compared to a net loss of $1.4 million, or $0.11 per share, in the second quarter of 2022. The company’s adjusted EBITDA loss for the second quarter ended June 30, 2023, was approximately $2.3 million as compared to adjusted EBITDA of approximately $512,000 for the second quarter ended June 30, 2022. At June 30, 2023, the company had a cash balance and short-term investments of $1.6 million, compared to $600,000 at December 31, 2022. As of June 30, 2023, stockholders’ equity was $9.3 million, compared to $20.4 million as of June 30, 2022. Through various strategic measures, we expect to raise millions in non-dilutive funds, including the planned sale of our Lago Vista site.
This should enable the company to accelerate its expansion by bolstering the strength of our balance sheet and highlighting our capability to leverage assets to maximize the shareholder returns. I would now like to turn the call back over to Paul for closing remarks.
End of Q&A: Thanks, Tricia. I would like to offer our sincere thanks to all of you for joining us today. We are very proud of the progress that Safe & Green has made, and we’re confident that the best is yet to come. We look forward to providing you with updates on our progress in the coming weeks. Thank you.
Operator: Thank you. This concludes today’s event, and you may disconnect your lines at this time. Thank you for your participation.+
