Q3 2022 SG Blocks Inc Earnings Call

We are excited to be hosting our second earnings call on Twitter spaces. We appreciate everyone that joined US last quarter on the call and listened to our company history and overview.

We've provided a slide deck on our website as well as the 10-Q filing.

To provide new list listeners and investors a chance to become familiar with our product and service offerings, while shipping containers will always be one of our favorite product offerings. We now have four segments that will provide diversification of our offerings to customers with the capacity to serve a broader group of industries.

SG blocks is comprised with our partnership clarity mobile our partnership with <unk> to form our SG environmental solution group wholly owned SG Echo and wholly owned S. G Dev core divisions.

Our manufacturing Division offers three customized solutions for clients, including Green steel White box and finished modular products our manufacturing facilities deliver these products to third parties and internally to both our medical and development segments as well.

And we will discuss later our manufacturing footprint has expanded in the last year and how we're excited about our additional capacity and capabilities the new additions will bring.

Our medical segment proved to be our most lucrative business segment throughout Covid as we turned our focus to provide materials and testing supplies and commute.

Communities as well as the airport as part of our medical business unit, we were able to shift our production lines to produce a full suite of solutions ranging from PCR to diagnostic and turnkey buildings ready for installation and services. Our partner clarity labs is a perfect example that selected SG blocks, where our ability to.

Accelerate the speed of deployment of our CLIA certified labs at Lax Airport, we provided them our turnkey Tech module solutions designed to meet global safety standards, our partnership with clarity among others gave us significant experience to capitalize on new projects like recently point of care testing.

Lab services provided at the Port of long Beach for 10000 members of the local Teamsters 848.

This partnership is at a historic innovation and the design delivery and coordination of work based care for employees.

As we shift to post pandemic world our medical facility capabilities are built out and proven to be able to provide mobile labs offices clinic sites. Among other medical facilities that can disrupt the onsite medical construction industry. Shortly I will give an update on where our medical segment is headed.

Lastly, Este development Corp, as a real estate development arm of SG blocks. Our funding strategy was based on being able to provide our modular blocks for third party developers today, our development team has the capabilities to build strong and innovative single or multifamily projects. Our development team was focused.

On five potential development locations on the past year, we received a land appraisal for four sites in our manufacturing facility, including the Cumberland envelope. The Norman very site in Georgia, The Lago Vista site in Texas, The Mclean, Oklahoma site for industrial and residential and our proposed manufacturing facility site.

<unk> and St Marys, Georgia.

Please find documentation of the appraisals of these reports published on our website and.

In the process of obtaining these appraisers our development team saw a path to bring Lago Vista site development work in house, rather than selling off the property to a third party and the recent sale process, we decided to maintain the site within SG blocks as the appraisal shed value at a multiple of the bids we received throughout.

Throughout the planning process, we will assess additional bids if they are to arise.

Phrases have unlocked significant value for our shareholders as the total appraised value is $56 million 400000, while the <unk> purchase price for these assets was only $8 million.

As mentioned in our previous press releases the real estate portfolio alone is now two five times, our current market cap delivering our per share value of $3 61 on a standalone basis.

These properties will continue to produce value for shareholders in the coming years as we develop them the.

The development plans will fill our factories starting in 2023.

On Dev co team is consistently looking for additional development sites on an opportunistic basis and has led the charge on our recent land and facility acquisitions.

As many of you know we operate our main campus Mclean in Durant, Oklahoma in 2020, SCA acquired one of our longtime suppliers to become the leading fully integrated modular builder.

Since then the factory has been optimized and streamlined for maximum efficiency due to the need for more capacity to support more projects from our Deb Corp. We are expanding our manufacturing footprint to strategic locations. This year. We finished renovations on our second factory in Durant, Oklahoma, We began renovating our size increase in the.

Existing facility in 2021 and are excited to be opening our second campus in Durant.

We refer to this as our Waldron facility and are on track to begin modules early in 2000 Q1 2023.

In late August we closed on 33 acres of land in St Marys, Georgia for the development of a new manufacturing facility that will support the Cumberland project. The 114000 square foot manufacturing facility will house, roughly 125 employees and serve a multitude of projects, including Cumberland Inlet and women Barry.

<unk>.

The total value of Dev COSE construction needs is $800 million.

Which will be the initial products generated out of this location.

As our pipeline has expanded from ongoing and new projects, we plan to capitalize on the growing demand and popularity of modular building designs.

According to streets Research group modular construction is expected to grow at a CAGR of 8% during the period 2022 to 2030. The total market size was valued at $1 $38 billion in 2021 and expected to grow to $2 $71 billion by 2030.

As we see a rising demand for affordable housing and increased investment in commercial infrastructure development. These market factors will drive growth of the global modular construction market.

The increasing urbanization also propels the growth of modular construction as the demand for housing rapidly growing in large cities.

As modular construction projects can be completed 30% to 50% quicker when compared to conventional struction, we expect demand to flow in from and demand second for second tier U S cities as well as our own internal projects, we are well positioned to serve the industries that utilize modular construction.

The most with our previous experience in the health care field. The healthcare segment accounts for the largest market share within modular construction estimated to be plus or minus 20% of market revenue.

The health care and medical segment demand has been growing due to the increasing needs for improved health care infrastructure and better <unk> better hospital amenities for treatment surgeries clinics in dental use.

We will get into a outline our sites and facilities footprint with our current and anticipated operating demands.

Looking forward I'm excited to discuss our longer term business plans on how we are breaking into the medical waste recycling industry.

In March of this year, we signed an exclusive 10 year distribution agreement with Santa Tech to provide a safer and greener solutions for medical waste or.

Our first thing is to carry out this strategy of setting up our processing plants in Oklahoma here will be our initial point to process waste for our customers.

We're excited to offer a safe reliable and most important a compliant medical waste solution to these clients assisting them to achieve cost savings and significant ESG boost.

Our second phase will be focused on the waste produced in the cruise line industry.

We look forward to producing more information in the coming weeks and months to give updates on our specific plans to roll out these solutions and our initial targets and the high profitability of this product offered by SG blocks.

As previously demonstrated we believe we are a company that is like any other and we are at the forefront of leading this change for more sustainable less expensive and quicker to market solutions for various industries that can utilize our modular technology. Our team is passionate about finding additional partnerships and solutions for our building blocks and we encourage you to keep.

With our growing list of company updates and highlights on our website and through our press releases now I'd like to turn to our results. We are very proud of our third quarter results and continue to be highly encouraged by growth in the diversification of revenue streams that we are able to produce for the third quarter of 2020 to report revenues coming in at four.

1 million more than a 612% increase from two years ago revenue generated for the nine months of September 32022 was $23 million on a consolidated basis for our segments I'll begin with construction revenue for the construction of 7% in Q3 was $2 7 million an increase of 334.

Year over year from Q3 in 'twenty, one over the last year, our manufacturing pipeline grew to 4500 units an increase of 400 units in dollar terms. This represents another approximately $50 million in construction revenue, bringing the total development Corp.

Construction demand internally to $800 million.

Engineering surfaces Nexstar Engineering services line generated 6599 in the third quarter and 81 305 for the nine months ending September 32022 within our medical segment revenue in Q3 was $1 4 million and $11 seven for the nine months ending $930 22.

To the construction segment contributed 65% of the revenues for the quarter with the remaining 35% generated from medical comparatively to the revenue mix on the revenues.

Streams have been greatly diversified away from our previous 92% in the medical segment concentration.

Why are we capitalized off of the opportunities presented during Covid construction and design is our bread and butter and review this quarter as it returned to normal.

And a sign of continued growth.

Before turning to <unk>.

Okay.

With $4 1 million in liquidity with minimal long term debt obligations as mentioned, our real estate assets combined with our expected inflows gives us a strong runway to execute on our current plans and to build out manufacturing facilities and the ability to pursue further development and opportunity areas as they arise.

Currency currently it is worth noting that we do not have any urgent need to access the capital markets are.

Our share back buyback program remains in place as announced in the prior quarter. We are proud of our third quarter performance and the process. We are making on our long range plan. We also appreciate the fact that our team has accomplished so much amid a challenging macro environment.

Before heading into the Q&A I'd like to provide commentary on SG blocks outlook for the remainder of the year and into 2023.

During 'twenty two we executed on all contracts with our top clients and are pleased to announce that we have even doubled next year's contract with one of our top clients leading to enhanced revenue with our top client.

The approach we are taking towards setting our 2022 outlook and budgets that includes the capacity expansion in our second factory in Durant, Oklahoma revenues for 23 years should be further diversified as we bring in new clients with the additional capacity for the expansion of facilities and the ability to produce units throughout the year, we anticipate we will.

Be able to continue to recognize revenues generated from additional manufacturing facilities to come online.

<unk> ability metrics are projected to improve dramatically our projected cash position remained strong throughout 2023 with the ability to continue our share buyback program in the coming quarters in closing we have grown into a company much different from who we were two years ago, we are basically debt free and fully vertically integrated fully vertically integrated.

With many revenue streams and the largest verticals in our economy.

Since we created the development Corporation. It Hasnt grown quickly to now have a residential pipeline in excess of 4500 homes and apartments, comprising about 3 million square feet of projects and continue to book more of.

The total manufacturing pipeline for SCE development core projects is estimated to approximately be $800 million based on current analysis, we estimate the manufacturing margin to be approximately 15% on an open book basis. This is because we have full contractual rights to manufacture all of these units for all of these projects with.

A 15% margin our current anticipated gross profit from our development Corp manufacturing pipeline is $120 million.

Yeah.

Our our strategy is unique because we will building all of these projects moderately out of our own factories, we choose where those patients of our projects.

<unk> strategically so that we can maximize the benefits of modular construction by being near our projects. We can avoid having to pay additional transportation costs from the modules. The vertical integration means SG as a whole is able to generate both manufacturing revenue in traditional revenues associated with the real estate development. These include sale.

Leasebacks for factories developers' fees refinancing asset sales operating income from projects and others. Our goal will be to reach a pipeline of 5000 units that we can maintain on a year over year basis, as we build out our various phases of each project in the coming weeks and months, we will deliver additional detail on the develop of our Santa Tech partnership.

We are very excited about the future of SG development Corp. As we've seen the first developments break ground over the last quarter and we're continuously looking for opportunistic movements to go forward.

These projects alone should keep our factories full for years to come.

We've seen a need to do things differently. We grew so quickly and as a result, adjusted our capital allocations quickly yet that there hasn't been enough of the market part of the reason that we hired equity animal was to raise awareness for our company our mission and our ability to reach a larger group of individual investors. So that we can reach more potential investors who believe.

Our mission not wall Street funds looking to play games with thinly traded stocks. We are confident in our strategy as is and we do not run our business based on its stock performance, yet we know that our fair valuation of stock will help us to grow more and work deeper and deeper into our record pipeline.

In closing we are thrilled to have the opportunity to express our vision for the future and to tell our story of growth and resilience, we'd like to thank everybody who has taken their time to listen to us and support our story, we're a small cap safe and Green story, and we're a company to be followed I'll turn it back.

Thank you so much Paul with the conclusion of the Companys prepared remarks, we will now open the floor for the question and answer portion.

A reminder to participate in the Q&A portion you must be participating via Twitter spaces on a mobile device now first off let's bring Charlie to floor and Charlie. This is your second time asking questions on Twitter spaces, but it's the first time that I realized that you had the number 17 rate kicker in the country and number three in tech.

So please come up and give us a question.

Thank you Mark.

Yeah, I just wanted to ask that throughout the last few quarters, we have not seen huge revenue growth in spite of numerous press releases hinting at huge potential revenue in the future you talked about $800 million.

Backlog at $120 million in potential growth.

Gross profit and I just wanted to ask if the test you said if investors should we expecting revenue to grow slowly and exponentially or if 1000% quarter over quarter increase should not be out of the realm of possibilities.

Sure. Thanks for the question. This is mark speaking I'll handle that one so in terms of growing exponentially or future guidance. The company has offered what their future guidance will look like for fiscal year 2023, that's as far as the company is willing to say.

Depending on the analysis that you are taking it we've offered the amount of backlog pipeline for you to be able to take that and take that for what you will as what's available to the company I think that what everyone has been able to seize the growth story that the company has been able to achieve going into COVID-19 through COVID-19.

And now a normalization in terms of the medical segment revenue coming out of Covid and now what a lot of growth stories are and where the opportunity is so with that that's all that we feel free to comment right now.

Alright, Thank you Mark.

Okay.

Alright, and also that $800 million coming from the projects that we're developing.

That's going to be built out and earned over three to five years. So as people look down the road those things have to be built and set and absorbed.

So so that 800 million b.

Gotten throughout the five years, so within the next five years with $800 million revenue be.

Possible.

The amount of revenue that is based off of contract amounts that is in.

The pipeline is something that the company will be working through three to five years as Paul just said.

Okay. That's it thank you.

Okay.

Fantastic now are there any other questions out there I see Dr. <unk> out there Andrew Stella who I know is a scholar in the small cap space as well as official money raccoon other than that if there are no further questions.

We have Dave Putman, Dave will be bringing you up.

Okay.

Hello can you hear me.

Alright, yes. Thanks for taking my question I know in the past few years or so the margins on the SC Echo builds were on the lower side and the hope I think was four.

S T Dev Corp in the future to have higher margins and I was curious when it comes to the recent increase in the $11 5 million dollar deal, which references SD Echo.

Is that mean that.

The margins are still in the low sides of those types of deals or are margins going to improve.

S C Corp.

Players com.

Tom.

Yeah appreciate that I. Appreciate the question, we're never going to speak specifically about any one client, especially one that has us under an NDA, but most of our projects at SG Echo operate on an 18% to 20% margin and that includes some baked in overhead.

Would caveat that the projects from the SG development company into Sg's factories, those will be delivered at an open book, 15% margin.

So that there's transparency for any of our internal projects on the partners.

Any partners on those projects to be able to see and finance and budget.

Okay. Thanks, a lot.

And with that this concludes our earnings call. We appreciate everyone tuning and we encourage you to sign up for Investor updates on the Investor Relations portion of the SG blocks website and stay tuned for more interesting developments that may affect some people on this call in the future.

And have a great evening.