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spk01: to SGBlock's third quarter earnings call. I'm Mark Moran, CEO of Equity Animal. I'll be the host of our call today. I'm here with Paul Galvin, chairman and CEO of the company. If you aren't doing so, it's easy to participate in this call on Twitter Spaces. On Twitter, go to at SGBlocks and select the space titled $SGBX3Q22 Earnings Call. As a reminder, if you want to ask a question, you'll need to join the Twitter space with a mobile device. If you want to listen, you can join the Twitter space on a personal computer. SGBlocks is also making this call available to listeners through traditional landline and webcasting. At this time, all participants are in a listen-only mode. A question and answer session will follow. This conference is being recorded. A press release detailing the company's results was issued after market close at 4.15 p.m. and is now available on the investor relations section of the company's website at sgblocks.com. A replay of this conference will be available for 30 days immediately after this call on the SG Blocks Twitter page. Before I turn the call over to Paul, please remember the various remarks about future expectations, plans, and prospects made today constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. SG Blocks cautions that these forward-looking statements are subjects to risks and uncertainties that may cause their actual results to differ materially from those indicated, including risks described in the company's filings and with the SEC. These forward-looking statements are subject to a number of risks and uncertainties which are described in the company's filings with the SEC. Any forward-looking statements made on this conference speak only as of today's date, Monday, November 14th, 2022. SGBlox does not intend to update any of these forward-looking statements to reflect events or circumstances that occur after today. With all that being said, I am now pleased to introduce Paul Galvin, Chairman and CEO of SGBlox.
spk00: Thank you, Mark, and welcome to all. 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 10Q filing, to provide new 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 Sanitech to form our SG Environmental Solution Group, wholly owned SG Echo, and wholly owned SG DevCorp 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'll discuss later our manufacturing footprint, how it's 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 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 SGBlox for our ability to accelerate the speed of deployment of our CLIA-certified labs at LAX Airport. We provided them our turnkey DTECH 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 and lab services provided at the Port of Long Beach for 10,000 members of the local Teamsters 848. This partnership is an historic innovation in 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'll give an update on where our medical segment is headed. Lastly, SG Development Corp is 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 the land appraisals for four sites and our manufacturing facility, including the Cumberland Inlet, the Norman Berry site in Georgia, the Lago Vista site in Texas, the McLean, Oklahoma site for industrial and residential, and our proposed manufacturing facility site located in St. Mary's, Georgia. Please find documentation of the appraisals of these reports published on our website. In the process of obtaining these appraisals, 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. In 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 the planning process, we'll assess additional bids if they are to arise. The appraisals have unlocked significant value for our shareholders, as the total appraised value is $56,400,000, while the combined purchase price for these assets was only $8 million. As mentioned in our previous press releases, the real estate portfolio alone is now 2.5 times our current market cap, delivering a per share value of $3.61 on a standalone basis. These properties will continue to prove value for shareholders in the coming years as we develop them. The development plans will fill our factories starting in 2023. On DevCo 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, SG 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 and to support more projects from our dev 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 a 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 Q1 2023. In late August, we closed on 33 acres of land in St. Mary's, Georgia for the development of a new manufacturing facility that will support the Cumberland Inlet project. The 114,000 square foot manufacturing facility will house roughly 125 employees and serve a multitude of projects, including Cumberland Inlet and Norman Berry. The total value of Devco's 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 Street's 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 $138 billion in 2021 and expected to grow to $271 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 structure, we expect demand to flow in from and demand second for second tier US 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 healthcare field. The healthcare segment accounts for the largest market share within modular construction, estimated to be plus or minus 20% of market revenue. The healthcare and medical segment demand has been growing due to the increasing needs for improved healthcare infrastructure and better hospital amenities for treatment, surgeries, clinics, and dental use. We'll align 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 Sanitech to provide a safer and greener solutions for medical waste, Our first phase to carry out this strategy is setting up our processing plant 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 a 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 SGBlocks. 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 up 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 2022, we report revenues coming in at 4.1 million, more than a 612% increase from two years ago. Revenue generated for the nine months of September 30, 2022 was 20.3 million on a consolidated basis. For segments, I'll begin with construction. Revenue for the construction segment in Q3 was 2.7 million, an increase of 334% year over year from Q3 in 21. Over the last year, our manufacturing pipeline grew to 4,500 units, an increase of 400 units. In dollar terms, this represents another approximately $50 million in construction revenue, bringing the total development construction demand internally to $800 million. Engineering services. Next, our engineering services line generated $6,599 in the third quarter and $81,305 for the nine months ending September 30, 2022. Within our medical segment, revenue in Q3 was $1.4 million and $11.7 million for the nine months ending 9-30-22. The construction segment contributed 65% of the revenues for the quarter, with the remaining 35% generated from medical. Comparatively to the revenue mix in June, the revenues were streams have been greatly diversified away from a previous 92% medical segment concentration. While we capitalized off of the opportunities presented during COVID, construction and design is our bread and butter, and we view this quarter as a return to normalcy and a sign of continued growth. Before turning to our... 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 developments in opportunistic areas as they arise. Currently, it is worth noting that we do not have any urgent need to access the capital markets. Our share 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 SGBlock's outlook for the remainder of the year and into 2023. During 22, 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 includes the capacity expansion in our second factory in Durant, Oklahoma. Revenues for 23 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, Our profitability metrics are projected to improve dramatically. Our projected cash position remains 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 with many revenue streams in the largest verticals in our economy. Since we created the Development Corporation, it has grown quickly to now have a residential pipeline in excess of 4,500 homes and apartments comprising about 3 million square feet of projects and continue to book more. The total manufacturing pipeline for SG Development Corp 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 court manufacturing pipeline is $120 million. Our strategy is unique because we were building all of these projects modularly out of our own factories. We choose the locations of our projects and factories 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 for the modules. The vertical integration means SG as a whole is able to generate both manufacturing revenue and 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 5,000 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 Sanitech 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 for 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 in 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 a 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's 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.
spk01: Thank you so much, Paul. With the conclusion of the company's prepared remarks, we'll now open the floor for the question and answer portion. As 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 the floor. And Charlie, this is your second time asking questions on Twitter Spaces, but it's the first time that I realized that you were the number 17 right kicker in the country and number three in Texas. So please come up and give us a question.
spk03: 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 amount of press releases hinting at huge potential revenue in the future. You talked about $800 million in backlog and $120 million in potential gross profit. And I just wanted to ask if investors should be expecting revenue to grow slowly and exponentially, or if 1000% quarter over quarter increase should not be out of the realm of possibilities.
spk01: Sure. And 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're taking, we've offered the amount of backlog of pipeline for you to be able to take that. And take that for what you will is what's available to the company. I think that what everyone has been able to see is the growth story that the company has been able to achieve going into COVID through COVID 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.
spk00: Thank you, Mark. All right. 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.
spk03: So should that $800 million be gotten throughout the five years? So within the next five years, would $800 million in revenue be possible?
spk01: The amount of revenue that is based off of contract amounts that is in the pipeline is something the company will be working through three to five years, as Paul just said. Okay, that's it. Thank you. Fantastic. Now, are there any other questions out there? I see Dr. Parikh Patel 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, we'll be bringing you up.
spk02: Hello, can you hear me? All right, yes. Thanks for taking my question. I know in the past few years or so, the margins on the SG Echo builds were on the lower side, and the hope, I think, was for SG DevCorp in the future to have higher margins. And I was curious, when it comes to the recent increase in the $11.5 million deal, which references SG Echo, does that mean that The margins are still on the low side for those types of deals, or are margins going to improve now that SG DevCorp is in play, or just
spk00: Yeah, 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. I 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, they'll be able to see and finance and budget. Okay.
spk02: Thanks a lot.
spk01: And with that, this concludes our earnings call. We appreciate everyone tuning in. We encourage you to sign up for investor updates on the investor relations portion of the SG Blocks website and to stay tuned for more interesting developments that may affect some people on this call in the future. Thank you and have a great evening.
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