Olenox Industries Inc. (OLOX) Q3 2021 Earnings Report, Transcript and Summary

Good day and welcome to SG Blocks Third Quarter 2021 Earnings Conference Call and Webcast. [Operator Instructions] As a reminder, today’s conference is being recorded. At this time, I would like to turn the conference over to Stephen Swett of Investor Relations. Please go ahead.

Good afternoon. Thank you all for joining us for our third quarter 2021 earnings call. With me today are Paul Galvin, Chairman and Chief Executive Officer and Gerald Sheeran, Acting Chief Financial Officer of SG Blocks. A press release detailing our results was issued this afternoon just after the market closed and is available on the company’s website at www.sgblocks.com. Before I turn the call over to Paul, please remember that certain statements made during this presentation are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All 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 believes, may, estimates, continue, anticipates, 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 described, including those set forth in our filings with the SEC, which are available on our website at www.sgblocks.com. 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 and the webcast is available in the Investor Relations section of our website. Now, I will turn the call over to Paul.

Thank you, Steve. In the third quarter, we continue to drive strong top line revenue as we built on our record first half results. Year-to-date revenue through September totaled approximately $29.9 million, a staggering 2,000% increase from last year and indicative of the enormous transformation we have undertaken in the past 18 months. In fact, our year-to-date revenue for 2021 is now higher than our total annual revenue recorded since our listing on NASDAQ in June 2017. We are excited for our short-term and long-term future as we bring on new manufacturing space and activate our announced pipeline of identified projects inside SG DevCo. As we head into Q4, we expect to continue to increase our revenue record and we anticipate based upon current conditions and operations being cash flow positive during the fourth quarter of 2021. Looking at our recent projects and business activities, we saw significant progress across our entire platform. In our commercial vertical, we announced exclusive engagements with ATCO Industries and Street Food USA to design and build modular structures to support their growth plans in the coming years. We are in production on two prototype units with a national food brand who contractually has the right to control the flow of information on the projects, which we anticipate the delivery of during H1 2022. In our healthcare vertical, we announced plans to build and deploy mobile CLIA-certified laboratories for point-of-care testing and service delivery. These units will be fully mobile and can be deployed and redeployed anywhere to support testing and healthcare services for events, border crossing, infrastructure sites, campuses, military bases, sports team and event sponsors as well as transportation hubs and Native American reservations. SG DevCo continues to work tirelessly to complete due diligence onsite, expand our pipeline and activate manufacturing space to accommodate our internal demand. At this time, our pipeline includes 2,250 residential units for sale or rent, all amenity space and 2 marinas. In total, these projects will provide much-needed affordable housing and growing communities across the country and represents approximately $367 million of gross potential manufacturing revenue over the next 4 to 5 years. Subsequent to the third quarter of 2021 and to ensure our ability to meet our manufacturing requirements for these projects, we recently leased the Waldron site, which has an additional facility in Dorian, Oklahoma. In addition, we entered into a contract to purchase a large tract of land in Durant, Oklahoma, which will allow us to build two more lines in a large facility, further increasing our capacity as well as building 300 units of workforce rental units on the same corset. This would bring our manufacturing capacity to 5x its current output. We anticipate, on average, each manufacturing line will produce approximately $12 million to $15 million of revenue on an annualized basis. Additionally, our dedicated and experienced team and broadened manufacturing footprint should provide greater flexibility to avoid unforeseen challenges in the future, including uncertainty in the supply chain and the direction of the pandemic. Our presence in Durant, Oklahoma has been a great experience in securing a stable, committed and experienced workforce and we greatly appreciate the support from both local and state government authority. In October, we completed our public offering pursuant to which we sold an aggregate of 975,000 shares of common stock and pre-funded warrants to purchase up to 2.189 million shares of common stock and a concurrent private offering of warrants to purchase 1,898,630 shares of common stock, which resulted in net proceeds of approximately $10.5 million. Several key benefits associated with the raise include: first, the additional funds will be used to support growth and be available in case of any material supply chain problems; second, capital funds were raised with the new institutional investor, which should help to provide stability to our share price and potential ongoing strategic support; third, the capital raised is for investments and additional projects, which has been consistent for the past 2 years. We have funded approximately $8 million in our projects over the last 12 months. We expect these investments will ultimately drive growth for manufacturing revenue, development fees, depreciation and income from asset sale or lease. We continue to deepen our team. In September, we have put in place long-term employment agreements with key executives to ensure stability. And subsequent to the third quarter of 2021, we announced the hiring of James Henderson to lead the sales and business development for our medical vertical. James brings significant experience as well as deep relationships within the medical industry. As we have said, the tremendous growth in our business and opportunity requires a deeper management team with industry specialists within all of our verticals, with the goal of driving consistent revenue and bottom line results. Now, let me discuss our recent activities in each vertical in more detail. Beginning with our commercial vertical, in August, we announced an engagement with ATCO Structures and Logistics, a one-stop provider of integrated housing, energy, transportation and infrastructure solutions to produce 20 units as a part of the national rollout of its modular fleet throughout the U.S. We are starting production on these first units in the fourth quarter 2021 and expect to continue delivering units over the next 5 years. Importantly, we believe this is a start of a long-term relationship with ATCO, which is expected to lead to continued production in years to come. In September, we were selected our Street Food USA’s exclusive manufacturer for its national modular rollout of food halls. Street Food USA establishes and manages street food markets that focus on local entrepreneurship, sustainable economic growth and small business by bringing together the independent owner-operated kitchen. The first location is planned in the southern U.S., which we expect to be rolled out next year. We are providing architectural design, consulting and engineering services for the project. These projects are significant as we build a roster of repeat clients and recurring business. To that end, we have delivered our Mo Living prototype. And after the value engineering process, we anticipate a sizable rollout order to be built at our recently announced Waldron manufacturing facility. We are working on multiple units for a large national brand, which we expect them to announce during Q1 2022 and we are working on growing our presence in the federal and military space and hope to have additional announcements in the not too distant future. In our medical testing and services vertical, we continue to generate strong results from our deployed units, particularly our LAX unit. Our iconic D-Tec Lab has proven to be highly functional and flexible as a cost-effective solution to provide much-needed point-of-care access to health care. For the third quarter, our medical testing and services revenue totaled approximately $8.15 million, which is consistent and demonstrates the deep and enduring need for our services. However, this is always the beginning and our goals in the medical vertical extend much further. In September, we announced plans to build and deploy mobile intermodal CLIA certified labs for point-of-care healthcare testing. The labs will be fully mobile and have the potential capacity to test for various diseases and infections. We will only operate these units providing simplified end-to-end solutions, including staffing and billing for various customers. While we have seen great success thus far with our partners, the volume of imbalanced interest is immense, and we believe there is a broad deep and immediate demand for better and faster points of care delivery solutions, which we are in a unique position to support. Turning to our manufacturing unit, manufacturing revenue totaled approximately $682,000 for the third quarter, 16% higher than the third quarter last year as we commenced were unannounced projects. As of the quarter, we were under contract for six manufacturing projects outside of our remaining legacy projects representing $1.5 million in potential gross revenues over the course of two quarters. We continue to do the challenging work of cleaning up legacy projects inherited from our acquisition late last year and dealing with the ongoing disruptions from COVID within our facility and across the supply chain. During the quarter, we booked an additional accrued loss of $1.1 million from the prior quarter of 2021 related to these legacy projects. The largest loss was related to our Everglade hospitality project where supply chain issues have resulted in scope changes and cost increases. We have honored our legacy partner commitments in which we plan to have out of our production in Q1 2022. Importantly, the projects we have announced so far this year remain on time and on budget, and these projects transition to active manufacturing in the coming year, continued diligent focus and execution will be critical. We remain confident in our expectation to achieve no less than 15% margins on future manufacturing projects. Now turning to our development activity, in the third quarter, we continued to execute on our announced projects. These projects remain key to our long-term growth and profitability by keeping our manufacturing facilities near capacity, providing steady and visible flow of manufacturing income, diversifying our revenue base with project fees and potential profit sharing from asset sales. Let me quickly summarize our current project pipeline. Lago Vista on Lake Travis in Austin, Texas, as currently planned, will consist of up to 225, two and three-bedroom condominium units as well as a marina and large amenities building. Site work is expected to commence in early second quarter of 2022 with an anticipated completion date in the second quarter of 2023. We expect to capture approximately $25 million in gross manufacturing revenue over the life of the project and anticipate that our minority interest in the sale of the units will be about $5 million as the units are sold. We own a 50% interest in a development venture for 138 unit, 125,000 square foot affordable housing community in East Point, Georgia within the Atlanta MSA. The community will be known as Norman Berry Village. We will control the planning and construction process and our manufacturing revenue as well as a share of development fees. Monticello Mews, a multifamily development project located in the [indiscernible] region of New York as currently planned, we yield 187 townhomes with one and two-bedroom units with amenities, including clubhouse, gym and outdoor green spaces. The initial units are scheduled to be delivered in December 2021 with a projected completion in the third quarter 2023. The company has a carried interest in this project of approximately $650,000 and is entitled to earn $1.25 million redemption distribution payments upon project completion. Finally, we purchased a 10% non-dilutable equity interest in JDI Cumberland LLC a Georgia Limited Liability Company, for $3 million to develop a 1,286 acre waterfront parcel in historic downtown St. Mary’s, Georgia. SG Blocks has the contractual right to produce all of the modular units throughout our ecosystem. The project is expected to commence site work in the third quarter 2022 with initial deliveries of modular units expected in the third quarter 2023. Now I’ll turn the call over to Gerald.

Thank you, Paul. Turning to the financials, beginning with the income statement, revenue for the third quarter of 2021 was approximately $8.8 million compared to approximately $576,000 for the third quarter of 2020. Gross profit for the third quarter of 2021 was approximately $105,000 compared to approximately $195,000 in the third quarter of 2020. Gross profit was negatively impacted in the third quarter of 2021 due to the accrued losses the company recognized related to the legacy ECHO contracts. Operating expenses for the third quarter 2021 were approximately $2.8 million compared to approximately $1.7 million in the third quarter of 2020. For the third quarter 2021 net loss attributed to common shareholders was approximately $3.8 million or negative $0.43 per share compared to a net loss of approximately $1.5 million or negative $0.17 per share in the third quarter of 2020. The net loss attributed to common shareholders included the following items, approximately $842,000 non-cash depreciation and amortization expense, non-cash stock compensation expense, loss on asset disposal and litigation expenses as explained and the adjusted EBITDA loss and $2.25 million in continued and accrued losses related to certain legacy manufacturing projects that have been impacted by COVID-related delays and supply chain disruptions that Paul previously mentioned. At September 30, 2021, the company had total assets of approximately $25 million compared to approximately $26.3 million at September 30, 2020. Turning to the balance sheet, at this time, we have a strong and flexible capital structure to support our near-term requirements. The company had cash and cash equivalents of approximately $3.3 million as of September 30, 2021, compared to approximately $2.3 million at June 30, 2021, which does not include the proceeds from our recent financing. Over the past 12 months, the company’s cash position has been deployed into strategic investments with the acquisition of both land development and projects totaling approximately $8 million. At quarter end, we had debt of $2 million and approximately 8.8 million shares of common stock outstanding. Subsequent to the quarter end in October, we issued approximately 3.1 million shares of stock in our public offering and from exercise of the pre-funded warrants, and we also issued warrants to purchase approximately 1.9 million shares of common stock and the concurrent private offering using approximately $10.5 million in net proceeds. Pro forma for this offering, we currently have approximately 12 million shares of common stock outstanding. Now I’ll turn the call back to Paul.

Thank you, Gerald. 2021 has been a momentous and transformative year for SG Blocks and the third quarter continued our progress on every front. We have spent years getting us to a point where we can create strong and consistent revenue growth from a diversified pipeline of projects where we control the means of delivery. We are aligned with great partners and successful customers through SG DevCo and Clarity Mobile Ventures, we have established a strong momentum heading into the end of the year. We are grateful for our record results and the ability to expand our projects and workforce with an emphasis on made in the USA. We look forward to the consistent work that our development projects will bring. Our medical vertical is now poised for continued growth. We thank our shareholders and investors and those that follow our stock. We are also grateful for the sustained efforts and relentless pace of staff, consultants, attorney partners and our Board of Directors. This completes our prepared remarks. We will now open the call to your questions. Operator?

[Operator Instructions] The first question is from Spencer Lehman, a Private Investor. Please go ahead.

Hi. Just wanted – did you mention anything about the EV and your deal with Blink?

At this time, there is no update on the Blink relationship. The announced Blink relationship where a supplier and kind of a designer of their existing product line that they are working on to bring out in a modular fashion. And SG Blocks is also working closely with them on ways that we could potentially deploy them ourselves, and we should have more to come on that in the fourth quarter.

Yes. Do you feel with the passage of this infrastructure build that could get to be an exciting area for SG Blocks?

Yes, I concur with that idea that any kind of investment in the infrastructure will require addressing EV and some other things that we have an inventory of products and ideas that can be responsive.

Alright. Thank you.

Okay. Thank you.

One moment, the next question is from line of Cliff Sperber [ph] with ASG Blocks. Please go ahead.

Positive, but I am wondering what the company is doing so that the share price is more reflective of all the progress the company is making?

Hi Cliff, thanks for your question. Well, what we are trying to do is to continue to drive revenue and growth and achieved being cash flow positive in the fourth quarter, continue messaging, and we feel like the fundamentals of the company are going to just innately create shareholder value. It’s something that we work hard with. We have a great IR firm. And we are going to be investing some time and effort in the first quarter to evangelize the stock. And for now, we are just focused on ending the year strong and getting closings done and booking revenue.

Good. Thank you. I like you evangelizing the stock, because it certainly seems like a company that has – that has great potential in the price action – 1 don’t think and I suspect a lot of investors feel the same way, isn’t really reflective of what you guys are building. So, thank you.

Thank you. I appreciate that.

Your next question is from the line of Ken Joseph [ph] with Joseph Farm Markets. Please go ahead.

Hi there. And analyzing the financials, I see that the company is in a good position. I like the pipeline of work. I like the market cap of close to book value. But when I look back at 2017, I see the stock price was way up there. And I haven’t looked into the history of why it’s gone from roughly $120 down to where it is now. I could see in the future how it could climb back up. But can you tell me why back then the stock price was so high?

I am not referring to any particular trading day or market closing price. In 2017, you can track our trading activity that would have been an outlier and that what we have done since ‘17 is kind of start to steadily build the right people and the right team and apply consistent efforts and you will see year-over-year-over-year, our revenue now is growing to the point where we approached $30 million for the first three quarters of this year, which, as Gerald indicated, represents the greater than the sum of all of our other years and NASDAQ combined through three quarters of this year. So, we are looking forward to building upon.

Yes. Okay. And just to make a note, that stock price is based on a 20 for 1 reverse split.

Thank you.

You’re welcome. Have a good day.

[Operator Instructions] Your next question is from the line of [indiscernible] Private Investor. Please go ahead.

The question was already asked regarding Blink. Why are you – do you have any plans to in the future dealing in helping them to build the charging station with Blink?

Yes. And there is the units that Blink themselves will deploy and fulfill for their customer base. And then there is other products that we are working on with Blink that we will discuss and hopefully have some information from everybody during this fourth quarter. As a previous investor question referenced, we do believe the infrastructure build provides incentives for people to do some technology adoption, and we think we will be at the forefront of that when it comes to deploying EV charging technologies across our highways and our landscape and hopefully, someday, our development.

I have noticed that you had done prior business dealing with them. Do you have any contract or negotiating any contract with them at this time?

No, nothing I would reference now.

Okay. Alright. Thank you.

There is a follow-up from the line of Spencer Lehman, a Private Investor. Please go ahead.

Well, I do want to ask you about the current container situation, whether that’s creating any problems? Is that helping you or hurting you as far as access to containers?

Good question and one we hear a lot about. Right now, we have no issue getting containers or having visibility on container-based products. We also build with light gauge steel and wood modular. And right now, we are keeping a close eye on our supply chain and on our projects and have a nice working group looking down the road on supply chain issues that could impact our delivery and hence, our payments. And we are right now managing the situation in about a six months increment.

Thank you.

Your next question is from the line of David Puttnam, a Private Investor. Please go ahead.

Yes. I was curious with the increases in home prices. Where you see SG Dev Corps going long-term? I know it’s a large pipeline, which is great. Just curious the impact of rising housing prices and obviously, the work you guys do offer affordable housing? And do you see that kind of allowing for even greater opportunity down the road?

We definitely are committed to helping to expand the country’s affordable housing rental product. There is a desperate need for it, especially as people enter and exit the workforce and especially as the cost of homes, as we all know, is spiking in certain areas. So, we are very much committed to building a rental fleet. We do have some products that we will sell and we look at those as great money to have to support operations to potentially do distributions with some form with the shareholders. And at the end of the day, that money backs up everything we want to do. So, that’s how we are approaching it.

Okay. Thank you.

And there are no other questions at this time. I will turn it back to Mr. Paul Galvin.

Well, thank you for that, and thank you, Steve and Gerald, for joining. We appreciate everybody’s time and attention today, and wish everybody a nice night.

That does conclude the conference call for today. We thank you for your participation and you can now disconnect your lines.