Olenox Industries Inc. (OLOX) Q1 2023 Earnings Report, Transcript and Summary

Greetings, and welcome to Safe & Green Holdings First Quarter 2023 Business Update Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, [Ted Avis], Vice President of Investor Relations. You may begin.

Good afternoon, and thank you for joining Safe & Green's first 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 March 31, 2023. The press release is posted on the Company's website, www.safeandgreenholdings.com. In addition, the Company plans to file 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 or 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 are 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, Thursday, May 11, 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?

Thanks, Ted. Good afternoon, and thank you to everyone for joining us today. I would like to begin by expressing our gratitude to our investors for their incredible support and faith in our vision. We remain dedicated to achieving our goals and generating enduring long-term value for our shareholders. In the first quarter of 2023, the Company experienced a 230% year-over-year growth in Construction Services revenue, continuing the strong momentum we gained during the fourth quarter of 2022. Although considerable investments in the business to facilitate our projected growth temporarily affected margins, we are clearly implementing our business model as a vertically integrated developer and producer of modular structures. Our attention is now concentrated on four distinct verticals, all of which present numerous opportunities for revenue growth, business expansion and increased shareholder value. Furthermore, we remain confident that SG Echo, our manufacturing operations, will reach positive cash flow in Q3 2023, marking an important milestone in our pursuit of long-term company-wide profitability. Due to the Waldron production facility gearing up for operations during Q1, SG Echo was not yet cash flow positive. However, once it has ramped up, likely in Q3 2023, we expect SG Echo to turn cash flow positive. Amidst the pandemic, when many businesses faced stagnation or decline, Safe & Green demonstrated impressive growth. Total assets increased from $6.6 million in 2019 to $28.4 million as of March 31, 2023, representing an increase of over 300%. For accounting purposes, these reported assets do not include the third-party appraised value of $74 million for our SG DevCo alone. Concurrently, our workforce expanded from seven employees to 92 over the same time frame. That is not counting the additional 50 plus employees who will be employed at our new Waldron facility. As part of our efforts to bolster the organic growth of SG Echo, we are investing in additional capacity. Recently, SG Echo obtained a certificate of occupancy for our new Waldron facility in Durant, Oklahoma. Consequently, we are now set to begin production at this facility, which we estimate will generate around 55 to 65 additional U.S. jobs when operating at full capacity. This facility adds an additional 58,000 square feet of manufacturing space with the potential to generate up to $25 million in additional annualized revenue for SG Echo over the 12 next months. Furthermore, we are advancing the development of our third facility in Durant, Oklahoma, which is scheduled for completion later in 2023. We recently announced that SG Echo has created, delivered and established two quick-serve restaurant units in Arkansas for a franchisee of the premier pizza company in the United States, Domino's. Our strong working relationship with Domino's as well as our appreciation for their enormous opportunity to deploy a series of eco-friendly and sustainable modular storefronts nationwide make this partnership an excellent fit. The collaboration aligns seamlessly with our goal of promoting environmentally sustainability and efficiency within our restaurant industry, benefiting all partners involved. These first two units function as a validation of the concept for future locations within this nationwide chain and there are plans to implement additional modular storefronts across the United States. In addition, SG Echo recently signed a contract to supply additional units for a long-term private client with an estimated value of around $6 million. This current set of units is slated for completion in the third quarter of 2023. These units form part of a continuous programmatic ordering arrangement between the two companies, with the majority of the units representing a second product line from the client that fits well with SG Echo's current manufacturing capabilities and expertise. We find it gratifying to see the growth and strengthening of our relationship with this particular client. As our clients advance, our focus will be on fostering this growth through factory expansion and productivity enhancements with our flexibility allowing us to quickly devise the required solutions. This client has demonstrated significant trust in SG Echo and approached us with a range of project requirements that we are pleased to fulfill. We believe these orders are a strong validation of the quality of our units as well as the significant value proposition we provide clients. Within Safe & Green Medical, our goal is to develop a national footprint with multiple clinics and labs that cater to the distinct needs of underserved communities. The point-of-care diagnostics market is anticipated to expand by more than 40%, amounting to over $51 billion by the year 2029. Our collaboration with the Peoples Health care and Teamsters Local 848 continues to progress, and we remain on course to deliver four modules by the end of the year. We have also introduced HALO Precision Diagnostics as a diagnostics and proactive analytics partner in this collaboration, enabling us to offer primary care, imaging, clinical lab and pharmacy services. This partnership allows us to provide more cost-effective, accurate and less invasive integrated health care to patients compared to conventional clinical diagnostic, laboratory and imaging models. We are confident that our point-of-care delivery approach is innovative and scalable, functioning more akin to medical technology distribution systems rather than traditional clinics or laboratories. The prospect of creating comparable partnerships with additional Teamsters Locals and diverse unions excites us, along with broadening our focus to encompass other U.S. communities, including smaller rural regions and eventually expanding overseas to offer integrated health care solutions in the future. Our firm belief is that by delivering medical care, tailored to the requirements of working class people, we can enhance the healthiest years of life, and that is the appropriate path for Safe & Green Medical. Importantly, we expect to generate $5 million in annual gross revenue per distinct medical site. Considering the growth and success of SG DevCo, we are moving forward with our plans to spin-off this subsidiary into an independent publicly traded company on NASDAQ, anticipated to occur within 90 days. We believe that this should unlock considerable value for existing shareholders as you will receive a 30% interest in the new stand-alone company while retaining your full equity ownership in the parent company. Furthermore, the planned sale of Lago Vista site is progressing and is expected to conclude in the second quarter of 2023. Initially purchased for an estimated $3.5 million, the site is anticipated to be sold for a substantially higher value, providing the Company with additional capital and a stronger balance sheet. Perhaps more importantly, over 4,000 units are moving through the planning and approval process preparing to enter our manufacturing facilities. The gross potential value of these projects stands at $800 million, with an estimated margin of about 15%. Meanwhile, we are advancing efforts in our Environmental segment and planning to leverage the Sanitec Microwave Healthcare Waste Disinfecting System for on-location, elimination of biomedical waste with our mobile and modular units. We are excited about this technology and the innovative vertical the Company is entering. As it addresses a significantly underserved market, we believe we can provide this cost-effective, compliant and distributed solution to major healthcare systems as an alternative to their current medical waste disposal methods. The fact that this solution reduces transportation and landfill costs in an environmentally friendly and sustainable manner makes it an attractive option for potential customers. The construction of a national sales service infrastructure for Sanitec is advancing smoothly, and we view this segment as the perfect fit for all Safe & Green Medical sites. In summary, our excitement and prospects for the business have never been stronger. We continue to grow our revenue while prudently controlling expenses and increasing our asset base. Our Construction Services segment is on course to attain positive cash flow in Q3 and for the full year. Accordingly, we are more confident than ever that we have established a highly scalable and profitable business model and eagerly anticipate the Company's future. On a final note, I am pleased to introduce Tricia Kaelin, who recently joined Safe & Green as the Company's Chief Financial Officer. Tricia joins the Company with more than 25 years of financial leadership, strategic planning and public company experience, as well as a successful track record across a variety of industries, including construction, manufacturing, health care and real estate development. She has served as Chief Financial Officer for public and privately held companies, including expertise in mergers and acquisitions and corporate restructuring as well as private and public equity and debt financing. We look forward to her strategic insight as we work to unlock value from our tremendous asset base. With her help and support, we are committed to maintaining a lean operating structure with a laser focus on carefully managing expenses, which we believe will result in substantial cash flow and long-term profitability. I'll now turn the call over to Tricia to review the financial results for the three months ending March 31, 2023. Tricia?

Thanks, Paul. Before I jump into the results, let me say how delighted I am to join Safe & Green at this exciting time in the Company's evolution. Before joining the Company, I conducted my own due diligence and the more I learned, the more I saw the tremendous potential. This is best illustrated by the rapid growth in the Construction Services revenue despite a challenging macro environment. When you combine this with the significant operating leverage to be gained from the vertical integration of the Company's manufacturing capabilities, I believe Safe & Green is truly poised to drive significant returns for shareholders. That said, let me now turn to our financial results for the quarter. Revenue for the first quarter of 2023 was $5.5 million compared to $8.6 million for the first quarter of 2022, reflecting the discontinuation of COVID-19 testing facilities, partially offset by increased Construction Services revenue. The Construction Services segment generated $5.5 million in revenue, a 230% increase compared to the same period last year. Total gross profit for the three months ended March 31, 2023, was a loss of $69,000 compared to $2.5 million of gross profit in the first quarter of 2022, reflecting the decline in medical revenue, offset by increased revenue within the Construction Services segment. Operating expenses for the first quarter of 2023 were $2.8 million compared to $2.1 million for the first quarter of 2022. This increase was primarily attributable to increased general and administrative expenses that the Company incurred to support its anticipated growth, partially offset by the reduction in payroll and related expenses. Operating expenses for the first quarter of 2023 were $2.8 million compared to $2.1 million for the first quarter of 2022. This increase was primarily attributable to increased general and administrative expenses that the Company incurred to support its anticipated growth, partially offset by a reduction in payroll and related expenses. Operating expenses for the first quarter of 2023 included approximately $404,000 of noncash expenses including $138,000 of depreciation and amortization as well as $266,000 of stock-based compensation expense. This compares to approximately $806,000 of noncash expenses, including $157,000 of depreciation and amortization as well as $649,000 of stock-based compensation expense for the same period last year. The first quarter of 2023 also included significant expenses allocated to the build-out of SG DevCo and the Medical segment that were not incurred for the same period last year. The Company expects its operating expense as a percentage of revenue will significantly decline in future quarters. The net loss attributed to common shareholders was approximately $3.2 million or $0.22 per share in the first quarter of 2023 compared to a net loss of $717,000 or $0.06 per share for the first quarter of 2022. The Company's adjusted EBITDA loss for the first quarter ending March 31, 2023, was approximately $2 million as compared to adjusted EBITDA of approximately $239,000 for the first quarter ended March 31, 2022. At March 31, 2023, and March 31, 2022, the Company had a cash balance and short-term investments of $1.5 million and $13.1 million, respectively. As of March 31, 2023, stockholders' equity was $12.6 million compared to $21.6 million as of March 31, 2022. We believe Safe & Green has sufficient cash and borrowing capacity to support near-term operations. Furthermore, we are progressing on the sale of our Lago Vista site, which is expected to provide additional liquidity to support our ongoing operational needs. I would now like to turn the call back over to Paul for closing remarks.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.