SOURCE: SG Blocks, Inc.

SG Blocks, Inc.

November 08, 2017 16:01 ET

SG Blocks Reports Third Quarter 2017 Financial Results

Construction Backlog Increases 700% from Prior Quarter to Record $77.1 Million Driven by Largest Project Awards in Company History

BROOKLYN, NY--(Marketwired - Nov 8, 2017) - SG Blocks, Inc. (NASDAQ: SGBX), a leading designer, innovator and fabricator of container-based structures, reported its financial results for the third quarter ended September 30, 2017.

Key Third Quarter 2017 Financial & Operational Highlights:

  • Revenue increased 342% to $1.4 million, as compared to $0.3 million in Q3 2016.

  • Construction backlog increased 700% to $77.1 million, as compared to $9.7 million in Q2 2017 and $0.5 million at December 31, 2016. 

  • Gross profit totaled $98,000, as compared to $58,000 in Q3 2016.

  • Net loss totaled $1.0 million, or ($0.25) per basic and diluted share.

  • Adjusted EBITDA loss totaled $0.5 million (see below for further discussion about the presentation of Adjusted EBITDA, a non-GAAP financial measurement).

  • Secured two low income housing development projects in New York State representing largest project awards in company history.

  • Retained Encore Endeavor 1, a wholly owned subsidiary of Level Brands for strategic advisory and consultancy services, in close coordination with Kathy Ireland, Chairman Emeritus and Chief Brand Strategist of Level Brands, Inc.

  • Engaged MZ Group to lead strategic investor relations and shareholder communication program.

  • Hired and appointed strategic sales personnel including Brian Adams as National Sales Director specializing in national and international sales strategies and its tactical implementation.

  • Rang the Nasdaq Stock Market Opening Bell at the Nasdaq MarketSite in Times Square with company management, board of directors and investors.

  • Completed public offering of common stock with the exercise of an over-allotment option, generating $7.1 million in proceeds, net of issuance costs.

Management Commentary

"The third quarter of 2017 was highlighted with increased top line revenue performance and the largest project awards in company history that drove our construction backlog to a record $77.1 million, or approximately 525,000 square feet across 13 projects," said SG Blocks CEO, Paul Galvin. "The newly announced 390,000 square feet of low and mid-rise workforce housing developments in New York State are fully modular, prefabricated and constructed and represent the highest gross margin profile in our project portfolio.

"Other notable achievements made during the third quarter were the hiring of strategic sales and project personnel to expand our footprint in the United States while leveraging the ESR rating from the International Code Council issued to SG Blocks in the second quarter of 2017. Being the only container-based construction company with an ESR rating, we believe, significantly shortens the project approval process and will augur well for our pipeline going forward.

"On the operational front, our management team has: (i) initiated customer relationship management optimization to streamline all sales inquiries and business development initiatives; (ii) standardized contracts for all proposals; and (iii) commenced manufacturing capacity expansion discussions with new potential partners," continued Galvin.

CFO Mahesh Shetty commented: "On the financial front, we expect subsequent quarters to transition from low-margin projects to an anticipated margin of 20% as we commence projects that are fully modular and encompass design, architectural and engineering, construction and delivery phases. Based on current progress in the fourth quarter of 2017 and contingent on acceleration of delivery on certain projects, we expect to break-even in our cash flow by the first quarter of 2018. We believe that, given the asset-light nature of our business model, we can handle incremental revenue with a relatively modest increase in SG&A expense. We leverage both inventory and labor on our suppliers' balance sheets and, in most cases, pay for products and services only after we have been paid by the customers. Our model creates significant leverage and reduces working capital constraints to growth. 

"We ended the third quarter of 2017 with $6.1 million in cash and cash equivalents, no debt, record backlog of $77.1 million and a project pipeline in excess of $200 million, positioning SG Blocks for significant financial performance in 2017 and beyond," concluded Shetty.

Galvin concluded: "The inflection point with our business is now clearly evident as both our operational and financial performance are in full gear. With a stable balance sheet, asset-light operating model, proprietary ESR certification and exclusive supplier relationship with North America's largest full-service supplier to the intermodal industry, we are well positioned to deliver cost-effective and seismic- and hurricane-safe solutions to both commercial and residential real estate markets.

"We look forward to sharing more on our developing story at the upcoming LD Micro Main Event institutional investor conference on December 6, 2017 in Los Angeles and the soon to be announced ribbon cutting ceremony for the Heart of Los Angeles Performing Arts and Enrichment Center."

Financial Results for the Three Months Ended September 30, 2017 Versus the Three Months Ended September 30, 2016

Revenue totaled $1.4 million in Q3 2017, an increase of 342% as compared to $0.3 million in Q3 2016. This increase in revenue was primarily a result of revenue being recognized on additional projects that are in progress during the nine months ended September 30, 2017 and due to a contract in the amount of $5.1 million having revenue recognized during the three months ended September 30, 2017 of approximately $1.1 million.

Construction backlog totaled $77.1 million at September 30, 2017, as compared to $9.7 million at June 30, 2017 and $0.5 million at December 31, 2016. The increase in backlog at the end of Q3 2017 as compared to the end of Q2 2017 was largely attributable to the commissioning of two low income housing development projects in New York state representing the largest project awards in company history, in the amounts of $55 million and $15 million. The two projects total 390,000 square feet of multi-story, multi-family projects and will be fully modular, prefabricated and constructed as an 'as-of-right' development. As of September 30, 2017, we had 13 projects, or approximately 525,000 square feet, in backlog. 

Gross profit totaled $98,000 in Q3 2017 as compared to $58,000 in Q3 2016. Gross profit margin as a percentage of revenue decreased to 7% in Q3 2017, as compared to 18% in Q3 2016. Gross profit margin for Q3 2017 was negatively affected by an increase in the cost of revenue largely attributable to the cost of buying and modifying containers and lower margins on existing contracts. The company expects to achieve higher gross profit margins on new projects that are in the backlog.

Operating expenses increased to $1.1 million in Q3 2017 from $0.4 million in Q3 2016. The increase in operating expenses was primarily due to an increase in payroll, amortization of intangible assets of $0.1 million and a one-time expense of $0.4 million for stock compensation.
Net loss totaled $1.0 million, or ($0.25) per basic and diluted share in Q3 2017, compared to net loss of $0.5 million, or ($1.11) per basic and diluted share, in Q3 2016. The increase in net loss was primarily due to stock compensation expense and amortization of intangible assets.

Adjusted EBITDA loss totaled $0.5 million. See below under the heading, "Use of Non-GAAP Financial Information" for a discussion of Adjusted EBITDA and a reconciliation of such measure to the most comparable measure calculated under U.S. generally accepted accounting principles ("GAAP").

Cash and cash equivalents at September 30, 2017 totaled $6.1 million, as compared to $0.5 million at December 31, 2016. The substantial balance of cash as of the comparative periods resulted from the proceeds, net of issuance costs, of $7.1 million from the Company's public offering of common stock in June 2017.

Further details about the Company's results in the third quarter of 2017 are available in its Quarterly Report on Form 10-Q, accessible in the investor relations section of the Company's website at www.sgblocks.com and through the U.S. Securities and Exchange Commission's website. 

Conference Call Information

SG Blocks CEO Paul Galvin and CFO Mahesh Shetty will host the conference call, followed by a question and answer period.

To access the call, please use the following information:

Date: Wednesday, November 8, 2017
Time: 4:30 p.m. ET, 1:30 p.m. PT
Toll-free dial-in number: 1-877-407-9716
International dial-in number: 1-201-493-6779
Conference ID: 13672689

Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact MZ Group at 1-949-491-8235.

The conference call will be broadcast live and available for replay at http://public.viavid.com/index.php?id=126971 and via the investor relations section of the Company's website at www.sgblocks.com.

A replay of the conference call will be available after 7:30 p.m. Eastern time through November 22, 2017.

Toll-free replay number: 1-844-512-2921
International replay number: 1-412-317-6671
Replay ID: 13672689

Use of Non-GAAP Financial Information

In addition to our results under GAAP, the Company presents EBITDA and Adjusted EBITDA for historical periods. EBITDA and Adjusted EBITDA are non-GAAP financial measures and have been presented as supplemental measures of financial performance that are not required by, or presented in accordance with, GAAP. We calculate EBITDA as net income (loss) before interest expense, income tax benefit (expense), depreciation and amortization. We calculate Adjusted EBITDA as EBITDA before certain non-recurring adjustments such as loss on conversion of convertible debentures, change in fair value of financial instruments and stock compensation expense. EBITDA and Adjusted EBITDA are presented because they are important metrics used by management as one of the means by which it assesses our financial performance. EBITDA and Adjusted EBITDA are also frequently used by analysts, investors and other interested parties to evaluate companies in our industry. These measures, when used in conjunction with related GAAP financial measures, provide investors with an additional financial analytical framework that may be useful in assessing our Company and our results of operations.

Set forth below is a reconciliation of EBITDA and Adjusted EBITDA to net income (loss):

             
    Nine Months Ended September 30,
2017
    Three Months Ended September 30,
2017
 
Net loss   $ (3,439,303 )   $ (1,043,301 )
  Addback interest expense     330,388       -  
  Addback depreciation and amortization     442,590       148,020  
EBITDA (non-GAAP)     (2,666,325 )     (895,281 )
                 
  Addback loss on conversion of convertible debentures     1,018,475       -  
  Less change in fair value of financial instruments     (96,327 )     -  
  Addback stock compensation expense     649,204       439,821  
Adjusted EBITDA (non-GAAP)   $ (1,094,973 )   $ (455,460 )
                 

About SG Blocks, Inc.
SG Blocks, Inc. is a premier innovator in advancing and promoting the use of code-engineered cargo shipping containers for safe and sustainable construction. The firm offers a product that exceeds many standard building code requirements, and also supports developers, architects, builders and owners in achieving greener construction, faster execution, and stronger buildings of higher value. Each project starts with GreenSteel™, the structural core and shell of an SG Blocks building, which is then customized to client specifications. For more information, visit www.sgblocks.com.

Forward-Looking Statements
Certain statements in this press release constitute "forward-looking statements" within the meaning of the federal securities laws. Words such as "may," "might," "will," "should," "believe," "expect," "anticipate," "estimate," "continue," "predict," "forecast," "project," "plan," "intend" or similar expressions, or statements regarding intent, belief, or current expectations, are forward-looking statements. While SG Blocks believes these forward-looking statements are reasonable, undue reliance should not be placed on any such forward-looking statements, which are based on information available to us on the date of this release. These forward-looking statements are based upon current estimates and assumptions and are subject to various risks and uncertainties, including without limitation those set forth in the SG Blocks' filings with the Securities and Exchange Commission (the "SEC"). Thus, actual results could be materially different. SG Blocks expressly disclaims any obligation to update or alter statements whether as a result of new information, future events or otherwise, except as required by law.

   
SG BLOCKS, INC. AND SUBSIDIARIES  
CONDENSED CONSOLIDATED BALANCE SHEETS  
   
    September 30,
2017
    December 31,
2016
 
    (Unaudited)        
Assets                
Current assets:                
  Cash and cash equivalents   $ 6,098,336     $ 549,100  
  Short-term investment     30,029       30,017  
  Accounts receivable, net     357,197       234,518  
  Costs and estimated earnings in excess of billings on uncompleted contracts     59,224       33,349  
  Prepaid expenses     343,173       124,720  
  Inventory     -       9,445  
    Total current assets     6,887,959       981,149  
Equipment, net     7,668       5,559  
Goodwill     4,162,173       4,162,173  
Intangible assets, net     3,175,563       3,587,250  
                 
    Totals   $ 14,233,363     $ 8,736,131  
                 
Liabilities and Stockholders' Equity                
Current liabilities:                
  Accounts payable and accrued expenses   $ 927,724     $ 350,772  
  Billings in excess of costs and estimated earnings on uncompleted contracts     802,915       48,478  
  Deferred revenue     -       72,788  
  Conversion option liabilities     -       384,461  
    Total current liabilities     1,730,639       856,499  
  Convertible debentures, net of discounts     -       2,446,337  
    Total liabilities     1,730,639       3,302,836  
                 
Commitments and Contingencies                
                 
Stockholders' equity:                
  Preferred stock, $1.00 par value, 5,405,010 shares authorized; 0 issued and outstanding as of September 30, 2017 and 1,801,670 issued and outstanding as of December 31, 2016     -       1,801,670  
  Common stock, $0.01 par value, 300,000,000 shares authorized; 4,257,238 issued and outstanding as of September 30, 2017 and 163,901 issued and outstanding as of December 31, 2016     42,573       1,639  
  Additional paid-in capital     17,206,030       4,936,562  
  Accumulated deficit     (4,745,879 )     (1,306,576 )
    Total stockholders' equity     12,502,724       5,433,295  
                 
    Totals   $ 14,233,363     $ 8,736,131  
                 
   
SG BLOCKS, INC. AND SUBSIDIARIES  
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  
   
    Successor For the Three Months Ended September 30,
2017
    Successor For the Three Months Ended September 30,
2016
 
    (Unaudited)     (Unaudited)  
Revenue:                
  Construction revenue   $ 1,326,005     $ 238,781  
  Engineering services     68,947       76,929  
    Total     1,394,952       315,710  
                 
Cost of revenue:                
  Construction revenue     1,242,113       189,520  
  Engineering services     54,942       68,423  
    Total     1,297,055       257,943  
                 
Gross profit     97,897       57,767  
                 
Operating expenses:                
  Payroll and related expenses     749,407       155,455  
  General and administrative expenses     324,794       236,804  
  Marketing and business development expense     56,343       16,196  
  Pre-project expenses     11,657       22,633  
    Total     1,142,201       431,088  
                 
Operating loss     (1,044,304 )     (373,321 )
                 
Other income (expense):                
  Interest expense     -       (123,412 )
  Interest income     3       3  
  Other income     1,000       -  
  Change in fair value of financial instruments     -       18,345  
    Total     1,003       (105,064 )
                 
Net loss before reorganization items     (1,043,301 )     (478,385 )
                 
Reorganization items:                
  Legal and professional fees     -       (64,821 )
    Total     -       (64,821 )
                 
Net loss   $ (1,043,301 )   $ (543,206 )
                 
Net loss per share - basic and diluted:                
  Basic and diluted   $ (0.25 )   $ (1.11 )
                 
Weighted average shares outstanding:                
  Basic and diluted     4,177,890       491,357  
                 
   
SG BLOCKS, INC. AND SUBSIDIARIES  
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  
   
    Successor
For the Nine Months Ended September 30,
2017
    Successor
For the Three Months Ended September 30,
2016
    Predecessor
For the Six Months Ended
June 30,
2016
 
    (Unaudited)     (Unaudited)     (Unaudited)  
Revenue:                        
  Construction revenue   $ 2,728,462     $ 238,781     $ 1,004,216  
  Engineering services     272,817       76,929       52,007  
    Total     3,001,279       315,710       1,056,223  
                         
Cost of revenue:                        
  Construction revenue     2,375,139       189,520       816,076  
  Engineering services     229,227       68,423       43,898  
    Total     2,604,366       257,943       859,974  
                         
Gross profit     396,913       57,767       196,249  
                         
Operating expenses:                        
  Payroll and related expenses     1,385,005       155,455       367,254  
  General and administrative expenses     1,048,853       236,804       557,069  
  Marketing and business development expense     122,529       16,196       22,729  
  Pre-project expenses     28,304       22,633       26,411  
    Total     2,584,691       431,088       973,463  
                         
Operating loss     (2,187,778 )     (373,321 )     (777,214 )
                         
Other income (expense):                        
  Interest expense     (330,388 )     (123,412 )     (429,017 )
  Interest income     11       3       8  
  Other income     1,000       -       -  
  Loss on conversion of convertible debentures     (1,018,475 )     -       -  
  Change in fair value of financial instruments     96,327       18,345       -  
    Total     (1,251,525 )     (105,064 )     (429,009 )
                         
Net loss before reorganization items     (3,439,303 )     (478,385 )     (1,206,223 )
                         
Reorganization items:                        
  Legal and professional fees     -       (64,821 )     (171,893 )
  Gain on reorganization     -       -       713,379  
    Total     -       (64,821 )     541,486  
                         
Net loss   $ (3,439,303 )   $ (543,206 )   $ (664,737 )
                         
Net loss per share - basic and diluted:                        
  Basic and diluted   $ (2.09 )   $ (1.11 )   $ (0.02 )
                         
Weighted average shares outstanding:                        
  Basic and diluted     1,647,916       491,357       42,918,927  
                           
   
SG BLOCKS, INC. AND SUBSIDIARIES  
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  
   
    Successor
For the Nine Months Ended
September 30,
2017
    Successor
For the Three Months Ended
September 30,
2016
    Predecessor
For the Six Months Ended
June 30,
2016
 
     (Unaudited)      (Unaudited)      (Unaudited)  
Cash flows from operating activities:                        
Net loss   $ (3,439,303 )   $ (543,206 )   $ (664,737 )
Adjustments to reconcile net loss to net cash used in operating activities:                        
  Depreciation expense     2,083       674       1,629  
  Amortization of debt issuance costs     -       -       5,204  
  Amortization of discount on convertible debentures     330,388       145,875       -  
  Amortization of intangible assets     440,507       111,808       387,965  
  Interest income on short-term investment     (12 )     (3 )     (8 )
  Loss on conversion of convertible debentures     1,018,475       -       -  
  Change in fair value of financial instruments     (96,327 )     (18,345 )     -  
  Interest expense on debtor in possession financing     -       -       35,848  
  Gain on reorganization     -       -       (713,379 )
  Stock-based compensation     649,204       -       119,146  
    Changes in operating assets and liabilities:                        
      Accounts receivable     (122,679 )     (88,874 )     (104,858 )
      Costs and estimated earnings in excess of billings on uncompleted contracts     (25,875 )     (25,753 )     -  
      Prepaid expenses and other current assets     (4,453 )     (5,000 )     (28,589 )
      Inventory     9,445       (98,257 )     118,011  
      Intangible asset     (28,820 )     -       -  
      Accounts payable and accrued expenses     576,952       (76,403 )     269,317  
      Accrued interest, related party     -       (26,500 )     -  
      Accounts payable and accrued expenses - subject to compromise     -       (21,197 )     (22,457 )
      Related party accounts payable and accrued expenses     -       45,818       -  
      Related party accounts payable and accrued expenses - subject to compromise     -       (113,789 )     (163,522 )
      Billings in excess of costs and estimated earnings on uncompleted contracts     754,437       68,679       14,650  
      Deferred revenue     (72,788 )     83,587       (87,115 )
        Net cash used in operating activities     (8,766 )     (560,886 )     (832,895 )
                         
Cash flows provided by investing activities:                        
  Purchase of equipment     (4,192 )     -       -  
  Security deposit refund     -       -       2,700  
        Net cash provided by (used in) investing activities     (4,192 )     -       2,700  
                         
Cash flows from financing activities:                        
  Principal payments on related party notes payable     -       (48,500 )     -  
  Proceeds from issuance of convertible debentures     -       -       1,319,001  
  Proceeds from public stock offering, net of issuance costs     7,062,194       -       -  
  Payments on convertible debentures     (1,500,000 )     -       -  
        Net cash provided by (used in) financing activities     5,562,194       (48,500 )     1,319,001  
                         
Net increase (decrease) in cash and cash equivalents     5,549,236       (609,386 )     488,806  
                         
Cash and cash equivalents - beginning of period     549,100       955,803       466,997  
                         
Cash and cash equivalents - end of period   $ 6,098,336     $ 346,417     $ 955,803  
                         
Supplemental disclosure of cash flow information:                        
  Cash paid during the period for:                        
  Interest   $ -     $ -     $ -  
Supplemental disclosure of non-cash financing activities:                        
  Conversion of debtor in possession financing to convertible debentures   $ -     $ -     $ 600,000  
  Conversion of convertible debentures to common stock   $ 2,583,334     $ -     $ -  
  Conversion of preferred stock to common stock   $ 1,801,670     $ -     $ -  
  Issuance of common stock for prepaid services   $ 214,000       -       -  
                         

Contact Information

  • Media and Investor Relations:

    Media
    Kati Bergou
    Rubenstein Public Relations
    Vice President
    212-805-3014
    Email Contact

    Investor Relations
    Chris Tyson
    MZ North America
    Managing Director
    949-491-8235
    Email Contact