Sg Blocks, Inc. (SGBX) Reports Q4 Loss of $0.43, Revenues Beat

Sg Blocks, Inc. (NASDAQ: SGBX) reported Q4 EPS of ($0.43), versus ($0.05) reported last year. Revenue for the quarter came in at $2.3 million versus the consensus estimate of $1.54 million.

Key Fourth Quarter & Full Year 2018 Financial Highlights:

• Revenue increased 9.6% to $2.3 million in Q4 2018, as compared to $2.1 million in Q4 2017.
• Revenue increased 61.8% to $8.2 million in FY 2018, as compared to $5.1 million in FY 2017.
• Gross profit for Q4 2018 totaled approximately $0.1 million, as compared to $0.2 million in Q4 2017. Gross profit margin as a percentage of revenue decreased to 5.4% in Q4 2018, as compared to 11.5% in Q4 2017.
• Gross profit for FY 2018 totaled approximately $0.5 million, as compared to $0.6 million in FY 2017. Gross profit margin as a percentage of revenue totaled 6.6% in FY 2018, as compared to 12.5% in FY 2017.
• Gross profit margin as a percentage of revenue for projects, excluding one $6.1 million contract, was 27% in Q4 2018 and 25% in FY 2018.
• Net loss totaled $1.8 million, or $(0.43) per basic and diluted share, in Q4 2018, as compared to net loss of $1.1 million, or $(0.46) per basic and diluted share, in Q4 2017.
• Net loss totaled $4.8 million, or $(1.14) per basic and diluted share in FY 2018, as compared to net loss of $4.5 million, or $(1.95) per basic and diluted share in FY 2018.
• Adjusted EBITDA loss in Q4 2018 totaled $1.6 million, as compared to $0.6 million in Q4 2017. Adjusted EBITDA loss totaled $3.9 million in FY 2018, as compared to $1.7 million in FY 2017. (See below for further discussion about the presentation of Adjusted EBITDA, a non-GAAP financial measurement.)

Key Fourth Quarter & Full Year 2018 Operational Highlights:

• Construction backlog increased to $97.7 million as of December 31, 2018, as compared to $76.7 million at December 31, 2017, driven primarily by the addition of one large contract entered into by the company in the last quarter of 2018 for approximately $25.0 million.
• Performed activity on 14 total projects in backlog during Q4 2018.
• Realigned organizational structure to support record backlog and new customer additions, including appointing Scott Hill as Vice President of Operations.
• Appointed Yaniv Blumenfeld, an experienced real estate investor, and James C. Potts, a 25-year commercial REIT veteran with extensive public company management experience, to our Board of Directors.
• Signed Master Services Agreement with Grimshaw Architects, a leading global architecture firm, for incorporation into its global award-winning industrial design portfolio.
• Secured three projects with the U.S. Navy totaling $2.7 million.
• Entered into new venture, SG Residential, focused on creating affordable single-family container-based modular home solutions.
• Received $25 million, multi-thousand container purchase order from Phoenix Hotel and Hospitality, the largest retail module contract to date for SG Blocks.
• Partnered with Capital Plus Financial, one of the nation’s largest Community Development Financial Institutions, to provide affordable housing and an innovative mortgage product aimed at low- to moderate-income areas across the United States and Puerto Rico.

Management Commentary

“2018 was an incredible year of progress for SG Blocks, as we continued to execute upon our corporate vision,” said Paul Galvin, CEO of SG Blocks. “Since our public offering in June of 2017, SG Blocks has invested much time and effort into planting the seeds of growth for our future. Many of these goals were long-term and focused on building out our business model and we have made substantial progress.

“From a financial perspective, 2018 was a year of lessons learned for our company in terms of monetizing the larger projects in our backlog. Although we did not meet the expectations set forth in early 2018, we did make significant progress building a platform company that we believe will support double-digit revenue growth in the years to come. Today we own those mistakes and will outline our renewed focus in two major areas that we anticipate will benefit shareholders over the long run.”

Lessons Learned in 2018

“First, our projects are increasingly complex, and our existing systems were not as effective in managing certain processes as they were for less-complex projects. We determined that changes were needed in partnerships, personnel and the manner in which we monitor the work of others, including our clients. We believe we have made the necessary adjustments which will allow the company to be more proactive in identifying potential problems to revenue recognition and margin management. We have recruited and hired industry experts that have successfully delivered substantial modular projects that reflect our backlog and pipeline. They are tasked with keeping our projects on time and budget so that we can provide our shareholders with better visibility on the conversion of our backlog into revenue,” explained Mr. Galvin.

“Secondly, we have received consistent feedback from our shareholders that we are not doing a good enough job in explaining our conversion of backlog into revenue. In particular, we have received requests for more information regarding our larger contracts that are complex real property developments. Our shareholders are looking for more clarity, so they can complete their own financial due diligence, and it has been a challenge to date. We intend to do a better job of communicating regarding our projects while respecting our clients’ confidentiality in certain areas.

“What is and remains a constant is our unyielding effort to make SG Blocks the premier modular platform in the United States and we believe our experiences last year were invaluable for us. We anticipate successfully delivering complex commercial structures using our proprietary technology and methods. We will continue to monitor all of the internal systems that produce our product on a recurring basis,” continued Mr. Galvin.

2018 in Review

“We believe our record backlog stands as a testament to the fact that we have become one of the premier innovators in providing industry-approved, code-engineered cargo shipping containers and purpose-built steel modules to meet the growing demand for safe and green (SG) construction. We have earned the trust of some of the best brands in the country and have demonstrated that SG Blocks can successfully scale partnerships, attract and retain an impressive management team and expand our capabilities through strategic partnerships that now position us for significant growth.

For earnings history and earnings-related data on Sg Blocks, Inc. (SGBX) click here.

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