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SMG Industries, Inc. Announces First Quarter 2020 Financial Results

Transportation and Oilfield Services Company Reports Revenues of $5.98M for the First Quarter ended March 31, 2020, a 241% Increase from the First Quarter 2019

HOUSTON, TX, July 01, 2020 (GLOBE NEWSWIRE) -- via NEWMEDIAWIRE -- SMG Industries, Inc. (the “Company”) (SMGI), a growth-oriented transportation and oilfield services company operating in the Southwest United States, announced today their financial results for the first quarter ended March 31, 2020.

First Quarter Highlights

  • Revenue increased 241% to $5,976,400 for the quarter ended March 31, 2020, compared to the first quarter 2019,
  • 5J acquisition closed February 27, 2020, diversifying SMG into heavy-haul, logistics and transportation services,
  • Pro forma first quarter 2020 revenues, including 5J for the entire period, were $13,536,910, (a non-GAAP measure),
  • Gross Profit was a loss of $34,236 for the quarter ended March 31, 2020, which includes $531,231 in non-cash depreciation charges which increased with the 5J acquisition during the first quarter 2020, compared to $271,989 during the same period a year ago,
  • Adjusted EBITDA was $744,203 for the first quarter 2020, (a non-GAAP measure; see reconciliation chart below),
  • Total Assets grew 592% to $37,885,910 in first quarter 2020 from $6,431,384 from the previous quarter ended December 31, 2019, and
  • The Company continues to move forward aggressively with its acquisition growth strategy to further diversify its business.

Management Comments

Mr. Matt Flemming, Chief Executive Officer of the Company, stated, “We executed during the first quarter 2020 on the acquisition of a 20+ year old industry-recognized transportation and drilling rig mobilization company with approximately $50 million in revenues for the fiscal year ended December 31, 2019, known as “5J,” diversifying us into heavy haul and logistics services. 5J has an excellent reputation in the marketplace built over many years and business cycles using a balanced approach of company-owned and owner/operator independent trucks and trailers to provide transportation services for midstream compressors, heat exchangers, power components, bridge beams, and infrastructure projects. We anticipate 5J will significantly contribute to an increase in our revenues. However, falling oil prices and the COVID-19 pandemic have had a disruptive effect on all of our subsidiaries, causing office closures and decreases in customer and market activity in each segment of our business. We believe other strategic acquisitions are available given the market profile today and opportunities presented.”

Financial Review

As stated fully in the Company’s Quarterly Report on Form 10-Q filed June 29, 2020, the Company’s sales for the three months ended March 31, 2020 were $5,976,400, an increase of approximately 241%, from $1,752,704 for the three months ended March 31, 2019. The increase in revenues for the three months ended March 31, 2020 was primarily attributable to the additional revenues of the 5J acquisition completed on February 27, 2020, not present in the year ago comparable period.

During the three months ended March 31, 2020, cost of sales increased as a percentage of sales to 101% of revenues, or $6,016,636, compared to 84.5% of revenues or $1,480,715, for the comparable 2019 period. The increase in cost of sales as a percentage of revenues is primarily the result of the increased non-cash deprecation cost added from the 5J acquisition of $491,781, as the value of the assets in connection with the 5J acquisition were reflective of the purchase price accounting, not present in the year ago comparable period.

For the three months ended March 31, 2020, selling, general and administrative expenses increased to $2,497,904, or 41.8% of sales, representing an increase of $1,659,280, from $838,624 or 47.8% of sales for the three months ended March 31, 2019. This decrease in selling, general and administrative expenses, as a percentage of sales, in the first quarter of 2020 compared to the first quarter of 2019 was primarily due to higher sales covering more fixed costs within selling, general and administrative expenses partially offset by higher acquisition costs in the first quarter of 2020 of $1,490,358 resulting from the 5J acquisition.

Other expense, net was $447,091, an increase of $303,464 for the three months ended March 31, 2020 compared to $143,627 in the first quarter in 2019. The increase in other expense during the three months ended March 31, 2020 resulted from higher interest expense with our revolving line of credit, funding agreements and notes payable, and higher amortization of debt discount, partially offset by a gain on settlement of liabilities compared to the three months ended March 31, 2019.
  
During the three months ended March 31, 2020 we incurred a net loss attributable to common shareholders of $3,021,354, or $0.19 per basic and diluted earnings per share. For the three months ended March 31, 2019 we incurred a net loss attributable to common shareholders of $710,262 or $0.06 per basic and diluted earnings per share. The net loss in the quarter ended March 31, 2020 resulted primarily from higher cost of revenues and selling, general and administrative expenses, including one-time acquisition expenses, resulting in a loss from operations as well as higher interest expenses, including higher non-cash expenses of depreciation and amortization of debt discounts, compared to the first quarter 2019. The basic weighted average number of shares of common stock outstanding was 15,686,520 and 12,460,520 for the three months ended March 31, 2020 and 2019, respectively.

Liquidity and Capital Resources

As of March 31, 2020, our total assets were $37,885,910, comprised of $585,476 of cash and cash equivalents, $9,689,360 in accounts receivable, $18,410 in costs in excess of billings, $173,064 in inventory, prepaid and other current assets of $1,690,626, $23,127,812 in net property and equipment, $750,966 in other assets, $1,721,453 in ROU Asset – operating lease, and $128,743 in net intangible assets. This is an increase in total assets of $31,454,526 over the total assets at December 31, 2019 of $6,431,384.

Our net increase in cash for the three months ended March 31, 2020 was $555,122, as compared to a net cash increase of $68,824 in the three months ended March 31, 2019.

At March 31, 2020 and December 31, 2019, we had cash and cash equivalents of $585,476 and $30,354, respectively. Based on the Company’s acquisition of 5J on February 27, 2020, current revenue, and anticipated gross margin improvement from cost cutting measures implemented, along with anticipated new growth from cross selling our customers, we believe that we are well-positioned to improve cash flow during the remainder of 2020.
  
At March 31, 2020, we had approximately $6,006,463 of the $10,000,000 of availability under our line of credit. Additionally, we believe we will need to raise additional funds to meet the growth, capital expenditures and acquisitions planned for our business through the next twelve months. Currently, we are not a party to any binding agreement with respect to potential investments in, or acquisitions of businesses. We may enter into these types of arrangements in the future, which could also require us to seek additional equity or debt financing, which may not be available on terms favorable to us or at all.

About SMG Industries, Inc.

The Company is a growth-oriented transportation and oilfield services company that operates throughout the Southwest United States.  Our primary business objective is to grow our operations and create value for our stockholders through organic growth and strategic acquisitions. We have a “buy & build” growth strategy of consolidating middle market companies and generating organic growth post-acquisition when possible from removing business constraints with strategic cross-selling of products and services across market segments benefiting us with higher utilization and customers with more efficient costs.  Our wholly owned operating subsidiaries that offer this range of products and services are: 

  • 5J Trucking LLC,
  • 5J Oilfield Services LLC,
  • Trinity Services LLC,
  • MG Cleaners LLC, and
  • Momentum Water Transfer Services LLC.

These operating subsidiaries provide a range of logistics, midstream, and oilfield services such as:

  • Logistics and heavy haul of production equipment and infrastructure components such as bridge beams, cement, and heavy equipment, 
  • Transportation of midstream compressors,
  • Cranes used to set equipment on compressor stations, pipeline infrastructure and load drilling rig components,
  • Drilling rig move and relocation for drilling contractors and oil and gas operators,
  • Construction equipment including excavators, tractors, and back hoes used to build large cement reinforced dirt locations of oil and gas drilling pads (multi-well pads), creating and covering reserve pits and lease roads for operators and service companies,
  • Product sales of degreasers, surfactants, and detergents used in industrial and oilfield applications,
  • Services crews that perform mechanical repair and maintenance,
  • Product sales of cleaning equipment used in industrial and oilfield customers, and
  • Frac water management services and oil tool rentals to directional drilling customers.

We are headquartered in Houston, Texas with facilities in Odessa, Floresville, Palestine, Carthage, and Waskom, Texas. Find additional information about us at SMGIndustries.com. 

Forward-Looking Statements

This news release contains information that is “forward-looking” in that it describes events and conditions the Company reasonably expects to occur in the future.  Expectations for the future performance of the Company are dependent upon a number of factors and there can be no assurance that the Company will achieve the results as contemplated herein.  Certain statements contained in this release using the terms “may,” “Expects to,” “anticipated,” and other terms denoting future possibilities, are forward-looking statements.  The accuracy of these statements cannot be guaranteed as they are subject to a variety of risks, which are beyond the Company’s ability to predict, or control and which may cause actual results to differ materially from the projections or estimates contained herein.  Forward-looking statements in this news release that are subject to risk include the ability to achieve and continue revenue, net income, and adjusted EBITDA improvements.  It is important that each person reviewing this release understand the significant risks attendant to the operations of the Company.  the Company disclaims any obligation to update any forward-looking statement made herein.

Contact:

Matthew Flemming, SMG Industries, Inc. +713-821-3153

SOURCE: SMG Industries, Inc.



SMG Industries, Inc.
Pro Forma Combined Statement of Operations
For the Three Months Ended March 31, 2020
 Illustrating if the Company had acquired 5J on January 1, 2020 (5J was acquired on February 27, 2020)
(Unaudited, a non-GAAP measure)
                     
   SMG     5J Combined pre acquisition     5J Pro Forma Adjustments         Pro Forma Combined   
                     
                     
                     
REVENUE TOTAL  $  5,976,400    $  7,560,510    $  -         $  13,536,910  
                     
COST OF REVENUE   6,010,636     7,178,467     419,458         13,608,560  
                     
GROSS PROFIT   (34,236)     382,043     (419,458)         (71,651)  
                     
Selling, General & Adminstrative   2,497,904     (633,035)     -          1,864,869  
                     
Income (loss) from operations   (2,532,140)     1,015,078     (419,458)         (1,936,519)  
                     
Other Income (Expense)                    
Interest Income   -      -      -          -   
Interest Expense   (447,091)     (93,496)     (166,667)         (707,253)  
Loss on settlement of liabilities   -      -      -          -   
Other income   -      -      -          -   
Other expense   -      -      -          -   
Gain on sale of fixed assets   -      (186,969)     -          (186,969)  
                     
Income (Loss) before provision for income taxes   (2,979,231)     734,614     (586,124)         (2,830,741)  
                     
State Income tax expense   -      -      -          -   
                     
Net income (loss)    (2,979,231)     734,614     (586,124)         (2,830,741)  
                     
Preferred stock dividends   (42,123)     -      (50,000)         (92,123)  
                     
Net income (loss) attributable to common shareholders  $  (3,021,354)    $  734,614    $  (636,124)        $  (2,922,864)  
                     
Net income (loss) per common share                    
Basic  $  (0.19)     -     -        $  (0.19)  
Diluted  $  (0.19)     -     -        $  (0.19)  
                     
Weighted Average Shares Outstanding                    
Basic   15,686,520     -     -         15,686,520  
Diluted   15,686,520     -     -         15,686,520  


SMG INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the three months ended March 31, 2020 and 2019
(Unaudited)
                     
                     
                     
                March 31, 2020   March 31, 2019
                     
  REVENUES          $  5,976,400    $  1,752,704
                     
  COST OF REVENUES           6,010,636     1,480,715
                     
  GROSS PROFIT (LOSS)           (34,236)     271,989
                     
  OPERATING EXPENSES:              
    Selling, general and administrative           2,497,904     838,624
                     
    Total operating expenses            2,497,904     838,624
                     
  LOSS FROM OPERATIONS           (2,532,140)     (566,635)
                     
  OTHER INCOME (EXPENSE)              
    Interest expense, net           (447,091)     (143,627)
                     
    Total other income (expense)           (447,091)     (143,627)
                     
  NET LOSS           (2,979,231)     (710,262)
                     
    Preferred stock dividends           (42,123)     -
                     
  NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS          $  (3,021,354)    $  (710,262)
                     
  Net loss per common share              
    Basic          $  (0.19)    $  (0.06)
    Diluted          $  (0.19)    $  (0.06)
                     
  Weighted average common shares outstanding              
    Basic           15,686,520     12,460,520
    Diluted           15,686,520     12,460,520
                     
 

Adjusted EBITDA Reconciliation
For the Three Months ended March 31, 2020
(Unaudited, a non-GAAP measure)

               For the Quarter ended March 31, 2020 
               
NET LOSS           $  (3,021,354)
               
EBITDA add backs            
  Interest             581,203
  Taxes             19,591
  Depreciation & Amortization             1,629,386
  Non-Cash Stock Awards             2,895
  Preferred Stock Dividends             42,123
  Acquisition costs             1,490,358
               
Adjusted EBITDA             $ 744,203