SMG Industries, Inc. Announces First Quarter 2019 Financial Results

Oilfield Services Company Reports Revenues of $1.75 million for the First Quarter ended March 31, 2019 a 75% Increase from the First Quarter 2018

First Quarter Highlights:

• Revenue increased 75% to $1,752,704 for the quarter ended March 31, 2019, from $998,178 in the same period a year ago, which is up approximately 42%, sequentially from the last quarter,
• Increase in first quarter 2019 revenues driven by organic growth in the drilling market-focused products & services business MG Cleaners, as well as completions-focused Momentum frac water business acquired in December 2018,
• Cost of Sales grew to $1,480,715, or 84.5% of revenues compared to 51% of revenues in the first quarter 2018, due to operations and transitional expenses incurred from the recent acquisition, as well as higher labor and equipment rental costs due to delayed jobs and inefficiencies in the frac water business,
• Adjusted Gross Profit increased 38% to $674,817 for the quarter ended March 31, 2019 from $488,063 the same period a year ago, and Adjusted EBITDA was ($39,364) for the first quarter 2019; (both non-GAAP measures; see reconciliation chart below),
• Net Loss of $710,262 for the first quarter ended March 31, 2019 which was due primarily to operational and transitional expenditures related to its acquisition of Momentum Water Transfer Services, LLC in December 2018,
• Total Assets grew 16.4% to $4,100,468 in first quarter 2019 from $3,526,447 from the previous quarter ended December 31, 2018,
• The Company is aggressively moving forward with its build and buy acquisition strategy.

HOUSTON, TX / ACCESSWIRE / May 15, 2019 / SMG Industries, Inc. (the "Company") (OTCQB: SMGI), a growth-oriented oilfield services company operating in the Southwest United States and headquartered in Houston, Texas announced today their financial results for the first quarter ended March 31, 2019.

As stated in the Company's Quarterly Report on Form 10-Q filed May 14, 2019 with the Securities and Exchange Commission, the Company's sales for the three months ended March 31, 2019 were $1,752,704, an increase of 75%, from $998,178 for the three months ended March 31, 2018. The increase in revenue for the three months ended March 31, 2019 was primarily attributable to additional revenues contributed by the recent frac water operations acquired in December 2018, and SMG oil tools rental revenues not present in the first quarter 2018 as well as organic growth of MG Cleaners from an increased customer base and its rental equipment in the Permian Basin.

During the three months ended March 31, 2019, cost of sales increased as a percentage of sales to 84.5% of revenues, or $1,480,715, compared to 51.1% of revenues or $510,115, for the comparable 2018 period. The increase in cost of sales as a percentage of revenues is primarily the result of the impact of transitional costs related to the frac water acquisition, higher equipment rental expense, equipment relocation expense, customer related delays during rig up of jobs, higher direct costs in cost of sales, including higher wages from added service crews in Texas, wage inflation with direct personnel, increased rent expense for labor force, increased freight, shipping and fuel expenses along with increased depreciation expense from added equipment with our rental fleet. The Company believes going forward it will improve cost of sales as a percentage of sales to be more in line with previous averages though selecting more profitable frac water work and driving higher utilizations and efficiencies from cross-selling with our other customers.

For the three months ended March 31, 2019, selling, general and administrative expenses increased to $838,624, an increase of $416,782, from $421,842 for the three months ended March 31, 2018. This increase in selling, general and administrative expenses in the first quarter of 2019 over the first quarter of 2018 was primarily due to increased wages and employee costs from the new frac water company, added professional fees, employee housing expense, additional health and employee related insurance increases, and other one-time costs such as legal fees from an associated lawsuit and future prospective acquisition expenses. Additionally, acquisition costs in the first quarter 2019 were $8,000, and amortization of deferred financing costs was $73,579 during the first quarter 2019 as compared to $24,505 during the comparable period in the first quarter of 2018.

During the three months ended March 31, 2019, the Company incurred a net loss of $710,262, or $0.06 per basic and diluted earnings per share. For the three months ended March 31, 2018, the Company incurred a net income of $19,743 or $0.00 per basic and diluted earnings per share. The net loss in the quarter ended March 31, 2019 resulted primarily from lower gross margins from higher cost of sales expenses in the frac water business acquired in December 2018 and increased sales, general and administrative expense compared to the first quarter 2018. The basic weighted average number of shares of common stock outstanding was 12,460,520 and 9,387,325 for the three months ended March 31, 2019 and 2018, respectively. The Company's total outstanding shares of common stock were 13,885,106 as of May 14, 2019.

As of March 31, 2019, our total assets were $4,100,468, comprised of $70,432 in cash, $927,796 in accounts receivable, $128,425 in inventory, $42,300 in assets held for sale, other prepaid expenses of $81,071, $2,009,995 in net property and equipment, and $322,406 in net intangible assets. This is an increase in total assets of $574,021 over the total assets at December 31, 2018 of $3,526,447.

The Company adopted ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02) effective January 1, 2019. Under ASU No. 2016-2, an entity is required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. Recorded Operating Leases right of use assets and corresponding liabilities of approximately $322,406.

Matt Flemming, Chief Executive Officer of SMG Industries stated, "The frac water business SMG acquired in December 2018 had a challenging first quarter 2019 associated with delayed jobs, higher rig up costs, equipment rental expenses and inefficiencies. The Company has refocused some of its frac water resources in higher margin areas and selected work that is more profitable going forward relative to its equipment base". Mr. Flemming continued, "While the purchase price of Momentum frac water acquisition in December 2018 was attractive reflecting paying little more than its asset values, the business needed to re-focus on more lucrative work for growth. We are starting to see benefits from cross-fertilizing our legacy customers for frac water services and anticipate higher margin activity going forward relative to Q1, '19. Currently, we anticipate other acquisitions this year with accretive profiles that could accelerate our business plans."

First Quarter 2018 Financial Tables

SMG INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)

Adjusted EBITDA Reconciliation Table

About SMG Industries, Inc.: SMG Industries is a rapidly growing oilfield services company that operates throughout the Southwest United States. Through its wholly-owned operating subsidiaries, the Company offers an expanding suite of products and services across the market segments of drilling, completions and production. MG Cleaners LLC, serves the drilling market segment with proprietary branded products including detergents, surfactants and degreasers (such as Miracle Blue®) as well equipment and services crews that perform on-site repairs, maintenance and drilling rig wash services. SMG's rental division includes an inventory of over 800 bottom hole assembly (BHA) oil tools such as stabilizers, drill collars, crossovers and bit subs rented to oil companies and their directional drillers. SMG's frac water management division, know as Momentum Water Transfer, focuses in the completion or fracing market segment providing high volume above ground equipment and temporary infrastructure to route water used on location for fracing. SMG Industries, Inc. headquartered in Houston, Texas has facilities in Carthage, Odessa and Alice, Texas. Read more at www.SMGindustries.com and www.MGCleanersllc.com and www.MomentumWTS.com.

Forward-Looking Statements:

This news release contains information that is "forward-looking" in that it describes events and conditions SMGI reasonably expects to occur in the future. Expectations for the future performance of SMGI are dependent upon a number of factors and there can be no assurance that SMGI 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 SMGI'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 SMGI. SMGI disclaims any obligation to update any forward-looking statement made herein.

Contact:

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

SOURCE: SMG Industries, Inc.