Q1 2022 Harbor Custom Development Inc Earnings Call

May 12, 2022

Thank you for standing by and welcome to Harper Custom development incorporated first clutter 20 twenty-two earnings conference call. At this time all participants are in a listen only mode. A question and answer session from previously submitted questions and live questions will follow.

Thank you for standing by and welcome to Harbor Custom Development Incorporated First Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session from previously submitted questions and live questions will follow the formal presentation.

For my presentation.

As a reminder, this conference is being recorded I would not like to deduce today's presenters Sterling Griffin and C E O and president and chairman of the Board and Lance Brown, Chief Financial Officer, I will now turn the conference over to Mister Brown.

As a reminder, this conference is being recorded. I would now like to introduce today's presenters, Sterling Griffin, CEO and President and Chairman of the Board, and Lance Brown, Chief Financial Officer. I will now turn the conference over to Mr. Brown.

Thank you operator, and thank you all for joining us today.

Thank you operator, and thank you all for joining us today. Welcome to Harbor Custom Development's first quarter 2022 earnings conference call. During our discussion today we will be referring to our earnings press release and presentation that were made available prior to the call. The release and presentation can be found in the investor relations section of the harbor website at www.harvercustomhomes.com

Welcome to Harbor customer development first quarter 20, twenty-two earnings conference call.

During our discussion today, we will be referring to our earnings press release and presentation that were made available prior to the call. The release and presentation can be found in the Investor Relations section of the harbour website at Www Dot Harbor custom homes Dot com.

Before we begin I would like to remind everyone that today's call includes forward looking statements.

Before we begin, I would like to remind everyone that today's call includes forward-looking statements.

Any forward looking statements contained in the earnings release or discussed today are subject to the safe Harbor provisions of the private Securities Litigation Reform Act of 1995.

Any forward-looking statements contained in the earnings release or discussed today are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Such statements involve a number of risks.

Such statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from these four looking statements.

Uncertainties and other factors that could cause actual results to differ materially from these forward looking statements. So.

Specifically included our statements regarding our industry and our <unk>.

specifically included our statements regarding our industry and our outlook for 2022.

Look for 2022.

Please see our recent SEC filings, which identified the principal risks and uncertainties, which could affect future performance.

Please see our recent SEC filings, which identify the principal risks and uncertainties which could affect future performance.

We assume no obligation to update any forward looking statements and.

We assume no obligation to update any forward-looking statements.

In addition, we will be discussing what we're providing certain non-GAAP financial measures today, including EBITDA adjusted EBITDA and adjusted EBITDA margin. Please.

In addition, we will be discussing or providing certain non- GAAP financial measures today, including EBITDA, adjusted EBITDA, and adjusted EBITDA margin. Please see the appendix of our earnings presentation for a reconciliation of these non- GAAP measures to their most direct comparable GAP measure. I would now like to turn the call over to Sterling.

Please see the appendix of earnings presentation for a reconciliation of these non-GAAP measures to their most direct comparable measure.

Oh, but now like you could turn the call over to Sterling.

Thank you Lance and thanks to everyone for joining the call today. We appreciate your interest in Harvard cause some development.

Thank you, Lance, and thanks to everyone for joining the call today. We appreciate your interest in Harbor Custom Development.

Our unique business model continued to deliver the first quarter of the year with 106% increase in revenue over the first quarter of 2021.

Our unique business model continued to deliver the first quarter of the year with a hundred and six percent increase in revenue over the first quarter of 2021.

Inventory levels remain near historic lows, we expect to benefit from continued stable pricing throughout 2022 or.

Inventory levels remain near historic lows. We expect to benefit from continued stable pricing throughout 2022. Our distinct business plan of serving multiple segments of the home buying market within a 20 to 60 minute commute of some of the nation's fastest growing regions continues to provide us with a consistent stream of revenue.

Distinct business plan, a serving multiple segments of the home buying market within a 20 to 60 minute commute of some of the nation's fastest growing regions continues to provide us with a consistent stream of revenue.

Our expertise allows for a diversified product strategy that enables us to better serve a wide range of buyers adapt quickly to changing market conditions and optimize performance.

Our expertise allows for a diversified product strategy that enables us to better serve a wide range of buyers, adapt quickly to changing market conditions, and optimize performance.

We are equipped to build to the surrounding communities needs, including single family homes, Townhomes condominiums and apartments.

We are equipped to build to the surrounding community's needs, including single-family homes, townhomes, condominiums, and apartments.

This flexibility allows us to target a wide and diverse range of customers.

Portfolio of land lot home plans, and finishing options coupled with a historic low inventory of residential and multifamily housing in our geographic areas.

Our portfolio of land, lot, home plans, and finishing options coupled with a historic low inventory of residential and multifamily housing in our geographic areas provides an opportunity for us to increase revenue and overall market share.

I as an opportunity for us to increase revenue and overall market share.

In addition to our single family residential projects, we plan to build and sell Townhomes condominiums in apartments, and anticipate the commencement or continuation of land development and construction projects.

In addition to our single family residential projects, we plan to build and sell townhomes, condominiums and apartments and anticipate the commencement or continuation of land development and construction projects.

We recently announced a listing of six apartment properties in Western Washington for 278 million.

We recently announced the listing of six apartment properties in Western Washington for $278 million. Those projects are Pacific Ridge, Mills Crossing, Belfair View, Windstone, Tangle Wild, and Bridgetrails.

Those projects are Pacific Ridge Mills crossing Bell Fair view, Winstone, tangle, wild and bread G trails.

In addition to our diverse product portfolio, we continued to expand geographically western Washington remains our largest market, but we have operations in Texas, Florida and California.

In addition to our diverse product portfolio, we continue to expand geographically. Western Washington remains our largest market, but we have operations in Texas, Florida and California.

And Q1 of 2022, we closed our first two single family homes in the Austin, Texas MSA.

In Q1 of 2022, we closed our first two single-family homes in the Austin, Texas, MSA. We also executed several other new home contracts within a 20- to 60-minute commute to Austin, which are expected to close in the following months.

We also executed several other new home contracts within a 20 to 60 minute commute to Austin, which are expected to close in the following months.

Prices for the Texas homes are averaging approximately 400 per square foot.

Prices for the Texas homes are averaging approximately 400 per square foot. We recently located to a new office space in

We recently located to your new office space in Tacoma, Washington than.

The new office space is designed with a hybrid workforce in mind and considers employment trends that arose after the COVID-19 pandemic.

We continue to demonstrate strong and consistent growth delivering increase revenues each year of operation.

We continue to demonstrate strong and consistent growth, delivering increased revenues each year of operation.

Our compound annual growth rate for the years ended December 31st 2018 through 2021 was 132.9% in our compound annual growth rate for the first quarter's ended March 31st 2019 through March 31st 2022 was 88.5 per cent.

Our compound annual growth rate for the years ended December 31st, 2018 through 2021 was 132.9 percent and our compound annual growth rate for the first quarters ended March 31st, 2019 through March 31st, 2022 was 88.5 percent.

As of March 31st 2022 are backlogs of fully executed contracts for the sale of developed residential lots and single family homes was $20.7 million compared to 19 19 million as of March 31st 2021.

As of March 31st, 2022, our backlogs of fully executed contracts for the sale of developed residential lots and single-family homes was 20.7 million compared to 19.2 million as of March 31st, 2021.

Our fee build backlog as of March 31st 2022 was 7.3 million, we did not have a fever backlog as of March 31st 2021.

Our fee build backlog as of March 31st, 2022 was $7.3 million. We did not have a fee build backlog as of March 31st, 2021.

Our financial condition continues to improve.

Our financial condition continues to improve. We made significant progress last year to strengthen our balance sheet and finished Q1 with $22.3 million of unrestricted cash up from $9 million the previous year. We continue to invest in our business to drive shareholder value. In the first quarter, we announced the closing of a revolving credit facility of $25 million with Bank United. The facility provides us with the liquidity and financial flexibility to build on our already strong foundation and pursue further growth initiatives.

Made significant progress last year to strengthen our balance sheet and finished Q1 with 22.3 million of unrestricted cash up from 9 million. The previous year, we continue to invest in our business to drive shareholder value in the first quarter, we announced the closing of a revolving credit facility of 25 million with bank United The facility provides us with the law.

Quiddity and financial flexibility to build on our already strong foundation and pursue further growth initiatives.

As of March 31st 2022, we had 13 million of availability on the revolving credit facility for total liquidity of 35.2 million.

As of March 31st, 2022, we had 13 million of availability on the revolving credit facility for total liquidity of 35.2 million.

Despite rising interest rates and inflationary conditions I remain confident that the <unk> stability in the single and multifamily housing markets strength of our balance sheet and our unique business model makes us well positioned to deliver on our 2022 plans and beyond.

Despite rising interest rates and inflationary conditions, I remain confident that the stability in the single and multifamily housing markets, strength of our balance sheet, and our unique business model makes us well positioned to deliver on our 2022 plan and beyond.

I will now turn the conference call back to Lance Brown, our Chief Financial Officer to further discuss our financial details.

I will now turn the conference call back to Lance Brown, our Chief Financial Officer, to further discuss our financial details.

Thank you Sterling on a quarterly basis revenues increased by approximately 106% to 28.6 million for the three months ended March 31st 2022.

Thank you Sterling. On a quarterly basis revenues increased by approximately 106% to 28.6 million for the three months ended March 31st, 2022 as compared to 13.9 million for the three months ended March 31st, 2021. The increase in revenue was primarily driven by an increase in home sales of 5.5 million, 4.5 million from in time.

As compared to 13.9 million for the three months ended March 31 2021.

Increase in revenue was primarily driven by an increase in home sales of 5.5 million.

$4 5 million from entitled Landfills.

Be billed revenue of 2.7 million.

fee billed revenue of $2.7 million and $2.1 million from sales of developed lot.

And $2.1 million from sales of developed lots.

Our overall gross profit margin was 21.2% for the three months ended March 31, 2022 compared to 4.4% for the three months ended March 31 2021.

Our overall gross profit margin was 21.2% for the three months ended March 31st, 2022, compared to 4.4% for the three months ended March 31st, 2021.

This increase was driven primarily by the significant gross profit margins earned on entitled Landfills.

This increase was driven primarily by the significant gross profit margins earned on entitled land sales.

Our operating expenses increased to $3.8 million for the three months ended March 31st 2022.

Our operating expenses increased to $3.8 million for the three months ended March 31st, 2022 as compared to $2 million for the three months ended March 31st, 2021.

As compared to 2 million for the three months ended March 31st 2021.

The anticipated increase in total operating expenses is primarily attributable to the continued investment in public company infrastructure and future growth plans, including payroll related costs professional fees.

This anticipated increase in total operating expenses is primarily attributable to the continued investment in public company infrastructure and future growth plans, including payroll-related costs, professional fees, marketing and advertising, right-of-use expense associated with our new corporate office, as well as stock compensation and appreciation.

Marketing and advertising.

[noise] abuse expense associated with our new corporate office as well as stock compensation and depreciation expense.

And the first quarter of 2022 operating expenses as a percentage of sales improved to 13.4% compared to 14.8% for the first quarter of 2021.

In the first quarter of 2022, operating expenses as a percentage of sales improved to 13.4% compared to 14.8% for the first quarter of 2021.

The improvement in operating expenses as a percentage of sales is primarily due to the increased sales year over year, which have allowed us to scale the business at a rate that is favorable to operating expenses incurred.

Net income increased to 1.6 million for the three months ended March 31st 2022, as compared to a net loss of $1.5 million for the three months ended March 31st 2021.

Net income increased to $1.6 million for the three months ended March 31, 2022, as compared to a net loss of $1.5 million for the three months ended March 31, 2021. The $1.6 million of net income was a new first quarter record for the company.

The 1.6 million of net income was a new first quarter record for the company.

The improvement net income was primarily attributable to the increase in revenue and improved gross margins in 2022.

The improvement in that income was primarily attributable to the increase in revenue and improved gross margins in 2022.

For the three months ended March 31st 2022, and 2021, we had basic loss per share of three cents and a loss per share of 12 cents respectively.

For the three months ended March 31st, 2022 and 2021, we had basic loss per share of three cents and a loss per share of 12 cents.

<unk> for the first quarter of 2022 was $3.5 million compared to point $1 million in the first quarter of 2021, while adjusted EBITDA was $3.9 million compared to point $2 million in 2021.

EBITDA for the first quarter of 2022 was $3.5 million, compared to $0.1 million in the first quarter of 2021, while adjusted EBITDA was $3.9 million, compared to $0.2 million in 2021.

Justin EBITDA as a percentage of net sales was 13.6% for the first quarter of 2022 compared to 1.7 per cent the first quarter of 2021.

Adjusted EBITDA as a percentage of net sales was 13.6% for the first quarter of 2022 compared to 1.7% for the first quarter of 2021.

Net cash used an operating activities for the quarter ended March 31st 2022 was $9.4 million compared to cash used by operating activities of $16.9 million for the Koreans March 31st 2021.

Net cash used in operating activities for the quarter ended March 31st, 2022 was $9.4 million compared to cash used by operating activities of $16.9 million for the quarter ended March 31st, 2021.

The primary use of cash during the quarter was related to the issue of notes receivable 10.7 million in the acquisition and development of real estate assets totaling $6.3 million.

The primary uses of cash during the quarter was related to the issuances of notes receivable of $10.7 million and the acquisition and development of real estate assets totaling $6.3 million.

A real estate assets have continued to increase to $129.1 million as of March 31st 2022 from 122.1 million as of December 31st 2021.

Our real estate assets have continued to increase to $129.1 million as of March 31, 2022 from $122.1 million as of December 31, 2021.

As of March 31st 2022, a real estate assets were labored approximately 37%.

As of March 31st, 2022, our real estate assets were levered approximately 37 percent. I will now turn it off.

I will now turn the call back to Sterling.

Thank you Lance for 2022, we believe there'll be continued stability in the single family housing and multifamily rental markets and reader reiterate our revenue guidance for 2022 of approximately 160 million or guidance implies a year over year revenue increase of 121%.

Thank you, Lance. For 2022, we believe there will be continued stability in the single family housing and multifamily rental markets and reiterate our revenue guidance for 2022 of approximately $160 million. Our guidance implies a year-over-year revenue increase of 121 percent.

We continue to anticipate adjusted EBITDA of approximately $20 million during 2022, which implies a 34% increase on a year over year basis.

We continue to anticipate adjusted EBITDA of approximately $20 million during 2022, which implies a 34% increase on a year-over-year basis.

We will now take questions from webcast participants. Please click that ask a question button on the player window to submit your questions.

We will now take questions from webcast participants. Please click the Ask a Question button on the player window to submit your questions.

Thank you operator.

Thank you operator. Our first question is

First question is.

How do I convert my preferred stocks are juarez into common stock.

How do I convert my preferred stock or warrants into common stock?

You can contact your broker for assistance with converting the preferred stock or exercising your warrants uhm and if you need further assistance.

You can contact your broker for assistance with converting the preferred stock or exercising your warrants. And if you need further assistance, you can contact our transfer agent. You can visit the Investor Resources section under the Investor Relations tab of our website at www.harboracustomhomes.com to find more information on how to contact our transfer agent at Mountain Share Transfer.

You can contact our transfer agent you can visit the Investor resources section under the Investor Relations tab of our website at Www Dot <unk> custom homes Dot com.

Information on how to contact our transfer agent at mountain should transfer.

Thank you I am.

Our second question.

Have you experienced supply chain disruption, so far and do you expect to have challenges in 2022.

Have you experienced supply chain disruptions so far and do you expect to have challenges in 2022?

Like all builders, we have experienced some supply chain disruptions. However, we are less impacted and others, because we have diversification of the products that we sell including entitled land and developed plot.

Like all builders, we have experienced some supply chain disruptions. However, we are less impacted than others because we have diversification of the products that we sell, including entitled land and develop lot, which are not impacted by supply chain disruptions.

Which are not impacted by supply chain disruptions for.

The more we are always evaluating our supplier and subcontractor base to ensure we can meet demand timely.

Furthermore, we are always evaluating our supplier and subcontractor base to ensure we can meet demand timely.

Our next question.

With the recent increase in the common stock price did you see any voluntary conversions.

With the recent increase in the common stock price, did you see any voluntary conversions of preferred stock or exercises of the HCDIZ warrants?

Card stock or exercises of the H C D I Z Juarez.

Can you also comment on the total fully diluted common shares that would be outstanding if all of your equity securities were converted to common stock.

Can you also comment on the total fully diluted common shares that would be outstanding if all of your equity securities were converted to common stock?

Yes, we recently had over 200000 uhm preferred shares converted to common stock and over 100000 exercise of the a C D I Z warrants.

Yes, we recently had over 200,000 preferred shares converted to common stock and over 100,000 exercises of the ACDIZ warrants.

And to address your second part of the question. We've included a capitalization table in the appendix Veronica presentation, which is on our website.

And to address your second part of the question, we've included a capitalization table in the appendix of our earnings presentation, which is on our website. And as you can see, at the end of March 31st, 2022, there were approximately 54.8 million fully diluted shares.

And as you can see them at the end of March 31st 2022, there were approximately 54.8 million fully diluted shares.

Okay. Our next question.

Can you confirm that H C. D. I preferred stock is convertible at the option of the holder into H C. D. I common stock at a ratio at 5.556 common shares are each one share of preferred stock.

Can you confirm that HCDI preferred stock is convertible at the option of the holder into HCDI common stock at a ratio of 5.556 common shares for each one share of preferred stock?

Yes, that's correct.

Yes, that's correct, you know, the conversion is at the option of the holder and the ratio of 5.556 to 1 is accurate.

The conversion is at the option of the holder and the ratio of 5.556 to one is accurate.

Alright.

The next question we have.

What other M. S. A is are you looking to expand into.

What other MSAs are you looking to expand into?

Ah currently we're looking at the no income tax states, such as Texas, Florida, Tennessee and of course, Washington State.

Currently, we're looking at the no-income tax states, such as Texas, Florida, Tennessee, and, of course, Washington state.

These are some of the fastest growing states in the country that have a significant in migration businesses and people moving to them.

We want to be in these areas, where there is significant growth that allow us to execute on our business plan.

Thank you.

Our next question that we have gotten in.

How many of the previously announced apartment listings totaling 278 million are under contract or salt.

At this time, none are under contract the projects are in various varying stages of construction and are expected to sell over the next 24 months.

Okay.

So the next question. We have received is what gross margins do you expect to achieve with the reset multifamily listings in Washington that hold on $278 million in sales.

So the next question we have received is, what gross margins do you expect to achieve with the recent multi-family listings in Washington, that total of $278 million in sales?

So market conditions remain consistent uhm, we would expect gross margins in the mid 20 per cent range.

Thank you.

Okay does the company plan to do another stock buyback.

Okay. Does the company plan to do another stock buyback?

We haven't announced another buyback today.

We haven't announced another buyback to date, but it's just.

But it's a distinct possibility we.

We are constantly considering ways to utilize our capital to increase shareholder value.

And could end a that could include a purchasing some of our outstanding securities.

and that could include purchasing some of our outstanding securities.

Thank you.

Our next question that we have.

Can you explain where all the revenue came from this corner there seems to be around 13 million unexplained.

Can you explain where all the revenue came from this quarter? There seems to be around 13 million unexplained.

Sure. So if you think about this segment.

Sure. So, if you think about the segment reporting and how revenues would break down, approximately 12.2 million came from home sales, 9 million from developed lots, 4.5 million.

Reporting and how revenues will break down approximately 12.2 million came from home sells.

9 million from developed lots.

$4.5 million from entire land.

2.7 million from be billed.

Roughly 30000 construction materials.

and roughly 30,000 from construction materials.

Okay.

Thank you Lance our next question that we have received.

Thank you Lance. Our next question that we have received, did I understand that 200,000 preferred shares got converted? Yes, that's correct.

I understand that 200000 preferred shares got converted.

Yes, that's correct.

Okay.

Thank you.

Our next question. We've gotten then please comment on the valuations an apartment projects have interest rates impacted valuations.

Our next question we've gotten in. Please comment on the valuations on apartment projects. Have interest rates impacted valuations?

Yes interest rates will obviously impact valuation says cap rates rise however, in western Washington, where our apartment prices are located rents have escalated at such a significant right that the impact on the cap rates rising have been negligible today. So.

Yes, interest rates will obviously impact valuations as cap rates rise. However, in Western Washington where our apartment prices are located, rents have escalated at such a significant rate that the impact on the cap rates rising have been negligible to date. So we're confident that our, the listed prices currently we will achieve, assuming no significant changes to the marketplace. Thank you.

Confident that are the listed prices currently we will achieve assuming no significant changes to the marketplace.

Thank you Sterling.

The next question.

That we have gotten N.

that we have gotten in.

It appears you know look for.

1501 lives at Granda not 997.

1,501 locks at Grandis, not 997.

Okay I see that question I'm trying to understand that the grandest pond Master plan was approximately 997 lots I don't know that it was ever 1500. So.

Okay, I see that question. I'm trying to understand that. The grandest pond master plan was approximately 997 lots. I don't know that it was ever 1500. So again, if you use the number of a thousand lots, you're going to be in the very close to what that will look like in the future. Yeah, and I think the differential may be

Again, if you use the number of a thousand lots you're gonna be in the very close to what that will look like in the future.

And I think the the differential maybe Easter.

East campus the West village in a couple of the other controlled properties.

East Campus, Westview Village, and a couple of the other controlled properties, but to speak to Grandespawn directly, it's the 997 units. Correct. I think someone might have added some of our other projects to that.

Like to speak to a grand as fond directly it's the 997 units correct. So I think someone might have added some of our other projects to that.

Thank you Okay. Our next question that we've got men have you completed the first share buyback.

Thank you. Okay, our next question that we've gotten in. Have you completed the first share? Bye back.

Uhm, Yes, we have completed the first share buyback uhm that happened in Q4 of 2021.

Yes, we have completed the first share buyback that happened in Q4 of 2021.

Okay. The next question I have.

Is given your adjusted revenue guidance in 2021 from 80 million to a range of 70 to 80 million how can we trust your current guidance of 160 million.

is given your adjusted revenue guidance in 2021 from 80 million to a range of 70 to 80 million, how can we trust your current guidance of 160 million?

Okay. So when developing guidance. The company uses of course current market conditions product pipeline.

Okay, so when developing guidance, the company uses, of course, current market conditions, product pipeline, timing to estimate revenues. The company employs its best efforts to communicate accurate and up-to-date information. As was the case last year, we adjusted guidance when new information became available. At this time, we reaffirm our current guidance of approximately $160 million in revenue.

<unk> to estimate revenues.

Company employees, it's best efforts.

To communicate accurate and up to date information as well. This was the case last year, we adjusted guidance when new information became available at this time, we reaffirm our current guidance of approximately $160 million in revenue.

Okay.

Have you seen any slowdown in traffic or sales cadence given recent rise and mortgage rates.

Have you seen any slowdown in traffic or sales cadence given recent rise in mortgage rates?

And I'll take I'll take that with so you know.

And I'll take, I'll take that one. So, you know, we're doing most of our single family home sales now in the Austin, Texas markets, which is red hot. You know, we close our first two homes in the quarter and we have another nine that are under contract and we really haven't seen an impact thus far on those Austin, Texas homes.

<unk> two most of our single family home sells now in the Austin, Texas market, which is red Hot we.

We close our first two homes in the quarter and we have another nine that are under contract and we really haven't seen an impact thus far on those Austin, Texas homes.

Alright. Thank you that's all the questions.

Thank you everyone for participating in today's call. We do look forward to providing additional update soon you can find more information about the presentation and future events on our Wester on our excuse me our Investor Relations page under the tab events on our website Harvard custom homes Dot com.

Thank you, everyone, for participating in today's call. We do look forward to providing additional updates soon. You can find more information about the presentation and future events on our investor relations page, under the tab Events, on our website, harvercustomhomes.com. For the most recent updates on company news, we encourage you to sign up for email notifications on the Investor Resources tab of our website.

For the most recent updates on company news, we encourage you to sign up for email notifications on the Investor resources tab of our website.

Thank you. This does conclude our conference you may disconnect. Your lines at this time and thank you for your participation.

Thank you. This does conclude our conference. You may disconnect your lines at this time, and thank you for your participation.

[music].

Q1 2022 Harbor Custom Development Inc Earnings Call

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