Harbor Custom Development, Inc.

Thank you for standing by and welcome to the Harbor Custom Development Inc. third quarter 2021 conference call. At this time, all participants are in a listen only mode. A question and answer session from previously submitted questions will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Sterling Griffin, CEO, President, and Chairman of the Board of Harbor Custom Development, Inc.

Thank you, Operator, and thank you all for joining us today. Welcome to Harbor Custom Development's third quarter earnings conference call. During our discussion today, we will be referring to our earnings press release that was distributed prior to the call. The release can be viewed in the investor relations sections of the Harbor website under the subheader Press Releases News at www.harborcustomhomes.com. 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 commented on today are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve a number of risks. uncertainties, and other factors that could cause actual results to differ materially from these forward-looking statements. Specifically included are statements regarding our industry and anticipated revenues for 2021 and 2022. We 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. Our highlights of Q3. We are pleased to report revenues increased by approximately 131% to $18 million for the three months ended September 30, 2021, as compared to $7.8 million for the three months ended September 30, 2020. Our revenue increase in 2021 was primarily driven by an entitled land sale of $10.4 million to Lennar, fee-billed revenue of $2.8 million for Lennar, and $0.8 million from the sale of developed lots. Our overall gross margin was 40% for the three months ended September 30, 2021, compared to 8% for the three months ended September 30, 2020. The increase was primarily driven by gross profit margin on land sales of 57% and lot sales of 36%. Our operating expenses increased by 127% to $3.3 million for the three months ended September 30, 2021, as compared to $1.5 million for the three months ended September 30, 2020. This anticipated increase in total operating expenses is primarily attributable to the continued investment in public company infrastructure and personnel to support our future growth plans. For the three months ended September 30, 2021 and 2020, we had net income of $3.7 million and a net loss of $0.4 million respectively. The improvement in net income was primarily attributable to an increase in revenue and improved gross margins in 2021. For the three months ended September 30th, 2021 and 2020, we had basic earnings per share of 21 cents compared to a loss per share of 10 cents for 2020. Net cash used in operating activities for the nine months ended September 30th, 2021 was $79.6 million, compared to $9.9 million for the nine months ended September 30, 2020. The primary use of cash was for the acquisition and development of real estate assets of $82.8 million in 2021 and $8.3 million for the same period in 2020. Our real estate assets have increased to $105.5 million as of September 30, 2021, from $20.4 million as of December 31, 2020. We are extremely pleased to report continuously strong earnings and have again achieved profitability during the third quarter of 2021. If the real estate market conditions continue to be characterized by severe shortage of residential inventory, low interest rates, and urban flight, we anticipate operating profitably on an annual basis for the foreseeable future. As Chief Executive Officer, I'm thrilled with our continued momentum. Our distinct development approach of serving multiple segments of the home buying market and providing developed lot inventory for national public builders continues to provide us with a consistent and diverse stream of revenue. This further validates our business strategy, which is rooted in disciplined analysis and efficient operations that have propelled the company forward. To further our business objectives, I am pleased to welcome Lance Brown as Chief Financial Officer to the Harbor team. His experience as a highly successful financial executive of a publicly traded company in our industry provides both the expertise and financial leadership to support Harbor's rapid expansion into the nation's fastest growing metro regions.

Thank you, Sterling, for the introduction and warm welcome. I am thrilled to join the Harbor team. I believe my prior experience working with a public emerging growth company will allow me to partner with the leadership team to continue building and enhancing the public company infrastructure. It's a good time to be in the home building industry. Demand is high, the job market is strong, and interest rates are low. It is clear we have a skilled and dedicated team that can drive positive results. I am excited to see the year-over-year growth in revenue and net income in the quarter. I see significant upside to this business and look forward to being an effective steward of the company assets, assisting in optimizing our capital structure, and supporting the business with growth initiatives.