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spk02: 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. 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.
spk00: 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.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 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, 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 our outlook for 2022. 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 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 GAAP measure. I would now like to turn the call over to Sterling.
spk01: Thank you, Lance, and thanks to everyone for joining the call today. We appreciate your interest in Harbor Custom Developments. Our unique business model continued to deliver the first quarter of the year with 106% 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. 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. 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 community's needs, including single-family homes, townhomes, condominiums, and apartments. This flexibility allows us to target a wide and diverse range of customers. 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. 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. Those projects are Pacific Ridge, Mills Crossing, Bellefaire View, Windstone, Tanglewild, and Bridgeview Trails. 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. 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. Prices for the Texas homes are averaging approximately $400 per square foot. We recently located to a new office space in Tacoma, Washington. 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 increased revenues each year of operation. Our compound annual growth rate for the years ended December 31st, 2018 through 2021 was 132.9%, and our compound annual growth rate for the first quarters ended March 31st, 2019 through March 31st, 2022 was 88.5%. 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 bill backlog as of March 31st, 2022 was 7.3 million. We did not have a fee bill backlog as of March 31st, 2021. 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. 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 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.
spk00: Thank you, Sterling. On a quarterly basis, revenues increased by approximately 106% to $28.6 million for the three months ended March 31, 2022, as compared to $13.9 million for the three months ended March 31, 2021. The increase in revenue was primarily driven by an increase in home sales of $5.5 million, $4.5 million from entitled land sales, fee billed revenue of $2.7 million, 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. 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, as compared to 2 million for the three months ended March 31st, 2021. 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 depreciation expense. 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 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 improvement in net income was primarily attributable to the increase in revenue and improved gross margins in 2022. For the three months ended March 31, 2022 and 2021, we had basic loss per share of $0.03 and a loss per share of 12 cents respectively. 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. 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 in operating activities for the quarter ended March 31, 2022 was $9.4 million compared to cash used by operating activities of $16.9 million for the quarter ended March 31, 2021. The primary uses of cash during the quarter was related to the issuance of notes receivable of $10.7 million and the acquisition and development of real estate assets totaling $6.3 million. 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 31, 2022, our real estate assets were levered approximately 37%. I will now turn the call back to Sterling. Thank you, Lance. For 2022, we believe there will be continued stability in the single-family housing and multifamily rental markets.
spk01: and reiterate our revenue guidance for 2022 of approximately $160 million. Our guidance implies a year-over-year revenue increase of 121%. We continue to anticipate adjusted EBITDA of approximately $20 million during 2022, which implies a 34% increase on a year-over-year basis.
spk02: We will now take questions from webcast participants. Please click the Ask a Question button on the player window to submit your questions.
spk03: Thank you, operator.
spk04: Our first question is, how do I convert my preferred stock or warrants into common stock?
spk00: 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.harborcustomhomes.com to find more information on how to contact our transfer agent at MountainShare Transfer.
spk03: Thank you, Lance.
spk04: Our second question, have you experienced supply chain disruptions so far, and do you expect to have challenges in 2022?
spk01: 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 developed lot, which are not impacted by supply chain disruptions. Furthermore, we are always evaluating our supplier and subcontractor base to ensure we can meet demand timely.
spk03: Our next question.
spk04: With the recent increase in the common stock price, did you see any voluntary conversions of preferred stock or exercises of the HCDIZ warrants? 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?
spk00: 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 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.
spk04: Okay, our next question. 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?
spk00: Yes, that's correct. You know, the conversion is at the option of the holder and the ratio of 5.556 to one is accurate.
spk03: Right. The next question we have, what other MSAs are you looking to expand into?
spk01: 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 of 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.
spk03: Thank you.
spk04: Our next question that we have gotten in, how many of the previously announced apartment listings totaling $278 million are under contract or sold?
spk01: 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.
spk03: Okay.
spk04: So the next question we have received is, what gross margins do you expect to achieve with the recent multifamily listings in Washington that totaled $278 million in sales?
spk00: So if market conditions remain consistent, we would expect gross margins in the mid-20% range.
spk04: Thank you. Okay. Does the company plan to do another stock buyback?
spk01: We haven't announced another buyback to date, but it's a distinct possibility. We are constantly considering ways to utilize our capital to increase shareholder value, and that could include purchasing some of our outstanding securities.
spk03: Thank you. Our next question that we have,
spk04: Can you explain where all the revenue came from this quarter? There seems to be around 13 million unexplained.
spk03: Sure.
spk00: 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 from entitled land,
spk03: $2.7 million from fee-billed, and roughly $30,000 from construction materials. Okay. Thank you, Lance.
spk04: Our next question that we have received, did I understand that 200,000 preferred shares got converted?
spk03: Yes, that's correct. Thank you.
spk04: Our next question we've gotten in, please comment on the valuations on apartment projects. Have interest rates impacted valuations?
spk01: Yes, interest rates will obviously impact valuations as cap rates rise. However, in western Washington where our apartment projects 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 the listed prices currently we will achieve assuming no significant changes to the marketplace.
spk03: Thank you, Sterling. The next question that we have gotten in
spk04: It appears you now look for 1,501 lots at Grandus, not 997.
spk01: Okay, I see that question. I'm trying to understand that. The Grandus Pond Master Plan was approximately 997 lots. I don't know that it was ever 1,500. So, again, if you use the number of 1,000 lots, you're going to be very close to what that will look like in the future.
spk00: Yeah, and I think the differential may be East Campus, Westview Village, and a couple of the other controlled properties. But to speak to Grandis Pond directly, it's the 997 units.
spk01: Correct. I think someone might have added some of our other projects to that.
spk03: Thank you.
spk04: Okay, our next question that we've gotten in, have you completed the first share buyback?
spk00: Yes, we have completed the first share buyback.
spk03: That happened in Q4 of 2021. Okay, the next question I have,
spk04: 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?
spk01: 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 you know, 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.
spk04: Okay. Have you seen any slowdown in traffic or sales cadence given recent rise in mortgage rates?
spk00: I'll take that one. So, you know, we're doing most of our single-family home sales now in the Austin, Texas market, which is red hot. You know, we closed 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.
spk03: All right. Thank you. That's all the questions.
spk01: 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, harborkustomhomes.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.
spk02: Thank you. This does conclude our conference. You may disconnect your lines at this time, and thank you for your participation.
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