Harbor Custom Development, Inc.

Thank you for standing by, and welcome to the Harbor Custom Development, Inc. Second Quarter 2022 Earnings Conference Call. At this time, all participants are on 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 introduce today's presenters, Sterling Griffin, CEO, 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. Thank you all for joining us today. Welcome to Harbor Custom Development's second 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 this 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 our 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 gap measure. I would now like to turn the call over to Sterling.

Thank you, Lance, and thanks to everyone for joining the call today. We appreciate your interest in Harbor Custom Development. I am thankful for our team's hard work and dedication during the second quarter. Despite results coming in below internal expectations, The primary drivers impacting Q2 results were the significant cost overruns on our fee-billed projects, primarily due to increase in material costs and record-setting rainfall in western Washington, which caused substantial delays. In addition, the cancellation of a high-margin entitled land sale in our Horizon subdivision that was previously under contract also had a substantial impact to our financial results. While these events impacted our financial results for the quarter, we made a number of accomplishments that position us well for the remainder of the year and into 2023. These accomplishments include the listing of six multifamily projects, totaling $278 million with Kidder Matthews, significantly progressing the construction of those projects, and continuing to close more Texas home sales at attractive prices and margins. As we enter a challenging macroeconomic environment, including a slowing economy, weakened consumer buying behavior, higher interest rates and inflation, we are staged and ready for the future. We expect that our distinct business plan, which is focused on serving multiple segments of the residential market within a 20 to 60 minute commute in some of the nation's fastest growing regions, will continue to provide us with a consistent stream of revenue generated from multifamily apartments, single family homes, land and lot sales. Our diversified product portfolio enables us to build to the demands of the different communities. As we continue to navigate a challenging and dynamic market environment, our unique model will allow us to meet the needs of our diverse customers. As we previously communicated, we began a strategic transition of our inventory to multifamily housing in 2021. We believe this transition occurred at the opportune time, as multifamily properties have historically fared very well in economic downturns. Furthermore, multifamily properties are a more affordable alternative than purchasing a single-family home, particularly now as the economy takes on inflation, rising mortgage rates, and continued low levels of housing inventory in our geographic markets. During Q2, we announced the listing of six multifamily properties in western Washington. Those projects are Pacific Ridge, Mills Crossing, Belfair View, Windstone, Meadowscape, formerly known as Tanglewild, and Bridgeview Trails. Our initial target was to have Mills Crossing, Pacific Ridge, Windstone, and Belfair Phase 1 sold during the fourth quarter of 2022, but one or more of these properties may close in 2023. Now I would like to transition the commentary to our single-family home segment. In Q2 of 2022, we closed on the sale of our final two homes in Soundview Estates. This was the last of our single family home projects in Washington. We also sold five single family homes in the Austin, Texas MSA. Texas home sale prices range from $1.3 million to $1.6 million, or approximately $400 per square foot, with average margins of approximately 23%. Although the second quarter did not meet our expectations, we have continued our growth story for the first half of the year, recognizing 38.9 million of revenues for the six months ended June 30, 2022. This is an increase of 10.9 million compared to the prior year period. As of June 30, 2022, our backlog of fully executed contracts for the sale of developed residential lots and single-family homes was 15 million, compared to 14.2 million as of June 30, 2021. Our fee bill backlog as of June 30, 2022 was $5.8 million compared to $5.5 million as of June 30, 2021. Our financial condition remains stable, and we continue to take a prudent approach in managing our financial health. We ended the second quarter with $22 million of unrestricted cash, an increase compared to the $12.8 million at the end of the second quarter of 2021. We continue to invest in our business. We've grown our real estate assets to $154.6 million as of June 30, 2022. The majority of our investment during the second quarter was allocated to the development and construction of our multifamily properties. Before I turn the call back to Lance, I want to address the timing of projects. As I mentioned earlier, at the end of the quarter, we had a customer withdraw from a previously contracted entitled land sale during the final stages, which impacted our revenue for the second quarter by approximately $5 million. It is worth remembering that the realization of revenue and gross profit related to unrealized sales has not disappeared. Rather, the property remains in our inventory for future sale and monetization. We will continue to take a diligent approach to our guidance practices and maintain open communication, sharing any key changes to our expected targets. I will now turn the conference call back to Lance Brown, our Chief Financial Officer, to further discuss our financial details.