Harbor Custom Development, Inc.

first quarter 2023 earnings 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 introduce today's presenters, Sterling Griffin, CEO, President and Chairman of the Board, Lance Brown, Chief Financial Officer, and Jeff Habersetzer, Chief Operating Officer. I will now turn the conference over to Mr. Brown. Please go ahead.

Thank you, Operator, and thank you all for joining us today. Welcome to Harbor Custom Development's first quarter 2023 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.harbor.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, earnings presentation, or discussed on the call 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. Please see our recent SEC filings, which identified 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 margins. 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.

Thank you, Lance, and thanks to everyone for joining the call today. We appreciate your continued support of Harbor Custom Development. Before I talk about the first quarter, I would like to begin by updating everyone on our recent announcement regarding my upcoming retirement and our executive transition plan. As was disclosed in our recent press release in corresponding 8K, I will be retiring from my position as Chief Executive Officer, President, and Chairman of the Board of Directors, effective as of July 12, 2023. I will continue to support the company, serving as a non-executive strategic advisor through January 12, 2025. Jeff Habesetzer, our current Chief Operating Officer, General Counsel, and Corporate Secretary, is expected to be named as Interim Chief Executive Officer and Interim President. Jeff has been instrumental in taking Harbor public, growing our business, and leading operations, including the shift and focus to multifamily and the significant progress we have made with the construction, rent-up, and recent purchase and sale agreements for those assets. Jeff's operational and legal background in the real estate industry and in-depth knowledge of Harbor's operations makes him the ideal person for the job, and I am confident in the direction and future of the company under his leadership. Lance Brown, our current Chief Financial Officer, is expected to take on an expanded role and be appointed as Interim Chief Operating Officer while maintaining his current position as Chief Financial Officer to help facilitate a smooth transition and continuity of our operational leadership. I would like to conclude on this topic by expressing a heartfelt thank you to all of our employees, customers, suppliers, business partners, and shareholders for their support these past years. Harbor would not be what it is today without each of you. Now, let's shift focus on our first quarter earnings. In the first quarter of 2023, poor real estate market conditions caused by rising interest rates resulted in weaker sales volume, lower prices, and decreased net income for the company. We were cautiously optimistic heading into 2023 that the potential sales of our first few multifamily projects would provide for increased revenue during the quarter. However, the uncertainty in interest rates has significantly decreased multifamily sales across our principal market area and most areas of the country during the quarter as buyers struggle to obtain suitable project financing. From a cost perspective, we expect project-related costs to remain elevated in the near term. However, we remain optimistic that land costs, material costs, and labor costs will begin returning toward pre-pandemic levels. Land costs, along with certain materials, particularly lumber, for example, have recently demonstrated year-over-year declines. To partially offset the unfavorable impact these events had on our business, we took further action to control costs, curtail discretionary spending, and improve operational inefficiencies during the quarter. Efforts to shift our inventory and enhance our focus on multifamily housing continued to advance. Multifamily projects now represent approximately 64% of our total real estate assets. Our team has made significant progress advancing several of our multifamily projects, and completed construction on Pacific Ridge and Windstone during the first quarter. Additionally, we executed a purchase and sale agreement for Mills Crossing, a purchase price of approximately 14.3 million. We expect the transaction to close in late June and contribute to second quarter revenue. We observed meaningful rent up at our Pacific Ridge, Belfair, and Windstone communities located in Western Washington during the first quarter. We also monetized 11 lots in our Winding Lane community in California. We continue to see demand in our Texas market and are expanding our position through a partnership with Austin-based general contractor, Wurzel Builders. During the quarter, we sold homes in our La Ventana and Siena Creek subdivisions. We also continue to progress the construction of homes in Summit Rock and Siena Creek with the expectation that several of these new homes will go on the market in the second quarter of 2023. As of March 31st, 2023, our backlog of fully executed contracts were 16.2 million compared to 20.7 million as of March 31st, 2022. The slight decrease is primarily due to the majority of our fee billed projects being completed and the continued shift in strategy to focus on multifamily projects. I want to also highlight the actions we took to strengthen our financial position as we navigate near-term uncertainty. Our stock split, combined with the restructuring of the Bank United Loan Agreement, provided us with the necessary foundation to build on our strategic objectives. Furthermore, these actions supported our company in regaining compliance with the NASDAQ capital market's continued listing standards. We believe this development has the potential to broaden our opportunities to attract investment capital, strategic partners, and project financing to achieve our goals and continue to execute on our long-term strategy of rebuilding value for our shareholders. I will now turn the call back to Lance Brown, our Chief Financial Officer, to further discuss our financial details.