Harbor Custom Development, Inc. (HCDI) on Q2 2021 Results - Earnings Call Transcript
Operator: Thank you for standing by. And welcome to the Harbor Custom Development Inc. Second Quarter 2021 Conference Call. At this time, all participants are in a listen-only mode. A pre-submitted question-and-answer session 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.
Sterling Griffin: Thank you, operator and thanks to all of you for joining us today and welcome to Harbor Custom Development's second quarter earnings conference call. Our earnings press release was distributed yesterday and can be viewed in the Investor Relations section of the Harbor website under the sub-header press releases news at www.harborcustomhomes.com. Before we begin, I would like to remind you that today's call may include statements that constitute forward-looking statements. Such statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from those forward-looking statements and we assume no obligation to update them. As you've already seen in our press release yesterday, with a very productive and profitable second quarter, we met or exceeded our expectations on every front. Highlights of the second quarter and first half results; our real estate assets have increased to $85.2 million as of June 30, 2021, from $20.4 million as of December 31, 2020. This increase was due to an increase in the number of houses under construction and the purchase of additional developed and undeveloped lot inventory. Revenues increased by approximately 54% to $28 million for the six months ended June 30, 2021 as compared to $18 million for the six months ended June 30, 2020. Our revenue increase in 2021 was due to a land development sale of $7 million to Lennar, sale of entitled land of $9.3 million to Lennar, and fee build income of $1.3 million. Our overall gross profit margin was 14% for the six months ended June 30, 2021 compared to 6% for the six months ended June 30, 2020. For the six months ended June 30, 2021 and June 30, 2020, the average gross margin for homes closed was 18% and 6%, respectively. Our operating expenses increased by 87% to $4.3 million for the six months ended June 30, 2021 as compared to $2.3 million for the six months ended June 30, 2020. The increase in total operating expenses is primarily attributable to the following: insurance of $128,000, stock compensation expense of $230,000, Investor Relations costs of $202,000, primarily driven by establishing and maintaining public company infrastructure and oversight, depreciation expense of $197,000 related to equipment additions, and increased payroll of $321,000 driven by a combination of new hires and salary increases for existing employees. Other expenses increased by 4% to $97,000 for the six months ended June 30, 2021, as compared to $93,000 for the six months ended June 30, 2020. For the six months ended June 30, 2021, we incurred $183,000 of interest expense related to our financing arrangements, as compared to $90,000 for the six months ended June 30, 2020. In addition, we recorded $36,000 of loss on the sale of equipment for the six months ended June 30, 2021 as compared to $15,000 for the six months ended June 30, 2020. Net cash used in operating activities for the first half of 2021 was $61 million, compared to $3 million for the first half of 2020. The increase was primarily due to the acquisition and development of real estate assets of $63 million in 2021 and $2 million for the same period in 2020. Net cash used in investing activities for the six months ended June 30, 2021 was $106,000, as compared to net cash provided of $176,000 for the six months ended June 30, 2020. For the six months ended June 30, 2021 $175,000 was used for the acquisition of new property and equipment, and there were proceeds from the sale of equipment of $69,000. For the six months ended June 30, 2020, $322,000 was used for the acquisition of new property and equipment, and there were proceeds from the sale of equipment of $145,000. Net cash provided from financing activities for the six months ended June 30, 2021 and June 30, 2020 was $72 million and $3 million respectively. The increase was primarily due to $25 million issuance of common stock, plus $29 million of issuance of preferred stock, and $17 million of new construction loans. As of June 30, 2021 our cash balance was $13 million, compared to $332,000 as of December 31, 2020. For the six months ended June 30, 2021 and June 30, 2020, we had a net loss of $480,000, and a net loss of $1.4 million respectively. The decrease in net loss was primarily attributable to an increase in revenue and improved gross margins in 2021. We have turned the corner and achieved profitability during the second quarter of 2021. If the current favorable real estate market conditions continue, we anticipate operating profitably on an annual basis for the foreseeable future. As Chief Executive Officer, I'm thrilled with the momentum we gained over the past six months, which serves as further validation of our development approach. We're able to serve multiple segments of the homebuying market, while also providing develop lot inventory for national public builders which provides the company a steady and diverse stream of revenue. With a business strategy rooted in disciplined analysis, agility and highly efficient operations, we are well positioned for continued growth. I'm very proud of our employee's diligent work that has led to significant progress across all segments of our business. As a result, our objective in 2021 is to lead our comparable public company peers in gross margin percentage and EBITDA growth. Regarding the state of the housing market, almost every major metropolitan market in the U.S. is defined by a significant shortage of housing inventory. Our business model that is focused on land acquisition within a 30 to 60 minute commute to the fastest growing metro markets in the country has been propelled to new heights by urban flight. COVID-19 created a mass exodus from major cities to the suburbs and rural areas and our projects have benefited directly from both, the retail consumer sale of homes and sale of developed loss to national public builders. As such, we will continue to look for expansion opportunities in the fastest growing U.S. metro markets. Today, we are currently active in the Seattle, Sacramento, Austin, Vancouver BC, and Cape Coral - Fort Myers metro markets. We previously provided guidance that we will generate approximately $80 million in revenues in 2021, which would equate to a 59% increase over 2020. We also provide a guidance that our projected revenues for 2022 will follow a similar growth trajectory with an estimated up $128 million in sales or a 60% annual increase. We intend on adjusting our 2022 revenue guidance upwards at the end of the third quarter, and we'll provide more detailed information at that time. And with that, we will go to the question-and-answer session. In addition to asking live questions by telephone, you can also submit questions in writing to IR at harborcustomdev.com. Thank you.
Operator: Thank you. We will now turn to management for previously submitted questions. If there are any additional questions, you may follow-up with management following today's call.
Sterling Griffin: The first question; your top line and gross margin guidance suggest a strong second half of the year. Can you discuss your confidence level on that? And does your previous revenue guidance of $120 million in 2022 still hold? We addressed that slightly a little earlier but we do anticipate having solid third and fourth quarters with net income in both quarters exceeding our second quarter numbers. For year-end gross revenues; for our previous guidance, we anticipate approximately $80 million and total sales for 2021. The second part of the question asked of our 2022 guidance still stands; and although we'll thrive -- provide more clarity at a later date, our objective is to double our 2021 revenues to $160 million in 2022. The second question is, do you see growth opportunities in your existing markets? Or should we expect to see your footprint increase into other cities? There are growth opportunities in our existing markets. In addition, we continually look for new expansion opportunities in the fastest growing areas of the country, and will continue to do so for the foreseeable future. The third question is, have you seen buyer demand taper off as prices have risen in the Austin and Seattle metro markets? These two markets have extreme shortages of inventory, and as a result, available product that becomes available is quickly purchased. Today, we have no finished standing inventory available in either market. Fourth question is, how are you dealing with COVID-related supply chain disruptions? And what impact does it have on your business? We've been fortunate in that supply chain disruptions we have experienced have been relatively minor to date. The impacts to our business from supply chain issues are typically schedule related. And that is the last of our questions. Thank you, everybody for participating in today's call. We look forward to providing additional updates in the near future. I will also be delivering a presentation tomorrow at 9:30 Pacific Time at the Virtual Investor Summit; so I hope you can join us tomorrow. In the meantime, if you have any questions we can be reached at 866-744-0974 or at ir@harborcustomdev.com. Stay safe and well. Goodbye.
Operator: This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.
