- Earnings call transcript Q3 2022

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Operator

Thank you for standing by. And welcome to the Harbor Custom Development Incorporated Third 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 will follow the formal presentation.

As a reminder, this conference is being recorded. to of presenters, Brown, the Officer. like President Griffin, Chief now Chairman and Board; would introduce Sterling today's CEO, Financial I and Lance will Mr. over I the to turn now conference Brown. Please go ahead.

Lance Brown

Custom all Operator, you, us to XXXX and conference you Development's Thank for quarter third thank today. joining Welcome call. earnings Harbor

Relations release will in referring were to prior made our discussion of and can press found earnings section The be presentation our Investor Web During www.harborcustomhomes.com. be release Harbor today, the available the we to site and that the call. presentation at

that XXXX. I risks, call statements actual forward-looking Before like release subject we number Such statements begin, Private the from differ of involve would the Safe uncertainties in forward-looking could cause to other of of or factors forward-looking remind Any the results everyone that to today are provisions to these materially today's Securities statements. discussed Litigation earnings includes statements. Act Harbor contained and a Reform

are statements SEC filings, Specifically update statements. recent our uncertainties, risks obligation the principal assume performance. XXXX. identify which no our regarding and for forward-looking We and included to affect see which future Please our any industry could outlook

measures like or would the EBITDA will to I to Sterling. most today, we the non-GAAP of non-GAAP earnings reconciliation and these measure. of In addition, direct turn GAAP now including measures presentation their EBITDA providing our call margin. certain adjusted be appendix discussing EBITDA, comparable see financial adjusted to Please over for a

Sterling Griffin

I team quarter. during a to by third everyone level the Custom your for in call like joining today. the you, begin Development. appreciate Thank interest our high and performed thanks We Harbor saying that at to Lance, would

approximately not and advance. a housing assets. the and financial real total operational represent to Efforts team's XX% quarter heavily projects estate in from quarter, inventory the standpoint. on focus Multifamily be our continued our While shift strategic to we of made more progress our multifamily during reflected performance now throughout our results, may

during scheduled the of remains by for each We advance three quarter. on fourth to construction earnings continue on the quarter work the projects second six of highlighted track first with substantial completion call, projects end the the of the those

land and earn We build margin the sales also home sale sales Texas These continued partially during single several market. to entitled lower additional revenues. higher quarter family smaller a were fee offset our by in monetized margin gross

revenue revenues interest continue market family legitimate we the more our portfolio more rates, we Rising As to projects account on than pose refocus for inflation contribution XXXX. multi-family continued and multi annual total to of opportunities, to continued for broader from expect XX% uncertainty in weaken economy and in on rates, had threats the response market confidence affordability. impact buyer housing single slowed nationally. substantially family home has which a the rapid has to sales market The mortgage to home negative continued the have and increase to

result pricing into loss market our recover majority a including during this business during economy downturn. alternative are single-family economic a affordable have a puts traditionally slowing momentum, certain increased our believe we to and more our better implemented the adjustments, us purchasing and calculated fared multi-family the position across strategies As unique homes in historically and of as We grow to move housing properties incentives multi-family markets. market to new

which For our section White can our multi-family site. information presentations on of found please of Paper more the see the on markets, down Web in in performance be housing, multi-family

$X.X family of homes the executed was lots our of September million, and single of of for As sales XX, XX% from developed prior increase an XXXX, residential the fully year. backlog contracts

projects year. completion million due The million is fee previously $X.X progress towards to fee have in prior build under XX, Our September of compared contract. primarily we the the build build as made fee $XX.X backlog in was decrease XXXX to of backlog our

inventory across market, the rebuilding deployed and/or incentives lot begin price reductions varies sales to momentum. we While each have increased

we measures varies of incentive reduction believe these or of proactive sales. the will size volume help the While community-to-community, and us momentum regain

the pricing environment market or for to to management Our rates, interest changes demand. continues team monitor

We the details. as market will and/or Lance any call and conference in turn adjustments address further changes make will decisions to discuss back significant Financial Chief now I our strategic to our Brown, the necessary. financial Officer,

Lance Brown

Thank you, Sterling.

was decreased During sales $XX.X decrease million by entitled a prior the $XX $X.X increases $X.X build by to period. million, decrease of the compared partially of in sales third developed XX.X% for million quarter, $X million $X.X fee in sales of revenues to home in million. by of land offset sales million as mostly The sales and lot year driven and

million gross Our three in third third September margin XX, the XXXX fee million ended compared $X.X quarter. margin million months of the the to in in and XXXX. profit to XXXX. gross XX.X% cost the XXXX entitled The a quarter the to We for for a and due the of disclosed sales XX, gross decrease ended for $X.X gross land of build three non-recurrence during due decrease primarily of gross overrun margin to September quarter $X.X margin was of gross third had higher second quarter was the XX.X% XXXX in gross decrease months X.X% margin for of a profit profit compared

payroll project is of our plan in to primarily accrual. were months for decided costs, recording with operating offset XXXX. expense expenses the the to to the expenses increase bad XX.X% XXXX operating previously Rocklin increased The of quarter of $X.X a sales for Village operating the of quarter expenses by primarily purchase, partially in Our attributable incentive decline reduction three third Westry comparable meeting note release believe debt XX.X% operating expenses the the in mentioned and September to the requirements due the a The a over infrastructure ended the increase is receivable expense public the our XX third expenses as XXXX. short annual as Winding LLC we which up the of expenses run compared ended should XXXX, our in periods. to company million forward, cancellation setting as for XX, total months term to $X.X operating for attributable Lane and bad near relatively we term not objectives. growth to debt In for increased September to sales percentage XX, Not going and rate million sales remain of us expense preacquisition increased and three considering that percentage associated Westry stable compared the Village our expenses the

million from which we expect of for decrease of decline, in in sales and begin occur and projects monetize, ended sales ended of our the for as operating three expenses in quarter operating income should increase million in net XXXX of sales XX, compared months to family primarily The a September decrease XX, Our months percentage in XXXX. net was multi as income third Net to the to September $X.X $X.X loss as XXXX. cost especially the expenses to attributable sales was three XXXX.

September estate and The of basic to third were quarter for share the in ended of $X.X $X.X cash for For XX.X% the EBITDA was cash financed. million XXXX, $XX.X operating the in million for $X.XX XXXX the the XX, in compared were September three primary to percentage million XXXX. family compared $XX $X.XX of was ended the three are quarter during Net the quarter activities the per million loss EBITDA assets, EBITDA loss in third our share majority activities home of was as compared projects. of million used XX, a months XXXX. XX, the XXXX EBITDA which third basic income our compared of of XX, uses to income $X.X quarter quarter XXXX. of focused XXXX quarter ended Adjusted adjusted The of construction third third for the operating $X.X XXXX. on EBITDA majority multifamily fully months September XXXX XX.X% we Adjusted development the was of quarter real projects per loss used a multi to XXXX. of to sales cash ended compared related our September to quarter of by for quarter million earnings for loss third the of the of of had negative

Our to real $XXX.X XXXX. million as December of assets of million $XXX.X increase from continued to have XX, XXXX estate as September XX,

As of levered September assets were estate XXXX, our XX, real approximately XX.X%.

a fee of from $X.X in margin the the lot build gross $X.X due of first $X.X gross land entitled gross million million relates XXXX. cost million. lots decrease of the million $XX.X the due the million million million, to decrease build Now XX% gross gross offset first sales first nine home profit compared build sales margin of for decrease nine in $X.X for to was turning primarily Sales months that first XXXX of gross of of partially partially XXXX entitled gross decline Gross The by first entitled XXXX $X.X The in nine $X.X XXXX. margin offset XX.X% in revenues resulting for to of the XXXX volume the was the decline. sales profit months by profit months profit for XXXX results. XXXX. as significant compared million for million, decline of $X.X offset fee entitled in with XXXX. gross developed by was margin profit $XX.X primarily from land X% $XX first months homes, profit The build nine million and The in XX.X% the significant was to nine XX.X% decline first of months to by was and result year-to-date in driven fee to improvement Gross our cost projects disclosed. fee of million, $XX.X The of sales. fee previously increases was a decrease in by margin decrease were of for a profit nine gross in the first million compared nine to months $XX.X to land. gross overruns overruns of was and for of nine increased months months developed primarily home partially land of XXXX a compared sales increases build to increase The in

to operating were in expense, compared related were nine and project the was expense purchase. for company XXXX. in primarily income at associated of future net The first and as months compared $X.X debt not to increase XXXX is expenses Payroll in Right million a nine nine XX.X% to for and to compared unexpected the less growth income entitled the the of Winding attributable million expense months more decline expenses bad $X.X million year that our was of first the the support note $X.X and expense infrastructure $X.X increase LLC costs personnel expenses overruns $X.X percentage Our million contributors receivable sales costs million, margin cost net we and for operating XXXX of the our of build were for Rocklin months increased of costs, nine our a plans. XXXX. $X.X which advertising due fee and decided for the This our of largest project $X.X projects, sales the cancellation of debt preacquisition with contributed we insurance sales marketing million operating bad infrastructure public of stated, months related high first first nine first in XXXX build of company business expenses operating first and rapidly million, of months is to increase investment expenses the increase Westry months XXXX. professional the and sales previously primarily public first XXXX. nine Net the expenses The the to operating increased Village a million of and the investments in in land Bad the associated to corporate for prior incurred with to use volume period. due and the the over to for attributable Operating to loss canceled XX Lane of debt primarily $XX made projects. our nine in respectively. support our as expense, to new office, to fees depreciation months with to percentage growth also XX.X% expenses increase

for $X.X of share XXXX. per share months the we earnings months the to XXXX, of for nine of loss million for For for the first first first XXXX income compared adjusted XXXX turn for basic was EBITDA was was $X.X loss nine XXXX. $X.XX a months XX.X% the months EBITDA to of of EBITDA of nine months of loss EBITDA percentage nine XXXX months compared Sterling. the XXXX. nine first for compared had Adjusted million million nine compared months $X.XX of of the months negative per as XXXX. to of Adjusted $X sales for back first to first first income of nine a call $X million EBITDA of the I X.X% nine the will now to the first

Sterling Griffin

Thank you, Lance.

family challenges During experienced most divisions. we thoughtful multi-family redesign to constraints, of was selections. these the masonry, in resulted or company of able single construction and and electrical within components. quarter, delays the reduce supply third both alternative construction eliminate delays block including or certain At chain through wall these our however, In shortages instances, times, appliances

uncertainty along December continue certain the further inflation, headwinds, full-year to Due we issues, reducing for XXXX. multi-family of the increased financial prolonged industry rates and XX, financing for As suggest affordability projects less options trends home we to attractive customers. mortgage dynamics, timing related forward, with slower end continued look sales, of months including our to these certain XX are targets and and

financial on around of and that between of the is and real of December to previous ended the $XX a expectation, XXXX. XX, million at compared $XX $X million XXXX the range our is solely and includes to a updated which following: of loss to $XX now breakeven. million compared year months approximately estate XX in previous EBITDA was scheduled completed This under guidance outlook Revenue to sold approximately be million; in $XX $X full loss based is contract adjusted million or million Our for to our range

for While a believe is short results fell Development stable Harbor the position. Custom our third in of quarter expectations, we

it and us focused to remains continue creating landscape we on manage remain value. I turn the back the to diligently With the surrounding that, operator. dynamic, shareholder As will very business will

Operator

will previously submitted questions who questions. Thank the sale Brown I completely submitted get the Gorda the Griffin Mr. Instructions] Punta and out Mr. Florida you [Operator now from of everyone market? to. read to company respond Does the to pending

Sterling Griffin

Yes. Florida. is only the we have property Punta currently Gorda in

opportunities market and there future. Florida the will the like we However, evaluate in we continue to

Operator

Are new there any into the at to company is this enter that looking markets time?

Sterling Griffin

strong economic or Yes. low state We tax really migration, within income like no markets conditions. and

these meets evaluate of opportunity one any more will We that or criteria.

Operator

the Will default? BankUnited you please provide an update on loan

Lance Brown

an or To-date, XXth, their a disclosed intention bank As XX, BankUnited payment their of of coverage interest amounts at informed Harbor a restructuring. of covenant in the loan. our sending was covenant September an XXXX, default any ratio But potential to maintain and minimum and least default has that the loan they bank meet under they X-K on ratio the under failed us accelerate to covenant ratio of to interest the X.X. us October we filing of us debt submitted the loan We agreement. considered are requires the to had coverage as we September with the notice due as provided event of department X.X. of this calculations XXth, not for restructuring The to

are the We future we and updates waiting analysis will appropriate. as material restructuring for provide

Operator

What is get into the ratio? with plan the standing X.X to interest and BankUnited coverage good back

Lance Brown

loan with BankUnited, its department. restructuring are a resolution actively which the has to We sent seeking

progress is assets real and ratio. the a market to estate continuing are coverage we to generate interest EBITDA, to which Additionally, monetize component our key

Operator

what BankUnited What the the calls is Harbor do or plan will loan? if

Sterling Griffin

allowed due, support values the us BankUnited's the it's not We they time. loan, monetized costs do to estate at will services because cash multifamily real completion nearing that interest when debt in BankUnited. the provided to significant believe have intend all The paid to when time. to consistently our Harbor call best with pivot pay has on opportune and and assets have loan generate full relationship we in

potential being received commented, BankUnited the have it's any Lance loan. not analyzed We call that for as indication But will restructuring.

Operator

much and XX, used future May remainder X buyback XXXX, to How million on can the be the for left shares needs? cash on preferred share authorized is lower

Lance Brown

million Harbor remaining. preferred of for the so million option purchasing equity approved includes of this has an shares, there $X.X stock preferred is authorization repurchase the share program, Harbor’s X all Board including so million company. time, This X.X is spent At securities,

due conditions and changing sales are However, of cash the timing to the reserves availability regarding market future and and difficult to financing, our we monitoring ensure our uncertainty of longevity. closely

financing financial best program. for or will other generators, approved we As whether our the monetization, stock reevaluate additional real condition through the estate include capital, our which use repurchase evolves, continuing may Board cash

Operator

Gorda pending expected recently the announced? the is $X.XX with and that margin gross Punta million gross associated sale was What profit

Sterling Griffin

Punta PSA for Gorda million. $X.XX is under

gross this We of margins pending sale. expecting with profit associated approximately are XX%

Operator

What multi-family land for previously but at chose walk? and three is buyer were tracks the the sale status at of contract that total Semiahmoo under $X.X for million, the Horizon to

Sterling Griffin

are currently as We Town to permitting tracks Rentals. referred multi-family these RS&T three for Home

market time homes build best will projects. at We the or our interest of in if evaluate it's town conditions sell approval and the to determine the permitted

Operator

management ensure What to doing to is receive preferred dividend shareholders the payments? continue

Lance Brown

we position monitoring to the mentioned, preferred our can closely commitments, including we cash our meet ensure all dividend are financial Previously of payment.

although is all at date made preferred this plans dividend no payments payments immediate payment subject time. to board have to approval, and defer We are there to monthly the

Operator

what listed? is common has avoid the Harbor's $X, to stock fallen to company do under so going [B&D]

Lance Brown

grace after consecutive period least closing currently the notice, listing compliance has return at we plan, can listed, possibly XXX to days we to $X is concern. XX additional and to day there million a trading deficiency cap by additional issues business do remain which bid held and compliance under if the is NASDAQ avenues alleviate company the focus this the management's if we aggressively successfully pursue. in would are on In non-affiliates. future, take days company and exceeds NASDAQ such which with an XXX our executed are time, if $X non-compliant execution In If shares meantime, the rules. still market The should for of our have a we

Operator

company what the immediately and actions industry, expenses? taken Given state of current the being to are reduce

Lance Brown

constantly looks opportunities reduce company expenses. to for The

We these cost approximately reducing D&O an a while number of by reduced basis, the On actions, coverage. taken annualized being our including million. increasing the of significantly costs $X.X are have insurance, recently

since by benefits. is and salary action results announcing Another headcount quarter roughly XX%, taken recently our in reduced $X.X save which we annualized million second we have have will approximately

enacted cost reducing services costs marketing measures, Additionally, relations, providers. recent with certain other including we've party eliminating and savings professional service and/or third investor associated

We will a cost continue leaner in organization. investigate to other to savings an opportunities effort become

Operator

surplus What and is Darkhorse in the Texas? status current lots of

Sterling Griffin

Darkhorse been broker. real to a transferred listings recently estate have new

We are lot sell signed individual this and to looking sales. in purchase community sale in to agreement expect asset lot coming the monetize bulk or a through months. a this We recently and more

about announcement As surplus Texas, weeks. have an for our in lots coming we'll the

Operator

What Pond? is for the Grandis schedule current plan and

Sterling Griffin

to our working the We approval by begin and with the mid-XXXX. of master way property in to are If with to hope utilities we most forward engineers neighborhoods the on couple while site serve plan. cost the first the on civil lots initial governing effective the moving goes have determine work well, jurisdiction to all

Operator

is for the apartments. You almost X,XXX recently announced What properties for timeline new this?

Sterling Griffin

our to the watch. encourage company site. This multi-family projects, video of projects referring shareholders status found Web video our about a you're the our six which update We we in can on Washington. recently be put to believe out brief I

In these under projects we projects, addition also pipeline. the control in have or several six to other our

Operator

doing their revenue and what last being year year, increase credibility this shareholders? missed is amidst With management to projections

Sterling Griffin

don't that good lightly. is one and question, This a we take

best the We, is rapidly based to a the at time. of we the goal the Our likely changing available guidance paint all financial what information are market to in like companies, picture on is subject most outcome think providing conditions.

result the now mentioned As a receive in are expected into we missed we of but in pushed have and earnings XX-Q, was release XXXX. primarily guidance revenues XXXX, to as

Operator

how projected projects, cash roughly and be said plan on Harbor is does operations money for to raise needed much How for to current projects?

Lance Brown

and which in includes one four listed projects, requirement. met and equity and company's fully place has for six construction our financing the are Of one construction the funded, phase financing equity project multifamily has requirement

We the for project, sixth are we'll that actively when update working market the occurs. and on financing

Operator

have And for you finally, strategy in the business build grow rent to the considered sector? transitioning the multifamily

Sterling Griffin

sell. currently The plan for construction projects under continues be the six multifamily to to build

through Our monetizing immediate intensive and is us capital the necessitates horizon business sales.

are However, rent in of to to projects idea the open the build we future. some

We further will strategy when and our commentary provide if shifts.

Operator

our back of This concludes you. now will the for Thank Sterling question to pass remarks. and closing conference. answer section I it

Sterling Griffin

you call. Thank soon. on updates providing to participating We today's forward look everyone for additional

information about the more the harborcustomhomes.com. find site, presentation on page events can Web on under and Investor You our events our future tab Relations

encourage anyone again joining For tab the notifications Web on your or of company on be for can you our investor up Thank questions, we updates news, at most for has sign reached resources recent site. further us (XXX)XXX-XXXX appreciate you to irharborcustomdev.com. the we email time. We If today.

Operator

That you Thank call. now may time, you. At concludes disconnect. today's this

Harbor Custom Development (HCDPQ) 14 Nov 222022 Q3 Earnings call transcript