Harbor Custom Development Inc (HCDI) 2021 Q4 法說會逐字稿

Thank you for standing by, and welcome to the Harbor Custom Development, Inc. fourth quarter and full-year 2021 earnings conference call. (Operator Instructions) 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. And thank you all for joining us today. Welcome to Harbor Custom Development's fourth quarter and full-year 2021 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 with our 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 interest in Harbor Custom Development. I want to begin by recognizing all our employees for the strong performance they delivered in 2021. Their continued dedication to the business contributed to the impressive performance throughout the year and allowed us to finish with significant momentum.

The strength of our unique business model was on full display throughout the year with a 44% increase in revenue on a year-over-year basis. We benefited from strong pricing and demand conditions during 2021 despite broader industry challenges, including supply chain disruptions, labor shortages, and other inflationary pressures. While these challenges are expected to persist in the near term, we have successfully navigated these obstacles as evidenced by our financial results.

With inventory levels at or near historic lows, we expect to benefit from continued strong pricing throughout 2022. Our distinct business plan of serving multiple segments of the home buying market within that 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 communities' 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, lots, home plans, and finishing options, coupled with the historic low inventory of residential and multi-family 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 on 10 multi-family sites, including Bridge View Trails, Broadmoor Commons, Mills Crossing, Punta Gorda, Tanglewilde, Olympic Sunset, Pacific Ridge, Wyndstone, Mira, and Westry Village in 2022.

In addition to our diverse product portfolio, we continue to expand geographically. Western Washington remains our largest market that we have operations in Texas, Florida, and California. We have grown our real estate assets, lot, and unit counts across the entire portfolio.

In an effort to strategically control the expanding needs of our corporate team, we signed a lease on October 5, 2021, for a new office space in Tacoma, Washington and expect to relocate our headquarters there in the second quarter of 2022. The new office space is designed with a hybrid workforce in mind and takes into account employment trends that arose after the COVID-19 pandemic.

We continue to demonstrate strong and consistent growth, delivering increased revenues each year of operation. For the years ended December 31, 2021, and December 31, 2020, our total revenues were $72.4 million and $50.4 million, respectively.

As of December 31, 2021, and December 31, 2020, our backlogs have fully executed contracts for the sale of developed, residential lots, and single-family homes were $13.7 million and $9.1 million, respectively. Our fee build backlog as of December 31, 2021, and December 31, 2020, were $10 million and zero, respectively.

Our financial condition continues to improve. We made significant progress during 2021 to strengthen our balance sheet and finished the year with $26.2 million in cash, up from $2.4 million the previous year. We continue to invest in our business to drive shareholder value.

Subsequent to year end, we announced the closing of a revolving credit facility of $25 million with BankUnited. The facility provides us with the liquidity and financial flexibility to build on our already strong foundation and pursue further growth initiatives. I am confident that the continued demand in the single and multi-family housing markets, strength of our balance sheet, and our unique business model makes us well positioned to deliver a strong performance in 2022 and beyond.

I will now turn the conference call over to Lance Brown, our Chief Financial Officer to further discuss our financial results.

On a quarterly basis, revenues increased by approximately 8% to $26.3 million for the three months ended December 31, 2021, as compared to $24.3 million for the three months ended December 31, 2020. The increase in revenue was primarily driven by an increase in sales of developed lots of $6.5 million, fee build revenue of $2.6 million, and $0.9 million from entitled land sales, offset by a $7.9 million decrease in home sales.

Our overall gross profit margin was 41.2% for the three months ended December 31, 2021, compared to 1.5% for the three months ended December 31, 2020. The increase was driven primarily by meaningful improvement in gross profit margin on entitled land sales of 72.6% and developed lot sales of 49.3%.

Our operating expenses increased to $3.5 million for the three months ended December 31, 2021, as compared to $1.7 million for the three months ended December 31, 2020. This anticipated increase in total operating expenses is primarily attributable to the continued investment in public company infrastructure and personnel to support our future growth plans.

For the three months ended December 31, 2021, and 2020, we had net income of $5.6 million and a net loss of $1.9 million, respectively. The $5.6 million of net income was a new quarterly record for the company. The improvement in net income was primarily attributable to an increase in revenue and improved gross margins in 2021.

For the three months ended December 31, 2021, and 2020, we had basic earnings per share of $0.26, compared to a loss per share of $0.34. EBITDA for the fourth quarter was $8 million compared to $1.3 million in 2020, while adjusted EBITDA was $8.3 million compared to $1.4 million in 2020.

Turning to the full year. We are pleased to report on a full year basis, revenues increased by approximately 43.6% to $72.4 million for the year ended December 31, 2021, as compared to $50.4 million for the year ended December 31, 2020. Our revenue increase in 2021 was primarily driven by increased sales of entitled land of $20.6 million, sales developed lots of $14.3 million, and $6.8 million from fee build, offset by a $19.6 million decrease in home sales.

Our full-year gross profit margin was 30.3% for the year ended December 31, 2021, compared to 4% for the year ended December 31, 2020. We believe our 30% gross margin for the full-year 2021 was one of the highest in the industry. The increase was primarily driven by strong gross profit margin on entitled land of 43.3% and developed lot sales of 40.8%.

Full-year operating expenses increased to $11.2 million for the year ended December 31, 2021, as compared to $5.5 million for the year ended December 31, 2020. This anticipated increase in total operating expenses was primarily driven by the continued investment in public company infrastructure and personnel to support our future growth plans.

For the year ended December 31, 2021, and 2020, net income was $8.9 million, compared to a net loss of $3.8 million. The improvement in net income was primarily driven by an increase in revenue and improved gross profit margins in 2021. For the year ended December 31, 2021, and 2020, basic earnings per share was $0.43, compared to a loss per share of $0.84.

EBITDA for the full year was $14.2 million compared to $0.6 million in 2020, while adjusted EBITDA was $14.9 million compared to $0.8 million in 2020. The year-over-year increase highlights the value of our unique business model and ability to monetize real estate assets at the most opportune time. We were able to raise a significant amount of capital during the year, including $91.7 million from common and preferred stock issuances, and $73.2 million from construction loan financing.

We ended the year with $26.2 million of cash, which was a $23.8 million increase from the prior year. Net cash used in operating activities for the year ended December 31, 2021, was $86.4 million, compared to cash provided by operating activities of $3 million for the year ended December 31, 2020. The primary use of cash during 2021 was for the acquisition and development of real estate assets totaling $98.5 million.

Our real estate assets had increased approximately 500% to $122.1 million as of December 31, 2021, from $20.4 million as of December 31, 2020. As of December 31, 2021, our real estate assets were levered at approximately 40%.

I will now turn the call back to Sterling.

Thank you, Lance. As evidenced by the significant increase in our real estate assets, we have and continue to invest in the future of our company. For 2022, we expect continued strength in the single-family housing and multi-family rental markets and reiterate our revenue guidance for 2022 of approximately $160 million. Our guidance implies a year-over-year revenue increase of 121%.

We anticipated adjusted EBITDA of approximately $20 million during 2022, which implies a 34% increase on a year-over-year basis. We remain focused on strengthening our current market position and believe that we have a strong foundation to accelerate our growth and market reach during 2022 and beyond.

We will now switch to the question-and-answer session. Prior to the call, inquiries were submitted to IR@harborcustomdev.com. I will now read the previously submitted questions for Mr. Griffin and Mr. Brown to respond to. Thank you to everyone who submitted questions.

Question number one, will you provide an update to the $158 million credit facility with US Global Capital announced last fall?

With this loan, we decided to go a different direction. The three Western Washington projects slated for the facility have all received construction loan commitments from other lenders. And the fourth project mentioned in the original release in Florida is still in the architectural planning stages. After completion of the plans and building permit submittal, we plan to secure a loan for this project as well.

Question number two, why did you move forward on a second round of preferred stock priced at $15?

We are growing very rapidly. Our executive team and Board of Directors saw the second preferred offering as an opportunity to raise additional capital to secure a healthy pipeline of multi-family projects. We anticipate these projects will provide substantial top line growth in 2022 and 2023, which we see as a critical component for our success.

Question number three, why has Harbor changed several of its projects from condominiums to apartments?

Over the past year, we have seen apartment rents escalate to historically high levels, while capitalization rates for multi-family projects in the suburbs have correspondingly decreased substantially. This financial combination has caused a rapid escalation of apartment values and created a great opportunity for HCDI in the markets that we serve. We believe a substantial percentage of our income will be driven by revenues from the sale of apartments for the next several years.

Question number four, do you think the real estate market will continue to see record increases in single-family home and apartment rental rates in 2022?

In the markets we serve, the answer is yes. We expect to continue to see escalating single-family home prices and apartment rent increases in 2022. This is a classic case of supply and demand. Until the housing market reaches normal inventory levels, generally described as a four- to six-month supply, home prices will continue to rise. With apartments, you have the same situation. The shortage of rental units has driven rents to unprecedented levels. And this cycle is expected to continue until supply catches up with demand.

Question number five, does the company have sufficient liquidity to complete your current projects and continue growing at the current pace?

As we mentioned on today's call, we ended the year with approximately $26 million of cash. We also recently announced the execution of a revolving credit facility, which provides an additional $25 million of liquidity. Based on our cash on hand, our additional liquidity from the revolving credit facility and our proven track record for both the acquisition and monetization of our real estate assets, we feel confident we can achieve our goals and our growth objectives.

Question number six, how does the company think about future capital allocation?

Our planned primary use of cash in 2022 are for funding our working capital needs, servicing our debt, investing in real estate assets, capital expenditures, and preferred stock dividends. We may also consider strategic uses including but not limited to additional equity buybacks, debt paydowns, and acquisitions.

This now ends the question-and-answer portion.

Thank you, everyone, for participating in today's call. We 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 harborcustomhomes.com.

For the most recent updates on company news, we encourage you to sign up for e-mail notifications on the Investor Resources tab of our website. If anyone has further questions, we can be reached at 866-744-0974 or at IR@harborcustomdev.com. Thank you again for joining us today. We appreciate your time.

This does conclude today's presentation. We appreciate your participation.