Earnings Transcript for HCDI - Q2 Fiscal Year 2021

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

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

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.