Harbor Custom Development, Inc. Reports 2023 Second Quarter and Year to Date Financial Results


TACOMA, Wash., Aug. 14, 2023 (GLOBE NEWSWIRE) -- Harbor Custom Development, Inc. (Nasdaq: HCDI, HCDIP, HCDIW, HCDIZ) (“Harbor,” “Harbor Custom Homes®,” or the “Company”), a real estate company involved in all aspects of the land development cycle, today announced its financial results for the second quarter and six months ended June 30, 2023.

Second Quarter 2023 Financial Highlights Compared to Second Quarter 2022

  • Sales of $19.8 million compared to $10.3 million
  • Gross loss of $(2.9) million compared to $(1.9) million
  • Gross margin loss of (14.7)% compared to (18.8)%
  • Net loss of $(4.4) million compared to $(4.5) million
  • Basic loss per share of $(3.79) compared to $(9.20)
  • EBITDA loss of $(3.1) million compared to $(4.9) million
  • Adjusted EBITDA loss of $(3.0) million compared to $(4.8) million

Six Months Ended June 30, 2023 Financial Highlights Compared to Six Months Ended June 30, 2022

  • Sales of $29.0 million compared to $38.9 million
  • Gross loss of $(5.0) million compared to gross profit of $4.1 million
  • Gross margin loss of (17.1)% compared to gross margin 10.6%
  • Net loss of $(9.2) million compared to $(2.9) million
  • Basic loss per share of $(10.95) compared to $(10.01)
  • EBITDA loss of $(7.7) million compared to $(1.4) million
  • Adjusted EBITDA loss of $(7.4) million compared to $(0.9) million

“Despite a challenging real estate market, we achieved notable successes in the second quarter. Sales increased 93% compared to the previous year, primarily due to the closing of the first and smallest of our multifamily projects - Mills Crossing. Additionally, we secured $10 million in gross proceeds from our public offering with H.C. Wainwright & Co., and partnered with Sound Capital to refinance phase one of Belfair View. Our apartment communities are experiencing excellent lease-up velocity, with Pacific Ridge and Wyndstone expected to reach rental stabilization soon. Our luxury Texas homes have generated significant interest, and our California lots are seeing significant momentum,” said Jeff Habersetzer, Interim Chief Executive Officer for Harbor.

Mr. Habersetzer continued, “I remain confident in our progress toward achieving our objectives through our continuous efforts to maximize our portfolio, improve operational inefficiencies, and manage costs.”

Results for the Second Quarter 2023
Sales for the second quarter 2023 increased by 92.9% to $19.8 million, compared to sales of $10.3 million for the second quarter 2022. This increase was primarily due to the sale of the Mills Crossing townhomes in Bremerton, Washington for $14.3 million and $1.9 million of lot sales in California and Texas in the second quarter 2023, which were partially offset by decreases in home sales of $6.1 million and fee build revenue of $1.2 million. The decrease in home sales was due to three fewer homes sold in Texas in the second quarter of 2023 and sale of the last two remaining homes in Washington in the second quarter 2022. The fee build revenue continued to decrease as the fee build projects neared completion.

Gross loss for the second quarter 2023 increased to $(2.9) million compared to $(1.9) million for the second quarter 2022. Gross margin loss for the second quarter 2023 decreased to (14.7)% compared to (18.8)% for the second quarter 2022. The $(1.0) million increase in gross loss was primarily due to $4.7 million of additional impairment losses recorded on the Pacific Ridge and Darkhorse properties and decrease in home profit of $1.6 million or 14.4% gross margin decrease as compared to the second quarter 2022. These were partially offset by $1.5 million gross profit at 10.2% gross margin from the sale of Mills Crossing townhomes and non-recurrence of significant losses from Harbor’s legacy fee build projects in 2023. The gross margin improvement was due to the increase in sales and non-recurrence of fee build losses, partially offset by impairment charges.

Operating expenses for the second quarter 2023 were $2.4 million compared to $3.7 million for the second quarter 2022. The $(1.3) million decrease in operating expenses was primarily due to a reduction of general and administrative costs. The majority of the savings came from reductions of compensation costs, depreciation, insurance expense, right of use expense, and professional fees. Operating expenses as a percentage of sales for the second quarter 2023 were 12.0% compared to 35.5% for the second quarter 2022. The decrease in operating expenses as a percentage of sales was primarily due to higher sales in the second quarter 2023 as compared to the second quarter 2022 and decrease in operating expenses for the comparable periods.

For the second quarter 2023, net loss was $(4.4) million compared to $(4.5) million for the second quarter 2022. Net loss attributable to common stockholders for the second quarter 2023 was $(6.3) million or $(3.79) basic loss per share compared to net loss attributable to common stockholders of $(6.4) million or $(9.20) basic loss per share for the second quarter 2022.

EBITDA loss for the second quarter 2023 decreased from $(4.9) million in the second quarter 2022 to a loss of $(3.1) million for the second quarter 2023. Adjusted EBITDA, which excludes the impact of stock compensation and other non-recurring costs, for the second quarter 2023 decreased to a loss of $(3.0) million compared to $(4.8) million for the second quarter 2022. For the second quarter 2023, Adjusted EBITDA loss as a percentage of sales was (15.0)% compared to (46.5)% for the second quarter 2022.

Results for the Six Months Ended June 30, 2023
Sales for the first half of 2023 decreased by (25.3)% to $29.0 million, compared to sales of $38.9 million for the first half of 2022. This decrease was primarily due to decreases in sales of homes of $12.4 million, developed lots of $4.7 million, entitled land of $4.5 million, and fee build of $3.7 million, partially offset by an increase in multi-family revenue of $15.5 million. The decreases in sales of homes, developed lots, and entitled land were mainly due to large prior year sales in California and Washington that did not recur in the first half of 2023. The fee build revenue continued to decrease as the fee build projects are nearing completion. The increases in multi-family revenue were due to the sale of Mills Crossing townhomes for $14.3 million and $1.2 million of rental revenue from four multi-family properties.

Gross profit (loss) for the first half of 2023 decreased to $(5.0) million compared to $4.1 million for the first half of 2022. Gross margin (loss) for the first half of 2023 was (17.1)% compared to gross margin of 10.6% for the first half of 2022. The $(9.1) million decrease in gross profit was primarily due to decreases in entitled land gross profit of $(4.1) million, developed lots gross profit of $(3.9) million, home gross profit of $(3.2) million, and gross loss from multi-family of $(1.3) million, partially offset by a decrease in fee build gross loss of $2.6 million. The (27.7)% decrease in gross margin was primarily driven by non-recurrence of high margin land, developed lot, and home sales, including a $2.9 million impairment loss related to the Darkhorse property and a $3.2 million impairment loss incurred on the Pacific Ridge apartment project. These gross margin declines were partially offset by $(3.0) million gross loss due to cost overruns with fee build projects in 2022 that did not recur in 2023, and $1.5 million gross profit from the sale of Mills Crossing townhomes in the first half of 2023.

Operating expenses for the first half of 2023 were $5.3 million compared to $7.5 million for the first half of 2022. This $(2.2) million decrease in operating expenses is primarily attributable to Harbor’s focused reduction in general and administrative costs. Compensation costs, depreciation, insurance expense, and professional fees were the largest contributors to the cost savings of $(0.5) million, $(0.5) million, $(0.4) million, and $(0.4) million, respectively. Other less significant cost savings include a $(0.2) million right of use expense and $(0.1) million of brokerage fees. Operating expenses as a percentage of sales for the first half of 2023 were 18.3% compared to 19.3% for the first half of 2022. The decrease in operating expenses as a percentage of sales was primarily due to the decrease in operating expenses as described above, partially offset by lower sales for the first half of 2023 compared to the first half of 2022.

For the first half of 2023, net loss was $(9.2) million compared to $(2.9) million for the first half of 2022. Net loss attributable to common stockholders for the first half of 2023 was $(13.0) million or $(10.95) basic loss per share compared to a net loss of $(6.8) million or $(10.01) basic loss per share for the first half of 2022.

EBITDA for the first half of 2023 decreased 451.1% to a loss of $(7.7) million compared to $(1.4) million for the first half of 2022. Adjusted EBITDA, which excludes the impact of stock compensation and other non-recurring costs, for the first half of 2023 decreased by 738.0% to a loss of $(7.4) million compared to $(0.9) million for the first half of 2022. For the first half of 2023, Adjusted EBITDA loss as a percentage of sales was (25.6)% compared to (2.3)% for the first half of 2022.

About Harbor Custom Development, Inc.
Harbor Custom Development, Inc., is a real estate development company involved in all aspects of the land development cycle, including land acquisition, entitlements, construction of project infrastructure, home and apartment building, marketing, and sales of various residential projects in Western Washington’s Puget Sound region; Sacramento, California; Austin, Texas; and Punta Gorda, Florida. As a land developer and builder of apartment buildings and single-family luxury homes, Harbor Custom Development’s business strategy is to acquire and develop land strategically based on an understanding of population growth patterns, entitlement restrictions, infrastructure development, and geo-economic forces. Harbor focuses on acquiring land with scenic views or convenient access to freeways and public transportation to develop and sell residential lots, new home communities, and multi-story apartment properties within a 20- to 60-minute commute of the nation’s fastest-growing metro employment corridors. For more information on Harbor Custom Development, Inc., please visit www.harborcustomdev.com.

Forward-Looking Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements relate to, but are not limited to, expectations of future operating results and financial performance, including GAAP and non-GAAP guidance, and the calculation of certain key financial and operating metrics, as well as assumptions relating to the foregoing. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “expect,” “plan,” anticipate,” “believe,” “estimate, “predict,” “target,” “project,” “intend,” “potential,” “would,” “continue,” “ongoing,” or the negative of these terms or other comparable terminology that concerns the Company’s expectations, strategy, priorities, plans, or intentions. You should not put undue reliance on any forward-looking statements. Forward-looking statements should not be read as guarantees of future performance or results and will not necessarily be accurate indications of the times at or by which such performance or results may be achieved, if at all. These forward-looking statements are subject to various risks and uncertainties, including without limitation, changes in the real estate industry such as continued increases in mortgage interest rates or recessionary pressures in the local or national economies where the Company operates which could dampen residential home purchases, as well as those risks and uncertainties set forth in the Company’s filings with the Securities and Exchange Commission. Thus, actual results could be materially different. The Company expressly disclaims any obligation to update or alter statements whether as a result of new information, future events, or otherwise, except as required by law.

Use of Non-GAAP Financial Measures
This press release and the financial information contained herein include EBITDA, Adjusted EBITDA, and Adjusted EBITDA margin, which are financial measures that have not been calculated in accordance with accounting principles generally accepted in the United States, (GAAP) and are therefore referred to as non-GAAP financial measures. The Company has provided definitions for these non-GAAP financial measures and tables in the schedules hereto to reconcile these non-GAAP financial measures to the comparable GAAP financial measures.

The Company believes that these non-GAAP financial measures provide valuable information regarding earnings and business trends by excluding specific items that the Company believes are not indicative of the ongoing operating results of its business, providing a useful way for investors to make a comparison of the Company’s performance over time and against other companies in the industry.

The Company has provided these non-GAAP financial measures as supplemental information to its GAAP financial measures and believes these non-GAAP measures provide investors with additional meaningful financial information regarding its operating performance and cash flows. The Company’s management and board of directors also use these non-GAAP measures as supplemental measures to evaluate its business and the performance of management, including the determination of performance-based compensation, to make operating and strategic decisions, and to allocate financial resources. The Company believes that these non-GAAP measures also provide meaningful information for investors and securities analysts to evaluate its historical and prospective financial performance. These non-GAAP measures should not be considered a substitute for or superior to GAAP results. Furthermore, the non-GAAP measures presented by the Company may not be comparable to similarly titled measures of other companies.

Investor Relations
IR@harborcustomdev.com
866-744-0974

HARBOR CUSTOM DEVELOPMENT, INC. AND SUBSIDIARIES
D/B/A HARBOR CUSTOM HOMES
CONDENSED CONSOLIDATED BALANCE SHEETS
    
 June 30, 2023 December 31, 2022
 (unaudited)  
ASSETS   
Cash$8,330,000  $9,665,300 
Restricted Cash 597,600   597,600 
Accounts Receivable, net 815,200   1,707,000 
Notes Receivable, net 2,115,300   4,525,300 
Prepaid Expense and Other Assets 2,064,600   5,318,100 
Real Estate 212,072,600   205,478,200 
Property and Equipment, net 1,764,600   2,289,500 
Right of Use Assets 1,827,400   1,926,100 
Deferred Tax Asset 7,311,700   4,659,300 
TOTAL ASSETS$236,899,000  $236,166,400 
    
LIABILITIES AND STOCKHOLDERS’ EQUITY   
    
LIABILITIES   
Accounts Payable and Accrued Expenses$8,139,900  $14,090,700 
Dividends Payable 3,807,400   634,700 
Contract Liabilities 378,300   497,400 
Deferred Revenue 51,200   52,000 
Note Payable - Insurance 73,200   378,500 
Revolving Line of Credit Loan, net of Unamortized Debt Discount of $0 and $0.6 million respectively 18,359,700   24,359,700 
Equipment Loans    2,057,100 
Finance Leases    154,500 
Construction Loans, net of Unamortized Debt Discount of $1.3 million and $1.9 million, respectively 131,825,600   107,483,700 
Construction Loans - Related Party, net of Unamortized Debt Discount of $0 and $0.1 million, respectively    8,122,800 
Right of Use Liabilities 2,656,400   2,779,400 
TOTAL LIABILITIES 165,291,700   160,610,500 
    
STOCKHOLDERS’ EQUITY   
Preferred Stock, no par value per share, 10,000,000 shares authorized and 3,799,799 issued and outstanding at June 30, 2023 and December 31, 2022 62,912,100   62,912,100 
Common Stock, no par value per share, 50,000,000 shares authorized and 1,802,295 issued and outstanding at June 30, 2023 and 718,835 issued and outstanding at December 31, 2022 39,711,000   35,704,700 
Additional Paid In Capital 6,356,600   1,266,300 
Retained Earnings (Accumulated Deficit) (37,372,400)  (24,327,200)
TOTAL STOCKHOLDERS’ EQUITY 71,607,300   75,555,900 
    
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY$236,899,000  $236,166,400 


HARBOR CUSTOM DEVELOPMENT, INC. AND SUBSIDIARIES
D/B/A HARBOR CUSTOM HOMES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
        
 For the Three Months Ended For the Six Months Ended
 June 30, June 30,
  2023   2022   2023   2022 
        
Sales$19,844,500  $10,286,400  $29,025,600  $38,867,400 
        
Cost of Sales 22,764,200   12,218,300   33,989,600   34,744,700 
        
Gross Profit (Loss) (2,919,700)  (1,931,900)  (4,964,000)  4,122,700 
        
Operating Expenses 2,378,500   3,654,100   5,313,900   7,493,400 
        
Operating Loss (5,298,200)  (5,586,000)  (10,277,900)  (3,370,700)
        
Other Income (Expense)       
Interest Expense (530,600)  (356,500)  (1,737,700)  (481,000)
Interest Income 29,300   159,900   102,100   214,900 
Gain (Loss) on Sale of Equipment 25,800   (105,500)  (10,400)  (105,500)
Other Income 22,900   400   33,800   8,500 
Total Other Expense (452,600)  (301,700)  (1,612,200)  (363,100)
        
Loss Before Income Tax (5,750,800)  (5,887,700)  (11,890,100)  (3,733,800)
        
Income Tax Benefit (1,374,800)  (1,378,600)  (2,652,300)  (870,000)
        
Net Loss$(4,376,000) $(4,509,100) $(9,237,800) $(2,863,800)
        
Net Loss Attributable to Non-controlling interests          (500)
Preferred Dividends (1,903,700)  (1,940,000)  (3,807,400)  (3,952,500)
        
Net Loss Attributable to Common Stockholders$(6,279,700) $(6,449,100) $(13,045,200) $(6,815,800)
        
Loss Per Share - Basic$(3.79) $(9.20) $(10.95) $(10.01)
Loss Per Share - Diluted$(3.79) $(9.20) $(10.95) $(10.01)
        
Weighted Average Common Shares Outstanding - Basic 1,657,709   701,215   1,191,752   680,740 
Weighted Average Common Shares Outstanding - Diluted 1,657,709   701,215   1,191,752   680,740 


HARBOR CUSTOM DEVELOPMENT, INC. AND SUBSIDIARIES
D/B/A HARBOR CUSTOM HOMES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
 For the Six Months Ended June 30,
  2023   2022 
CASH FLOWS FROM OPERATING ACTIVITIES   
Net Loss$(9,237,800) $(2,863,800)
Adjustments to reconcile net loss to net cash from operating activities:   
Depreciation 180,500   639,600 
Amortization of right of use assets 98,700   371,400 
Loss on sale of equipment 10,400   105,500 
Provision for loss on contract 74,200   1,034,900 
Impairment loss on real estate 6,289,000    
Stock compensation 158,700   354,700 
Amortization of revolver issuance costs 640,300   182,900 
Net change in assets and liabilities:   
Accounts receivable 891,800   (849,100)
Contract assets    799,800 
Notes receivable 2,410,000   (8,874,400)
Prepaid expenses and other assets 3,382,000   598,100 
Real estate (11,271,800)  (31,424,100)
Deferred tax asset (2,652,300)  (870,000)
Accounts payable and accrued expenses (5,950,800)  5,047,300 
Contract liabilities (193,200)   
Deferred revenue (800)  17,400 
Payments on right of use liability, net of incentives (123,000)  191,400 
NET CASH USED IN OPERATING ACTIVITIES$(15,294,100) $(35,538,400)
    
CASH FLOWS FROM INVESTING ACTIVITIES   
Purchase of property and equipment$  $(1,741,500)
Proceeds on the sale of equipment 254,300   195,800 
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES$254,300  $(1,545,700)
    
CASH FLOWS FROM FINANCING ACTIVITIES   
Construction loans$49,563,200  $30,608,500 
Payments on construction loans (25,879,700)  (8,817,000)
Financing fees construction loans (923,800)  (1,176,000)
Related party construction loans    7,458,400 
Payments on related party construction loans (8,177,300)  (7,836,800)
Financing fees related party construction loans (75,000)  (10,100)
Revolving line of credit loan    20,288,900 
Payments on revolving line of credit loan (6,640,300)   
Financing fees revolving line of credit loan    (1,097,700)
Payments on note payable - insurance (333,900)  (773,300)
Payments on equipment loans (2,057,100)  (1,133,000)
Payments on financing leases (74,800)  (38,000)
Preferred dividends (634,700)  (3,988,700)
Repurchase of common stock    (437,700)
Proceeds from common stock offering 602,600    
Proceeds from pre-funded and common warrants offering 8,335,300    
Proceeds from exercise of stock options    8,600 
Proceeds from exercise of warrants    413,800 
NET CASH PROVIDED BY FINANCING ACTIVITIES$13,704,500  $33,469,900 
    
NET DECREASE IN CASH AND RESTRICTED CASH (1,335,300)  (3,614,200)
    
CASH AND RESTRICTED CASH AT BEGINNING OF PERIOD 10,262,900   26,226,800 
    
CASH AND RESTRICTED CASH AT END OF PERIOD$8,927,600  $22,612,600 


HARBOR CUSTOM DEVELOPMENT, INC. AND SUBSIDIARIES
D/B/A HARBOR CUSTOM HOMES
RECONCILIATION OF NET INCOME TO EBITDA AND ADJUSTED EBITDA (Unaudited)
        
 For the Three Months Ended For the Six Months Ended
 June 30, June 30,
  2023   2022   2023   2022 
        
Net Income (Loss)$(4,376,000) $(4,509,100) $(9,237,800) $(2,863,800)
        
Interest Expense - Cost of Sales 1,997,000   297,300   2,307,700   1,220,000 
Interest Expense - Other 530,600   356,500   1,737,700   481,000 
Depreciation 85,400   335,800   180,500   639,600 
Amortization 2,400   2,400   4,900   3,300 
Tax Expense (Benefit) (1,374,800)  (1,378,600)  (2,652,300)  (870,000)
EBITDA$(3,135,400) $(4,895,700) $(7,659,300) $(1,389,900)
        
Stock compensation 75,400   112,300   158,700   354,700 
Other non-recurring costs 79,100      84,100   150,200 
Total Add backs 154,500   112,300   242,800   504,900 
Adjusted EBITDA$(2,980,900) $(4,783,400) $(7,416,500) $(885,000)

EBITDA is defined as consolidated net income (loss) before interest, taxes, depreciation, and amortization.

Adjusted EBITDA is defined as consolidated net income (loss) before interest, taxes, depreciation, and amortization, equity-based compensation expense and other non-recurring costs, which are primarily related to restructuring costs and leadership transitions, that are deemed to be transitional in nature or not related to the Company’s core operations.

Adjusted EBITDA margin is Adjusted EBITDA as a percentage of sales.