Executive Summary

Q1 2023 was materially weak: sales fell 67.9% year over year to $9.2M, with gross margin at (22.3)% and net loss of $(4.9)M as high-margin 2022 land transactions did not recur and impairments/cost overruns weighed on profitability .
Operating expenses declined $0.9M YoY to $2.9M from cost control initiatives, but remained 32.0% of sales given the low revenue base; EBITDA and Adjusted EBITDA were losses of $(4.5)M and $(4.4)M, respectively .
Management reiterated focus on multi-family with initial rental revenue of $0.4M and emphasized continued cost discipline; CEO Sterling Griffin highlighted macro headwinds (higher mortgage rates, inflation) and confidence heading into the summer selling/rental season .
No new guidance provided; recall loan covenant waivers/amendment with BankUnited in Q1 context could constrain flexibility (e.g., monthly $0.6M payments to lender, restrictions on new projects without consent) until March 2024 or payoff .

What Went Well and What Went Wrong

What Went Well

Operating expense discipline: OpEx fell to $2.9M from $3.8M YoY, driven by lower professional fees, insurance, depreciation, and stock comp .
Multi-family strategy progress: management reported $0.4M of rental revenue in the quarter and reiterated confidence that multi-family can drive future growth .
Management tone on actions: “We have taken and will continue to take cost control initiatives to help navigate changing market conditions and maintain the health of our balance sheet” — Sterling Griffin, President & CEO .

What Went Wrong

Sharp revenue decline and mix headwinds: sales down 67.9% YoY to $9.2M due to non-recurring large 2022 sales in CA/WA across developed lots, homes, and entitled land, and lower fee build revenue as projects near completion .
Margin pressure and impairments: gross margin fell to (22.3)% as high-margin entitled land sales did not recur; $1.6M impairment (Pacific Ridge, Darkhorse, Bunker Ranch) and fee build cost overruns further pressured margins .
Earnings erosion: net loss of $(4.9)M vs. $1.6M income last year; EPS to common $(9.39) driven by lower sales/mix and higher interest expense; EBITDA and adjusted EBITDA swung to losses .

Financial Results

Metric	Q3 2022	Q4 2022	Q1 2023
Sales ($USD Millions)	$11.75	$4.80	$9.18
Gross Profit (Loss) ($USD Millions)	$0.44	$(5.01)	$(2.04)
Gross Margin %	3.7%	(104.5)%	(22.3)%
Operating Expenses ($USD Millions)	$4.52	$4.22	$2.94
Operating Income (Loss) ($USD Millions)	$(4.09)	$(9.23)	$(4.98)
Net Income (Loss) ($USD Millions)	$(3.41)	$(10.64)	$(4.86)
Basic EPS ($USD)	$(0.37)	$(17.47)	$(9.39)
EBITDA ($USD Millions)	$(3.19)	$(11.89)	$(4.52)
Adjusted EBITDA ($USD Millions)	$(3.07)	$(8.53)	$(4.44)
Adjusted EBITDA Margin %	(26.2)%	(177.7)%	(48.3)%

Notes: Q1 2023 included $1.6M impairment charges; fee build cost overruns also impacted gross profit/margins .

Segment breakdown: The company did not provide a GAAP segment revenue table; press release attributes YoY sales declines to developed lots, homes, entitled land, and fee build, partially offset by rental revenue .

Balance sheet KPIs

Metric	9/30/2022	12/31/2022	3/31/2023
Cash and Restricted Cash ($USD Millions)	$14.31	$10.26	$8.29
Real Estate ($USD Millions)	$179.93	$205.48	$217.84
Total Assets ($USD Millions)	$227.39	$236.17	$241.97
Construction Loans, net ($USD Millions)	$83.26	$107.48	$122.61
Revolving Line of Credit, net ($USD Millions)	$24.01	$24.36	$22.89
Total Liabilities ($USD Millions)	$139.33	$160.61	$173.10
Stockholders’ Equity ($USD Millions)	$88.06	$75.56	$68.87

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue	FY 2022	~$80–$90M	~$61–$65M	Lowered
Adjusted EBITDA	FY 2022	~Break even	Loss $(5)M to $(7)M	Lowered
Guidance	Q1 2023 / FY 2023	N/A	No guidance provided in Q1 release	—

Earnings Call Themes & Trends

Topic	Q3 2022 (11/14/22)	Q4 2022 (3/31/23)	Q1 2023 (5/15/23)	Trend
Macro: rates, demand	Rates/affordability weakening demand; revised 2022 guide down	Supply chain delays, rising rates, decreased buyer demand	“Higher mortgage interest rates and inflationary pressures” impacting results ; call cited weaker sales volume on rising rates	Persistent headwind
Strategy: Multi-family focus	Transitioning to multi-family emphasized	Continued shift, rent-up progress expected in 2023	Progress and initial rental revenue; confidence into summer rental season	Execution progressing
Cost controls / OpEx	Elevated OpEx from specific items (bad debt, diligence)	“Enacted significant cost control measures”	OpEx down $0.9M YoY; continued cost control planned	Improving discipline
Financing & covenants	Covenant breach disclosed (BankUnited)	Waiver/amendment; monthly $0.6M payments and restrictions through Mar-2024 or payoff	Not updated in Q1 PR; remains an overhang contextually	Constraining flexibility

Management Commentary

“Compared to last year’s quarter record performance, our results during this first quarter were unfavorably impacted by ongoing challenges in the broader housing market, including higher mortgage interest rates and inflationary pressures.” — Sterling Griffin, President & CEO .
“We have taken and will continue to take cost control initiatives to help navigate changing market conditions and maintain the health of our balance sheet.” — Sterling Griffin .
“We are encouraged with the progress of our multi-family projects… Looking forward, as the summer selling and rental season approaches, we are confident in our opportunities to drive future growth and rebuild shareholder value.” — Sterling Griffin .
On the call, management discussed executive transition: Mr. Griffin’s planned retirement (effective July 12, 2023) and interim leadership arrangements to maintain continuity .

Q&A Highlights

Macro and demand: Management reiterated that rising rates and affordability continue to dampen buyer demand, impacting sales volumes and pricing; focus remains on navigating uncertainty and controlling costs .
Multi-family execution and monetization: Initial rental contributions began; team emphasized rent-up and seasonal lift as near-term drivers .
Guidance and outlook: No new quantitative guidance was issued; narrative focused on operational discipline and portfolio transition rather than forecasting .
Leadership transition: CEO retirement and interim roles discussed to ensure continuity during the strategic shift .

Estimates Context

S&P Global (Capital IQ) consensus: unavailable for HCDI Q1 2023 in our SPGI mapping at this time; therefore we cannot provide SPGI-derived consensus or surprises. Values retrieved from S&P Global were unavailable due to mapping limitations.
Third-party indicators: InsiderMonkey flagged EPS miss versus an EPS consensus of -$5.46, with actual EPS -$9.39; Public.com also shows estimated EPS of -$5.46 for Q1 2023 .

Q1 2023 actuals vs. third-party EPS consensus

Metric	Third-Party Consensus	Actual	Surprise
EPS (USD)	-$5.46	-$9.39	-$3.93 (miss)

Note: Revenue consensus not reliably available from SPGI or third-party sources in our workflow.

Key Takeaways for Investors

Mix normalization hurt results: the absence of prior-year high-margin entitled land deals plus $1.6M impairments and fee build overruns drove negative gross margin and EBITDA loss .
Liquidity and leverage bear watching: construction loans rose to $122.6M and total liabilities to $173.1M; equity fell to $68.9M; BankUnited amendments impose monthly payments and restrict new project closings without consent .
Multi-family remains the pivot: initial rental revenue and management’s emphasis on rent-up into peak season position multi-family as the primary driver of near-term stabilization .
Cost control is a key lever: OpEx declines demonstrate execution; further reductions can partially offset macro softness but won’t replace lost high-margin land/lot sales .
Leadership transition is a watch item: planned CEO retirement and interim structure add execution risk during a strategic shift, but management highlighted continuity plans .
No guidance provided: with SPGI consensus unavailable and no company guidance, estimate dispersion may remain high; result variability tied to project timing and market rates .
Tactical stance: near-term catalysts include multi-family rent-up, asset sales reducing lender obligations, and evidence of margin stabilization; constraints from loan covenants temper upside until deleveraging progresses .

Sources and documents

Q1 2023 8-K/press release and financial statements .
Q4 2022 8-K/press release for prior-quarter comps and covenant/waiver details .
Q3 2022 8-K/press release for trend context and guidance revision .
Q1 2023 earnings call transcript (public sources) .
Earnings release logistics (press) .
GlobeNewswire Q1 2023 press release mirror (for reference) .

Harbor Custom Development, Inc. (HCDI)·Q1 2023 Earnings Summary