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HC

Harbor Custom Development, Inc. (HCDI)·Q2 2023 Earnings Summary

Executive Summary

  • Q2 2023 sales rose 92.9% year over year to $19.8M, driven by the $14.3M sale of Mills Crossing townhomes and $1.9M of developed lot sales; gross margin improved to -14.7% from -18.8% YoY despite $4.7M of impairment charges on Pacific Ridge and Darkhorse .
  • Net loss narrowed slightly to $(4.4)M versus $(4.5)M in Q2 2022, and basic loss per share improved to $(3.79) from $(9.20) YoY; adjusted EBITDA loss improved to $(3.0)M from $(4.8)M YoY .
  • Operating expenses fell to $2.4M (12.0% of sales), reflecting cost controls (compensation, depreciation, insurance, ROU, professional fees) and scale on higher revenue .
  • Liquidity and execution catalysts: $10M gross proceeds from an offering and refinancing of Belfair View phase one; apartment lease-up progressing, with Pacific Ridge and Wyndstone expected to reach rental stabilization “soon” .
  • Wall Street consensus estimates via S&P Global were unavailable for HCDI for Q2 2023; comparisons to estimates cannot be made (we attempted retrieval, but mapping was missing).

What Went Well and What Went Wrong

What Went Well

  • Sales nearly doubled YoY on asset mix shift: Mills Crossing townhomes sold for $14.3M and developed lot sales contributed $1.9M; adjusted EBITDA loss improved YoY to $(3.0)M from $(4.8)M .
  • Operating efficiency: Operating expenses fell to $2.4M and to 12.0% of sales versus 35.5% in Q2 2022, reflecting broad G&A reductions and scale benefits .
  • Management sees momentum in apartments and Texas luxury homes; “apartment communities are experiencing excellent lease-up velocity, with Pacific Ridge and Wyndstone expected to reach rental stabilization soon” .

What Went Wrong

  • Gross loss widened to $(2.9)M, pressured by $4.7M of impairment losses (Pacific Ridge and Darkhorse), and home profit decreased $1.6M YoY; gross margin remained negative at -14.7% .
  • Fee build revenue continued to decline as projects neared completion; home sales fell due to fewer Texas closings and no Washington home sales left to sell compared to Q2 2022 .
  • Net cash used in operating activities was $(15.3)M for the first half, reflecting working capital and real estate development cash demands amid impairments and cost overruns in prior periods .

Financial Results

MetricQ2 2022Q4 2022Q1 2023Q2 2023
Revenue ($USD Millions)$10.286 $4.798 $9.181 $19.845
Gross Profit (Loss) ($USD Millions)$(1.932) $(5.013) $(2.044) $(2.920)
Gross Margin %-18.8% -104.5% -22.3% -14.7%
Operating Expenses ($USD Millions)$3.654 $4.221 $2.935 $2.379
Operating Income (Loss) ($USD Millions)$(5.586) $(9.234) $(4.980) $(5.298)
Net Income (Loss) ($USD Millions)$(4.509) $(10.644) $(4.862) $(4.376)
Loss Per Share - Basic ($USD)$(9.20) $(17.47) $(9.39) $(3.79)
EBITDA ($USD Millions)$(4.896) $(11.892) $(4.524) $(3.135)
Adjusted EBITDA ($USD Millions)$(4.783) $(8.527) $(4.436) $(2.981)
Adjusted EBITDA Margin %(46.5)% (177.7)% (48.3)% (15.0)%

Segment and revenue composition detail (limited disclosure):

CategoryQ2 2023
Multi-family townhomes (Mills Crossing) ($USD Millions)$14.3
Developed Lots ($USD Millions)$1.9
Home Sales (YoY change)Decrease of $6.1M
Fee Build Revenue (YoY change)Decrease of $1.2M

KPIs and operational metrics:

KPIQ2 2022Q1 2023Q2 2023
Gross Margin %-18.8% -22.3% -14.7%
Operating Expenses as % of Sales35.5% 32.0% 12.0%
Impairment Charges ($USD Millions)N/A$1.6 $4.7
Adjusted EBITDA Margin %(46.5)% (48.3)% (15.0)%
Weighted Avg Shares Outstanding – Basic701,215 720,618 1,657,709

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Rental stabilization (apartments)Near-term (unspecified)Not previously quantified“Pacific Ridge and Wyndstone expected to reach rental stabilization soon.” New qualitative commentary
Revenue/Margins/Tax/OpEx/OI&EFY/Q3 2023Not providedNot provided in press release materials Maintained (no formal guidance)

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2022 and Q1 2023)Current Period (Q2 2023)Trend
Interest rates/macro demand“Rising interest rates” and “decreased buyer demand” in Q4; ongoing housing market challenges in Q1 “Challenging real estate market” noted by interim CEO Persistent headwind
Multi-family executionFocus on multi-family; supply chain delays; strategic shift in Q4; “encouraged with progress” in Q1 Mills Crossing sale ($14.3M); lease-up velocity; stabilization “soon” Improving execution
Cost disciplineOpEx increased in Q4 YoY; reductions and controls discussed in Q1 OpEx down to $2.4M and 12% of sales on cost measures Improving cost structure
Financing/liquidityBankUnited covenant waivers, tightened controls in Q4 —$10M offering; refinance Belfair View phase one; Sound Capital partnership
ImpairmentsPacific Ridge and Winding Lane impairments in Q4 $1.6M impairments in Q1 $4.7M impairments (Pacific Ridge, Darkhorse) in Q2

Management Commentary

  • “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… Our apartment communities are experiencing excellent lease-up velocity, with Pacific Ridge and Wyndstone expected to reach rental stabilization soon” — Jeff Habersetzer, Interim CEO .
  • “I remain confident in our progress toward achieving our objectives through our continuous efforts to maximize our portfolio, improve operational inefficiencies, and manage costs” — Jeff Habersetzer .
  • “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… We have taken and will continue to take cost control initiatives” — Sterling Griffin, President & CEO (Q1) .

Q&A Highlights

  • We searched for the Q2 2023 earnings call transcript, but none was available in the document catalog; prior transcripts (Q1 2023, Q4 2022) were present but could not be retrieved due to database inconsistency. Harbor did host calls around prior periods (e.g., Q1) per company details .

Estimates Context

  • Wall Street consensus (S&P Global) for Q2 2023 was unavailable for HCDI (attempted retrieval returned missing CIQ mapping). As a result, we cannot benchmark revenue/EPS versus consensus for this quarter.

Key Takeaways for Investors

  • Asset-mix drove the quarter: Mills Crossing ($14.3M) and developed lot sales ($1.9M) lifted revenue and improved gross margin despite impairments .
  • Margin trajectory improved: gross margin to -14.7% (from -22.3% in Q1 and -18.8% YoY) and adjusted EBITDA margin to -15.0% (from -48.3% in Q1) on higher revenue and non-recurrence of fee build losses .
  • Cost actions are visible: OpEx reduced to $2.4M and 12.0% of sales, reflecting G&A cuts and efficiency — a critical lever for breakeven and cash burn reduction .
  • Impairments remain a swing factor: $4.7M related to Pacific Ridge and Darkhorse weighed on gross profit; watch impairment cadence as lease-up stabilizes and projects mature .
  • Liquidity steps: $10M offering and refinancing of Belfair View phase one support near-term flexibility; continue to monitor bank covenants and capital structure given prior waivers and obligations .
  • Apartment lease-up is the near-term catalyst: management expects stabilization “soon” at Pacific Ridge and Wyndstone, which could support recurring rental revenue and valuation perception .
  • Estimates unavailable: With no S&P Global consensus, focus on execution milestones (lease-up, asset sales, OpEx discipline) and project-level KPIs to gauge trajectory until third-party coverage normalizes.

Sources: Q2 2023 8-K and press release (Ex. 99.1) ; Q1 2023 8-K and press release ; Q4 2022 8-K and press release .