Landsea Homes (LSEA)

Drew Mackintosh Corporate Investor Relations
John Ho Chief Executive Officer
Mike Forsum President & Chief Operating Officer
Chris Porter Chief Financial Officer
Min Cho B. Riley Securities
Carl Reichardt BTIG
Call transcript
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Good morning and welcome The Landsea Homes Second Quarter Earnings Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask actions. Please note that, this event is being recorded. I'd like to turn the call over with Drew Mackintosh, Corporate Investor Relations. sir. ahead, go Please

Drew Mackintosh

welcome Homes and Earnings Second Call. to morning, XXXX Landsea Quarter Good

relied and begins, update securities. upon to of forward-looking representing views would call the numerous that I do obligation any Before We call these subject to statements are not like laws. Homes should subsequent as of forward-looking to within forward-looking to, whether as forward-looking statements not securities its and undertake time. described applicable by factors you date, on risks will laws. should over change except our statements undue note the federal events uncertainties to to and our filings made, reliance which events risk it in the risks circumstances was place and date Accordingly, deciding include, meaning information, the any may Homes result as the invest reflect be and the assumptions, in or Exchange but Landsea whether not after cautions include securities future be uncertainties, they These of are under statements new with Securities were not this a otherwise, Commission. forward-looking statements limited or that required Landsea

filings. turn Porter, Officer; Chief measures Officer; Operating Chief the reconciliations John. be Landsea's comparable I'd SEC President GAAP and call Chris call accessed website Ho, discussed measures today Forsum, With John to over Executive through non-GAAP Additionally, Hosting like Financial of that, to and financial its to and in can this are on the most Mike it Landsea Officer. Chief Homes

John Ho

of average go a our of to company's us scaling XX.X% to second results testament XX% basis $XXX over provide joining our in operations high-growth Net update XXXX over quarter Homes revenue our strong earnings on quarter to new the basis, of the bottom by XX% representing home new focus deliveries, million, increase basis basis. morning, Good year-over-year grew came for results. profitability, an increase points XXX XX% These to a share generating points XX.X% thank XXXX. company's and for are adjusted sales while the per or emphasis fully Landsea X% increase another for on diluted a today sales an in strategic at period, quarter, of maintaining driven delivered the and a second outlook. gross as you and quarter increase on XXX versus a the expanded line markets, on a price. $X.XX year. in we GAAP a selling last for XX% orders representing year-over-year on XXX results margin to Home Home

sales period. per month Our community the during X.X pace per averaged homes

The and quarter activity more homebuilding across off a as our However, higher consumer sales toll environment has taken a interest lower progressed. our challenging the for platform created industry. rates demand tapered confidence of combination on order that's

we effectively new distinct allow buyers for believe has advantages will Landsea in that this compete us Fortunately, environment. several to

of some housing headwinds the markets impact mute should expanding with and fundamentals job migration ratios, company healthy strongest macro department in established time. in solid basis These has the our favorable presence over patterns. of in First, a country, employment

to entry-level at show of in buyer one is this of resiliency our affordable focused market Second, perspective, we positioning and the the buyer other to on locations, of end have strongest segment. from prime the intentionally land a believe segments. upper more We relatively efforts the company more segments demographic acquisition the our segment

against a the the buyers Home proposition innovation provide distinct Series, market. for advantage Third, give in our creation investments of technology, selling value a high-performance in new the and through competition us real home our

we industry, broader our strong market the impacting Supplementing risk-averse our times the our builder the rest. product and right than to locations land balance our market right no is is uncertain navigate has While better to that life strategy. currently these believe position immune Landsea forces and well-capitalized are sheet

of includes by lot we the a consistent of with count count. were which this limiting our outstanding represents our believe This prior XX% controlled capital, our authorization. increased undervalued price. optionality had position an our our at periods quarter, year-over-year puts we stock efficiency was million risk lot and was second in over of position X.X a driven basis, X.X of Quarter We from land $X.XX. This market decreased owned during $XX count position, our share a our controlled on repurchase as trajectory current program land life were second terms share strategy, exposure actually This by acquired continue time. trend our for lot improve the as our lots I of on XX% of Landsea quarter's just and our emphasizes believe million and attractive XX,XXX our stay on returns exposure to controlling shares should our an to purchasing markets its quarter, to lots. to growth average a our quarter End In This to downside conditions of our increase given million capital an XX% XXX% extended growth current XX% period X%. owed. remaining In during and uncertainty. by while great land means shareholder. end, to owned shares controlled improve of is we price our count limits approximately use selling choppy

warrants remove move The warrants stock. caused company's million X.X the by any reporting earnings Additionally, cleaning quarter-to-quarter capital beneficial We the up the and large we of structure. and time on overhang retired fluctuations warrants. be the will in all dilutive private outstanding

for provide been will a that on result a Going direction. retirement leverage land position, positive measures uncertain and this warrants no public to accomplished Furthermore, our investors step value another strong backdrop to shareholders. last our is times in The and poised in great sheet year, balance and capital industry. the event we Homes Landsea profile, have these favorable creating for of product We navigate impact focused a cleaner private shareholder that a profile. with will virtually these structure is

In veterans, homebuilding been led periods operate effectively previous of market existing the Long-term drive by by a new who to who slowdown, need diminished industry that our to how during and housing. experienced outlook have of companies supply new not trends dislocation. should downturns, for know thanks demographic addition, our has lack recent the favorable for

on about for the like to more over result, optimistic operational second a I'd the As future turn we Mike, our the results Landsea quarter. to call will With provide detail that, remain Homes. of who

Mike Forsum

John. Thanks,

and with the absorption through for up activity over across or our growth and supply a of of with in XX margin quarter of issues slowdown growth gains XXXX second Florida. our markets and an well continued the pricing California consistent each each reflecting activity Arizona, better was strong marked fairly company XX% primarily established were The year strong across revenue order in by pace X.X challenges the as generating communities, a the quarter. the was quarter with over our advantage average solid as for X% ASPs XXXX, divisions, the XQ quarter selling XX% progressed. an ended and last chain Florida, gross increase We more between of year. as Order

is and Florida, June move to the our sharp be efforts were in of by as there to sure However, across backlog the potential combination higher mentioned, conversion markets, slowdown higher priced potential is lower other still moving now pause desire order around have due of rates that home platform out incentives some mortgage psychological, to adjust though buydowns starting seems rate purchase. our as was the In buyers buyers' own To into affordability Inland time buyers also carried in level slowdown proactively concerns it this forward homeowner assess the some rate suddenly desire consumer whether confidence impacted see sales such market reality. take new What builders to we are as as that to a and this homebuilding comfortable into Empire, mortgage while time such John locks, markets, finance potential rates. their and consistent more to and to buyers end, until high, translate affordability a In and sustained better as is right driven, the and buy. Phoenix more the remains the July. Central as interest mortgage with is may buyers in potential making addressing already offering been such that

XX those for rate those their were buyers XX cancellation was home last the from who days. had most of the Our And in XX%. purchased to quarter

come may think table With of the the in fall. rates, buyers recent we in some improvement back to the mortgage these

This of We and in credit market will and total loan subdivisions across to demand buyers. value all in strong. a majority that distant The will in A in credit the from is our Arizona to the of delivered these feel XX% in to limits a be $XXX,XXX. into strong for remaining that and being conventional divisions, XXX, XXX,XXX. buyers. loans X,XXX XX% we finished the This with provide going at payment trend incredibly in quarter buyers. starting score We all government all lowest a June been the homes FHA with growth edge average a accommodate and dollar already $XXX.X cash franchise future. in demographic all homes XX% an backlog. across this been to over XX%. a are with started more roughly are in opportunity has our divisions towards of represents For The roughly due to sales at in price coming It's year, million $XX,XXX. have the volume our average of the majority XX% buying of and Across a while backlog Mortgage and down affiliate, blocked being is largely second mortgage of last see heavy average year. California translating be compared dollars the our is fit of total buyers highest XX% profile at the divisions, to household use of the Landsea still buyers the remains these competitive Loan-to-value conventional, income an ratios backlog Northern is at

XX% to closing are dates solidified. locked. That the is rise continue July, will the as of As of backlog rate

proactive hit with the risk issues We rates. of being stress the running qualifying our lock buyers any if are them to ensure out we potential on run by due they consistently to not that in rising backlog tests to

have foundations, with is seen and not ease issue teams issues. timing front-end where executed in is lost. quarter cycle the as our important slowdown the effects reduce as revenue the a scheduled the to this note see particularly changes a difficult will base and were pleased supply of am costs to framing On the continue an in into note, a finish chain, during our supply home. and as third trade to input start issues believe operating was which of these system. for an should adapted how Though selling the quarter result future of closings a that Overall, terms I In recent times. how positive they the conditions. second instance the we increase this chain environment, We to their it the curb of availability the of materials trades pushed Several way such in and we and with to the worked needed through help quarter

to for to a given We I'd homes. disposal John our provide have financial location, as to on quality results point over buyers great spur quarter. this With our in our And provide already our more detail mentioned, coming markets relate price the like several and Chris? quarter of guidance has to demand. at proposition we the call our value some and the will turn that, who Chris, tools

Chris Porter

Thanks, morning, Mike. everyone. Good

million pleased income are delivered the to million pretax to compared share last year. $XX.X quarter same net $XX.X income or $X.XX and have period of $X.XX per in We second of

accounting. extinguishment of million incurred we the in and recorded During of million of warrant $X.X we an from losses quarter, and early purchase million from value $X.X $XX.X debt, nonrecurring liabilities price the fair

million, adjusted up $X.XX is our $X.XX. earnings second and was of was items, net year or these This share per last quarter income share in Excluding our $XX.X adjusted XX%. the per from

from the execution program. expansion our a net benefited Our buyback by driven stock strong and through our earnings per ASP growth, profitability in income, growth our increased successful margin XX% of share

to of and the percentage integration a increased year-over-year the Hanover the operations, revenue as acquisition, through home all for year. charges is marketing founders especially combining a the $X.X rightsize for G&A and quarter during moves which President, the SG&A sales us the revenue, fourth Homes up million balance our XXXX, transitioning worked we more ensuring our Landsea roughly to and anticipated similar our Florida our the created appropriate the Our set closing from quarter, synergies creating to largest. to as a of level division historical staffing during rebranding communities onetime of are to new schedule to typically of our These Hanover quarter leverage improve including with and

second quarter, our XX.X% primarily last renewed for increase received the result compared to tax the This XXXX. warrant non-deductibility last was of benefits the was tax were XX%, of credits revaluation, mix that of For a state the of by revenue we not and year that our rate federal energy the year.

our this liquidity, our including million. revolver. increased in bank increased $XX the balance $XXX.X the and million quarter our expanded revolver million under sheet. under as grade Availability and in $XXX.X to Turning We ended our availability with cash million we unsecured $XXX.X quarter capacity in

of private we potential the valuation the retirement liability warrants, also our eliminated on books the the swings. With and future corresponding

occur On as New we of rather the secured will we down us credit utilize beginning the With the have construction loan the access side, flexibility at cash full to York, closings pay in facility. the to leverage quarter, under the repayment loan. fully from this the our than proceeds the beginning increased draw outstanding allow with repaid last

cost we repurchase the million than on the retirement for payoff. loan, in less debt our leverage interest a maintaining net to targeted construction outstanding finished the debt shares, associated total revolver quarter $XXX.X with balance Additionally, incurred one. on is the Overall, debt million. retire discipline the while We able our this repay and significantly during with were previous charge our $X.X and We ratios warrants quarter private $XXX.X sheet. of the million and

our financial expansion to flexibility was Our advantage was market acquisition end debt ratio at XX.X%. of to strategic balance ratio liquidity book operate give net a capitalization should from ample capital XX.X% believe sheet any take quarter of in arise. strength of debt the conservative opportunities and the and and the they to position net We environment of us

like quarter guidance I'd for some and year. provide third Now the full to

started, XX% As are homes deliver targeted for the Mike all year earlier, and to we than sell. have our our need said deliveries of we of to less

With home the the the and to and interest delivery be New XXX third deliveries to of in pace, $XXX,XXX and be to to in quarter York recent in new $XXX,XXX range change the in impact sales units changes portfolio. recognizing rates range we anticipate of XXX of ASPs into the

the current now are in of of year, updating new deliveries we and the delivery For guidance home full ASPs X,XXX and homes between be conditions X,XXX expect anticipation to to market or range basis. our on be to XX% to be basis range the XX% home gross an $XXX,XXX a GAAP in and of range the margins $XXX,XXX in to XX% new sales XX% of adjusted to on

over back the to turn John call closing I'll some Now remarks. John? for

John Ho

Chris. Thanks,

of our was of both the proud company we head We for year. in into and year-over-year half $XXX both a a terms as top with lot to profitability the increases than quarter, our this we've positioned of our more line and valued backlog period be quarter at back bottom It results sold ended and a this the to significant million. have how

manner. in We in position so lot of also a capital-efficient the and the our in most markets attractive country, risk-averse doing grew some

and several have effectively believe focus macro facing strategy, currently environment. compete we is this industry the product While headwinds, right new leadership we in to

the these and thank the for of challenges. Finally, dramatically last conditions way am I I you few efforts responded quarter. their would changed entire Landsea to like to the months, this Market team over proud

reflected all to a the been obstacles able hard remarks. in been strong our the prepared entrepreneurial concludes That company, and we've for have success at Thanks our this overcome able we've achieve. to We is culture built work. your

up call Now we'd like to the questions. open for


will [Operator We question Rygiel, question-and-answer begin B. Securities. ahead. Instructions] from Riley go the Alex Please now comes First

Min Cho

quarter. Alex. on Good Congratulations Cho morning, for Min actually This the gentlemen. is

expect couple you end traffic but the some from sounds and Obviously, highlight a on July the want about to but trends in of fourth June, updates Just terms continued provide Obviously, in of seasonality, of questions you. third the of kind these expect that improvement do to due quarter or thoughts Could you it's of just the to challenged continue you for do anything an like this of trends continue? to the sales you expect and be pace? types more for quarter, it kind the of rest will year?

Mike Forsum

Can Hi, you Mike. me? hear Min It’s Cho,

Min Cho


Mike Forsum

generally of see stabilization summertime, we suggested rates, affected seasonality, somewhat moving We net question. the we're conditions well as by which that is being take some right terms those that call. as that current that in rough at me absorption the through now experiencing absorption the we're a current Let highlighted you in rates numbers as

I probably So again, offering next I developed Landsea we'll move different to products we focus by months, end be very the and our to completion, differentiation incentives to over looking the near needs think on well will and through though, say, that as in, few that that's for through mortgage competitive have as periodic find the mortgage relationship homes inventory completion. that we've the delivered our of doing closer us, year. little

have only really of we roughly stated, terms sales. Chris go left in XX% to As

have fall a still with our of bit traffic there'll experience do our that investigating that probably communities through usually and With kind having to see a the that keep little again that to moved. time our different we and way way is our get up from standpoint, bit time. we to said, that to right be bump website a by of of around being ways sells real traffic communities opposed the optionality find do anticipate as So that absorption of to around we rate any continue to product we strong interest

of rate coming a X.X%, steady. X.X%, think off holding we So see and we're four-plus generally, net this down I that absorption into

Min Cho

your you rate base seen Can do you have locks you or yet, Have you that Thank about mentioned of mean prices I incentives, to and also talk financial started start rate any some you. such. adjusting and competitors your of -- buydowns yet?

Mike Forsum

have done We little very prices. very, base adjustment to

As I they're inventory, coming not we have a we any move to point situation, to in and at it. we're the which whereby said, inventory need standing

good pretty in there. we're So shape

that has phasing For kind would and we we're coming and two conditions country, on across been move standpoint, year-end in seen some a say, or had Inland material. It's end focused optimal price on quarter were been Phoenix, may that I houses clearly competitor of the that the have the But most targeted some have there negligible or adjustments part, really price not some in adjustments. very We've in had From we of going one and pricing places some some along. changing landscape in been we in may – the on Empire deliveries. and sequence very hasn't Florida.

So part, absorptions for giveaways it industry, through fairly and then most around of is their focused the seems through mortgage options, like the staying driving levels financing. on incentives

Min Cho

Perfect. provide thoughts spending current you what's kind remains your position in my -- the of I'm your the and and land rest the in acquisition in was land strong. your Can spending Got the the given if year, last environment for position? that it. question, have development current quarter -- obviously, of then of And not on kind you past lot sure

Chris Porter

disciplined have the land But we exact our hurdles. the for are IRR spending meeting right being making I quarter. on all Chris. don't we spend now, targeted sure is very that our this of are land Yes, overall,

are. not we land any it And very on focused very work it's spending such position environment. being great into spending and that what through XXXX land but judicious making this have comfortable we we're new in any where land before, a more we're with heading So are and really that needs and wasn't for have what a disciplined our review, goes very

Min Cho

Great. Thank you. That's it for me.


ahead. Instructions] [Operator you. question go from Reichardt, BTIG. Carl comes next Our Thank Please

Carl Reichardt

home related change I wanted I to sense you’re Central macro Florida. -- and this prices of economy? in Thanks, fear more related to demand in sort changes Phoenix about more your about of psychological And well. or is doing everybody. jobs is just your Mike, the comment to this Hope, in Is in ask

Mike Forsum

is I No, I far mean had want fundamental will it around strong very economy. going going to think pricing so to lack I inventory, sort keep there's the that low. to a XX% buy What's we Carl. of still relatively I the idea too of level a people last down of the the So on going great it's what trying we're a to in generally market paid their think internally retract, products, rates and lot to of we've payments this will decision these with just lots and the great have terms there that road? some don't I as concern head earlier, be it's comfortable savings. and if the still discussion of of sound. watermark People in pool doing a prospects entry change, said those I terms time of that, to it's this our is the of desire, feel a educate just But that, buying today a interesting Historically, what's much change is to don't are down. problem still headwinds, have is mortgage a one in into have I the that like credit in of house the what sort them get we the people There's And say Are and and I latter, that appreciation home sort with mortgage within buying is as going offering that structurally around you see we're in think former that we're jobs, great it's not liquidity there high and that communities be how at interest offering. with happening going pricing? scores. great price up about community

Carl Reichardt

younger wondering consumers -- especially is think I'm of I'm that are arms? shape or little the And curious product a the shift bit thinking attractive to talked consumers, that And just you've of became some consumers saying, that happened wondering if reacting regardless I'm where and that how dynamic younger really what I'm attractive the naughty a about of I'm buy then look, me shift. me And just of And in how are last a fixed degree. if product seeing that curve, down about or if what if just -- folks Okay. sort downturn sort to rate? financing it's they ARM you're lock on or word. interested

Chris Porter

this is Carl, Yes, Chris. I'll take that.

Just to XX give ARM within backlog the less you than uses actually less X% of XX% do, years. is a on anything just less couple of that than backlog to stats priced affiliate, and amortization mortgage our our an has than

in So, [indiscernible]. seeing continued to conventional really the more and side XX-year fixed be rate we're everything on that amortization and

Carl Reichardt

Thanks, appreciate Great. sense. Make I fellows. it. Okay.

Chris Porter

you. Thank


concludes This question-and-answer session. our

like over to closing remarks. I'd back John Now the Ho to Please Mr. turn for call ahead. go

John Ho

next forward all our with speaking you call. quarter you look for Thank joining earnings We second to quarter. us on


for has presentation. now you attending concluded. Thank today's conference The

You now may disconnect.