Q1 2022 Landsea Homes Corp Earnings Call
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Greetings and welcome to the land Holdings first quarter 2022 earnings call.
At this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
If anyone should meet a great assistance during the conference Chief patient start at zero on your telephone keypad.
As a reminder, this conference is being recorded.
Now I'd like to turn the conference over to your host drew Mackintosh.
Good afternoon, and welcome to Lindsay homes first quarter earnings call before the call begins I'd like to note that this call will include forward looking statements within the meaning of the federal Securities laws.
Lastly, I'll caution that forward looking statements are subject to numerous assumptions risks and uncertainties, which change over time.
These risks and uncertainties include but are not limited to the risk factors described by Lance your homes in its filings with the Securities and Exchange Commission.
Accordingly forward looking statements should not be relied upon as representing our views as of any subsequent date.
And you should not place undue reliance on these forward looking statements in deciding whether to invest in our securities.
We do not undertake any obligation to update forward looking statements to reflect events or circumstances.
After the date they were made whether as a result of new information future events or otherwise, except as may be required under applicable securities laws.
Additionally, a reconciliation of non-GAAP financial measures discussed on this call to the most comparable GAAP measures can be access to Vance ehealth website and in its SEC filings.
Hosting the call today are John <unk>, Chief Executive Officer, Mike for some President and Chief operating Officer, and Chris Boerner, Chief Financial Officer.
With that I'd like to turn the call over to John .
Good afternoon, and thank you for joining us today as we go over our results for the first quarter of 2022 and provide some insight into the outlook of our industry and our company.
Lastly, home's reported net income of $13 million or earnings of 28 cents per diluted share in the first quarter of 2022 <unk>.
Significant improvement over the net loss of $7 million or <unk> 16 per diluted share reported in the first quarter of 2021.
On an adjusted basis, which excludes the impact of purchase price accounting for acquired inventory and losses associated with the re measurement of warrant liability net income for the quarter was $32 1 million or <unk> 71.
Diluted share.
Home sales revenue grew 93% year over year on a 80.
83 increase in deliveries as our teams did an outstanding job delivering homes and what continues to be a challenging operating environment.
Home sales gross margin expanded 930 basis points year over year on a GAAP basis to 29% at the price increases we implemented on homes closed in the quarter stayed ahead of cost inflation.
We also ended the quarter with 1605 homes in backlog with a dollar value of $930 million, putting us in a great position to deliver on our goals for the remainder of the year.
These results are a testament to the ongoing strength of the new home construction industry further proof the Atlanta homes can successfully scale this operation in a profitable manner.
We experienced healthy order trends across our homebuilding platform in the first quarter as evidenced by our sales pace of three nine homes per community per month.
This sales pace could have been higher for the quarter, where we're not constrained by the supply chain issues that continue to plague our industry.
While these operational headwinds have made it difficult to close homes in a timely manner. They have also kept a lid on new home supply, which has helped maintain a sense of urgency among buyers and create a natural floor for new home pricing.
We continue to make progress in our efforts to scale operations and some of the best homebuilding markets in the country during the first quarter.
Total lot count at the end of the quarter stood at 12768 law, representing a 95% increase over the first quarter of 2021.
These lots are located in markets like Orlando, Austin, and Peanuts, which are experiencing high population growth and rapid home price appreciation. Thanks to strong local economies and the ongoing migration to lower cost areas of the country.
We believe these markets have a long runway for growth given the positive demand drivers in place, which should benefit landscape for years to come given our sizable investments in these markets in recent quarters.
It is important to note that our rapid growth has not come at the expense of profitability. We have been extremely disciplined with Atlanta acquisition efforts, whether it be organic or through M&A and as a result, our posted strong margins. Despite the headwinds associated with purchase price accounting adjustments.
In addition, we have increased our lot count and the most capital efficient manner possible tying up lots via option agreements and land banking arrangements when available.
At the end of the first quarter, 53% of our lots where control 47% were owned.
We believe that controlling a substantial number of lots via option agreement helps de risk our portfolio and gives us additional financial and operational flexibility, while enhancing our return profile over time.
That's the end of the first quarter with a lot of momentum. Thanks to the continued strong fundamentals, we see in our markets and the progress we made scaling our homebuilding operation.
Both management and the board have great confidence in our strategy and our ability to execute in today's market.
To show this confidence we began repurchasing our stock in the quarter and anticipate further share repurchases in the coming quarters as we believe our stock represents a great value given our current outlook.
With that I'd like to turn the call over to Mike who will provide more detail on our operational results this quarter Mike.
Thanks, John and good afternoon to everyone.
<unk> thousand 22 is off to a great start for Atlanta homes, as we exceeded our stated guidance for new home closings and average sales prices in the first quarter achieved solid profitability and generated strong orders that resulted in a company record backlog both in terms of units and value.
We saw positive demand trends in each of our divisions as the combination of great market fundamentals well.
Well located communities and a limited supply of new and existing home inventory created a favorable sales environment.
Our sales efforts were bolstered by our focus on the more affordable segments of the market.
Which continues to be one of the healthiest areas of demand.
Our sales efforts also got a boost from our high performance home platform.
Which features the latest in new home automation.
Hey, inability energy savings and healthy lifestyle amenities.
We believe that this focus on new home renovation at an attainable price appeals to a number of demographic segments and and has been instrumental in our sales success.
We generated 637 orders in the first quarter, representing a 50% increase over the first quarter of 2021, driven largely by a 101% increase in our active community count.
Order activity remained fairly consistent throughout the quarter, even as rates started to rise.
Sales activity stays strong into April as we generated 184 orders on a sales pace of three nine per community.
This figure remains somewhat constrained as John mentioned as we continue to meet our sales efforts to better align our production capabilities.
While higher rates are no doubt a headwind for our industry, we still see more qualified buyers in our markets than there is available supply.
We are keeping a watchful eye on our backlog in light of the recent rise in mortgage rates and are doing everything we can to minimize their effect buyers.
Buyers in backlog, who finance their home purchases through our mortgage affiliates have a strong credit profile with an average loan to value of 82% and average FICO score of 741, and an average annual household income of $164000.
We stress tested the backlog up two 6% mortgage rates and believe the fallout will be in the single digits and the average debt to income level will remain in the low 40% range.
We have been proactively reaching out to our existing buyers in backlog, particularly ones with extended lead times to close and encouraging them to get rate locks in place. So far we have seen very few buyers fall out of backlog as a result of rising rates and have noticed real commitment on their behalf to complete the purchase of their home now.
Now I would like to turn the call over to Chris who will give more detail on our financial results this quarter and provide an update to our forward looking guidance Chris.
Thanks, Mike and good afternoon, everyone I will cover the highlights of our exceptional first quarter and provide our outlook for the company for the second quarter and full year. We are pleased to have delivered net income of 28 per share in the quarter compared to a 16 cent loss the same period last year.
On an adjusted basis, we delivered a remarkable 71 per share up from <unk> <unk> per share in the first quarter of last year throughout the last year. We are focused on expanding our portfolio to some of the most desirable housing markets and the result reflects the team's success.
We had great results across all of our key Kpis as Mike mentioned, we increased our average selling communities, 101% to $54 four and added Florida, Texas and New York Tour mix in total our community sold 637 homes during the quarter at an average selling price of $650000.
For a total of $414 million and enjoyed in monthly absorption rate of three nine per community.
These represent a 50% growth on orders of 60% growth in dollar value and a 7% increase in ASP compared to the first quarter of 2021.
The team delivered 552 homes at an average selling price of $540000 for homebuilding revenue of $298 million during the quarter at 93% improvement over the same period last year, and we expanded our home sales gross margin 930 basis points to 29%.
On an adjusted basis, excluding the effects of purchase price accounting and interest in cost of home sales our home sales gross margin increased to 29%, reflecting that the team continues to have the ability to increase pricing more than offset the cost pressures we have been experiencing.
Additionally, as we monitor the possible effects of rising interest rates, we continue to stress test our backlog for potential issues and remain highly confident in the quality of the purchasers and their ability to qualify and close during the quarter. We maintained a high single digit cancellation rate and as Mike mentioned at a 6% mortgage rate, we anticipate that less than 10.
<unk> is a portfolio could potentially fall out and we believe based on our current demand will be able to replace those purchases.
We ended the quarter with 1000, and 605 homes in backlog with a total dollar value of $934 million at an average sales price of $580000. This represents an 83% growth in volume and 89% and total dollars compared to last year.
Now turning to the balance sheet, we ended the quarter with $1 1 billion in real estate inventory and more evenly balanced between California, Arizona, and Florida and as we projected we used cash on hand, and a small amount of borrowings under our credit facility to purchase Hanover family builders in January and closed the quarter with $85 $2 million in cash.
Cash cash equivalents and cash held in escrow, we also had $162 7 million and availability under our unsecured credit facility for total liquidity of $247 $9 million.
We ended the first quarter with $494 4 million and total debt and net debt of $409 2 million a ratio of debt to capital at the end of the quarter was 44% and net debt to net book capitalization ratio was 39, 4% right in line with our targeted levels.
We're also pleased with the pace of our previously announced stock buyback program on April 27th we completed the first phase of our $10 million stock repurchase program purchasing $1. One 6 million shares at an average price of $8 57.
Based on their confidence in our performance and the current price of our shares the board of directors has approved an additional $10 million authorization to purchase shares throughout the rest of this year.
Now I'd like to provide some guidance for the second quarter and full year of 2022.
For the second quarter 'twenty, two we anticipate new home deliveries to be in the range of 600 to 650 units and delivery asps to be in the range of 500000 to 525000. We also expect a slight improvement in SG&A as a percentage of revenue this quarter with a larger benefit in the back half of the year for.
For the full year 2022, we are reiterating our previous guidance of new home deliveries to be in the range of 2700 2900 homes delivery ASB has to be in the range of $500000 to $515000 and home sales gross margin to be in the range of 20% to 22% on a GAAP basis or 22.
Percent to 24% on an adjusted basis.
Now I'll turn the call back over to John for some closing remarks.
Thanks, Chris.
So, let's see homes made progress on a number of fronts in the first quarter of 2022 by capitalizing on the positive housing fundamentals in our markets by executing on our strategy of scaling our operations in a profitable manner.
We ended the quarter with a record backlog, giving us great visibility into the remainder of the year and a roadmap to achieving our goals for 2022.
We remain optimistic about the long term outlook for our industry. Thanks to the underlying fundamentals and a limited supply of new and existing home inventory.
We also believe our strategy of focusing on the more affordable segments of the market, while offering a great value proposition through our high performance home series will produce great results for our shareholders over time.
While the ongoing supply chain issues and rising rate environment present headwinds for our industry I am confident we have the right team in place a few years of operational experience to successfully navigate through these challenges.
Finally, I would like to thank our team members for getting us to where we are today early this week Lindsay homes was named the 2022 winner of the prestigious builder of the year Award by builder magazine, which is a great honor for our company and a validation for all the hard work the entire team has put in.
I'll take pride in this accomplishment and look forward to sharing in the future successes with all of you as our company grows.
That concludes our prepared remarks, and now we'd like to open the call up for questions.
Thank you at this time, we will be conducting a question and answer session.
I would like to ask a question Keith style.
On the phone keypad.
It confirmation tone will indicate your line is in the question queue.
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So participants using speaker equipment, it may be necessary to pick up your handset before pressing the keys.
One moment, please while we poll for questions.
Yeah.
First question comes from Matthew Bouley from Barclays. Please state your question Matthew.
Hey, good afternoon, everyone.
Thanks for taking the questions.
Congrats on the execution and.
The builder of the year award as well that's a nice validation of everything you guys have been doing.
I wanted to ask first on the rate lock commentary.
That was really helpful. Color, you gave sort of you're seeing a lot of your peers have.
I guess kind of went after growing with sort of different strategies on approaching rate lock. So I'm curious kind of going forward you could elaborate a little on that sort of.
Is there any.
What would it take I guess for you guys to start actually buying rate locks for potential buyers or for buyers in backlog or what else are you doing the sort of encourage people to do that just to try to limit that this sort of clear.
Quick move in interest rates here. Thank you.
Hey, Hey, Matt, It's Mike <unk> I'll take that question.
<unk>.
Generally at this moment.
Really just us encouraging buyers too.
Locking their interest rates now we do have a provision whereby if it floats down we'll give them coverage, but for the most part.
On a voluntary basis, and we're really not having to do anything to incentivize them to do that.
Some actually are still.
Willing to wait.
Others are a little bit more anxious it's ones that are probably closest to.
<unk> delivery that would like to kind of get some comfort to know where they're gonna be at here in the short order in the next couple of months, but for the most part again as I said.
We are not putting out any incentives or doing any buy downs or doing anything that would.
Helped to mitigate that I guess other than just playing it through.
Okay, well. Thank you for that that's great color there Mike.
Second one on the.
Gross margin.
So 29% I guess pre interest pre.
Purchase accounting in Q1 there.
Held the guide it at 22% to 24%. So I'm. Just curious you know are you sort of embedding some conservatism in there.
Why the implied I guess decline in gross margins from where you are today, just kind of any color on the cadence of that as we should think about the model. Thank you.
Matt It's Chris Boerner, Yes, great question.
We experienced a pretty high delta between the two this quarter just because we were a little more frontloaded in the purchase price accounting for this quarter and as we look out towards the back part of the year. We just wanted to make sure that we had those numbers correct. We're finally, we've pretty much finalized that purchase.
Price accounting.
It will get completely wrapped up next quarter, and we'll have a little bit more clarity on that spread through the back part of the year, but there is definitely some conservatism built in just to offset that uncertainty a little bit.
Got you Okay. Thank you. Thank you for that and then the last one for me and I'm just curious.
You gave the sales pace.
For the quarter just curious if you can kind of speak to maybe some of the trends into March and even into April if possible.
Obviously, we're just trying to get a handle on sort of the leading edge of demand here as a result of the uptick in interest rates. So I'm. Just curious you can kind of speak to any of those demand trends into March and April . Thank you sure.
Matt It's Mike again.
I would say that the demand.
Is remaining consistent.
As it was last month and the month prior to that.
We had a very strong sales week again this week traffic stayed.
Robust.
And so we haven't seen any real abatement and interest in our homes at our communities and all of our locations across the country.
Wonderful well, thanks, everyone and good luck.
Thanks, Matt.
Thank you ladies and gentlemen, just another reminder, if you would like to ask a question Keith. Please star one if you would like to ask a question. Please press Star then one.
The next question comes from Alex Rygiel from B Riley. Please go ahead.
Okay.
Ladies and gentlemen, great quarter. Congratulations couple of quick questions here first could.
Can you update us on the Hanover acquisition, how integration is going how sales activity is going and thoughts about the product and so on.
Hey, Alex its Mike.
Nice to hear from you.
Thanks for that question.
I will say that we're very very happy with the integration to date with Hanover.
The team that we've inherited through that acquisition is proving to be topnotch and executing at the highest level and we continue to <unk>.
Perform there.
I think as we expected or even better in some respects the.
Conversion from Hanover family builders to land sea homes at the community level.
Is now complete other than those.
Trailing communities that were winding up we left a handful or so out there to finish up his hanover, but if you're driving around the Orlando.
Metroplex area.
You would know to Sealy NC homes.
The signs and within the sales.
Sales offices so.
We're really happy we're getting better at this every single time. This conversion was probably one of the quickest we've done I will give a high praise and complements to the Hanover management team and then our team here that went out and worked with them to do this conversion then to kind of keep things just seamlessly moving along.
The market remains strong the products are.
Our highly desirable or the houses are highly desirable at the communities that we're at and so we're really thrilled with how things are going there.
That sounds great and then broadly speaking are you still limiting sales communities.
We are.
Now, we're calibrating them against really our production.
If we see the production tail extending out really roughly past nine months or so at a community level, we definitely like to kind of rein that in we don't want it to be too long and b to expose and so that's one of the factors that we're looking at.
Excellent and last question can you just give us a update.
The pace of sales of the legacy New York property.
Hey, Alex this is John .
I believe we have only 12 remaining units left to sell there.
We started delivering units.
In the month of March and I have a pretty good cadence of deliveries of the 38 units.
That we've sold so we expect to be entirely sold out and closed out of that building.
Building this year.
Fantastic Congratulations nice quarter gentlemen, thank.
Thank you. Thank you thanks al.
Okay.
Thank you. The next question comes from Alex Barron from housing Research Center. Keith proceed with your question Alex.
Yes, thanks gentlemen.
Wanted to ask about the share buyback.
And how are you guys thinking about that is that something youre going to do.
More systematically or is it just opportunistic here and there.
Yeah, Hi, Alex This is John Thanks for the question.
We've deployed successfully these past couple of months.
And I think our stocks.
Stocks performed well as well year today, we still.
Continue to believe that our stock is undervalued.
Which is why we obtained another $10 million authorization I think this is something that should be one of the tools in our tool kit as we continue to generate significant cash flow with our operations, especially with our expansion to these geographies.
Geographies that have you know a quicker turn so we think it's a.
Good allocation of our capital doesn't take away from our growth obviously.
And something that we continue to use to invest in ourselves.
Okay great.
And then I was wondering if you could provide any sort of guidance.
The guidance as far as the new acquisition, how many homes are you guys expecting over the next 12 months.
And also on the Texas region is that going to be just a.
$1 million type operation or are you guys looking to expensive more affordable homes from that price point.
I'll take the first question and I'll hand, it over to Mike for the second one on the first one are you.
You are talking about the Hanover acquisition that we made in January correct.
Yes.
Yeah. So.
Well, we closed about a I believe just under or was it 500 or so units at the end of the year in 2021, and that's about 50% of what we expected for the year in 2022.
You know that is going to take a vote.
We expect to do close to a thousand.
And Mike you want to talk about Texas sure Hi, Alex.
We are not planning on staying at that high price points that you just identified are missing there and we're actually executing as we speak.
Is to pivot out of that semi custom.
Production.
Format into what would be sort of a typical volume format.
Production format that we that we employ and deploy across the country.
With the idea that we're trying to make all of our homes is obtainable from a price point as possible.
And so we will be doing that in Texas as well in fact, we have.
The community we acquired in Kyle.
Multi segmented in terms of its product positioning and pricing.
And we will have many product types, there that'll be much more affordably priced than the price point, you had mentioned earlier and that's how we will continue in Texas.
Alright, well, thank you very much and best of luck.
Thank you.
Thank you, ladies and gentlemen, just one final call. This will be complete if you'd like to ask a question. Please don't think Glenn if you would like to ask a question Keith.
This morning, we will pause to see if there aren't any further questions before we conclude.
At this time, we have no further questions ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to John you Hope for closing remarks.
Thank you.
Thank you. Thank you everyone for joining us on our call today.
And we look forward to talking to you next quarter.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you very much for your participation.
Okay.
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