Q4 2023 Landsea Homes Corporation Earnings Call

Operator: Greetings. Welcome to the Landsea Homes Corporation fourth quarter 2023 earnings call. At this time, all participants are in a listen-only mode.

Greetings and welcome to the land Sea homes Corporation fourth quarter 2023 earnings call. At this time, all participants are in a listen only mode.

Operator: A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Drew Mackintosh. Thank you. You may begin. Good morning, and welcome to Landsea Homes' fourth quarter and full year 2023 earnings call. Before the call begins, I would like to note that this call will include forward-looking statements within the meaning of the federal security laws. Landsea Homes cautions 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 Landsea Homes in its filings with the Securities and Exchange Commission.

Question and answer session will follow the formal presentation, if anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to drew Mackintosh. Thank you you may begin.

Good morning, and welcome to lengthy homes fourth quarter and full year 2023 earnings call before the call begins I would like to note. This call will include forward looking statements within the meaning of the federal Securities law.

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 landfill in its filings with the Securities and Exchange Commission.

Drew P. Mackintosh: 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 security. 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 security laws. Additionally, reconciliation of non-GAAP financial measures discussed on this call to the most comparable GAAP measures can be accessed through Landsea Homes' website and NSSEC filings. Hosting the call today are John Ho Landseas, Chief Executive Officer; Mike Forsum, President and Chief Operating Officer; and Chris Porter, Chief Financial Officer. With that, I'd like to turn the call over to John.

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.

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, reconciliation of non-GAAP financial measure.

As discussed on this call to the most comparable GAAP measures can be access 90 homes 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.

John Ho: Good morning, and thank you for joining us today as we go over our results for the fourth quarter, provide a recap of our accomplishments in 2023, discuss the current state of our home building operations, and our outlook. Landsea Homes delivered another quarter of strong profitability in the fourth quarter, generating net income of $12.5 million, or 33 cents per diluted share. We came in above our stated guidance for full year deliveries thanks to a strong fourth quarter push by our construction teams to get homes closed by year end. We also experienced a significant year-over-year improvement in order activity, and this momentum has carried into the new year, with orders up 28% for the first eight weeks of 2024 compared to the same period in 2023.

Good morning, and thank you for joining us today as we go over our results for the fourth quarter provide a recap of our accomplishments in 2023 and discuss the current state of our homebuilding operations and our outlook.

Nancy homes delivered another quarter of strong profitability in the fourth quarter generating net income of $12 5 million or 33 cents per diluted share.

We came in above our stated guidance for full year deliveries. Thanks to a strong fourth quarter push by our construction teams to get homes closed by year end.

We also experienced a significant year over year improvement in order activity.

This momentum has carried into the new year with orders up 28% for the first eight weeks of 2024 compared to the same period in 2023.

John Ho: I realize that most of you on this call are more focused on our company's future performance, rather than our past accomplishments. I think it's worth reviewing some of our achievements from 2023 as they provide the foundation of what's to come for our company. In February, we launched Landsea Tidal, which, along with Landsea Mortgage, allows us to offer our homebuyers a comprehensive suite of financial services when purchasing their home.

I realize that most of you on this call are more focused on our companys future performance rather than our past accomplishments.

I think it's worth reviewing some of our achievements from 2023 as they provide the foundation of what's to come for our company.

In February we launched Lansky title, which along with Lindsay mortgage allows us to offer our homebuyers, a comprehensive suite of financial services when purchasing their home.

John Ho: It also enables us to maximize efficiency throughout the home buying experience by controlling the quality and timing of the title and closing process. Having a broad array of financial services to offer to buyers is crucial during this era of mortgage rate uncertainty, and getting Landsea Title up and running was a key component of that. In March, we announced the relocation of our company's headquarters to Dallas, a move that put us in a better position logistically to manage our expanding home building footprint, and that signaled our intention to grow Landsea's presence in the state of Texas.

It also enables us to maximize efficiencies throughout the home buying experience by controlling the quality and timing of the title and closing process.

Having a broad array of financial services to offer to viruses crucial during this era of mortgage rate uncertainty and getting Atlanta title up and running was a key component of that.

In March we announced the relocation of our company's headquarters to Dallas.

Move that put us in a better position logistically to manage our expanding homebuilding footprint.

That signal our intention to grow landscape presence in the state of Texas.

John Ho: We followed through on this intent earlier this year by entering into a definitive agreement to buy Dallas-Fort Worth-based Terrace Homes, which will give us 19 active selling communities and a strong pipeline of almost 3,000 lots in the market. We expect Anteros will be a transformative transaction for our company and credit our relocation to the area as being an important factor in sourcing and closing this deal. In the summer, we completed a series of capital markets transactions that greatly benefited our company. We executed two secondary share offerings on behalf of large shareholders, one in June and one in August, that reduced the level of concentration in our shareholder base and increased the flow of our stock. Both offerings were well received by the market, and we successfully placed the shares with a stable base of traditional institutional investors.

They follow through on this intent earlier this year by entering into a definitive agreement to buy Dallas Fort worth based terrorists homes, which will give us 19 actively selling communities and a strong pipeline almost 3000 lots in the market.

We expect on tariffs will be a transformative transaction for our company and credit our relocation to the area as being an important factor in sourcing and closing this deal.

This summer we completed a series of capital markets transactions that greatly benefited our company.

We executed two secondary share offering on behalf of large shareholders. One in June one in August and reduce the level of concentration in our shareholder base and increase the float of our stock.

Both offerings were well received by the market and we successfully placed the shares with a stable base of traditional institutional investors.

John Ho: In July, we entered into a note purchase agreement with various investors, including BlackRock and Angela Gordon, that provided for the private placement of $250 million aggregate principal amount of senior notes due in 2028. This transaction provided us with much needed capital to pursue our growth initiatives while limiting our exposure to the fluctuation in interest rates. In October, we established a presence in Colorado for the acquisition of certain assets for Richfield Homes.

In July we entered into a note purchase agreement with various investors, including Blackrock and Angela Gordon.

<unk> for the private placement of $250 million aggregate principal amount of senior notes due in 2028.

This transaction provided us with much needed capital to pursue our growth initiatives, while eliminating our exposure to the fluctuation in interest rates.

In October we establish a presence in Colorado for the acquisition of certain assets Richfield homes.

John Ho: Colorado has been one of our top new market targets for some time, and to acquire a successful home building operation with a solid management team was a real win for us. Throughout the year, we also allocated a portion of our capital to buying back stock. In total, we repurchased roughly 3.6 million shares at an average price of $9.46, thereby reducing our shares outstanding by 9% as compared to the end of 2022. All these actions we took in 2023 were aligned with our goals of rapidly scaling our operations in a profitable manner, establishing a path to better returns, and creating value for our shareholders. Our year-end book value per share was $17.88, and our tangible book value per share was $16, an increase of 11.4% from a year ago.

Colorado has been one of our top new market targets for some time.

To acquire a successful homebuilding operation with a solid management team was a real win for us.

Throughout the year, where it also allocated a portion of our capital to buying back stock.

In total we repurchased roughly three 6 million shares at an average price $9.46, thereby reducing our shares outstanding by 9%.

As compared to the end of 2022.

All of these actions we took in 2023 were in line with our goals of rapidly scaling our operations in a profitable manner, establishing a path to better returns and creating value for our shareholders.

Our year end book value per share was $17 88.

Our tangible book value per share was $16 an.

An increase of 11, 4% from a year ago.

John Ho: We believe we are in a good position to take advantage of the positive housing fundamentals we see in our market today. I am proud of what we achieved in 2023 and believe we are on a path to greater success in the future. With that, I'd like to turn the call over to Mike, who will provide more detail on our operations this quarter. Thanks, John.

We believe we are in a good position to take advantage of the positive housing fundamentals, we see in our markets today I.

I am proud of what we achieved in 2023 and believe we are on a path to greater success in the future.

With that I'd like to turn the call over to Mike who will provide more detail on our operations this quarter.

Thanks, John we made great strides in the fourth quarter of 2023, both in terms of selling and closing homes and this momentum has carried into 2024.

Michael Forsum: We made great strides in the fourth quarter of 2023, both in terms of selling and closing homes. And this momentum has carried into 2024. Net new orders for the fourth quarter were up 352% year over year on a sales pace of 2.2 homes per community per month. Since the start of the new year, our sales pace has accelerated to 2.8 in January and 3.1 through the first two weeks of February. Incentives peaked during the month of October and have been steadily declining ever since, currently trending at 3-5% of base prices. While this is higher than historical norms, we do see incentives trending lower in our market. For the full year of 2023, orders were up 28% to 1,947, and the dollar value increased 16% to $1.1 billion.

Net new orders for the fourth quarter were up 352% year over year on a sales pace of two two homes per community per month.

Since the start of the new year, our sales pace has accelerated to two eight in January and three 1% through the first two weeks of February.

Incentives peaked during the month of October and have been steadily declining ever since currently trending at 3% to 5% of base prices wild.

While this is higher than.

Historical norms, we do see incentives trending lower in our markets.

For the full year of 2023 orders were up 28% to 1947 and the dollar value increased 16% to $1 1 billion.

Michael Forsum: Also, we increased our average selling community count year over year by 12% organically to 59. We would expect to see similar organic growth of 10 to 15% in our existing divisions before adding the Antares Homes acquisition. We continue to see healthy demand in all of our markets and across our demographics, driven by a lack of existing supply and a resilient economy. Consumers appear to have adjusted to the new normal mortgage rates exceeding 7 percent, though a majority of our buyers still opt for some form of financing incentive to lower their monthly payments.

Also we increased our average selling community count year over year, 12% organically to 59.

We would expect to see this similar organic growth of 10% to 15% and our existing divisions before adding Dan Tories homes acquisition.

We continue to see healthy demand in all of our markets and across buyer demographics, driven by lack of existing supply and a resilient economy.

Consumers appear to have adjusted to the new normal mortgage rates exceeding 7%.

The majority of our buyers still offer some form of financing incentives to lower their monthly payments.

Michael Forsum: The lack of existing home supply remains a tailwind for the industry as buyers seek the selection and quality that the new home market affords. Many of these buyers are looking for quick-moving options, and we have responded by increasing the amount of spec inventory that's available at our community. Although we have a very few standing inventory at any one time in any community, we have started the homes needed to close in the next couple of quarters and are actively selling into this production. In terms of building conditions, we believe the worst of the supply chain issues that plagued our industry are behind us, as build times have returned to pre-COVID levels.

The lack of existing home supply remains a tailwind for our industry as buyers seek the selection and quality that the new home market affords.

Many of these buyers are looking for a quick move in options and we have responded by increasing the amount of spec inventory that's available at our communities.

Although we have a very few standing inventory at any one time in any community. We have started the homes needed to close in the next couple of quarters and are actively selling into this production.

In terms of building conditions, we believe the worst of the supply chain issues that plagued our industry are behind us as Bill times have returned to pre COVID-19 levels. This.

Michael Forsum: This improvement, coupled with our strategic shift to more spec inventory, should help boost inventory turnover and cash flow generation. We remain committed to growing our size and scale in each of our markets while remaining disciplined with our underwriting standards. We ended the year with over 11,000 lots, with a breakdown of 41% owned and 59% controlled, in line with our targeted mix. Our goal is to build on the existing momentum we have generated in Florida, Arizona, California, and Colorado while making a big push to further establish our presence in Texas.

This improvement coupled with our strategic shift to more spec inventory should help boost inventory turnover and cash flow generation.

We remain committed to growing our size and scale in each of our markets, while remaining disciplined with our underwriting standards.

We ended the year with over 11000 lots with a breakdown of 41% owned and 59% control in line with our targeted mix.

Our goal is to build on the existing momentum we have generated in Florida, Arizona, California, and Colorado, while making a big push to further establish our presence in Texas.

Michael Forsum: The recent acquisition of Antares gives us a running start in the efforts to penetrate the Dallas-Fort Worth market while our active community pipeline in Austin continues to grow and should start contributing sales and closings to our company's total beginning in the first quarter of this year. In summary, I am pleased with our team's execution in the fourth quarter and am proud of the milestones we hit in 2023. I concur with John that 2023 was a transformative year for the company, and we will be reaping the benefits of these accomplishments for years to come. With that, I'd like to turn the call over to Chris, who will provide more detail on our financial performance this quarter and give some preliminary guidance for 2024. Thank you, Mike, and good morning, everyone.

The recent acquisition of <unk> is it gives us a running start in the efforts to penetrate the Dallas Fort worth market, while our active community pipeline in Austin continues to grow and should start contributing in sales and closings to our company's total beginning in the first quarter of this year.

In summary, I am pleased with our team's execution in the fourth quarter and I'm proud of the milestones we hit in 2023, I concur with John that 2023 was a transformative year for the company and we will be reaping the benefits of these accomplishments for years to cap.

With that I'd like to turn the call over to Chris who will provide more detail on our financial performance this quarter and give some preliminary guidance for 2024.

Thank you, Mike and good morning, everyone as Mike and John mentioned, we are very pleased with our performance in the quarter, achieving net income of $12 5 million or 33 cents per diluted share. This compares to net income of $25 6 million or <unk> 62 cents per diluted share last year for.

Christopher T. Porter: As Mike and John mentioned, we are very pleased with our performance in the quarter, achieving net income of $12.5 million, or $0.33 per diluted share. This compares to net income of $25.6 million, or $0.62 per diluted share last year. For the year, we generated net income of $29.2 million, or $0.75 per diluted share, and $1.2 billion in revenue on 2,123 deliveries, which exceeded our stated guidance of between 2,000 and 2,100 deliveries. Fourth quarter home sales revenue was $380 million, a 9% decrease over the fourth quarter of 2022, based on 6% lower volume and 4% lower average selling price. This decline was partially attributable to a lack of contribution from New York and Texas, which added 18 homes for $29 million in the fourth quarter of 2022.

For the year, we generated net income of $29 2 million or <unk> 75 per diluted share and $1 2 billion in revenue on 2123 deliveries, which exceeded our stated guidance of between 2000 2100 deliveries.

Fourth quarter home sales revenue was $380 million, a 9% decrease over fourth quarter of 2022.

Based on 6% lower volume and 4% lower average selling price.

This decline was partially attributable to a lack of contribution from New York, and Texas, which added 18 homes for $29 million in the fourth quarter of 2022.

Christopher T. Porter: As we have been discussing on the past few calls, our Texas operations should begin deliveries from their new communities in late first quarter and early second quarter. In the quarter, we also closed on $18 million in lot sales and other revenue for a total revenue of $398 million. We were excited to enter the Colorado market this quarter, and this new division contributed 11 closed homes for $7.4 million. During the quarter, Florida represented 44% of our deliveries and 35% of our home sales revenue. California represented 30% of deliveries and 45% of our home sales revenue. And Arizona made up the majority of the difference with 24% of the deliveries and 19% of the home sales revenue. In 2024, we will see ramped-up contribution from Colorado as we have a full year of deliveries and anticipate having our new DFW segment contributing starting in the second quarter following our closing of the Antares Home acquisition. Home sales gross margin was 15.9% for the quarter and 20.8% on a fully adjusted basis. As the 10-year Treasury spiked to 5% last fall, the cost of mortgage buydown incentives increased significantly.

As we have been discussing out in the past few calls our Texas operation should begin deliveries from their new communities in late first quarter early second quarter.

In the quarter, we also closed on $18 million in lot sales and other revenue for a total revenue of $398 million.

We were excited to enter the Colorado market this quarter and this new division contributed 11 closed homes for $7.4 million.

During the quarter, Florida represented 44% of our deliveries and 35% of our home sales revenue, California represented 30% of deliveries and 45% of our home sales revenue and Arizona made up the majority of the difference with 24% of the deliveries and 19% of home sales revenue.

In 2024, we will see ramped up contributions from Colorado as we have a full year of deliveries and anticipate having our new DFW segment contributing starting in the second quarter. Following our closing of the Antares home acquisition.

Home sales gross margin was 15, 9% for the quarter and 28% on a fully adjusted basis.

As the 10 year Treasury spiked two 5% last fall the cost of mortgage buy down incentives increased significantly. We saw this also decreased significantly towards the end of December and it has remained more stable in the first part of this year.

Christopher T. Porter: We saw this also decrease significantly towards the end of December, and it has remained more stable in the first part of this year. Incentives during 2023 averaged between 5% and 6% of our home sales revenue, a sizable increase from the 2022 level. We expect incentive levels to remain elevated in 2024 with the actual cost fluctuating with the overall mortgage rate environment. Buying down to a 5.99% level seems to be the sweet spot in today's environment and can range from 3% to 5% depending on the underlying mortgage rate.

Incentives during 2023 average between 5% and 6% of our home sales revenue a sizable increase from 2022 levels, we expect incentive levels to remain elevated in 2024 with the actual costs fluctuating with the overall mortgage rate environment.

Buying down to a $5, 99% level seems to be the sweet spot in today's environment. It can range from 3% to 5% depending on the underlying mortgage rate.

Christopher T. Porter: Our SG&A expense came in at 15% of home sales revenue for the year, up 220 basis points from 2022. As we have discussed on previous calls, we are confident that we can begin to see the leverage from the public company infrastructure we put in place as our delivery run rate grows. With both the Richfield and Antares acquisitions, we will leverage the existing corporate overhead and staff, and we will see an overall improvement in this ratio. For the year, we expect an overall improvement of 150 to 200 basis points in our SG&A efficiency, with this being more back-end loaded as we realize the effects of increased deliveries in volume from Colorado and DFW. Our tax expense for the fourth quarter was $5.6 million, bringing our total for the year to $11.9 million, for an effective tax rate of 26.7%.

Our SG&A expense came in at 15% of home sales revenue for the year up 220 basis points from 2022.

As we've discussed on previous calls we are confident that we can begin to see the leverage from the public company infrastructure, we put in place as our delivery run rate Chris.

With both the Richfield and terrorists acquisition, we will leverage the existing corporate overhead and staff and we will see an overall improvement in this ratio.

For the year, we expect an overall improvement of 150 to 200 basis points in our SG&A efficiency with this being more back end loaded as we realize the effects of increased deliveries in volume from Colorado in DFW.

Our tax expense for the fourth quarter was $5 $6 million, bringing our total for the year to $11 $9 million for an effective tax rate of 26, 7%.

This year fewer homes qualified for the new more rigorous forty-five L tax credits that we expect to have the majority of our homes to qualify in 2024 and beyond.

Christopher T. Porter: This year, fewer homes qualified for the new, more rigorous 45L tax credits, but we expect to have the majority of our homes qualify in 2024 and beyond. Turning to our balance sheet, we ended the fourth quarter with $431 million in liquidity, $169 million in cash and cash equivalents, and $263 million in availability under our revolver. Our leverage ratios remained in line with our stated policies, ending the quarter at 44% debt to total capital and 30% net debt to total capital.

Turning to our balance sheet, we ended the fourth quarter with $431 million and liquidity of $169 million in cash and cash equivalents and 263 million in availability under our revolver.

Our leverage ratios remained in line with our stated policies ending the quarter at 44% debt to total capital and 30% net debt to total capital.

Now looking forward to the first quarter, we anticipate our new home deliveries to be between 480 and 500 at an average sales price of 560000 to 575000 with GAAP gross margins of 15% to 16% and adjusted gross margins between 20% and 21.

Christopher T. Porter: Now, looking forward to the first quarter, we anticipate our new home deliveries to be between $480,000 and $500,000 at an average sale price of $560,000 to $575,000, with gap gross margins of 15% to 16% and adjusted gross margins between 20% and 21%. And for the full year, we anticipate new home deliveries, including our Interis acquisition, to be in the range of 2,500 to 2,900 units, which at the midpoint represents a 27% growth over 2023. We expect the ASPs of these deliveries to be in the range of $500,000 to $525,000. And Terrace maintains an ASP in the low 400s, which will impact our annual ASP numbers as we add it to our portfolio. Additionally, we anticipate GAP home sales gross margin for the full year to be in the 17% to 18% range and adjusted gross margins to be between 21% and 23% for the full year.

Yeah.

And for the full year, we anticipate new home deliveries, including our interest acquisition to be in the range of 2500, 2900 units, which at the midpoint represents a 27% growth over 2023.

We expect the Asp's are these deliveries to be in the range of 500000 to $525000 and terrorists maintains an ESP in the low four hundreds which will impact our annual E. S. P numbers as we add them to our portfolio.

Additionally, we anticipate GAAP home sales gross margin for the full year to be in the 17% to 18% range and adjusted gross margins to be between 21% and 23% for the full year. These.

These gross margin ranges are dependent upon assumptions in our purchase price accounting with the interest acquisition, we will not know the final allocation until we close the acquisition in the second quarter. Also this guidance is based on our best estimate as of today with the current market conditions as inflation incentives and interest rates continued to change.

All results could change accordingly.

And that concludes our prepared remarks, and now I'd like to turn it over to the operator to open up the call for more questions.

Christopher T. Porter: These gross margin ranges are dependent upon assumptions in our purchase price accounting for the NTERIS acquisition. We will not know the final allocations until we close the acquisition in the second quarter. Also, this guidance is based on our best estimate as of today with the current market conditions. As inflation, incentives, and interest rates continue to change, overall results could change accordingly.

Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.

Confirmation tone will indicate your line is in the question queue you.

You May press star two if he would like to remove your question from the queue for.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment. Please while we poll for your questions.

Operator: And that concludes our prepared remarks, and now I'd like to turn it over to the operator to open up the call for more questions. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

Our first questions come from the line of Alex Rygiel with B Riley Securities. Please proceed with your questions.

Good morning, Mike, John and Chris very very strong finish to the year congratulations.

Thanks, Alex.

Couple of quick questions here first.

Back to organic growth.

Operator: You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for your questions. Our first questions come from the line of Alex Rygiel with B. Reilly Securities. Please proceed with your question. Good morning, Mike, John, and Chris.

What did you say your organic community count growth would be again in 2024.

Guess, what markets could see the greatest growth.

And what's the average selling price with these new communities could look like.

Sure, let me take take a stab at that Alex It's Mike.

On the recorded remarks about 10% to 15% organic growth.

Michael Forsum: Very, very strong finish to the year. Congratulations. Thanks, Alex. A couple quick questions here first. Coming back to organic growth.

That generally will be coming from the balance of all of our communities and the markets. We're in but I would say that.

You just put numerical numbers around it will continue to grow Phoenix, the Phoenix market, bringing communities online, Florida, certainly and then the expansion of Austin as well.

Michael Forsum: What did you say your organic community count growth would be again in 2024? Can you discuss what markets could see the greatest growth and what the average selling price of these new communities could look like? Sure. Let me take a stab at that, Alex. It's Mike.

And then we're sort of doing some bolt ons in California.

We see the average sales price still being in the range in which we talked about in our <unk>.

<unk>, so we don't see any big deviation around that but as you know.

Michael Forsum: We talked in the recorded remarks about 10 to 15 percent organic growth. That generally will be coming from the balance of all of our communities and the markets we're in. But I would say that if you just put numerical numbers around it, we'll continue to grow Phoenix, the Phoenix market, bringing communities online, Florida certainly, and then the expansion of Austin as well. And then we're sort of doing some bolt-ons in California.

From quarter to quarter, depending upon mix and kind of where things are running.

It could move up and down.

Around that number I think John has a specific number that he can share with you around that.

Hey, Alex.

Our first quarter guidance is in the range of 550 575000.

It's primarily coming from our actively selling communities through organic growth.

Our expectation is that will close in Paris homes in the second quarter of this year.

John Ho: We see the average sales price still being in the range that we talked about in our remarks, so we don't see any big deviation around that. But, as you know, from quarter to quarter, depending upon mix and kind of where things are running, it could move up and down around that number. I think John has a specific number that he can share with you around that. Hey, Alex.

They have a lower average selling price in the low 400, thousands. So we expect our full year average selling price to be between 500 and 525000.

Secondly on your spec strategy near term sounds like sponsor.

The high demand right now.

Focused on multiple maybe comment on what spec inventory it looks like and how it's changed.

Sure it's.

John Ho: I think our first quarter guidance is in the range of 550, 575,000. Primarily coming from our actively selling communities through organic growth. Our expectation is that we'll close on Terrace Homes in the second quarter of this year. They have a lower average selling price in the low $400,000.

It's Mike again, yeah for sure.

It's an ongoing component part of our business today as the buyer profile is looking for that quick move in because we just don't see that resale market bouncing back soon and they don't have a whole lot of options. So we're picking up a lot of that.

That being said it is necessitating us to get out ahead of sales with our starts and then selling into our production. So currently we're running about 20% to be built our dirt starts as we call them against a spec.

Michael Forsum: So we expect our full year average selling price to be between $500,000 and $525,000. And secondly, can you comment on your spec strategy near term? It sounds like spec homes are in very high demand right now. And it sounds like you're definitely focused on that. So maybe you could comment on what your spec inventory looks like and how it could change. Sure. It's Mike again.

Starts and then I would say roughly we are a third a third a third a sales going into the production cycle. So another words, a third of our sales would be somewhere within the first early part of the house being under construction.

Michael Forsum: Yeah, for sure. It's an ongoing component part of our business today as the buyer profile is looking for that quick move in because we just don't see the resale market bouncing back soon, and they don't have a whole lot of options. So, we're picking up a lot of that demand. That being said, it is necessitating us to get out ahead of sales with our starts and then sell into our production. So, currently, we're running about 20% to be built, or dirt starts, as we call them, against spec. And then I would say roughly we're a third, a third, a third of sales going into the production cycle. So, in other words, a third of our sales would be somewhere within the first early parts of the house being under construction, the second part, you know, the last middle third, obviously in the middle, and then the last third would be those that are looking for a quick move within 60 days. That's generally how it breaks down. Very helpful. Thank you very much.

The second part the Middle third obviously in the Middle and then the last third would be those that are looking for the quick move in within 60 days.

Generally how it breaks down.

That's very helpful. Thank you very much.

Thanks, Alex. Thank you. Thank you. Our next question is come from the line of Carl Reichardt with BTG. Please proceed with your questions.

Good morning, everybody.

I'm, calling in sick.

And in second quarter will end towards close do you think and then Chris on that on the 20 <unk> I think he said 20, 23% gross margin guide for 'twenty four.

On a core and then 17 18 actual gap.

What what what basis points of purchase accounting are you assuming between those two I mean, I think I'm, just asking I'm, assuming it's going to be backend loaded or third quarter fourth quarter loaded can you just help us a little bit about how that how that will lay out.

Yeah I'll comment.

Comment on the closing timing and then Chris can address it from a purchase accounting what our best estimate yes.

Operator: Thanks, Alex. Thank you. Thank you. Our next questions come from the line of Carl Reichardt with BTIG. Please proceed with your question. Thanks. Morning, everybody.

But our expectation is some time at April may when we expect to close I think everything is on track for that and.

Carl Edwin Reichardt: When will Antares close in the second quarter, do you think? And then Chris, I think you said 20-23% gross margin guide for 24 on a core and that 17-18 actual gap. What basis points of purchase accounting are you assuming between those two? I mean, I think I'm just asking, I'm assuming it's going to be back-end loaded or third quarter or fourth quarter loaded.

And as it relates to our estimated sort of.

Purchase accounting.

Our forecast for the full year would include a delivery so we anticipate to receive.

After the closing on terrorists homes, and Chris can talk about the purchase accounting.

Yeah Carl.

So the best guide right now would be kind of similar to what we did with Hanover.

Christopher T. Porter: Can you just help us a little bit about how that'll lay out? Yeah, I'll comment on the closing timing, and then Chris can address it from a purchase accounting and what our best estimate is. But our expectation is sometime in April or May, when we expect to close. I think everything is on track for that. And as it relates to our estimated purchase accounting, our forecast for the full year would include deliveries that we anticipate to receive after the closing on Terrace Homes. And Chris can talk about the purchase accounting. Yeah, Carl.

$111 million of purchase price accounting with Hana over 45% of that bled through in the first year of closings.

We did another 17% in year two.

We'll close and terrorists kind of midyear. This year right April may is what John said, but we would anticipate kind of very similar percentages as we use them because they are very similar in structure.

And right now we won't know the final purchase price accounting until we actually close into the fall analysis, but I would anticipate it being roughly in the $80 million to $90 million range total and then kind of bleed through that way and.

Christopher T. Porter: So the best guide right now would be kind of similar to what we did with Hanover. We had $111 million in purchase price accounting for Hanover. 45% of that bled through in the first year of closings, and we did another 17% in year two. We'll close Antaris kind of mid-year this year, right? April or May, is what John said. But we would anticipate kind of very similar percentages as we use because they're very similar in structure. And right now, we won't know the final purchase price accounting until we actually close and do the full analysis. But I would anticipate it being roughly in the $80 to $90 million range overall and then kind of bleeding through that way.

And you're right it would.

It would be more back end loaded and that's why you see that the gross margin differences add towards the back year.

And and on our adjusted gross basis, that's really one of the big changes there with between adjusted and.

Yeah Yeah.

Okay, and so mid May tightening, if we build that into our model would be the sort of roughly correct or conservative in terms of the timing of the close.

Yeah, Yeah on a conservative basis, Yeah, I think what Johnny you might get is enterprise timeframe. Okay. Perfect alright. Thank you for that Okay. And then my second question is on.

Christopher T. Porter: And you're right, it would be more back-end loaded, and that's why you see the gross margin differences towards the back year. And on an adjusted gross basis, that's really one of the big changes there between adjusted and... Yeah. Okay, so a mid-May timing, if we build that into our model, would be the sort of roughly correct or conservative in terms of the timing of the close. Yeah, on a conservative basis, yeah, I think what Johnson is doing is an April-May timeframe.

So last year there were some budget.

Excuse me some volatility homebuilding stocks in your stock you bought back 9% of your shares.

As you look out this year, John and you're thinking about strategically the deployment of capital.

How does share repurchases fit would you consider them sort of more opportunistic last year were more court would you want to do.

John Ho: Okay, perfect. All right. Thank you for that. Okay. And then my second question is... Last year, there was some volatility in home building stocks in your stock. You bought back 9% of your share. As you look out this year, John, and you're thinking about strategically the deployment of capital, you're going to have to look at a number of things. How do share repurchases fit?

Excuse me given that you were trying to grow the business I'm thinking that.

And the opportunity to utilize that capital in a more leveraged way in the market to grow via acquisition or Greenfield would make some more sense for you this year.

Sure.

Hey, Carl so.

Last year.

There was definitely an opportunity to repurchase shares.

John Ho: Would you consider them sort of more opportunistic last year or more core to what you want to do? Excuse me, given that you're trying to grow the business, I'm thinking that an opportunity to utilize that capital in a more levered way in the market to grow the acquisition or Greenfield would make some more sense for you this year. Sure. Hey, Carl.

We had completed two very successful secondary offerings last year.

Increased our liquidity profile of the stock almost tenfold.

And our repurchase about 9% of outstanding shares we repurchased them at an average price of.

$9 40 sets. So you can see that was a.

John Ho: So... Last year, um... There was definitely an opportunity to repurchase shares. You know, we completed two very successful secondary offerings last year. And so we increased our liquidity profile of the stock almost tenfold, and we repurchased about 9% of outstanding shares. We repurchased them at an average price of $9.40.

Pretty rewarding and very accretive.

I took over a company and earnings.

At that price.

Growth for Us is.

Definitely one of our priorities are as we've demonstrated in the fourth quarter. When we acquired Richard Hill homes and expand into Denver, Colorado, and then with the announcement of a darris homes acquisition as we know.

So we're certainly not trade.

John Ho: So you can see that was a big step up for us, pretty rewarding, and very accretive to our overall company and earnings at that price. Growth, for us, is definitely one of our priorities, as we demonstrated in the fourth quarter when we acquired Richfield Homes and expanded to Denver, Colorado, and then with the announcement of the DeHarris Homes acquisition. As you know, we're certainly not trading growth for doing repurchases.

Trading growth.

Four.

Doing repurchases, but at the same time, we do believe that given the price of our stock at below book value.

That is a also a good allocation of our capital that we use and that's why at that last earnings call, We had announced a new $20 million repurchase program.

Program that we will use them this.

This year continue to use this year.

John Ho: But at the same time, we do believe that, you know, given the price of our stock at below book value, that is also a good allocation of our capital that we'll reuse. And that's why, on the last earnings call, we announced a new $20 million repurchase program that we will use this year and continue to use this year, as one of the areas that we allocate capital to. So we do see that as a consistent use of capital to do share repurchases. Certainly, we're given our..., at www.larryweaver.com, share in our guidance for the year. At the same time, be consistent and do some buybacks as one of the tools for us as we continue to grow and help drive the share price and create more shareholder value. All right.

As one of the areas, how we allocate capital to so we do that see that as a consistent use of capital.

Share repurchases certainly were given our.

Price of our stock is where it is still at a discount to book value, but at the same time, we're not sacrificing it for growth it is a balance but.

But we do see our ability to people to continue to grow the business as we've.

Shared in our guidance for the year and the C.

Same time Beacon.

Be consistent and do some buyback is one of the tools for us as we continue to grow and help drive.

Share price and create more shareholder value.

Okay.

Alright, Thank you John I appreciate that and I'll get back in queue. Thanks, though.

Thanks sure Okay.

Thank you. Our next question is coming from the line of Jay Mccanless with Wedbush Securities. Please proceed with your questions.

Operator: Thank you, John. I appreciate that. I'll get back in queue.

Operator: Thanks, folks. Thanks, Hal. Thanks.

Jay could you check up yourself muted please.

Operator: Thank you. Our next questions come from the line of Jay McCanless with Wedbush Securities. Please proceed with your questions. Jay, could you check if you're self-muted?

Yeah, there we go sorry about that guys good morning.

Hey, Jay.

Hey, so taking carl's question a step further.

Operator: Yep, here we go. Sorry about that, guys. Good morning, everyone.

Given what we've seen with a lot of deals out there. This year does it make more sense to develop what you've already bought or theres still some compelling valuations out there to do more M&A.

Jay McCanless: Hey Jay, so taking Carl's question a step further, given what we've seen with a lot of deals out there this year, does it make more sense to develop what you've already bought? Or are there still some compelling valuations out there to do more M&A? Hey Jay, it's Mike.

Hi, Jay its Mike.

Michael Forsum: I'll just start it, and maybe John or Chris can kind of backfill me on this. But I think that going forward, at the size of the company we are today and where our ambitions are, we're always going to have M&A as a part of our growth profile. It's not the long-term solution once we've established our flags in the markets, and we can grow organically.

I'll start it and maybe John or Chris can kind of.

Backfill me on this but I think that going forward at the size of the company, we are today and where our ambitions are.

We're always going to have M&A as a part of our growth profile.

It's not the long term solution once we've established our flags in the markets and we can grow organically, but if we'd always said that this is a business of scale and when we get into a market. We have to achieve a scale that makes us a player. There we have to have a meaningful operation to attract the best trades.

Michael Forsum: But it was always said that this is a business of scale, and when we get into a market, we have to achieve a scale that makes us a player there. We have to have a meaningful operation to attract the best traders, be in the land game in a real way, and be at some level of attractiveness to our team members and people that join our team. So we definitely feel that that's going to be something we continue to do as we go forward. We think we're good at it, and we think we know how to find those nuggets that are out there.

B in the land game in our railway.

Some some level of attractiveness to us.

Our team members and people to join our team. So we definitely feel that that's going to be something we're going to continue to do.

As we go forward, we think we're good at it and we think we know how to find those nuggets that are out there. It's kind of part of I think what is our secret sauce that we continue to be a acquirer of choice out in those marketplaces in which we're entering we've established a strong reputation for a company that can deliver on these.

Michael Forsum: It's kind of part of, I think, what our secret sauce is that we continue to be an acquirer of choice out in those marketplaces in which we're entering. We've established a strong reputation as a company that can deliver on these acquisitions and do a successful integration, and then bring in the teams into the Lianxin family and expand our brand. So from that standpoint, I would expect to continue to see us, I think John always says, about once a year or so. That doesn't mean that that's absolute, but we'll continue to see each other, as we've grown forward in acquisition, at least once a year and probably will continue to do so. Jay, one thing that I would add to that is www.larryweaver.com. In our acquisitions, in our growth through M&A, and also in our organic growth when we go by land, we always maintain a very strict financial discipline.

Acquisition and to a successful integration and then or.

In bringing the teams into the Lansing family and expand our brand so from that standpoint.

I would expect to continue to see us.

I think John what it says about once a year or so that doesn't mean that that's absolute but we continue to see you know as we've grown forward an acquisition at least once a year and probably will continue to do so.

Hey, Jerry I would Oh, one thing that I would add to that is.

And our acquisitions and our growth through M&A.

Also our organic growth when we go buy land.

We always.

Maintaining a very strict financial discipline.

So despite the incredible growth that we've had we still maintain our leverage ratios.

Christopher T. Porter: So despite the incredible growth that we've had, we still maintain leverage ratios in the mid-40s and net debt-to-capital ratios in the low 30s. So with that growth in M&A that we look to do, we will always maintain within that state of financial policies, just because we think that's prudent. And when we acquired Hanover Family Builders last year in January, we were very quickly able to reduce our leverage within 9 to 12 months, and we expect the same within Terrace Homes as well.

Mid forties net debt to cap ratios in the low thirty's, so with that growth and M&A that we look to do we will always maintain.

Within those state of financial policies, just because we think that's prudent.

And when we acquired the Hangover family builders last year in January were very quickly able to reduce our leverage within nine to 12 months and we expect the same within terrorists homes as well.

Christopher T. Porter: Great. Thank you for that. The second question I had, Chris, I lost track when you were talking about the SG&A Outlook for 24. Did you give me that guidance or where you think we might go again? Yeah, so I would expect, overall, just kind of down and dirty, about a 150 to 200 basis point improvement overall on that ratio by the end of the year. So if you look at 23 compared to 24, I would see us being able to improve that ratio by that amount.

Okay, great. Thank you for that.

Question I had Chris.

<unk> check when you were talking about the SG&A outlook for 24 could you give me the guidance or where you think that might go again.

Yeah. So so I would expect overall, just kind of down and dirty about 150 to 200 basis point improvement overall on that ratio.

By the end of the year.

So if you look at 23% compared to 24, I would see us being able to improve that ratio by that amount a lot of it has to do with right you've got the full ramp up.

Michael Forsum: A lot of it has to do with, right, you've got the full ramp-up of Richfield coming in, and then, depending on when we close on the Antares acquisition as well, the volume from that will help offset some of those costs because we'll add additional. Okay, that's great. And the last one I had, nice to see the acceleration and absorption from January into February, especially with mortgage rates moving against you. I guess the question is, did you have to incentivize to drive that growth? Or is it just the lack of existing homes out there pushing people into communities?

Rich fields coming in and then.

Depending on when we close on the Antero acquisition as well.

The volume from that and help offset some of those costs, because we will add additional costs in there.

Okay. That's great then the last one I had.

Nice to see the acceleration in absorption from from January into February, especially with mortgage rates moving against you. I guess is that did you have to incentivize to drive that growth or is it just the lack of existing homes out there pushing people into the communities.

Michael Forsum: Jay, this is Mike. Yeah, we're still incentivizing, although in a decreasing way as we go into the new year. So we've been pretty excited about that result. But, there's no way of getting around it, and it's out there in the industry, and we're all doing the same in terms of our mortgage buy-downs. But we definitely have seen an active resurgence in buyer demand coming into the new year. So we'll see it sort of as a mix between incentives, mortgage buy-downs, and then a continuation of the fact that we're, you know, supporting... providing a solution to those that are looking for housing in a short period of time through our spec start strategy with those component parts in there to continue to go. So it's a strong start to the selling season, and we're feeling really confident. I'll continue for a bit.

Jay This is Mike.

Yeah, we're still incentivising, although in any decreasing way as we go into the new year. So we've been pretty excited.

For that result.

There is no way of getting around it and it's out there in the industry and we're all doing the same in terms of our mortgage buy downs, but we definitely have seen an active a resurgence in buyer demand coming into the new year.

We will see it sort of as a mix between incentives.

Mortgage buy downs.

And then a continuation of the fact that we are so.

Yep.

Providing it.

Our solution to those that are looking for housing in a short period of time through our spec start strategy.

With those component parts in there to continue to go so it's a strong start to the selling season, and we're feeling real confident.

Jay McCanless: Okay, that's great. Thanks for taking my question. Thanks, Jay. Thank you. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question has come from the line of Carl Reichardt with VTIG. Please proceed with your question.

For a bit.

Okay. That's great. Thanks for taking my questions.

Okay.

Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone keypad.

Our next question is come from the line of Carl Reichardt with <unk>. Please proceed with your questions.

Operator: Thanks for fitting me in again, guys. Jay asked one of my questions, but the other one, Mike, can you talk about if you can differentiate between what you determine is sort of a first-time buyer entry-level product versus your other product in your markets in the fourth quarter and into the first quarter so far? Have you seen any kind of a significant relative alteration in absorption rate between those two products?

Thanks for fit me in again I'm. So Jay asked one of my questions, but the other one Mike can you talk about if you could differentiate between what you determine as sort of first time buyer entry level product versus your other product in your markets in fourth quarter and into into first quarter. So far have you seen any kind of significant.

Relative alteration in absorption rate between those two products as one improved more than the other year over year or have they been pretty consistent in terms of their improvement.

Michael Forsum: Has one improved more than the other year over year, or have they been pretty consistent in terms of their improvement? Yeah, I think they're fairly consistent. There are different ways of motivating that buyer profile, for sure, where the what I call pure entry-level homebuyer who is seeking housing that is affordable is really being driven by, you know, strong incentives to get their monthly payments down. It's a monthly payment game in that area. If you are trending in sort of the first-time move-up, it's a little bit more of a value play for them. They're less mortgage rate sensitive, but timing is important to them. They usually have a housing need that needs to be solved fairly quickly.

Yeah, I think they're fairly consistent.

There's different ways of motivating that buyer profile for sure.

Sure.

<unk>.

What I call pure entry level home buyer, who is seeking housing that is affordable.

Being driven by strong incentives to get their monthly payments down it's a monthly payment game in that area. If you are trending and sort of the first time move up at.

It's a little bit more of a value play for them. There are less mortgage rate sensitive, but timing is important to them. They usually have at <unk>.

Housing need that needs to be solved fairly quickly and so that's where the spec strategy comes into play so for us we.

Michael Forsum: And so, that's where the spec strategy comes into play. For us, we have this really interesting look at our industry in terms of the dynamics from the San Francisco Bay Area to Orlando, Florida, and everything in between. And so, I think they all kind of play out themselves in their local markets.

Have this really interesting look at our industry in terms of the dynamics from San Francisco Bay area to Orlando, Florida, and everything in between and so I think they all kind of play out themselves in their local markets.

Michael Forsum: But for the most part, you know, you're toggling between, again, actual incentives, mortgage rate buy-downs, and deliverability in a specific period of time. And if you can find that perfect sweet spot in there, you're continuing to drive absorption. And again, as we've always said, we believe this is a business of momentum. You have to continue to have activity in all your communities. We strive to be around three net per month at all of our communities. Some are lower, some are higher, but we're always pursuing kind of that absorption rate as we go forward.

But for the most part.

<unk> between again actual incentives.

Mortgage rate buy downs and deliverability in a specific period of time and if you can find that perfect sweet spot in there you are continuing to drive.

Absorptions and again as we've always said is that we believe this is a business of momentum you have to continue to have activity at all your communities, we strive to be around three net per month at all of our community. Some are lower some are higher but.

Always pursuing kind of that absorption rate as we go forward.

Michael Forsum: And, you know, it's a weekly adjustment to make sure that that continues to happen. I appreciate that. Thank you, Mike. Thank you. We have reached the end of our question and answer session. I would now like to turn the floor back over to John Ho for closing remarks. Thank you to everyone on the call. We look forward to speaking with you next quarter. Thank you. Thank you.

It's a weekly adjustments to make sure that that continues to happen.

Okay I appreciate that thank you Mike.

Okay.

Thank you we have reached the end of our question and answer session I would now like to turn the floor back over to John Hall for closing remarks.

Thank you for everyone.

On the call we look forward to speaking with you next quarter.

Thank you this does this.

This does conclude today's teleconference. We appreciate your participation you may disconnect. Your lines at this time enjoy the rest of your day.

John Ho: This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day. Thanks for watching. Please like & subscribe. Like & Subscribe

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