Q1 2025 Landsea Homes Corp Earnings Call
Speaker Change: Good day, everyone, and welcome to today's Landsea Homes Corporation 1st Quarter 2025 Erning's call. At this time, all participants aren't a listen-only mode. Please note this call may be recorded, and I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Drew Mackintosh, investor relations. Please go ahead.
Speaker Change: Good morning and welcome to Landsea Homes' first quarter, 2025 earnings call. For the call began, I would like to note that this call will include forward-looking statements within the meaning of the federal security's laws.
Speaker Change: Landsea Homes cautions and for 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 filings with the Securities and Exchange Commission.
Speaker Change: We do not undertake any obligation to update forward-looking statements. 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 NFSEC filings.
Speaker Change: hosting the call today are John Ho, Landsea's 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
John Ho: Good morning and thank you for joining us today as we go over our results for the first quarter of 2025 to provide an update on our operations
John Ho: Landsea Homes recorded a net loss of 7.3 million in the first quarter for a net loss of 20 cents per diluted share.
John Ho: Homes sales revenue increase 2% year-over-year on a 27% increase in deliveries, partially offset by a 20% decline in average closing prices.
John Ho: The Klein and average prices were due in part to a mix shift from higher price California communities to a higher contribution of closings from our Florida and Texas operations.
John Ho: elevated incentive activity joined the quarter, also contributed to the decrease in ASPs.
John Ho: That new orders for the quarter increased 11% year-over-year on a sales pace of 3.0 homes per community per month
John Ho: Overall, we are encouraged by the demand elasticity we saw during the quarter, as as far as responded to declines in mortgage rates and higher incentives.
John Ho: Porter activity started off slowly to begin the year, then picked up as a quarter progressed. For the ability we made an important issue for most buyers, so financing incentives for a key driver of sales during the quarter.
John Ho: We continue to balance pace versus price at each of our communities with a slight lead towards pace, all things being equal.
John Ho: As a production home builder, we feel it is important to price the market to maintain a base level of sales activity.
John Ho: We also made the strategic decision to sell through some of our spec home inventory in an effort to return to a more balanced approach between spec sales and built to order homes with 67% of our first quarter deliveries also sold in the same quarter.
John Ho: Our goal is to return to our 50-50 split between specs and build-a-order closings over time.
John Ho: There are several reasons for this strategic shift. First, those times are returned to pre-COVID levels which are short in the timeframe between selling and closing on a pre-sold home.
John Ho: Second, the margin opportunities are much greater with a pre-sold home, as it gives us the ability to charge more for a lot of premiums and other new home amenities. It also allows the buyer to pick out high margin options and upgrades for their home, as opposed to the
John Ho: Finally, reducing our spec levels lowers the cache tied up in standing inventory because this better visibility into our future closings was to build up a solid backlog.
John Ho: More balanced strategies also align with their company's approach to home building, which emphasizes product differentiation as a way to track customers and grow market share.
John Ho: We believe our core customer is a more discerning buyer who wants more out of the home than just a place to live.
John Ho: That is why we have developed and refined our high-performance home series to offer the latest new home technology and innovation.
John Ho: While the pandemic has been over for some time, people continue to spend more time at home than ever before.
John Ho: Whether it's a work from home situation, in-home entertainment, we're just dining in We feel that this stay-at-home dynamic plays into our strengths and believe buyers will pay premium for a home that fits their lifestyle.
John Ho: Of course, there are other factors that play into the decision-making process when buying a home, the biggest of which is affordability. That is why we continue to work with buyers to find a new home solution and monthly payment that suits their needs.
John Ho: The financing incentives remain a popular option for our customers, looking to lower the monthly cost of home ownership, serve as a great selling tool, with buyers looking at both new and resale homes.
John Ho: Peace incentives do however come at a cost to our company representing 9% of the average closing price in the first quarter. We are optimistic that the combination of better pricing strategies in a higher mix of pre-sold homes will offset some of the negative effects that incentives have had on our margins.
John Ho: We head into the latter half of the spring-selling season. We continue to see opportunities to refine our operations and increase our size and scale the markets we currently build in.
John Ho: While there are some uncertainties surrounding the near-term macro-environment, we believe the long-term outlook for industry remains positive, given the need for additional housing supply, the desire for home ownership that is on display at our communities each week.
John Ho: The product differentiation is more important than ever, what's selling helps at uncertain times. And we feel that having communities and desirable locations and new home designs that stand out from the competition give us a distinct advantage.
John Ho: As a result, I remain optimistic about Landsea's ability to compete and grow our operations over time.
John Ho: With that, I'd like to turn the call over to Mike. We'll provide more details on our operations. Bye!
Mike Forsum: Thanks John , good morning to everyone. Landsea delivered 643 homes during the first quarter of 2025, which was near the midpoint of our guidance of 600 to 700 closings.
Mike Forsum: Florida led the way in terms of delivery contribution followed by Arizona and Texas.
Mike Forsum: As John mentioned, the 20% decline in ASPs was a result of a mixed shift away from higher price communities in California, combined with greater contributions from lower price regions. ASPs were actually up year over year in Florida in Texas, while ASPs and Arizona decline only slightly.
Mike Forsum: The sales pace in the first quarter came at the lower end of our targeted range of 3-4 sales per community per month. Arizona posted the highest absorption pace at 3.8, followed by Colorado at 3.7 and Florida at 2.9.
Mike Forsum: Overall, I would characterize current new home demand conditions as uneven, with consistent traffic levels being offset by hesitancy to move forward on behalf of buyers. In most instances, however, we can find a way to keep conversion level steady with the right combination of incentives in pricing adjustments.
Mike Forsum: Bill's conditions continue to be favorable with good trade labor availability and steady flow of material to our job sites.
Mike Forsum: The lessons learned during the pandemic and the best practices put in place have resulted in a more streamlined home-building operation for a company leading to much faster backlog conversions and build times.
Mike Forsum: We have not seen any impact from the announced tariffs or the increased scrutiny on migrant labor so far.
Mike Forsum: Lot cost inflation will continue to be a margin headwind for our company in the near term, but we have had success renegotiating the terms of our a lot of takedowns.
Mike Forsum: We remain disciplined in our approach to new land deals and have seen similar discipline from our competitors giving us optimism that future land crisis will reflect the realities of today's new home economics.
Mike Forsum: We believe the home building ecosystem self-corrects over time, and the industries move a more land-light operating model may accelerate the timing of that self-correction.
Mike Forsum: Overall, my sense is that we are outfilling our competition based on our first quarter absorption pace relative to our publicly traded peers.
Mike Forsum: While we have experienced some margin compression as a result of our use of incentives, we feel it is the appropriate strategy given the current marking conditions and the opportunities to reinvest our capital on the other side of this.
Mike Forsum: We're in increased focus on free sales versus inspection, alleviate some of that margin pressure, and give us better views of abilities through the buildup of sold backlog.
Mike Forsum: Now, I'd like to turn the call over to Chris, who will provide more detail on our financial results for the first quarter and give an update on our outlook.
Chris Porter: Thanks Mike. As Mike and John mentioned, our top line growth of 11% on orders, 27% on deliveries and 2% on home sales revenues were bright spots in the quarter. Florida delivered a strong 52% delivery growth and a 53% revenue growth in the quarter.
Chris Porter: Texas also pulled its weight with 126 deliveries and 48 million in home sales revenue. Texas as a percentage of our portfolio was 20% of our home deliveries and 16% of our revenue.
Chris Porter: Discounts and incentives for the quarter continue to weigh on gross margins, though, representing 9.6 of our gross home sales revenue.
Chris Porter: Mortgage and Synapse, which followed the tenure treasury, were volatile through the quarter, starting out at elevated levels, lowered some in the end of January through mid-February, and then peaked again in March.
Chris Porter: Distro of our home sales gross margin before inventory impairments of $1.5 million to 13.5%, the midpoint of our guidance. Adjusted gross margin was reported at a consistent 20%.
Chris Porter: The $1.5 million inventory impairment was on a DFW asset where we were closing out homes and represented about 50% of our gross margin impact.
Chris Porter: Interest capitalized through cost of goods sold represented 4.6% of gross margin in the amortization of $5.6 million in purchase price accounting in the quarter represented another 1.9% impact.
Chris Porter: <unk> not having DFW operations at our comparable numbers from last year, our G&A expenses were up only 731000 or two 8% over first quarter of last year, but remained flat as a percentage of home sales revenue.
Chris Porter: All of these factored into our reported net loss for the quarter of seven 5 million or <unk> 20 per share.
Chris Porter: On an adjusted basis, our net loss reduced to one $703 million or <unk> <unk> per share.
Chris Porter: We expect incentive levels to remain elevated through 2025 with actual costs fluctuating with the overall mortgage rate environment.
Chris Porter: Although after the first of the year consistently saw write downs and the $4, 99% to five 2% range.
Chris Porter: For a quick move in homes towards late February and throughout March These move to $3, 99% and many of our markets. As we competed for closings as we look into the second quarter, we would anticipate an incentive levels to be in the 7% to 9% range.
Chris Porter: Turning to our balance sheet, we ended the quarter with $256 million in liquidity $52 3 million in cash and cash equivalents and $204 million in availability under our revolver. This was a roughly $15 million improvement from fourth quarter.
Chris Porter: Our debt to total capital ratio was 52, 1% at the end of the quarter, a 30 basis point increase from year end and our net debt to total capital ratio finished the quarter at 48, 3%.
Chris Porter: Yeah.
Speaker Change: At this time I would like to turn the call back to drew Mackintosh for closing remarks.
Speaker Change: Thanks raise that in light of the transaction announcement last night, we will not be opening the call for questions.
Speaker Change: Thank you for your participation.
Speaker Change: This concludes today's program. Thank you for your participation and you may disconnect at any time.
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