Landsea Homes Corp (LSEA) 2021 Q2 法說會逐字稿

Good afternoon, everyone, and thank you for participating in today's conference call to discuss Landsea Homes' financial results for the second quarter ended June 30, 2021. Joining us today are Landsea Homes' CEO and Interim CFO, John Ho; Chief Accounting Officer, Trenton Schreiner; President and COO, Michael Forsum; and the company's External Director of Investor Relations, Cody Cree. Following their remarks, we'll open the call for your questions.

Before we go further, I would like to turn the call over to Mr. Cree as he reads the company's Safe Harbor statement within the meaning of the Private Securities Litigation Reform Act of 1995 that provides important cautions regarding forward-looking statements.

Cody, please go ahead.

Thanks, operator. This call will include forward-looking statements within the meaning of the federal securities laws including, but not limited to our expectations for future financial performance, business strategies or expectations for our business, including as they relate to anticipated effects of the business combination. These statements constitute projections, forecasts and forward-looking statements and are not guarantees of performance. Landsea Homes cautions that forward-looking statements are subject to numerous assumptions, risks, and uncertainties, which change over time.

Words such as may, can, should, will, estimate, plan, project, forecast, intend, expect, anticipate, believe, seek, target, look, or similar expressions may identify forward-looking statements. Specifically, forward-looking statements may include statements relating to the benefits of the business combination in the Vintage Estate Homes acquisition, the future financial performance of the company, changes in the market for Landsea Homes' products and services, and other expansion plans and opportunities.

These forward-looking statements are based on information available as of the date of this call and our management's current expectations, forecast, and assumptions, and involve a number of judgments, risks, and uncertainties that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements.

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. These factors and those identified elsewhere in this conference call, among others, could cause actual results to differ materially from historical performance and include, but are not limited to the ability to recognize the anticipated benefit to the business combination and the Vintage Estate Homes acquisition, which may be affected by among other things, competition, the ability to integrate the combined business and the acquired business, and the ability of the combined business and the acquired business to grow and manage growth profitably, costs related to the business combination, the ability to maintain the listing of Landsea Homes' securities on Nasdaq, the outcome of any legal proceedings that may be instituted against the company, changes in applicable laws or regulations, the inability to launch new Landsea Homes products or services or to profitably expand into new markets, the possibility that the company may be adversely affected by other economic, business, and/or competitive factors, and other risks and uncertainties indicated in Landsea Homes SEC reports or documents filed or to be filed with the SEC by Landsea Homes.

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 maybe required under applicable securities laws.

I would also like to remind everyone that this call will be available for replay starting at 1:00 PM Eastern Time today through the same time on August 13, 2021. A webcast replay will also be available via the link provided in today's press release as well as on the company's website at landseahomes.com.

In addition, a supplemental earnings presentation has been posted on the Investor Relations portion of the site that we encourage you to view.

Now I would like to turn the call over to the CEO of Landsea Homes, John Ho. John, over to you.

Thank you, Cody. And good morning, everyone. We are pleased that you were able to join us on today's call. First, I will provide a high-level overview of our second-quarter 2021 results and highlights. After this, I will hand it over to Trent Schreiner, our Chief Accounting Officer, to discuss our financials in more detail; and then Mike Forsum, our President and COO, to provide updates on the integration of Vintage Estate Homes into Landsea Homes.

Before we begin, I would like to take a moment to recognize our commendable performance during the second quarter as the continued strength across the housing market led to another quarter of strong results. Not only did our total home sales increase 152% from the prior year with 125% organic growth, while our backlog expanded to a record 1,197 homes, and our ASP continued to rise because of our efforts to capitalize on our current demand-driven pricing power. This resulted in a 530-basis-point increase in our adjusted home sales gross margin and significant increases in our profitability from the prior year. I cannot be prouder of the hard work that went into these results.

Now, I would like to highlight several key accomplishments that we've achieved since our last call. Starting on the West Coast, we disclosed the acquisition of 182 homesites at the Alameda Marina community in California, which is only 20 miles out from Oakland and San Francisco. This will result in a construction of homes ranging from 1,462 square feet to 2,689, and participation with the renovation initiative of the Alameda Marina. Sales are expected to commence in the summer of 2022 with roughly 15% of the homes created by Landsea to be offered under the county's affordable housing program.

Moving south, we announced a number of new acquisitions to expand our presence in the greater Phoenix, Arizona market. In May, we announced 193 new homesites at North Copper Canyon in Surprise, Arizona. Landsea has seen tremendous success in the community with 697 home sales since 2018. Buyers appreciate the community for its modern, spacious, and high-quality homes at attainable price points, and its convenient location, just 45 minutes from downtown and Sky Harbor International Airport. Construction is underway today, and we expect sales to come online in spring of 2022.

In June, we closed an additional 863 homesites in the communities of Bentridge and Citrus Park. Bentridge is located in the heart of Buckeye, Arizona, and it's nearby our highly successful Sundance community, which only has a few available homesites remaining. The acquisition gives us a chance to offer a second collection of plans with the largest square footage while providing a great opportunity to continue our presence within a community that we truly enjoy.

Meanwhile, our homesites in Citrus Park located in Goodyear, Arizona, would feature a blend of court-style, traditional, single-family homes and a community that offers residents a rural feel with resort style amenities, just 30 minutes from downtown Phoenix. Construction on both homesites is set to begin next year, with sales expected to commence in fall of 2020.

Finishing with the East Coast, shortly after entering the Florida market in a big way, the closing of our $54.6 million acquisition of Vintage Estate Homes, we announced the acquisition of 108 new homesites at Eagle Crest in Grant-Valkaria, Florida. The community will offer single-family homes on [overside] lots ranging from half to one acre with a backdrop featuring the beautiful waters and wildlife conservation. With a location that is [vantaged] from the best shopping, dining, beaches, and parks, as well as prominent employers such as L3Harris, Northrup Grumman, and Embraer Air, we're pleased with the prospects Eagle Crest will offer its future residents.

Florida is a very important market to our strategy at Landsea, and it is imperative that we continue to deliver on our execution. The recent appointment of William Forge to serve as Vice President of Homebuilding Operations for our Florida division represents a meaningful measure to fulfill on this objective. Bringing prior experience with Toll Brothers and Richmond American Homes, Billy was an important part of an M&A team during our purchase of Vintage Estate Homes and brings vital knowledge to the role that will help us grow our operations in Florida. Most recently, he served as Director of Corporate Homebuilding Operations, where he played a key role in the implementation of the company's high-performance homes, which included home automation, energy efficiency, and sustainability features.

Finally, I'd like to take a moment to call it a major milestone for Landsea as a public company: our inclusion in the Russell 3000 index that occurred at the end of June. This inclusion expands the reach of our exciting story to a wider swath of investors. Timing of this development could not have been more opportune as we firmly believe we are in the midst of one of the most defining periods of the company's history.

Our business has continued to experience accelerating momentum aided by the tailwinds of the housing market and the accretive benefits resulting from our acquisition of Vintage Estate Homes. The operational execution of our team has helped us sustain our organic sales growth through challenges in our supply chain, while expanding our gross margins and accruing the largest backlog the company has ever seen. We're once again increasing our full-year outlook, which Trent will expand upon shortly. And we continue to look forward to all we can achieve in the coming quarters as we strive to deliver value for our shareholders.

With that, I'll now turn the call over to Trent Schreiner, our Chief Accounting Officer. Trent, over to you.

Thank you, John. And good morning, everyone. Jumping right into our financials for the quarter, total revenue increased 163% to $250.3 million compared to $95.1 million in the second quarter of 2020. Excluding revenue generated from Vintage Estate Homes, total revenue increased organically by 125%.

Within our total revenue, we generated $10.7 million from lot sales and others compared to no lot sales in the second quarter of 2020. It's worth pointing out that our lot sales this quarter was larger than anticipated as this line item now includes an incremental benefit from fee revenue through our acquisition of Vintage Estate Homes.

Our total home sales increased 152% to $239.6 million compared to $95.1 million in the prior year period. Excluding revenue generated from Vintage Estate Homes, total home sales increased organically by 122%. Total home deliveries during the quarter increased 79% to 425 homes at an average sales price of $553,000 compared to 237 homes delivered at an average sales price of $401,000 in the second quarter of 2020. Excluding new home deliveries generated from Vintage Estate Homes, total deliveries increased organically by 48%.

Our average selling price increased significantly largely due to the continued shortage of supply in available homes compared to housing demand across our operating markets, which has led to favorable pricing power.

During the second quarter, there were 330 net new home orders with a dollar value of $207.3 million, an average sales price of $628,000, and a monthly absorption rate of 3.5 sales per active community. This compares to 459 homes with a dollar value of $207 million, an average sales price of $451,000, and a monthly absorption rate of 4.8 sales per active community in the prior year period.

Adjusted home sales gross margin in the second quarter increased 530 basis points to 23.5% compared to 18.2% in the prior year period. The benefit to our margin profile was driven by our strategy to proactively manage sales volume to better align with production while mitigating the adverse impact of elevated costs.

Net income attributable to Landsea Homes in the second quarter increased to $10.7 million compared to a net loss attributable to Landsea Homes of $20.3 million in the prior year period.

Adjusted net income attributable to Landsea Homes was $17.5 million compared to $3.8 million loss in the prior year period. The diluted earnings per share is $0.23 and our adjusted diluted earnings per share is $0.38. Adjusted EBITDA increased significantly to $32.6 million compared to $0.3 million loss in the prior year quarter.

Looking at our liquidity, we ended the second quarter with $147.3 million in cash and cash equivalents compared to $105.8 million at December 31, 2020. Total debt was $391.8 million compared to $264.8 million at the end of 2020.

Our ratio of debt to capital was 40.8% at June 30, 2021, compared to 33.3% at December 31, 2020. And our net debt to net capitalization ratio was 30.1% compared to 22.6% at December 31, 2020.

Now, as John mentioned earlier, we are increasing our full-year 2021 outlook as a result of our strong Q2 results that exceeded expectations, the continued strong organic growth we anticipate, and to reflect the added results of Vintage Estate Homes from our May 4 closing date through the end of the year.

For 2021, we now expect to report between $960 million to $1.02 billion in total revenue with 1,930 to 2,030 total homes now expected to be delivered at an average sales price of $497,000 to $529,000. Out of this total, we expect between $28 million and $35 million in revenues to be generated from lot sales and others.

Home sales gross margin is expected to be 16.9% to 17.8%, and adjusted home sales gross margin is expected to be 21.9% to 22.5%. With the topline increase, we now expect to report adjusted net income attributable to Landsea Homes between $53 million to $61 million in 2021. The second consecutive upward revision reflects our commitment to leveraging our financial position to capitalize on growth opportunities, confidence in our talented people, and conviction that the industry tailwinds present today are showing no signs of slowing in the near term.

Now, I'll pass it to our President and COO, Mike Forsum, to provide more color around our operational successes and strategic vision moving forward. Mike?

Thanks, Trent, and thank you all for joining the call today.

As John mentioned earlier in the call, we have been hard at work integrating our teams since the closing of our acquisition of Vintage Estate Homes in early May. I'm very proud of our combined teams performance over the past few months, and I'm pleased to share an update on our operational progress. As we mentioned on our last call, the acquisition has ushered in the entry of Landsea Homes into the Florida homebuilding market, which we have consolidated into a single division operating out of Melbourne, Florida currently.

Today, the financial reporting from the new Florida division has been converted and captured in our system. And this has been the case since the first month of our operation. Our IT team led by Karen Dresher identified opportunities to increase efficiencies and convert existing Vintage Estate systems and technologies into current Landsea equivalents.

These efficiencies included the standardization to hardware and networking components, as well as implementing an enterprise software solution. The result is improved operational performance of the division's IT resources, a higher level of security, and the assurance of continuity in the event of a cyber incident. The operations team identified and established cost control measures as well as a process to streamline plan offerings and customization.

There was close collaboration with long-tenured Vintage Estate Home team members who brought a wealth of experience and established practices to Landsea Homes in addition to timely and important market information.

That said, we continue to leverage our extensive expertise in homebuilding as we look to future projects in Florida. Product development has begun for the upcoming community, Courtyards at Waterstone, where we are focused on leveraging the successes from our product development work in Arizona to bring efficient and affordable homes to the Palm Bay market and beyond.

We are pleased with our prospects for future communities in Florida. And we look forward to the upcoming home opening of Georgiana Reserve next month, which will be the first in the market under the Landsea Homes brand.

On the note of branding, all former Vintage Estate Homes sales offices were converted into Landsea Homes locations within 30 days of the closing. That includes onsite and offsite signage, sales office displays, all collateral materials, and inclusion on our refreshed Landsea Homes' website. Additionally, we refreshed the model homes in four active communities and provided all sales associates with extensive onsite team training on the Landsea Homes story and the company's core values in order to ensure a consistent experience for all of our customers across the nation.

I'm grateful for all the hard work that went into the transition. And I am pleased to report that this forward thinking and hard work has already begun to pay off. The new Landsea Florida division exceeded our acquisition plan for closing unit counts and revenue for the first two months of operation.

Equally important, our operational costs have been better than planned in the initial months of operation due in large part to the efficiencies integrated from operating as a single division. And the team is growing. We've added three new members, including an internet sales consultant, a former Landsea employee who moved to Florida from California and is back with our company.

Incidentally, most of the Vintage Estate employees have remained with Landsea Homes' post acquisition, achieving our goal of retaining top talent. This allows us to continue to focus on identifying and pursuing additional growth opportunities in the Florida and Texas markets. When the right opportunity arises, we are well positioned to execute a deal, rebrand the asset, and expand Landsea Homes' reach in these key areas.

As we look ahead, I'm confident that these capabilities will be invaluable asset as we proceed forward with our long-term strategy. I want to remind everyone that Vintage Estate Homes was Landsea Homes' third acquisition in just over 24 months. Each M&A opportunity allows us to finetune our processes and procedures as we continue to identify the right opportunities for growth in the right markets across the country at the right time.

We are well positioned not only to leverage this experience as we discover new opportunities to expand and strengthen our brand, but perhaps more importantly to execute a rapid integration of acquired assets and talent under Landsea.

I look forward to what our team has planned for the quarters to come. And I am very proud to have the opportunity to be a part of this ongoing journey.

Operator, we're now ready for Q&A.

Thank you, sir. (Operator Instructions) Matthew Bouley, Barclays.

Hey, good morning, everyone. Thanks for taking the questions and congrats on the results.

Can I start with a question on the sales pace and production and all that? You called out in the press release where you guys doing around aligning production and pace. I think if I look at the results, correct me if I'm wrong, it seems like you might be restricting sales more so in Arizona, just given where the sales pace moves sequentially compared to California. So you just kind of comment on the strategy there, what you guys are doing to align production and sales and sort of what you're looking for to perhaps begin releasing those sales again? Thank you.

Hi, Matt. This is John Ho. I'll take that question from a macroeconomic standpoint, and then I'll hand it over to Mike to how we're thinking about our rest of this year and also what we're doing in the Arizona region in particular.

I think what we've seen in the first half of this year and also as a reflection of where our backlog is, I think we mentioned over 1,100 homes that we have in backlog and about $630 million in backlog value, that's a historic high for us. That's a lot of homes that we have to deliver for the rest of this year. I think how we've managed the pace of sales is a reflection of the experience of the management team and I think very smart decision-making as it relates to releasing homes in an environment where costs are increasing.

So I think it's very prudent that orders have been intentionally slowed in order to capture some of the more -- the market appreciation in the market. But also to have a better, more accurate estimation of what our costs will be as well.

I'll hand it over to Mike for some more color as well.

Sure. Thank you, John.

Not much to add to that, Matt, other than we're fairly consistent to what our peer group is doing, where you were metering in sales into existing spec starts. We're doing the same. And in particular in Arizona, given the extension of some of the cycle times that we're faced with out there, which is primarily due now to labor and some specific areas around HVAC and windows, we're just feeling prudent to correlate that a little bit better.

That being said though, we're really confident about where we're headed for the end of the year in terms of deliveries and that, from a market standpoint, the desire to purchase homes still remains robust, tapering a little bit this summer out there. But we're really seeing not a whole lot of pushback when we have our releases, and we're still able to increase prices along the way. And we're doing a little bit more thoughtfully in some cases, but most importantly, it's just because of where we are.

There's also, I think, particular nuances in some areas. As we've seen, we've had real strong demand. We're coming into the end of many communities and reloading on the other side, and there's always a tendency -- I've been doing this a long time -- that when you're getting down to your last dozen or so in a large planning area or community, the consumer hesitancy to be sort of the last ones in is generally there. And so I don't look at it as some bigger issue. It's just more or less finishing up some communities and cleaning those up, and then reloading and going forward and the excitement that's around that.

Great, really helpful color there, much appreciated. The second one I wanted to ask, I guess, sticking on the topic of Arizona just because you guys have announced several acquisitions in sites in a couple of different areas.

I'm just curious, number one, as you guys are pulling the trigger on these land deals, what are you seeing in terms of prices of these lots? I don't know if they're closer to finished lots and anything like that. We'd just love to kind of hear the broader color on all those land deals, duration of the lots, pricing, own versus option, and kind of the type of product you're putting there. Thank you.

Mike, you want to take that?

Sure. Another great question.

Again, we're trying to be thoughtful and prudent in the way in which we're approaching the reloading of our business out in Arizona as we go forward. And so with that, yeah, we have been making some meaningful land acquisitions. But we're doing it in such a way that I think we have a lot of optionality around it, Matt.

We're doing it through some land banking as well as some terms -- acquisitions that allow us to feather out some of the takedowns as we go forward, although I would say that we are staying consistent on what we talked about when we were on a road show is that we're trying to keep a land pipeline, either owned or controlled, roughly around a three-year, three-and-a-half-year of supply. And we're sustaining that now in Arizona as we go forward.

I think we're also using our development expertise and muscle to position us in some unique submarkets of Arizona by taking down a couple of larger acquisitions, which allows us to not only, one, better position ourselves on the pricing segments we want to be in, but also giving us the optionality of selling off some parcels. I believe it was Trent who mentioned that we did have a disposition in one of our communities in Arizona that ended up being very profitable for us.

And it's exactly what we want to be able to do is to be able to kind of use that sort of skill set to give us the optionality to better position us, to buy better at a more wholesale level, and then also to just take advantage of the things out there in terms of scale. So I believe we're doing exactly what we wanted to do out there, and we're executing very nicely.

That's great color. And then if I could ask one more just on pricing, you made that comment to my first question.

You guys spoke about ShadeTree a couple quarters ago and what you were doing with the bidding process. And then you started to see other larger national builders and all that doing that in a few select communities around the country. I'm curious, number one, any kind of debriefing on how that bidding process has played out in recent months, and then just if you're still doing that in some cases, or if you're kind of, I don't know, I guess, shifting back to a more normalized pricing type environment? Thank you.

Hey, Matt, this is John. I think, the margins that we're showing in this quarter of 17%-plus and adjusted on 23% gross margin, I think, is reflective of those -- the success that we've seen from that sales strategy at ShadeTree, and also probably will continue for us throughout this year given also our updated guidance on that.

And then I'll hand it over to Mike to talk about the continuation of that strategy and how we're seeing that play out in other markets.

Sure. We are still applying that bidding strategy in ShadeTree, specifically, what you asked about. And we still seem to have a good success with that. And as John said, it's being reflected back into those margins.

I would say though, that as we've gotten into the summer, on our last release in particular and just sharing is that, whereas before, if it was a Saturday and we had 10 per sale, all 10 would be gone by lunchtime. Now the market is, we have 10 per sale, and we will be able to, through the bidding process, have 8 subscribed by the end of the day, or Saturday, or by Sunday. And then we'll be picking up the last two at the end of the week, the following week, which is a little bit different than what we were looking at in the spring and then in the summer.

I would say that the consumer, as pricing has continued to increase, is probably becoming more selective, not less desirous, but just more selective to ensure that they are getting the house that they really, really want at the price that they are willing to pay. So we have had a couple on the list who have been a part of the process that have elected to wait until the next release on a specific lot that they want.

That being said, that's still allowing us to increase pricing in a more find our way to ensure that we're maximizing every lot profit potential as we move forward while also assuring that our backlog is getting onto the lots that they want to get onto.

Got it. That's really helpful color and detail. So I appreciate it. And congrats on the results again and best of luck in the next quarter. Thanks, guys.

Alex Rygiel, B. Riley.

Thanks, guys and a very, very strong quarter there. Congratulations on that.

Thanks, Alex.

Coming back to sort of the gross margin commentary, gross margins were fantastic at 23.5%. Can you talk a little bit more about sort of the gross margin outlook? It sounds like you feel pretty comfortable it's going to be stable there through year end. But expand upon that a little bit more.

Sure. Trent, do you want to take that?

Sure. What we're looking at for the second quarter, as John talked about earlier, we did see those price appreciations the last half of last year to help cover some of those costs that we were incurring. And looking at our forecast going forward, we feel that we are definitely on an upward trend with our margins out there. Especially, looking at this quarter, we're at 17%, and we feel we'll keep that going through the third and fourth quarter. We're starting to see those price appreciations come into effect in our closings now as we're closing homes, and we feel that we'll still be in that range, increased range into the third and fourth quarter.

And then Mike, when you're out there shopping for lots, are you finding it harder to find lots that meet your underwriting standards? Obviously, this is a kind of a unique period over the last 12 months. But if you could comment more broadly on lot price appreciation and inflation, that'd be great.

Sure. There's definitely a dislocation in my opinion in what we're seeing out there today between finished lots and lots that are paper lots or entitled but yet developed. And I think that that's because of a massive push towards getting lots in the near term to fill gaps that exist in some of the builders' business plans that they have going forward in the near term. So you're really seeing a finished lot premium out there today.

Fortunately for us, we're really happy about our land pipeline in terms of our ability to meet or exceed hopefully our upcoming business plans as we lay them out in the next couple of years. And so really from our standpoint, we're in, I think, a unique position to get control over land either through auctions or possibly even through land banking on land that's deliverable several years out.

That's actually priced pretty well still right now. So it's a nice spot to be in to be able to get control of some, again, future land supply without having to pay near-term pricing for those lots.

And then lastly, congratulations on a couple of real nice successful acquisitions. How should we think about M&A sort of over the next six months and then into 2022? Are you sort of settled with what you have today or should we think about additional acquisitions this year?

Hi, Alex, this is John. I think earlier in the earnings call, we said that -- and we continue to remain, I think, very interested in opportunities to grow our business. I think as we move towards growing our Florida and Texas business, I think that's of great importance to us and it's very exciting for us. And there are a lot of opportunities there.

I'll let Mike take the question in terms of specific opportunities that we're looking at.

Sure. I'm not sure how detailed I can get, but be assured that we're spinning lots of plates in the M&A arena. We have always said that we think that it's going to be a very important part in terms of our growth strategy over the next few years or so. So we are still out there in the market talking to several builders, whether it be in Florida or Texas, and stay actively engaged in that part of -- sort of, again, like I said, our growth strategies, I repeat myself.

So we're seeing a pretty good supply of sellers out there. Some are not the same as others, and frankly we've gotten better at this. And we're probably in a better position to demand, again, the sort of the quality of what's out there to come our way because we've been able to show that we can execute in a timely fashion. And so we're now becoming, again, one of those buyers of choice out there for those that are looking to exit the market.

So I'm confident we'll continue to find good opportunities. But we're in a really nice position to be able to be more selective and focused on that.

Very helpful. Thank you very much.

Thank you. And at this time, this concludes our question-and-answer session. I'd like to hand the conference back over to Mr. Ho for closing remarks.

Thank you. I'd like to thank everyone for listening to today's call. And we look forward to speaking with you all when we report our third-quarter 2020 results in November. Thank you all again for joining us.

This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.