Release Date: May 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Landsea Homes Corp (LSEA, Financial) reported a strong top line growth of 22% in the first quarter, driven by a 7% increase in home closings and a 14% rise in average sales prices.
- The acquisition of ANTARES homes in Texas added 20 communities and over 2100 lots, enhancing Landsea Homes Corp (LSEA)'s market presence and operational capacity in the Dallas-Fort Worth area.
- Landsea Homes Corp (LSEA) successfully executed two capital market transactions, adding stability to the balance sheet, including the placement of $300 million in senior notes.
- The company has made significant progress in operational efficiency, with improved setup cycle times reducing capital tied up in work-in-process inventory.
- Landsea Homes Corp (LSEA) ended the first quarter with 10% fewer shares outstanding compared to last year, reflecting effective share repurchase efforts.
Negative Points
- Despite strong sales, the gross margin of 14.9% came in at the low end of guidance, with incentives and discounts continuing to weigh on profitability.
- The necessity to maintain elevated sales incentives due to higher interest rates could pressure future margins if rates remain high.
- Landsea Homes Corp (LSEA) reported a minimal net income of $190,000 for the quarter, significantly lower compared to $3.2 million in the same quarter last year.
- The company faces ongoing challenges with rising land costs, which could impact profitability and growth if not managed effectively.
- While the company has expanded its market presence, the integration of new acquisitions and maintaining operational efficiency across new communities remain areas of potential risk.
Q & A Highlights
Q: Morning, everyone. Thank you for taking the questions and congratulations on completing the acquisition. Now that you've broadened out your exposure and are building the Texas footprint, should we look at this stage that the focus is really just going to be on organic investment in the markets that you're now in? Or is there room in the near to medium term where you still feel like you want to fill out more spots in the geographic footprint? Thank you.
A: Morning. This is John. We're really pleased with the closing of the Antares Homes acquisition. We moved our headquarters to Dallas, Texas last year. Texas, especially the DFW area, is a significant phase of growth for us. We used a combination of cash on hand and availability under the revolver for the acquisition. We're good at integrating acquisitions quickly and then moving to generate significant cash and growth in our business. We shouldn't expect any near-term M&A as we buy and digest, buy and digest. It's a stair-stepped approach to growth.
Q: Great. Thanks for that color, Mike and John. Secondly, maybe just kind of zooming into the near term, a lot of great color you gave on top around the necessity of keeping incentives elevated given the latest move in rates. Just looking for a finer point on the recent trends on what is happening to incentives since rates have moved over the past four to six weeks here and curious as well as any color around traffic or sales pace in your communities through the month of April. Thank you.
A: I'll take this one. The spring selling season has been terrific, indicated by our numbers around orders and closings. The consumer side of our business continues to show strong interest in homes, particularly homes that are deliverable within roughly 60 to 45 days. However, we're also in a difficult interest rate market, requiring us to be active in doing forward mortgage buy-down commitments. We are focused and committed to a consistent sales absorption around three per month per community to continue to drive cash flow.
Q: Thank you for taking my question. Just a housekeeping, Chris, how much backlog in units and dollars did you pull in from Antares on April 1.
A: We haven't disclosed that as far as backlog from there. We did pull in 20 communities and we'll work through those numbers. But we don't have those numbers right now, Carl.
Q: Can you talk a little bit about performance across the various price points. I'm curious, entry-level versus move up is seeing a differentiation in terms of traffic or conversion rate or sales?
A: It's interesting and evolving. Our markets have been pretty independent of each other. Our highest ASP markets, like Southern California, are doing incredibly well with the least amount of incentives and rate buydowns. Florida, one of our most affordable markets, is doing very well but requires a combination of incentives along with mortgage rate buydowns. We're trying to maintain a mid $3,000 a month mortgage payment in the entry-level market there.
Q: As it relates to SG&A, you talked about starting to realize some nice leverage on that, particularly since the Terrace acquisitions not going to layer on to much more corporate overhead. Can you comment a bit further on that topic?
A: The G&A in each of our divisions is roughly 3% to 4% of home sales revenue. We will pick up some G&A with the Antares acquisition just from their division operations, but we won't layer on any corporate side at all on that one. From a pure leverage standpoint, that one will start improving that level extra.
Q: Hey, good morning there. One, I wanted to touch on the comments earlier that you are able to raise prices in some markets, what could you identify which markets those are and talk a little bit more about is that the price increase at the same time with a higher mortgage rate buydown or what's going on there?
A: We're able to raise prices almost in every one of our markets currently. In Florida, particularly in the northern part, we've had really strong absorptions there, but doing the best that we can to continue to raise prices. Southern California, Arizona is a very competitive market right now. And Northern California, we're probably a little bit above in terms of getting advantages from raising prices.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
