Landsea Homes (US:LSEA)2024-02-29 21:54Part I Item 1. Business Landsea Homes is a growth-oriented homebuilder specializing in energy-efficient homes across key U.S. markets - Landsea Homes specializes in "High Performance Homes" emphasizing automation, efficiency, and sustainability across Arizona, California, Colorado, Florida, Texas, and Metro New York1617 - Revenue grew to over $1.2 billion in 2023, with 11,176 lots owned or controlled as of December 31, 2023, representing a 3-4 year supply21 Key Operational Metrics (2023 vs. 2022) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Net New Home Orders | 1,947 | 1,520 | | Homes Delivered | 2,123 | 2,370 | | Home Sales Revenue (million USD) | $1,169.9 million | $1,392.8 million | | ASP of Homes Delivered (USD) | $551,000 | $588,000 | | Backlog (Homes) | 517 | 670 | | Backlog (Value) (million USD) | $335.6 million | $380.9 million | Revenue by Market (in thousands) | Market | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Arizona | $288,552 | $317,160 | $340,767 | | California | $439,939 | $503,832 | $557,182 | | Colorado | $7,410 | — | — | | Florida | $468,210 | $474,779 | $93,632 | | Metro New York | $1,649 | $111,423 | — | | Texas | $4,187 | $39,255 | $31,723 | | Total | $1,209,947 | $1,446,449 | $1,023,304 | Item 1A. Risk Factors The company identifies numerous operational, industry, and organizational risks, including its "controlled company" status - Operational risks encompass timely community development, warranty claims, uninsured losses, and dependence on suitable land acquisition100111112 - Home order cancellation rate significantly decreased to 12.3% in 2023 from 26.4% in 2022, though rising rates could increase future cancellations63123 - As a "controlled company" by Landsea Green, it is exempt from certain Nasdaq governance rules, allowing Landsea Green to determine major corporate transactions156158 - Geographic concentration in key states exposes the company to disproportionate impacts from regional economic downturns173 - CFIUS may review and impact future acquisitions due to the company's "foreign person" status under Landsea Green's ownership162 Item 1B. Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - No unresolved staff comments were reported220 Item 1C. Cybersecurity The company maintains a cybersecurity risk management program overseen by the Audit Committee, with no material impact to date - The cybersecurity program, managed by the VP of IT, includes risk assessments, a dedicated team, external providers, training, and an incident response plan221223 - The Audit Committee oversees cybersecurity risk, receiving quarterly reports from the VP of IT on program status and risks224 - Cybersecurity threats have not materially affected and are not reasonably likely to materially affect the company's business or financial condition223 Item 2. Properties The company owns land and home inventories and leases approximately 85,000 square feet of office space through April 2031 - The company leases approximately 85,000 square feet of office space for its corporate and regional offices, with leases extending through April 2031228 Item 3. Legal Proceedings Information regarding legal proceedings is detailed within the notes to the consolidated financial statements - Legal proceedings details are found in Part II, Item 8, Note 10 – Commitments and Contingencies - Legal229 Item 4. Mine Safety Disclosures The company reports no applicable mine safety disclosures for its operations - No mine safety disclosures are applicable to the company's operations230 Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock and warrants trade on Nasdaq; no cash dividends are paid, and shares were repurchased in Q4 2023 - The company's common stock (LSEA) and warrants (LSEAW) are traded on The Nasdaq Capital Market233 - The company has not paid and does not intend to pay cash dividends on its common stock in the foreseeable future235 Common Stock Repurchases (Q4 2023) | Period | Total Shares Purchased | Average Price Paid per Share (USD) | Total Cost (approx.) (million USD) | | :--- | :--- | :--- | :--- | | Oct 2023 | — | $— | $0 | | Nov 2023 | 674,486 | $9.49 | $6.4 million | | Dec 2023 | 599,811 | $11.35 | $6.8 million | | Total Q4 | 1,274,297 | $10.37 | $13.2 million | - As of December 31, 2023, approximately $8.9 million remained in the authorized stock repurchase program237 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations In 2023, home sales revenue decreased to $1.17 billion due to higher mortgage rates, impacting net income and gross margin Consolidated Financial Summary (in millions, except per share data) | Metric | 2023 (million USD, except EPS) | 2022 (million USD, except EPS) | | :--- | :--- | :--- | | Total Revenue | $1,209.9 | $1,446.4 | | Home Sales Revenue | $1,169.9 | $1,392.8 | | Total Gross Margin | $215.0 | $286.9 | | Income from Operations | $40.3 | $108.3 | | Net Income | $32.7 | $75.7 | | Net Income Attributable to LSEA | $29.2 | $73.6 | | Diluted EPS | $0.75 | $1.70 | - Decreased home deliveries and revenue in 2023 were primarily due to reduced demand and affordability challenges from higher mortgage rates253 - The net debt to total capital ratio remained stable at 30.4% as of December 31, 2023, compared to 30.0% in 2022, indicating consistent leverage254337 - In October 2023, the company expanded into Colorado by acquiring Richfield Homes' assets for $22.5 million, adding approximately 290 lots246 Item 7A. Quantitative and Qualitative Disclosures about Market Risk The company's primary market risks are interest rate fluctuations from its variable-rate credit facility and inflation - Interest rate risk arises from the variable-rate credit facility, with borrowings tied to SOFR plus 3.35% or Prime Rate plus 2.75%344 - Inflation negatively impacts the business by increasing costs for land, labor, and materials, and by raising mortgage rates, reducing home affordability345 Item 8. Financial Statements Deloitte & Touche LLP audited the consolidated financial statements for 2023 and 2022, issuing an unqualified opinion Consolidated Balance Sheet Highlights (in millions) | Account | Dec 31, 2023 (million USD) | Dec 31, 2022 (million USD) | | :--- | :--- | :--- | | Total Assets | $1,471.2 | $1,440.5 | | Cash and cash equivalents | $119.6 | $123.6 | | Real estate inventories | $1,121.7 | $1,093.4 | | Total Liabilities | $782.9 | $730.2 | | Line of credit facility, net | $307.6 | $505.4 | | Senior notes, net | $236.1 | $— | | Total Equity | $688.4 | $710.3 | - Deloitte & Touche LLP identified real estate inventory valuation as a critical audit matter due to subjective future cash flow estimations for impairment testing353354355 - In January 2024, the company agreed to acquire Antares Acquisition, LLC, a Texas homebuilder, for $185.0 million, expected to close in Q2 2024550551 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants regarding accounting and financial disclosure - No changes in or disagreements with accountants on accounting and financial disclosure were reported553 Item 9A. Controls and Procedures Management and auditors concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2023 - The CEO and CFO concluded that disclosure controls and procedures were effective as of December 31, 2023555 - Management concluded that internal control over financial reporting was effective as of December 31, 2023, based on the COSO framework558 - Deloitte & Touche LLP issued an unqualified opinion on the effectiveness of internal control over financial reporting as of December 31, 2023559561 Item 9B. Other Information No director or Section 16 officer adopted or terminated a Rule 10b5-1 trading arrangement during Q4 2023 - No director or Section 16 officer adopted or terminated a Rule 10b5-1 trading arrangement during the quarter ended December 31, 2023567 Part III Items 10-14 Information for Items 10-14 is incorporated by reference from the company's 2024 Proxy Statement - Information for Items 10-14 will be incorporated by reference from the company's 2024 Proxy Statement571573574 Part IV Item 15. Exhibits and Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed with the Annual Report - This item lists all financial statements, schedules, and exhibits filed with the Form 10-K579 - Exhibits include foundational corporate documents, material debt agreements, and management compensation plans581582583 Item 16. Form 10-K Summary The company indicates that no Form 10-K summary is provided - No Form 10-K summary is provided586