Landsea Homes (US:LSEA)2022-11-05 09:29Financial Data and Key Metrics Changes - Landsea Homes reported a record delivery of 543 homes in Q3 2022, with an average selling price (ASP) increase of 9% year-over-year to $601,000, resulting in a 56% revenue growth to $335.6 million [8][35] - Net income reached $20 million or $0.49 per diluted share, marking a 130% increase compared to Q3 2021 [8][42] - EBITDA for the quarter totaled $36.8 million, a significant increase from $22.6 million in the same period last year [42] Business Line Data and Key Metrics Changes - The Florida division accounted for 45% of home deliveries and one-third of homebuilding revenue, despite operational challenges from Hurricane Ian [11][12] - The company experienced a 7% decline in net new orders compared to the previous year, attributed to rising mortgage rates affecting buyer activity [13][37] Market Data and Key Metrics Changes - California contributed 36% of revenues, Florida 32%, and Arizona 21%, indicating a more balanced performance across these markets compared to the previous year [35] - The average credit score of buyers using Landsea Mortgage was 720, with loan-to-value ratios at 84% and average household income around $150,000 [38] Company Strategy and Development Direction - The company is focusing on expanding into strong growth markets while maintaining a disciplined approach to land acquisition and development, with an estimated land spend reduction from $450 million in 2022 to $400 million in 2023 [15][18] - Landsea Homes aims to strengthen its balance sheet and increase liquidity in response to market conditions, with 57% of lots controlled via option agreements allowing for flexibility [14][16] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenging sales environment due to increased mortgage rates but expressed optimism about long-term industry trends, including a lack of existing home inventory and strong millennial demand for homeownership [20][21] - The company plans to adapt to market conditions by enhancing its value proposition and operational practices to meet buyer needs [25][29] Other Important Information - The company ended the quarter with $198 million in liquidity, including $117 million in cash and $81 million available under its revolving credit facility [43][44] - Total debt stood at $585.1 million, with a debt-to-capital ratio of 46.1% [45] Q&A Session Summary Question: What are the financing incentives being observed in Arizona and California? - Management indicated a mix of incentives and selective price reductions, focusing on mortgage programs to lower monthly payments without implementing wholesale price reductions [51][52] Question: How is the company managing land acquisition in the current market? - The company is reevaluating land deals and has the ability to negotiate extensions or price reductions with landowners, with no write-offs reported to date [54][56] Question: What is the outlook for average selling prices in 2023? - The company expects ASPs to moderate as it focuses on entry-level and first move-up segments, particularly in Florida and Texas [58][59] Question: What are the absorption targets for 2023? - Management believes a natural absorption rate of around 3.0 per community is ideal, with adjustments made based on market dynamics [63][64] Question: What is the status of the New York market? - The company confirmed it will exit the New York market after selling the remaining units, reallocating capital to its horizontal business [80][81] Question: What were the starts in the quarter and the approach to spec building? - While specific start numbers were not disclosed, management indicated that nearly 40% of homes for the quarter were spec starts, aligning starts with sales [84]