Landsea Homes (US:LSEA)2022-08-05 22:28Financial Data and Key Metrics Changes - Landsea Homes reported earnings of $0.34 per diluted share for Q2 2022, a 48% increase compared to Q2 2021 [7] - Home sales revenue grew 46% year-over-year to $351 million, driven by a 35% increase in new home deliveries and a 9% increase in average selling price [8] - Net new orders increased by 63% year-over-year, totaling 538 for the quarter [9] Business Line Data and Key Metrics Changes - The average selling price (ASP) increased by 9%, with ASPs across divisions rising between 6% and 21% [22] - The cancellation rate for the quarter was 11%, primarily from buyers who purchased homes in the last 30 to 45 days [25] - The backlog at the end of June included 1,571 homes valued at $902.1 million, representing a 31% growth in volume and a 43% increase in total dollars compared to the previous year [26] Market Data and Key Metrics Changes - The company experienced a slowdown in demand due to higher interest rates and lower consumer confidence, impacting order activity [10] - In established markets like Arizona, California, and Florida, absorption rates remained consistent at 3.4 or better [23] - The credit profile of buyers remains strong, with an average credit score of 737 and a majority of loans being conventional [27] Company Strategy and Development Direction - Landsea Homes is focusing on land acquisition in affordable segments and prime locations, targeting the upper end of the entry-level market [12] - The company has increased its lot count by 52% year-over-year, with 63% of lots controlled and 37% owned [15] - The company aims to navigate market uncertainties with a well-capitalized balance sheet and a risk-averse land life strategy [14] Management's Comments on Operating Environment and Future Outlook - Management believes that favorable demographic trends and a lack of existing supply will drive the need for new housing, maintaining optimism for the future [21] - The company anticipates third-quarter new home deliveries to range from 550 to 630 units, with ASPs between $550,000 and $575,000 [44] - Management acknowledges the challenges posed by supply chain issues but sees improvements in the availability of trades, which may help reduce costs [32] Other Important Information - The company repurchased 5.1 million shares at an average price of $7.07, representing approximately 11% of the prior quarter's outstanding share count [17] - The company retired all 5.5 million outstanding private warrants, which will clean up the capital structure and eliminate potential future valuation swings [19] - The tax rate for the quarter was 36%, up from 28.5% the previous year, primarily due to non-deductible warrant revaluation [38] Q&A Session Summary Question: Update on July trends in traffic and sales pace - Management noted a stabilization in absorption rates, with expectations for a potential fall bump in interest [51][53] Question: Adjustments to base prices and competitor actions - Very little adjustment to base prices has been made, with most competitors also focusing on incentives rather than significant price changes [54][55] Question: Lot acquisition and development spending - The company is being disciplined with land spending, ensuring it meets targeted IRR hurdles, and is comfortable with its current land position heading into 2023 [56] Question: Psychological demand in Phoenix and Central Florida - The demand shift is more related to concerns about home pricing rather than macroeconomic issues, with strong liquidity and job security among potential buyers [60] Question: Consumer reactions to adjustable-rate mortgages (ARMs) - Less than 10% of the backlog is priced on an ARM, indicating a preference for fixed-rate mortgages among consumers [63]