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spk01: Good day. Thank you for standing by and welcome to the Land, Sea, Homes third quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press star zero on your telephone. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Drew McIntosh, Sir, you may begin.
spk06: Welcome to Lancey Holmes' third quarter earnings call. Before the call begins, I would like to note that this call will include forward-looking statements within the meaning of the federal securities laws. Lancey Holmes cautions that forward-looking statements are subject to numerous assumptions, risks, and uncertainties, which change over time. These risks and uncertainties include, but are not limited to, the risk factors described by Lancey Homes in its filings with the Securities and Exchange Commission. 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 may be required under applicable securities laws. Additionally, reconciliations of non-GAAP financial measures discussed on this call, the most comparable GAAP measures can be accessed through Lancey Holmes' website and its SEC filings. Hosting the call today are John Ho, Lancey's Chief Executive Officer, Mike Forsum, Chief Operating Officer, and Trent Schreiner, Chief Accounting Officer. With that, I'd like to turn the call over to John.
spk02: Good morning, and thank you for joining us today as we go over our results for the third quarter of 2021 and provide an update on our company's outlook. Lancy Homes made progress on a number of fronts in the third quarter of 2021 as we remained on track to generate approximately $1 billion in total revenues for the year, greatly enhance our access to capital, and continue to lay the foundation for our company's rapid growth. The Vintage Estate acquisition has been progressing nicely, and we have been aggressive in transitioning their operations into a more production builder-type mold, while expanding their existing market presence with several new land acquisitions. We continue to see strong demand for Lansi's differentiated product, which features the latest in new home performance and technology at an affordable price. These positives from the quarter, along with the company's record quarter-ending backlog give us optimism about the remainder of the year and our outlook for 2022. While there is a lot to be excited about in terms of our company's future, today's operating environment continues to be challenged by supply chain issues that are impacting the entire industry. These issues extended our construction cycle times during the quarter beyond a level that we are comfortable with, compelling us to deter our sales efforts in many of our communities, particularly in Arizona. Our main focus as a home builder has always been to do right by the customer, and we felt that stretching out an already robust backlog of homes would not be in the best interest of our existing customers or new ones. We have been upfront and transparent with our customers and backlog about issues we are facing, and we believe this approach helped keep our cancellation rate during the quarter at a manageable 10.4%. Despite these operational challenges, we continue to see great growth opportunities for our driven by strong industry fundamentals, favorable long-term trends in our markets, and our focus on the more affordable segments of the market. We are rapidly expanding our presence in high-growth markets in Florida, Texas, Arizona, and California, and increased our quarter ending loss count by 46% as compared to the end of 2020. We have established a successful track record of scaling our operations quickly through a combination of organic growth and acquisitions and believe this trend can continue. Our ability to deliver on growth aspirations got a boost in the third quarter with establishment of a $500 million unsecured revolving credit facility with an accordion feature that permits increases in borrowing capacity up to an additional $350 million. This new facility replaces the cumbersome project financing and other capital sources that put us at a competitive disadvantage with other builders. Thanks to the commitment from our new lending partners, Western Alliance Bank, Bank of America, and the rest of the syndicate, we now have the available capital to act more quickly on opportunities when they arise and compete more effectively for land deals at a lower cost of capital. With that, I'd like to turn the call over to Mike, who will provide more detail on our home building operations. Mike?
spk05: Thanks, John, and good morning to everyone. We saw solid demand trends at our communities in the third quarter as buyers continue to gravitate to our innovative high-performance homes, which feature the latest in new home technology, sustainability, healthy lifestyle, and performance at an affordable price. Our markets continue to exhibit favorable industry fundamentals characterized by low levels of inventory, healthy local economies, and a motivated pool of buyers. In addition to Lansi's high-performance home program, our LibFlex features focused on technology-forward home offices, personal fitness rooms, or educational spaces to meet the lifestyle demands of today's homebuyers. These thoughtful LibFlex packages are options for a convenient space ready upon move-in for homeowners to automate and to enhance their lifestyle needs. As John mentioned, supply chain issues continue to be a challenge for our industry during the quarter, and we had to slow the cadence of our sales efforts as a result. While these operational issues were present in all of our markets, they were especially acute in Arizona, which is our largest market. Compounding the delays and lack of building materials throughout the construction process was a labor shortage that has been ongoing in the market for some time. This is not a situation that is unique to Landsee, but we are working diligently to alleviate the bottlenecks in our operations and deliver homes in a timely manner while at while not sacrificing the quality level of our homes that our home buyers expect of Lansi Homes. We have already made progress on this front, and as a result, we are increasing our annual revenue target to approximately $1.02 to $1.06 billion. Additionally, we have already seen an improvement in our orders in October as we lifted limitations on sales and opened more new communities. Our orders in the month of October was 129 at an absorption pace of 3.5, representing an orders increase of 18% month over month. Our California operations posted the best sales pace during the quarter at 4.3 homes per community per month. In both northern and southern California, LAMC Homes has demonstrated an ability to outsell the competition with our unique combination of new home innovation and affordability. Our two new communities at Ellis Master Plan in Tracy averaged 5.5 sales per month during the quarter, which was well above the comparable communities in the area. In Southern California, our neighborhoods in the Shade Tree Master Plan in Ontario also outsold the competition during the quarter, even as we continue to raise prices. We have established a sizable presence in Southern California and expect to deliver over 450 homes in the market for all of 2021. We continue to see solid industry fundamentals in the markets that we entered through our acquisition of vintage estates as all of our communities perform at or above our underwriting assumptions during the quarter. The merchandising and marketing efforts have been successfully converted over to LandCity Homes brand, and we expect their systems to be fully integrated into our platform by the end of the year. Florida and Texas will serve as an engine for much of our company's growth going forward, and we are aggressively pursuing land deals in each of these states. In Florida, we secured six new land deals during the quarter, which we feel will complement our existing presence in the market nicely. In Texas, we made great progress transitioning to the current product profile from a semi-custom high-end operation to one that focuses on affordability and quick inventory terms. We made a sizable investment in the market during the quarter, securing 918 lots in Austin, which gives us a great platform for which to grow our business in this excellent market. Lancie has established a track record of entering new markets via acquisition and scaling the local operations in a rapid fashion, and we believe the same will be true with Vintage Estates Acquisition. Now I'd like to turn our call over to our Chief Accounting Officer, Trent Schreiner. who will provide more detail on the results for the quarter and give you an update on our guidance. Trent?
spk03: Thanks, Mike. Total revenue for the third quarter of 2021 was $214 million compared to $219 million in the third quarter of 2020. Within our total revenue, we generated $5 million from lot sales and other revenue compared to no lot sales and other revenue in the third quarter of 2020. Home sales revenue decreased to 209 million compared to 219 million in the prior year period. Total homes delivered during the quarter decreased 12% to 380 homes at an average sales price of $549,779 compared to 433 homes delivered at an average sales price of $504,658 in the third quarter of 2020. The decline in deliveries was largely a result of the ongoing supply chain issues affecting the industry. The year-over-year increase in average selling prices was due to the favorable pricing power experienced in the Arizona market and a large number of deliveries from communities with higher-end homes. During the third quarter, we generated 275 new home orders with a dollar value of 185 million on a monthly absorption rate of 2.6 sales per active community. This compares to 504 homes with a dollar value of 279 million and a monthly absorption rate of 5.9 sales per active community in the prior year period. The year-over-year decline in orders was largely a result of the company's decision to temporarily slow the pace of sales to adjust for lengthening production cycle times. Total homes in backlog increased 18% to 1,092 homes with a dollar value of $606 million and an average sales price of $555,000 at September 30, 2021. This compares to 922 homes with a dollar value of $440 million and an average sales price of $477,000 at September 30, 2020. GAAP gross margins expanded 250 basis points year-over-year to 16.1% in the third quarter. On an adjusted basis, home sales gross margin increased 100 basis points to 21.4% compared to 20.4% in the prior year period. The benefits to our adjusted gross margin is primarily due to price appreciation across our markets and improving profitability within our California segment, particularly offset by higher costs. Net income attributable to Landsee Homes in the third quarter increased to $10.8 million compared to net income of $3.2 million in the prior year period. Adjusted net income attributable to Lansi Homes was $8.3 million, compared to $9.8 million in the prior year period. Adjusted EBITDA increased to $22.6 million, compared to $16.2 million in the prior year quarter. Turning to the balance sheet. We ended the third quarter with $82 million in cash and cash equivalents, total equity of $580 million, and total debt of $363 million. Our ratio of debt to capital at the end of the third quarter was 38.4%, compared to 33.3% at December 31, 2020. And our debt to net book capitalization ratio was 32.5%, compared to 22.6% at December 31, 2020. As John mentioned earlier, the company established a $500 million unsecured revolving credit facility with an accordion feature that permits increases to borrowing capacity up to an additional $350 million. As of the closing date of our new unsecured revolving credit facility on October 6, we had $296 million in borrowings outstanding under the new credit facility and we had available borrowing capacity of approximately $204 million. Including cash on hand after the closing, we had total liquidity of approximately $306 million. As of the closing of our new unsecured revolving credit facility on October 6th, we had $296 million in borrowing outstanding under the new credit facility and we had available borrowing capacity at approximately 204 million. Including cash on hand after the closing, we had total liquidity of approximately 392 million. Now I'd like to summarize our updated forward-looking guidance. For the full year 2021, we now expect to report total revenues between 1.02 billion to 1.06 billion $960 million to $1.02 billion prior, with 1,671 to 1,760 total homes now expected to be delivered at an average sales price of $450,000 to $580,000. GAAP 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. Finally, adjusted net income attributable to Lansi Homes is expected to be between 62 to 66 million, 53 to 61 million prior in 2021. Now I'll turn the call back over to John for some closing remarks.
spk02: Thanks, Trent. In conclusion, I am pleased with the progress we made this quarter. While the ongoing supply chain issues present a near-term headwind for homebuilding, they do not alter the long-term outlook for our industry or our company. We believe the demand drivers that have propelled the housing market since the beginning of this cycle will continue for the foreseeable future, while our high-performance home offerings and affordable product focus should allow Lansi to gain market share. We have been one of the fastest-growing homebuilders in the country over the last several years and believe this trend will continue thanks to our strong capital position and a proven model for expanding our operations. The progress we made this quarter, coupled with our new credit facility, should help us continue on this path. And as a result, we are excited about what the future holds for Lansing. That concludes our prepared remarks, and now I'd like to open the call to questions. Operator?
spk01: Thank you. As a reminder, to ask a question at this time, you will need to press star 1 on your telephone keypad. Again, that is star 1 to ask a question. To withdraw the question, just press the pound key. Your first question comes from the line of Alex Rigil from B-Rally. Your line is now open.
spk04: Thank you. Good morning, gentlemen. A couple of quick questions here. It sounds great that your cadence of sales has picked up in October. How should we think about the cadence of closings through the fourth quarter, given your commentary about lead times stretching to the right?
spk05: Hi, Alex. It's Mike Forsum. I believe we're through the bulk of the large challenges that we've faced with during the cycle times and through the production in 2021. It started with concrete and getting slabs out in front of us, moved into lumber, and then HVAC and the last challenge has really been the windows, but we've seen a major pickup in that area over the last month to 45 days, which has given us a high level of confidence that the bulk of the large installation challenges and larger material installations are behind us. We have been able to find ways going forward from here to get our closings, whether it be installing temporary garage doors or appliances that may be temporary for a period of time until the actual appliance for that home comes in and we can install it. So we believe we have a lot more optionality to move the house through and get us to the final closings going forward.
spk04: That's good to hear. And then could you also give us an update on the status of Farina sales in New York?
spk05: Sure. I'll turn that over to John.
spk02: Yeah. Hey, Alex. Mike and I were actually back in New York last week, and the sales pace has really picked up in New York. We're about nearly 40% sold out at Farina now, so much better. further ahead than we anticipated at this time of the year. So good sales pace and absorption there. And at a pricing that is at a pricing pre-COVID.
spk04: And as it relates to that 40% sold out, what does the pace of deliveries look like for Farina? When should we start to see those occur?
spk05: Those will begin in mid to late January. We're working right now on getting our temporary occupancy We're pulling down all the scaffolding. The actual building units themselves are now coming towards completion on the interior. And the lobby has been completed. So the building is very close to being turned over on the floors so that we can start making those closings and moving people in.
spk04: That's excellent. And my last question. As it relates to the guidance, I'm having a little bit of difficulty understanding when I look at your revenue guides for the fourth quarter, it seems to suggest the ASPs are going to be very, very high. Is that a function of Farina?
spk02: Alex, this is John. It's actually a function of one of our communities in Northern California called Relovay. Those are at a higher price point, I think, at about $2 million. So that's what's pulling that up.
spk01: Perfect.
spk04: Thank you very much.
spk02: Thanks, Alex. Thank you.
spk01: Again, to ask a question, please press star, then number one on your telephone. Your next question comes to the line of Matthew Bolle from Barclays. Your line is now open.
spk00: Hey, this is Ashley Kim on for Matt today. So thanks for all the detail on the October trends. Can you talk about how that sales pace compares to your level of starts that you saw in the month? And then that kind of coupled with the closings commentary, how that positions you from a supply standpoint to grow orders next year?
spk05: Sure. Ashley, this is Mike Forsum. I'll take a stab at it first. John can clean it up after. From the standpoint of where we are, I believe we're seeing sales moving back towards what we call sort of a normalization of our absorption rates that we would hope for out of our communities. September was a strong month when we released more homes for sale. And then October got even better. And we're seeing really great sales trends going into November at the communities of which we have open. We continue to get moderate price increases, not to the extent that we've seen before, but we continue to be able to have pricing power out of communities. And to some degree, we've seen some leveling off on some costs, but those costs really relate back into what's going to happen in 2022. So what we did in the summer, I called it a strategic, it was generally a strategic pause around our sales efforts because we had, for the most part, baked in what we anticipated being able to deliver in 2021. So we were just selling really into 2022 and way too far ahead of really our ability to catch up with that demand. So it was really a thoughtful process around managing those sales through the summer. Also, we wanted to signal to our existing homebuyers or future homebuyers that are in escrow that we were concentrating on them. We were getting some feedback that we were having sales releases, but yet our production was slowing and that we were hit delaying some of the closing dates. At the end of the day, our customer is priority number one for us, and we wanted to make sure that we were focusing in on the business at hand and what we had in front of us, and that to some degree, what we thought we had to push into 2022 we were willing to do that and moderate sales so that we could concentrate on getting these houses built for the customers that we have in hand today to make our 2021 business plan that we were comfortable with and uh this is john just to add on that as it relates to starts in this fourth quarter we actually have
spk02: seven more communities that will be opening up in this fourth quarter. And as a result, with these orders and these opening of new communities, we'll have more starts in this fourth quarter as well, correspondingly.
spk00: Got it. Thanks for that. And then just appreciating the focus on entry level, can you talk about any indicators from buyers that the list in ASPs has stretched affordability at all?
spk05: In some of our markets, particularly in the outskirts of Phoenix, we're starting to hit some affordability ceilings, we believe. Not that there isn't desire out there, but the fact of getting qualified or having the ability to put up the down payment necessary. So we are starting to see a bit of a leveling off in some of those areas. We're also seeing probably a little bit more I'm trying to find the word, but discretion from the buyer in terms of making sure that they're going to get the lot and the home that they want. Last year or during the spring, if we had a release, pretty much they were all snapped up very quickly, like within hours. And I think that was fairly indiscriminate. Now we're finding that at these price points, as we approach the end of some of our communities, our buyers are willing to step back and wait for another release that's going to get them the house, the lot, the elevation, and the color that they want. And that's definitely what we're seeing, too.
spk00: Thanks for all the detail, and good luck on the quarter.
spk01: Thank you. Speakers, there are no further questions at this time. This concludes today's conference call. Thank you for participating, and have a wonderful day. You may all disconnect.
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