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spk00: Ladies and gentlemen, thank you for standing by, and welcome to the Lancee Homes Fourth Quarter 2021 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask the question during this session, you will need to press star then 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then 0. I would now like to turn the conference over to your speaker for today, Drew McIntosh, Investor Relations. You may begin.
spk05: Good morning, and welcome to Lancey Holmes' fourth 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 law. 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 Land, Sea, Homes and 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 to the most comparable GAAP measures can be accessed through Lansi Home's website in its SEC filings. Hosting the call today are John Ho, Lansi's Chief Executive Officer, Mike Horsam, Chief Operating Officer, and Chris Porter, Chief Financial 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 fourth quarter and full year 2021 and provide an update on the outlook for our company. I want to start by thanking the entire Lansi team for their exceptional effort this year and for achieving some major milestones as we completed our first year as a public company. Thanks to this total team effort, Lansi Homes finished 2021 on a strong note, as we met or exceeded our previously stated guidance by exceeding $1 billion total revenues, achieving adjusted home gross margin of 22.6 percent, and eclipsing adjusted net income of $67 million for the year. Additionally, we generated earnings of $1.14 per share on a GAAP basis for 2021, or $1.48 per share on a fully adjusted basis. For the fourth quarter, Lansley posted earnings of 83 cents per share, driven by a 40% year-over-year increase in total revenue and a 650 basis point improvement in gross margin to 21.5%, as our teams did an excellent job executing on our business plan in what continues to be a challenging operating environment. From a macro perspective, housing fundamentals continue to be extremely favorable for new home demand. The supply of existing homes available for sale remains exceptionally low, as evidenced by the most recent report from the National Association of Realtors, which indicated that total housing inventory amounted to 860,000 units at the end of January, a record low and down 16.5% from one year ago. This equates to a 1.6-month supply at the current sales pace, which is well below equilibrium in a normal housing market. On the demand front, we continue to see a deep pool of motivated buyers in our markets, thanks to the ongoing housing supply shortage, but also as a result of favorable demographics, rising incomes, in-migration from other high-cost areas, and a cultural shift in attitudes towards home ownership brought about by the pandemic. We believe these demand drivers will be in place for some time and will provide a tailwind for our industry for years to come. We also believe Lansi is well-positioned to deliver growth in excess of the overall industry's rate, thanks to the positive fundamentals in the markets in which we build, our entry-level focus, and appeal of our high-performance homes. Lansi has strategically established a presence in some of the fastest-growing homebuilding markets in the country, including select markets within California, Arizona, Florida, and Texas. Our goal is to focus on becoming one of the top builders in these markets, both through organic expansion and M&A activity, as we believe it is better to be a bigger player in a handful of markets rather than a small player in many markets. This was the rationale behind our acquisition of Garrett Walker Homes in January of 2020, our acquisition of Vintage Estate Homes in May of 2021, and most recently, our acquisition of Hanover Family Builders in January of this year. Each of these transactions either established or greatly enhanced our market positioning in key home building markets that we believe are primed for long-term growth. The acquisition of Hanover Family Builders was a big win for our company, as it not only vaulted Lansi into a leading position within the central Florida market, it also provided us with an excellent pipeline of lots at a favorable land basis. In addition, Hanover's land-light strategy and entry-level focus align strongly with our returns-focused business model and product positioning goals. We have already made excellent progress integrating Hanover into our existing home building platform and expect the acquisition to be extremely accretive to earnings this year and beyond. I want to personally welcome the Hanover team into the Lansi family and look forward to building on the great track record of success you've achieved in Florida. Our product focus continues to be on the more affordable segments of the market, as we believe this is the most supply-constrained and demand-heavy area of housing. First-time buyers looking for affordable housing options are being met with rapidly rising existing home prices and a lack of homes for sale that meet their budget. We believe this dynamic will persist for the foreseeable future and have positioned our company to cater to these buyers. Pro forma, our acquisition of Hanover is Seventy-seven percent of our own and controlled lots are targeted at the entry-level segment, giving us a great runway of lots to meet the demand for affordable housing that we see in our markets. Along with our affordable product focus, we continue to differentiate ourselves from the competition with our high-performance homes, which feature the latest in new home automation, sustainability, energy savings, and healthy lifestyle. We recognize that today's buyer is looking to get more out of their home than ever before, whether it's better connectivity for a home office, enhanced automation for ease of use, energy efficiency, or other smart home innovations that reduce the total cost of home ownership. Our high-performance home gave us a noticeable sales advantage over a similarly priced product from our competition in 2021, and we expect that to continue in 2022. Before I turn the call over to Mike, I would like to formally welcome Chris Porter to our executive team. Chris officially joined Lansi as our CFO in December of last year and has already made a meaningful impact on the financial aspects of our business. I'm confident Chris is going to be a great asset for our company as we pursue our growth initiatives. With that, I'd like to turn the call over to Mike, who will provide more detail on our operations this quarter.
spk06: Thanks, John. And I, too, would like to welcome Chris into the fold and look forward to working with him to achieve our financial goals and operational goals as well. I will get into a little more detail in a minute, but as John mentioned, demand has been strong across a geographic footprint and with each of our product segments, despite the recent increase in mortgage rates. New home sales pace remained robust throughout the fourth quarter of 2021, as evidenced by our net new orders of 4.2 homes per community per month. This demand strength carried into 2022 and actually accelerated in the first two months of the year as we recorded a sales increase of 20% year-over-year to 136 sales for January and 40% year-over-year to 151 sales for February. We believe this is a testament to underlying strength of our industry that John alluded to earlier as well as results of our affordable product focus and the appeal of our high-performance homes. To highlight a few of the successes of our divisions, California finished the year with 600 deliveries at an average sales price of over $890,000 and started 2022 with $226 million in backlog. Our California division had an exceptional year delivering growth of 46% in new home orders and 34% in revenues while maintaining an attainable ASP. In Arizona, we delivered 771 homes in 2021, which translated into $276 million in home sales revenue for the year. This was a decrease from last year, which was a result of the challenging supply chain issues the market experienced and not waning demand. In fact, Arizona continues to be one of the best states for new home construction in the country, given the low levels of existing home supply, solid job growth, and consistent in-migration from other states. Thanks to the Vintage Estate acquisition in May, both Texas and Florida are new markets for us in 2021 and added nicely to both sales and revenue for the year. We anticipate both of these markets to make greater impact for us in 2022, especially Florida with our Hanover Family Builders acquisition. As you know, one of our key strategies as a company is to maintain an appropriate supply of land and key markets for future build-out. With the acquisition of Hanover Family Builders, we now have a leading presence in some of the highest growth markets in the country and a more strategically diverse and balanced portfolio of lots across the key states of Florida, Arizona, California, and Texas. At the start of 2021, all of our lots were located in Arizona and California. Thanks to our strategic growth initiatives, 43% of our roughly 13,000 lots are now in Florida and over half are outside of California and Arizona. That makes me excited What makes me excited is that we finished 2021 with over 4,300 lots owned and controlled in Arizona and almost 2,000 in California. All in all, our strong lot position covers approximately 4.3 years of deliveries at our forward sales projection pace. The strategic balance in our portfolio gives us a great pipeline of lots for future communities and enhances our scale benefits when dealing with local and national suppliers. We remain focused on becoming a major player in the select markets in which we operate, both through organic growth and M&A. In terms of the supply chain, we continue to be faced with delays and shortages throughout the build process, but I believe the industry, and particularly our company, have gotten smarter about how to navigate the various challenges. This means starting more specs, lowering the number of SKUs, and ordering materials much sooner than normal to account for anticipated delays. While we are not forecasting any improvement in the supply chain conditions within our current guidance, one bright spot we are seeing is the availability of labor and the easing of COVID-related restrictions in some of our markets. We are hopeful that these favorable trends will continue as the Omicron variant subsides. Now I'd like to turn the call over to Chris, who will provide more detail on our financial results for the fourth quarter and full year 2021 and give some guidance on our expected performance in 2022. Chris?
spk04: Thanks, Mike. It's great to be part of the team. I'm looking forward to getting to know our investors and analysts more this year. I'll start by providing an overview of our great fourth quarter and full year financial results and then walk through our financial guidance for the first quarter and full year 22 as well. To start with, we delivered 260% growth in net income for the first fourth quarter versus the same period in 2020 for a total net income of $38.5 million or $0.83 per diluted share. On an adjusted basis, net income was $36.9 million, or $0.79 per diluted share. We also delivered a pre-tax margin of 12.4%, a strong 740 basis point improvement from fourth quarter 2020. This is reflecting our expanding gross margin and integration of recent acquisitions. The strong fourth quarter helped drive our full-year net income to $52.9 million, or $1.14 per share, versus a loss for the full year of 2020. This performance reflects the dedicated team that focused on delivering results while integrating acquisitions and adjusting to being a public company. Moving on to operations, total revenue for the fourth quarter of 2021 grew to $398.5 million, compared to $284.7 million in the fourth quarter of 2020. Revenue benefited from our 29% increase in average selling price of $624,000, partially offset by a decrease in home deliveries to 534 homes. The decrease in home deliveries was primarily driven by the construction delays Mike described earlier, especially within our Arizona division, partially offset by the increases in volume in California and the addition of Florida and Texas markets through the acquisition of vintage homes earlier this year. For the full year, we crossed the $1 billion mark in revenue, producing a total revenue of $1.02 billion, a remarkable 39% increase over 2020. Deliveries for the full year increased 7% for a total of 1,640 homes at an average selling price of $571,000. California, again, led the way with a 46% increase in the number of homes delivered and a strong $900,000 in average selling price. Texas and Florida both added nicely to our total deliveries, partially offset by a decrease in our Arizona division. We expect our Florida division to become a much more meaningful part of our portfolio this year as we enjoy a full year of vintage homes coupled with the addition of the Hanover family builders to our company. Within our total revenue, we generated $65 million from lot sales and other revenue in the quarter and $86.9 million for the year. The increase in the fourth quarter came primarily from our higher lot sale revenue from our El Cidro master plan community that we acquired at the end of 2020, following a similar strategy that we have deployed successfully in our master plan communities in California. As we have shared before, the combination of our skills to deliver homes as well as finish lots provide us a competitive advantage in the market and allow us to be opportunistic in maximizing returns and reducing risk. During the fourth quarter, we generated 440 new home orders with a total dollar value of $313 million on a monthly absorption rate of 4.2. This compares to 415 homes with a total dollar value of $235 million and a monthly absorption rate of 4.5 sales per active community last year. 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. This strategic pause was reflected in our full-year results as we produced new home orders of 1,471 versus 1,891 in 2020. But we also enjoyed an increase in our average selling price of these orders, growing from 512,000 in 2020 to 655,000 in 2021, reflecting the continued price appreciation and demand in our markets. We ended 2021 with 998 homes in total backlog with a dollar value of $586.2 million at an average sale price of $587,000. This represents a 33% growth in volume and a 51% in total dollars compared to last year. Gap home sales gross margin expanded to 21.5% in the fourth quarter compared to 15% in the fourth quarter of last year. again reflecting the strong demand market with great price appreciation. For the full year, our gap home sales gross margin increased 460 basis points to 17.5% on an adjusted basis. Home sales gross margin for the year increased 190 basis points to 22.6% compared to 20.7% in the prior year. Turning to the balance sheet, we ended the year with an unusually high cash balance of $346.9 million as we anticipated funding the acquisition of Hanover early in January. During the quarter, we executed on our new $585 million unsecured revolving credit facility, which allowed us to retire all of our existing secured facilities except the one in New York that is anticipated to be paid off earlier this year. This new revolver was key to helping us reduce costs and giving us greater flexibility for cash generation. This left us with total debt of $461.1 million at the end of the year and net debt of only $114.2 million. Our ratio of debt to capital at the end of the year was 42.6%, a slight increase compared to third quarter as we drew on our revolver to fund the Hanover acquisition. Net debt to net book capitalization ratio was 15.5% compared to 21.3% last year. In January this year, we funded the Hanover acquisition with cash on hand and $22 million on our revolver, leaving approximately $120 million in cash post-acquisition. Following the acquisition, our debt to total capital remained constant with year-end at 43%, and our net debt to net capital was approximately 33%. Now I would like to provide some guidance for the first quarter and full year of 2022. For the first quarter, we anticipate new home deliveries to be in the range of 490 to 520 units and delivery ASPs to be in the range of $460,000 to $470,000. Although we are still finalizing our purchase price accounting with respect to the Hanover acquisition, on a land fee standalone basis, we anticipate our home sales gross margin to continue to expand and be approximately 19% to 21% on a gap basis. For the full year 2022, we anticipate new home deliveries to be in the range of 2,700 to 2,900 units. Delivery ASP is to be in the range of $500,000 to $515,000. And home sales gross margins to be in the range of 20% to 22% on a gap basis or 22% to 24% on an adjusted basis. Now I'll turn the call back over to John for some closing remarks. Thanks, Chris.
spk02: We have a lot to be proud of in terms of our performance in the fourth quarter and full year 2021, as we generated significant profits from our home building operations and continue to set the stage for future growth for our company. A major part of that growth will be fueled by our acquisition of Hanover Family Builders, which closed in January of this year and provides immediate benefits to our top and bottom line projections. We have a great strategy in place to capitalize on what we believe will be a long runway of growth in new home construction. particularly in the markets in which we build and product segments in which we operate. Given this positive fundamental outlook, the strength of our balance sheet, and the significant discount of book value our shares currently trade at, we believe Lansi presents a compelling investment opportunity. Our board agrees with this assessment and recently authorized a $10 million share repurchase plan, which we anticipate putting to use over the course of this year. Finally, I'd like to thank the entire Lansing team for an excellent 2021 and a great start to 2022. This is a challenging home building market in which to operate and one that takes the coordinated efforts of the entire organization. I am very appreciative of your efforts and look forward to sharing in our future success. That concludes our prepared remarks, and now we'd like to open the call up for questions.
spk00: Thank you. Ladies and gentlemen, as a reminder to ask the question, you need to press Star 1 on your telephone. To withdraw your question, press the pound key. Again, that's Star 1 to ask the question. Please stand by while we compile the Q&A roster. Our first question comes from the line of Matthew Boulie with Bar-Cal Aids. Your line is open.
spk01: Hey, good morning. This is actually Ashley Kim on for Matt today. So I guess just first question, have you done any kind of backlog stress tests just in light of the recent move-in rates and maybe how many of the buyers in backlog could potentially fall out if they can't get the financing that they need?
spk02: Hey, Ashley. I think we have, and I think Mike, our president and COO, can best address that.
spk06: Hi, Ashley. The answer to the question is yes, absolutely. We actually do it on a monthly basis. And even when we're qualifying a potential prospect as they come through our sales process, we actually start them off at a higher qualifying rate than the actual programs that we're offering. So currently, we have the highest level of confidence within our backlog that we have today that it can sustain some meaningful rate increases going forward without any disruption or cancellation to those prospects.
spk01: Thanks for that. And then just on that buyback authorization, how are you kind of thinking about the balance between buying more land for future growth, the M&A strategy as well, and then kind of balancing that with share repurchases going forward?
spk02: Sure. This is John. I'll address that. I think... It's a good part of our capital allocation strategy. Certainly after our one year as a public company, as we've matured and significantly grown over the past year, I think as we look towards 2022 and we seek to continue to expand in the current markets that we are currently in right now and not taking away from that growth and land acquisitions and also M&A activity, we do think that using some of our capital that we've generated because of our better control and flexibility under our new revolving credit facility, it is appropriate to allocate a certain amount of capital, certainly at our stock price at such discounted values, which we think is an incredible opportunity for us to put some of that capital to work. So we think it's part of our capital allocation strategy and will continue to be a part of that strategy going forward. but it doesn't take away from how we think about continuing to be a fast-growing home builder in the markets that we operate in.
spk01: Great. Thanks for the color, and I'll leave it there.
spk02: Thanks, Ash.
spk00: Thank you. Our next question comes from the line of Alex Reigel with B. Rowley. Your line is open.
spk03: Thank you, John and Mike. Fantastic year. Congratulations on that. A couple of quick questions here. First, as it relates to Hanover, Hanover is obviously an important catalyst to growth this year. So can you talk a little bit more about maybe year to date so far, what you've seen inside Hanover? And you also referenced a pipeline of lots at Hanover at attractable prices. So maybe you could comment on exactly what you mean by that.
spk02: Yeah, thanks, Alex. I'll address it real quick and I'll hand it over to Mike in terms of the contribution of that business. But for us, as we've talked about over the year and on previous calls, 2021 was an important year for us to expand into the markets of Texas and Florida. And very similar to how when we approach some of these new markets, It's about getting to scale quickly in those markets, and M&A is an important part of that, an additional organic land acquisition. So similar to the strategy where we entered the Phoenix market, both organic and to some bolt-on M&As that quickly propelled us to become one of the top home builders in that market, gives us that scale that we need to have the purchasing power that we need to run a successful business. I think we'll just continue to play that strategy, execute that strategy in the Florida and particularly central Florida market with the vintage and Hanover family acquisitions. So Florida this year, as we look at it, is actually going to be one of the most meaningful markets, if not the top market for us going into 2022, which is very exciting for us given, as you know, all the growth prospects, the demographics, and then just the imbalance in terms of demand and supply in that Orlando market. But as it relates to how that's helped us just the first couple of months here and then overall, I'll let Mike address that. Thanks. Hi, Alex.
spk06: Hey, thanks for the compliment. We appreciate that. As far as Hanover family builders go, I can say that we are Absolutely thrilled with the start of our relationship. It seems to be showing all the attributes that we were hopeful during our underwriting and coming out of the gates. They are performing at a very high level, and we believe that it will continue as we go through the year as that market remains incredibly strong. As well, I believe that your question was around the uniqueness of this acquisition by way of their capacity controlling of lots through the Hanover Family Land Company, which we inherited the options through the acquisitions. It's a great way to manage our balance sheet in the growth in that market by just getting just-in-time lot delivery through that entity that we now control through those options and contracts. So it's, again, a great testament to The organization that we acquired that's made them a high-performing, super capital-efficient home builder in that central Florida market. And now that we're the lucky recipients of the great work that they did in establishing that foundation before we got there. So we're really happy, I guess. That's what I want to say.
spk03: And then my next question is related to New York. Obviously, you've been working to exit New York for some time now. But it appears that a huge upside positive surprise is the sales pace going on at Farina. So I was wondering if you could comment on that and then also help us to better understand the timing and maybe even quantify cash flow that could be pulled out of that market that will benefit the balance sheet over time.
spk02: Alex, I'll address it from a cash flow perspective, and then I'll turn the mic in terms of how the market and sales evolution is there. So when we started the year in 2020, we really had two assets in New York, one called Avora on the New Jersey Gold Coast and then Farina on 14th and 6th. Avora were completely sold out. I think we have a couple units to deliver, so we've actually returned – significant amount of that capital already back to the balance sheet. And what we have left now is just for in our capital, our equity commitment there is about, I would say, approximately $30 million. And as we look to not only sell out, we also expect to deliver that entire building this year and be able to return all that capital back to our balance sheet this year, at which time we will be out of New York and we will redeploy that capital into our horizontal single-family home building business.
spk06: Great. In a nutshell, Alex, I would say that New York residential real estate is back, both rental and for sale, particularly pricing below $3,000 a foot. Our power band pricing at Farina is around $2,500 a foot. So we are really taking advantage of those tailwinds that are coming through the resurgence of this market, and Farina is really, as I said, very well positioned for that. So today out of the 50 units that we have for sale, 37 have been sold and we're looking forward to our first closings in that building coming up here relatively shortly as we complete the building and the retail downstairs. What's great about it is that we have sold units throughout the building, which is really a positive thing at or above our underwriting numbers when we started this project a couple of years back. So we are not, getting the absorption by way of discounting and working our way through. So it's a testament to a well-planned building, great floor plans, great location in Manhattan, and then the pricing that's really sticking for us right now. So we're very happy how this is turning out.
spk03: And, Mike, one last question. You mentioned, obviously, that in the last six to nine months you were piecing sales, given sort of the market dynamics and the ability to – get building materials and whatnot. Can you update us on, you know, how many communities you're currently pacing sales in or something of that nature? And then also give us a little bit more color on your specs. You mentioned that you were starting more specs. So how does that work into the business plan this year?
spk06: Sure. To some degree, everywhere, Alex, we are – strategically allocating out new sales releases as we're going forward at all of our communities throughout the country it is not sort of a generalized approach that I've grown up with in the industry so being more specific you know each community has its specific uniqueness in California particularly out in the Inland Empire We are using best and final still with our releases that come through, and we have been hugely successful in optimizing our sales pricing there by way of that process. Our team has become excellent at really executing that without alienating our home buyers and creating a frenzy that, frankly, is not very healthy for the long term as they become Lancey family. But that being said, in Arizona – We are deploying more of a smaller release process. Normally, if we would have a sales release of 8 to 10, maybe 10 to 12, we're still around 3 to 4, and then coming back, repricing, and going back out to the market again in a more frequent way, but that's the way to do it. In Florida, pretty much the same in terms of pricing that's around tighter releases that's giving us an opportunity to grab more of the appreciation that's coming through in the general competitive areas in which they're operating. So that's kind of how we're going about doing it. Northern California remains really strong, too. We do have a best and final going on out in the Tracy market with our community, Ellis. They've taken a lot of what we've learned in Southern California and are applying it up in that market. And then in the Bay Area, because of the way that the building configuration were a little more high density there, we don't really get quite that opportunity, but they're doing a great job on shrinking the releases in the building units themselves and the units. Again, trying to maximize the opportunity to grab a hold of the price appreciation. On the spec side of your question, really some of that is a response to just getting From sale to start is, you know, what we're talking about is getting permits done and through the cities, which is a big bottleneck. Getting better, but it's also been a challenge. So in some respects, specs are a result of just trying to anticipate delays through the government agencies that are permitting the starts of our houses, and then they are then quickly sold through our release process that I just talked to you about. But definitely we are deploying more spec starts as a whole with the idea of trying to get out in front of our production cycle process that's been somewhat elongated here due to all the challenges we've talked about before. But for the first time ever, We went around, and we have the ability to analyze this. I think that we have less than a handful of – I don't even know. It's less than a handful of standing specs throughout the entire company, and that's almost unheard of. I mean, there's literally no inventory that's available for immediate move-in in any of our communities today. So that – idea of specs standing out there or standing specs for quick move-ins is not really real on the ground because we quickly sell the houses once we put them out to market and they catch up on the production cycle.
spk05: Sounds great. Thank you.
spk00: Thank you. As a reminder, ladies and gentlemen, that's star one to ask the question. I'm showing no further questions in the queue. I would now like to turn the call back over to John Hull for closing remarks.
spk02: John Hull Thank you, everyone. We look forward to speaking all with you on the next earnings call that will be coming up shortly here. Thank you.
spk00: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
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