Landsea Homes Corporation

Welcome to the Land, Sea, Homes Corporation third quarter 2022 earnings call. At this time, all participants will be in a listen-only mode. Later, we will conduct a question and answer session. I would now like to turn the call over to your host, Drew McIntosh of McIntosh IR. Mr. McIntosh, you may begin, sir.

Good morning and welcome to Land, Sea, Homes third quarter 2022 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. Lancie 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 Lancie Holmes 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 to the most comparable GAAP measures can be accessed through Lancey Holmes' website and in its SEC filings. Hosting the call today are John Ho, Lancey's Chief Executive Officer, Mike Forsum, President and Chief Operating Officer, and Chris Porter, Chief Financial Officer. With that, I'd like to turn the call over to John. Good morning.

And thank you for joining us today as we go over our results for the third quarter of 2022, provide an update on our current business conditions, and give some insight into our company strategy going forward. Lansley Homes posted strong profitability in the third quarter. We delivered a record 543 homes during the quarter, with ASPs increasing 9% year-over-year to 601,000. This produced a 56% improvement in our top line, with revenue growing to $335.6 million. We also improved our home sales gross margin by 480 basis points, which all translated to net income of $20 million, or $0.49 per diluted share, a 130% increase over the third quarter of 2021. I want to thank all our team members for producing such great results this quarter and for executing at a high level despite continued operational headwinds. I especially want to call attention to our Florida division, which did an excellent job of preparing for, managing through the impact of Hurricane Ian. In total, we had 38 deliveries in our Florida division, equating to $14.3 million in revenue that were pushed into the fourth quarter due to Hurricane Ian. Those homes have since closed as our team did an excellent job getting things back on track after the storm passed. We are extremely fortunate, all things considered, given the severity of the hurricane, as no employees sustained serious injury and were able to get our communities back up and running in a short amount of time. Even with these challenges, Florida still delivered 45% of our homes and a third of our home building revenue. Our strategy of expanding into strong growth markets continue to show results. Although we produced exceptional results this quarter, we, along with the rest of the home building industry, continue to face headwinds. As has been widely reported, the recent run-up in mortgage rates has resulted in difficult sales environment for our industry. The higher financing costs deterred many new home buyers from purchasing a new home during the third quarter, and led several buyers in our backlog to reconsider their purchase. As a result, our net order results for the quarter were down 7% compared to the third quarter of last year, and our cancellation rate was 9% of our starting backlog. Mike will provide additional details shortly, but in response to the softer sales environment, we have implemented several initiatives to spur sales activity and protect buyers in our backlog. We plan on staying competitive in the marketplace by being responsive to any changes in market conditions and addressing the consumer's needs. At the same time, we think it is important in this environment to stay focused on strengthening our balance sheet, generating cash, and increasing liquidity. This includes reevaluating all our land spent through 2023. In 2022, we estimate we'll spend roughly $450 million on land acquisition and development. And as we move into 2023, assuming no changes to market conditions, we'll expect this to go down to roughly $400 million. With respect to our lot pipeline, we feel we are in a great position to navigate today's uncertain market, thanks to the asset line nature of our land portfolio. With 57% of our lots controlled via auction agreement, we have the ability to work with landowners to adjust pricing and takedown schedules to levels that reflect the more challenging market conditions. In addition, we purposely negotiated provisions in our option agreement that allow for extended lot takedown schedules so that we would be able to have additional flexibility during times like these. We plan on being disciplined with future lot takedowns that are prepared to walk away from deals that no longer make sense in today's market. In fact, The loss owned and controlled decreased 5% sequentially from 13,017 last quarter to 12,410 this quarter. And much of the land we do have on our books was underwritten between 2019 and 2021 and reflects home price assumptions that were much lower than today's levels. So we feel good about the communities we are bringing to market in the coming quarters. Additionally, Our acquisition of Hanover Family Builders is producing stronger ASPs and gross margins than our underwriting. We are experiencing faster synergies than anticipated by combining our operations in Florida. While we expect the sales environment to remain challenging in the near term, we remain optimistic about the outlook for the industry and our company over the long term. There continues to be a lack of existing home inventory in our markets, particularly at the more affordable price points. and the cost of rental alternatives remain high. In addition, we continue to see a strong desire for homeownership by the millennial buyer cohort, which is looking for the customization and stability that a new home provides. We believe that Lansi is well-positioned to take advantage of these trends by focusing on the more affordable segments of the market and by offering homebuyers the latest in new home innovations through our high-performance homes. We feel our unique home offerings are a true differentiator in our market and provide a clear competitive advantage versus the competition. With that, I'd like to turn the call over to Mike, who will provide more detail on the operational aspect of our business.