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spk_0: ladies and gentlemen greetings and welcome to the land sea homes corporation fourth quarter twenty twenty two onyx conference call at this time all of been lines are in a listen only mode a brief question and answer session will follow the formal presentation if anyone should require operate assistance during the conference please spread start zero or the telephone keypad as a reminder this conference as being recorded it is now my pleasure to introduce you to drool macintosh please go ahead
spk_1: the morning and welcome to my the fourth quarter of twenty twenty two earnings call for the call began though like to note that this call will include forward looking statements within the meaning of the federal security laws lengthy home cautioned that forward looking statements are subject to numerous assumptions risks and uncertainties which change over time he's written uncertainty include but are not limited to the bridge factors described by land theme than it's filing that the securities and exchange commission accordingly forward looking statements should not be relied upon as representing our view that have any subsequent date you should not place undue reliance on these board looking statements in deciding whether to invest in our security we do not undertake any obligation up with update bored looking statements to reflect events or circumstances after the date they were made weather is as a result of new information future events or otherwise except it may be required under applicable security flaws additionally reconciliation the non japanese measures discussed on this call to the most a comparable gap measures can be accessed when lengthy homes website and in it's sep violence pushing the called it air john home and his chief executive officer mike for some part president and chief operating officer and chris porter chief financial officer with that and i could turn the ball over to john
spk_2: boarding and thank you for joining us today as we go over our results for the fourth quarter and four year twenty twenty two and give our thoughts on the outlook for industry and our company as the homes generated told avenue of over one point four billion a pretax income of one hundred one million in earnings of one dollar and seventy cents per diluted share or fiscal year twenty twenty two all records far company we close to thousand three hundred and seventy homes during the year representing a forty five percent increase over twenty twenty one expanded home sales gross margin by two hundred ninety basis points to twenty point four percent they also returned capital to our shareholders in and earning a creative manner to our share repurchase program increased our book value per share by twenty percent is sixteen dollars and four sense which he beat financial and operational milestones while growing our presence and key homebuilding markets maintaining a strong balance sheet i want to thank our team members for their contributions to this record setting year applaud them for overcoming the operational challenges or industry faced by executing on our business plan while twenty twenty two was a record setting year in terms of profitability it was also year and wish that the man environment became more challenging due to a rapid rise and mortgage rates and a subsequent decline and homebuyer confidence this change and market dynamics cause bars or in the market for a new home to become more cautious and prompted buyers in our backlog to cancel their purchase contract as a result or net new order to activity in a third and fourth quarter dropped off significantly as compared to the prior year he believed this is a natural reaction to the sudden change in affordability brought by the rise in interest rates have taken action to the use of incentives and price adjustments to regain momentum under sales from fortunately we have begun to see some improvement in marketed conditions starting in december and as carried into the new year we expect near term to make conditions to remain volatile as subject to changes in mortgage rates and other macro factors however we are encouraged by the success of our sales efforts to start the year in response to the more uncertain demand environment we have place and increased emphasis on cost reduction balance sheet strength and cashflow generation abs of cost reductions we are pro actively negotiating with our suppliers vendors and contractors to make sure that the prices we are paying reflect the new market readout realities they've experienced significant input cause inflation of the last few years expect those trends to reverse as the current slow down works is great it's way through the homebuilding ecosystem well also working on establishing more favorable vendor agreements with her national suppliers that factor in our increase size and scale while their prices typically take longer to adjust doing a market correction remained discipline with our land acquisition efforts in have walked away from several current transactions and are prepared to walk away from option agreements should they no longer meet or hurdle rates we've also made changes to our overhead costs structure reducing headcount by approximately that eight percent which would improve our operational efficiency and expense leverage as we announced earlier this week we are relocating our corporate headquarters to dallas texas from southern california a move that should provide cost savings over time that will allow us to operate more effectively as a national homebuilder this move should also signal our commitment to growing our home building presence in that state with respect to the balance sheet we ended the year at the low end of are targeted data cap rage at forty one point six percent we also had a hundred forty one million in cash and one hundred and sixty million available under our revolving credit facility giving us plenty of liquidity to operate from a position of strength but also extended the term of our credit facility pushing out the maturity date to twenty twenty five a current plan calls for a reduction and land acquisition and development relative to twenty twenty two which would put us in a great position to generate cash from operations giving us additional optionality to pay down debt we invest our in our operations should more favorable opportunities arise or return capital to shareholders a board of directors recently approved extending our ten million dollars share repurchase authorization giving us the added option of buying our stock with excess cash accomplish a lot and played my to both a strategic and financial standpoint that as poisonous well to continue to drive or homebuilding operations to the next level of establish a presence of some the best markets and the country and of quickly scalar operations thanks to great execution by or teams are affordable product focus and appeal of our high performance homes a strike financial condition gives us the ability to operate with confidence doing uncertain times and take advantage of opportunities should they arise as a result i remain very confident in the future of land but that i like to turn the call rid of my will provide more details on operations
spk_3: thanks john and good morning everyone on the golf clancy homes close seven hundred and three homes in the fourth quarter of twenty twenty two representing a thirty two percent increase over the fourth quarter of twenty twenty one and take our total homes closed for the year to two thousand three hundred and seventy our teams that are excellent job throughout the quarter communicating with buyers and backlog and giving them the confidence to called on their home backlog preservation and conversion where our top priority is for the quarter and as focus helped us produced strong topline growth and caswell from operations it also limited our ability be more aggressive on the sales rep which led to a disappointing order performance for the quarter however as john mentioned we began to see improvement in order activity starting in december which has carried into the new year falling fourth quarters net absorption pays of zero point five per community are order pace and proved to one point eight per community in january and accelerated to two point eight per community in february art of the demand and prevent we have seen can be attributed to mortgage rates coming off their eyes but an equally important factor has been our ability to be more responsive with pricing and incentives now that we've closed out a majority of our high margin backlog we understand that most buyers are trying to solve for a monthly payment that fits their budget and we have been able to address their affordability needs through some combination of base price reduction and financing incentives we believe that this is a clear sign that there is demand elasticity in our markets and other continues to be motivated new home buyers
spk_4: at the right price
spk_3: we have recently seen and up ticket buyers coming from single family rental situations who now want to own their homes typically these buyers want a quick close and we have up in a tory in our communities that are at eight or near completion to satisfy this demand and other pas a recent development has been a noticeable rubin in the supply chain cycle times have come down thirty days from their peak as labor and materials availability of gotten better with the slow down and activity most of the superman is on the front end of the construction process we are starting to see shorter early times on key product categories that we need to get our homes closed after years of delays and disruptions better cycle times and a more reliable supply chain will be a great tail went for industry and will allow us to turn our inventory more quickly lee overall i am optimistic about the current state of our industry and the direction of our company after too difficult quarters marked by slugger sailed and increase cancellations we are starting to see a real shift in the marketplace buyers are responding to the pricing and cent of adjustments we're making and homebuyer confidence has improved thanks to a resilient economy and a healthy employment pitcher we're excited about the future on them in the markets we're in and we believe we have an opportunity again marketshare thanks to our focus on affordability and are compelling differentiated high performance homes series but that i like turn the calder to cross who will provide more detail on our fine out was all it's and give some games and our first quarter like
spk_5: thanks mike and good morning everyone for the fourth quarter we generated four hundred and twenty six million in revenue a six point nine percent increase over twenty twenty one as are made into florida continued to show benefit along with increased sales from our new york and texas operations pretax income for the quarter was thirty four point four million while net income as twenty five point six million or sixty two cents per diluted share this compares to forty nine point two million and pretax income and thirty eight point four million or eighty three cents per diluted share in the fourth quarter of twenty twenty one and both my like and john discussed earlier we faced increase incentives and price discount as we delivered high margin back like during the quarter and saw for the price clearing market or home sales gross margin decrease two hundred and fifty basis points compared to the fourth quarter of twenty twenty one two and nineteen percent due primarily to these items pound just as home sales gross margin decreased a hundred and sixty basis points to twenty three point four percent incentives as a percentage of home sales revenue came in at slightly over three percent and were primarily the result and mortgage rate by the else the fourth quarter results though solidified our record year where we delivered one point four billion in revenue a forty one point four percent increase over twenty twenty one pretax income of one hundred and one point one million a fifty one percent increase over last year and a thirty nine percent increase in net income to seventy three point six million or a dollar seventy per diluted share the results were driven by strong a few growth in arizona the expansion in florida where we delivered eleven hundred and six pounds and four hundred and seventy three million revenue in our new york project providing a hundred eleven point four million and home sales revenue our how cells gross margin improved two hundred ninety basis points year over year to twenty point four percent and are adjusted hum cells gross margin in pre born and thirty basis points year over year to twenty six point nine percent we generated eighty eight net new orders in the fourth quarter down eighty percent from last year as we felt the impact of the sharp increase in interest rates and buyers waited on the sideline for a more solid direction from the federal reserve the overall slow down in net orders which reflected in our absorption rate for the core a point five home the for community for the year we averaged two point four homes for community we ended the quarter with an average fifty eight selling communities up from thirty five and the fourth quarter of last year and for the full year of twenty twenty three we expect to grow our year and active community cowed by fifteen percent to twenty percent as compared to your and when he twenty two to address some of the buyers sensitivities we've continued to work with land sea mortgage to address buyers payment needs including locking and thirty year fixed mortgage is below five percent and have seen get momentum from these efforts we also began lousy title and early twenty twenty three to further enhance our home buyers experience having our own title company allows us to ensure the highest level of service and maximize efficiency is throughout the home buying process by controlling the quality and timing of title and closing in the fourth quarter or sg in a expenses forty three point five million or ten point four percent of home sales revenue a two hundred and thirty basis point improvement from fourth quarter of last year and for the for year we had a hundred seventy eight point six million and nasty and a expense or twelve point eight percent of home sales revenue a thirty basis point improve as john said earlier we will continue to monitor and adjust our overhead structure as the market a boss our tax expense in the fourth quarter with seven point nine million dollars which represents an effective tax rate of twenty three point one percent reflecting the catch up of the federal energy efficient how credit for the year or tax effective rate was twenty five point one percent for twenty twenty three we expect our tax rate range between twenty for five and a half percent and twenty six percent thirty to the balance sheet we ended the quarter with a healthy three hundred and one million and liquidity which includes a hundred and forty one million in cash and a hundred sixty million in availability and are unsecured revolving credit facility after we pay down eighty million dollars during the quarter we also extended the maturity and additional year and remain committed to continue to expand our lindy relationships and barring capacity as john stated in his opening comments we are focused on strengthen our balance sheet and preserving liquidity and these uncertain times we feel this will enable us to operate from a position of strength as me then to twenty twenty three we finished twenty twenty two with five hundred and five point four million in total debt and achieved net debt of three hundred and sixty four point seven million dollars a ratio of debt capital at the end of the quarter was forty one point six percent and our net debt total capital ratio was thirty percent now i'd like to provide some guidance for the first quarter of twenty twenty three this guidance is based on our best estimate as of today with the current market conditions as inflation interest rates continue to change their impact may affect our overall results with that said we anticipate first quarter new home deliveries to be in the range of four hundred to four hundred forty five units and delivery a the to be in the range of five hundred and twenty thousand dollars to five hundred twenty five thousand dollars we anticipate gap home sales gross margins to be in the seventeen percent to eighty percent range reflecting fighting continued price discount and incentives with adjusted gross margins hovering around twenty one percent to twenty three percent and that concludes are prepared marks the now we'd like to open up the call for question
spk_0: thank you ladies and gentlemen at this time we will be conducting a question and answer session if you would like to ask a question please best start one on the telephone keypad a confirmation toward will indicate your line is in the question kill you may press start to if you would like to remove your question from the que for participants using speaker equipment it may be necessary to pick up your handset before pressing the stock east ladies and gentlemen we will wait for a moment while we polled for questions our first question comes from the line of alex regal from be writing please go ahead
spk_6: thank you very much in my next quarter gentlemen tough times here but i simply command you through all i'm john or make mike could you talk a little bit about some of the region old man trend that you're see across your source the territories
spk_7: mikey when they turn out might
spk_1: i would say really coming to the ended december to where we are today
spk_8: that we have had the
spk_1: a very nice bump back in all of our markets are all of our regions and to robber demographics the mood for knocking on wood that this continues word we have been very excited about we've got a week sales it's places at all their communities panda it seems i would find the sweet spot between
spk_3: or price recalibration the what we're offering in terms of financial incentives to dry the right that type of traffic and to get the right absorbed as right back into our communities
spk_9: that it's helpful and then
spk_1: what was the inflation rate in the fourth quarter in in maybe talk about sir the trending cancellations rate december january february and habits have changed well the cancellation the fourth quarter particularly in arizona was extraordinarily high be basically ran up to his close to seventy two percent in that market in general were ranging between probably ten to forty percent in our other markets
spk_6: but since that time alex it is normalized back down between the nine to fifty percent range as we've been going forward and a new praising incentive structure
spk_1: that is very helpful and man the number of homes under construction in and can you talk a little bit about up through like strategy vs are are built to order well right now we have a roughly around five hundred and forty hours is under construction approximately around a hundred or so we're nearing total completion that's dispersed around all of our to be a community so on average it's not a lot roughly around two ish i would say maybe more and some others and and labs and others ah but what we're finding is that the market is responding like a resale market most of our buyers are transacting and a period of forty five to thirty days or this is mostly around locking and interest rates that are favorable to them so we see it as i guess what maybe some of our industry peers are talking about service pack inventory strategy around sales and we're deploying a lot of those same kind of methodology is and processes to do to do exactly that so i've we have a house near completion
spk_10: were highly successful in getting that that sold and closed with an forty five to thirty day period
spk_0: it's great thank you very much
spk_11: i tanks
spk_12: thank you
spk_2: our next question cuts on the line of cars rethought from beatty i t please go ahead
spk_1: thanks my guys
spk_13: alex just as my one of my questions but i do when asked about the lockout so i think fifty three hundred owned a percentage of those are are fully developed in what your guess as to what your your developments been might be this year either on taken down a lot options were finishing out the stuff you already
spk_1: a call this is ah john major
spk_2: so ah that's about the last that we all know about forty five percent of our total lockdown and as we've ah show before our goal is to really be building a home on that live within twelve to eighteen months so i would say most of those slots are that we added we own and have taken down or
spk_1: a very close to our starting homes on our within that time period add anything that would require entitlements or required more land development we typically have used more structured ah transaction i will be taken down to that closer to when it's him finish like condition as it relates to sort of executing on our options as year i think was shared and are prepared remarks
spk_12: so anything that ah we believe still me to underwriting guidelines was still execute on anything that we believe maybe challenge whether it's by pricing saying or provided by costs were we engage in with the land owners and a seller's to renegotiate send the that the transaction structure and sometimes pricing as well as our lands band will beat down this year i would say probably and that twenty age twenty five percent range overall this year are given how fast we grew and twenty twenty two i with expansion in florida
spk_1: and i appreciate that details on thanks i'm and ended up on the side note did you walk from any option contracts this fourth quarter and if you did what what was what with the charges associated
spk_6: oh we didn't walk from any in the fourth quarter we didn't have any charges in the fourth quarter okay thanks and an less question just on the community can grow chris i think you said fifteen to twenty percent target for twenty three is is that will that result in any of the significant makes adjustments geographically obviously texas is coming i know but just as
spk_14: oh and obviously newark are away or but roughly what do you think your split among communities might be if you if you hit that target or in twenty three in terms of a geographical share thanks
spk_6: yeah
spk_15: it'll be about the same split as it was at the end of the year
spk_16: the or acts like he said new york went downtown but we only had three lots left arm in new york ah but generally speaking
spk_0: we're trying to maintain that balance
spk_17: between the the different regions taxes will come on and it into the year out with more volume that that that generally speaking on the about the same max thanks chris think cells but again i scrub thank you
spk_18: next question comes from the line of matthew place from barclays please go ahead
spk_19: hey morning everyone thanks for taking the questions
spk_3: your question and some of the year to date date trends be as helpful or you gave around sales pace and january and february
spk_1: just curious you know as as clearly was a strong start to the year but you know i'll and a lot of places seen with your peers and then in a rates of kind of moved higher called mid february and you've seen some of the pullbacks and in the overall data yeah i'm jersey doesn't get into some of the leading edge of trends you know what what what spin
spk_3: you know housing market and kind of evolving you know in the past couple weeks and you're specifically with the been gonna lay layer around the incentive conversation into that rio rio pulling back on and centers and now have an oppressor little harder hours that playing into this very dynamic environment next access
spk_1: sir it as my told question
spk_3: i would say but let me begin by saying art or sales week last week was probably one of the best celtics we had
spk_1: this year if not probably since it history of our campaign of albeit at we have more communities and way that before but
spk_20: it does not seem like the trans or abating currently
spk_1: as well as about that we are decreasing or incentives can we go forward and when i mean by that is cruising really around price decreases and incentives to can't keep our our homes moving absorption rate up we found for the bottom of that around the first week or so of january's we were coming through december and started to peel sales that kind of you know cut moderating to the extent that they were and and what we were against and then us found the sweet spot as been building else and said point so really what we did he is were the hike inflationary came through the company or we had to make course corrections that were probably larger and bigger around pricing adding more incentive to get the absorb and then as we come through an a new years began of those prices adjustments have retracted and in some cases where now does reselling at part we have a cancellation and in other areas particular like a north orlando we've actually he's still getting some price increases albeit minor from where they were in the past but we're still able to get some price increasing into some of our community so
spk_3: i think again
spk_1: we're feeling that the consumer is adjusting to the new normal which is real rates that are around that
spk_17: five ish if he well with the by the animal on it they know it's are going back to three and a half other looking at pricing in they're seeing some adjustments well be made but they're not looking at radical price adjustments the we saw market continues to be very low so their options are limited it were same people coming out a ramp rentals they've been there for a year the reasons are coming out there seen or read the rental rates going up and they're saying this is an opportunity to jump into the new housing market and adding are capitalizing on that i will say though that probably the more attracted to are smaller square footage is and lower price points which you would expect
spk_2: but we believe that we have it's a really wide array of attractive products that are available time and we have of our inventory that we can deliver in at forty five to thirty day period so i think all in all i'm really excited about how the years he has commenced
spk_1: warnock and i would that it continues but we're feeling pretty good from at least the optics we had about what the future looks like you're in the next quarter so
spk_2: gotta that thanks for them i got super helpful so then second one on on them gross margin you know i it to the extent you've been reducing incentives
spk_17: you know and and i think i heard john say earlier that you know you you're you're starting to see some of the cost reductions coming through yeah i know i know you want to guide beyond t one but it but are you where are you getting any kind of visibility to have been on a bottoming and in gross margins at some point or is it just kind of too early to say the stage
spk_0: yeah i think it's probably too early
spk_21: we will start saying the probably the benefits of some of those cost reductions but that's probably not going to happen in the ladder quarters of this year the third and fourth quarter
spk_13: and it really depends on how much more we need to continue to provide incentives are about the next several quarters so if we continue see the momentum that we've had in this year then they're certainly an opportunity for some margin expansion ah the latter half of this year i think will happen
spk_1: we'll have to wait wait and see how this
spk_3: next quarter or two girls
spk_1: or it like sounds like they're one good luck as expect and faster thank you ladies and gentlemen if you wish to ask a question please press start one or next question comes on the line of alex valle from housing research center please go ahead yeah think german i was hoping you could gonna give us the path ahead for the texas region right now you're be backlog but ah my the see oprah thousand lots i'm kind of curious you guys can talk about you know what that's gonna look like what kind of price point i think in the past you are no eight hundred for million close range but you know i'm wondering if that's gonna change get any color on you know what we should expect in terms of some type of run rate whether it's later this year or next year the to get an idea where it where you get going dirt that art museum
spk_5: as my for some like thanks for the question that is or community and kyle called am dumb or you're right it it's closed about a thousand lots of but will we had there is a false spectrum spectrum of product offering from entry level to first time first time move up the price points will be
spk_1: if we're within the forced to that sixers roughly
spk_7: surfing to straddle a little bit on the other side of that i we're currently in our app development stage lot should be completed here coming into early summer
spk_21: amber looking to gilbert a goal hopefully by fall of all things go well and possibly opening up from sales by the end of the year and and really starting in the full production at that community and twenty twenty four
spk_22: got it in if it's going full blast you know what what's the roughly a new units or how mean if it's not if it wanted money how many different body types are gonna be available bowery me running three to three or four communities at a given time when it's up and running and so yeah i'll be probably a couple
spk_0: hundred a year that would be coming out of that collectively and adults are about of itself out depending upon what program it is in full swing and but once command line of on what's going offline so you know he could range from one hundred fifty the about two hundred
spk_2: done it
spk_0: and you know in the in the current environment you know the fed still talking about raising interest rates and we can someone that didn't fall quarter our users thinking about that going forward in a rates than stay above seven percent you know how much can you buy down the way to or what's your strategy you know how you get thinking about it
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