John Ho – Chief Executive officer, Interim CFO & Director Drew Mackintosh – Mackintosh Investor Relations Michael Forsum – President & Chief Operations Officer Chris Porter – Chief Financial Officer.

Ladies and gentlemen, thank you for standing by and welcome to the Landsea Homes Fourth Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded.

[Operator Instructions] I will now like to turn the conference over to your speaker for today, Drew Mackintosh, Investor Relations. You may begin..

Good morning and welcome to Landsea Homes, 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 laws.

Landsea Homes 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 Landsea 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 it was 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 Landsea Homes website, and its SEC filings. Hosting the call today are John Ho Landsea's Chief Executive Officer, Michael Forsum, 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 Fourth Quarter and full-year 2021 and provide an update on the outlook for our company. I want to start by thanking the entire Landsea 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, Landsea 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% 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, Landsea posted earnings of $0.83 per share, driven by 40% year-over-year increase in total revenue in 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 months 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 in a cultural shift in attitudes towards homeownership 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 Landsea is well-positioned to deliver growth in excess of the overall industry's rate, thanks to the positive fundamentals and the markets in which we build our entry-level focus and appeal of our high-performance homes.

Landsea 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 Estates 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, were 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 Landsea 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 in entry-level focus aligns strongly with our returns focused business model and product positioning goals. We have already made excellent progress integrating Hanover into our existing homebuilding 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 Landsea 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 beat their budget. We believe this dynamic will persist for the foreseeable future and have positioned our company to cater to these buyers.

Proforma our acquisition of Hanover, 77% of our owned 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 buyers are looking to get more out of their homes 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 Puerto to our executive team. Chris officially joined Landsea as our CFO in December of last and has ready 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 proceed -- 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..

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 the 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 and finished the year with 600 deliveries at an average sales price up over 890,000 and started 2022 was $226 million in backlog. Our California division had an exceptional year delivery growth of 46% and 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 experience 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 Estates 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. This strategic balance in our portfolio gives us a great pipeline of lots for future communities 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're 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 would 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..

Thanks, Mike. It's great to be part of the team, and I'm looking forward to getting to know our investors and analysts more this year. I will 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 a $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 deposit in 34 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 decrease in our Arizona division.

We expect our Florida division 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 LC drill 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 pass 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 sales price of $587,000. This represents a 33% growth in volume and a 51% in total dollars compared to last year. GAAP 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 GAAP 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 with 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,.

a 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 a revolver raising approximately a $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 units 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 respect to the Hanover acquisition.

On a Landsea standalone basis. We anticipate our home sales gross margin to continue to expand and be approximately 19% to 21% on a GAAP basis. For the full-year of 2022, we anticipate new home deliveries to be in the range of 2700 units to 2900 units.

Delivery ASP is 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 GAAP basis, or 22% to 24% on an adjusted basis. Now I will turn the call back over to John for some closing remarks..

Thanks, Chris. 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.

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 a significant discount of book value our shares currently trade at, we believe Landsea 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 entirely Landsea team for an excellent 2021 and a great start to 2022.

This is a challenging homebuilding market in which to operate and one that takes the coordinated efforts of the entire organization. I'm 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..

Thank you. [Operator Instructions]. Please stand by while we compile the Q&A roster. Our first question comes from the line of Matthew Bouley with [Indiscernible]. Your line is open..

Hey, good morning. This is actually Ashley Kim on for Matt today.

I guess first question, have you done any kind of backlog stress tests in light of the recent move in rates, and maybe how many of the buyers [Indiscernible] backlog could potentially fall out if they can't get financing that they need?.

Hey Ashley, I think we have, and I think Mike, our President and CEO, can best address that..

Hey, 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 -- a 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.

Currently, we have the highest level of confidence within our backlog that we have today, that it could sustain some meaningful rate increases going forward, without any disruption or cancellation to those prospects -- backlog..

Thanks for that. And then just on that buyback authorization, how are you thinking about the balance between buying more land for future growth, the M&A strategy as well, and then balancing that with share repurchases going forward..

Sure. This is John, I'll address that. I think its a good part of our capital allocation strategy, certainly after 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 on the current markets though -- 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 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 homebuilder in the markets that we operate in..

Thanks for the color. I'm going to leave it there..

My pleasure..

Thank you. Our next question comes from the line of Alex Rygiel with B. Riley. Your line is open..

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 lofts at Hanover at attractable prices.

So maybe you could comment on exactly what you mean by that?.

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 in addition to organic land acquisition.

So similar to the strategy where we entered the Phoenix market both through organic and to some bolt-on M&A s that quickly propelled us to become one of the top home builders and 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're just continuing to play that strategy, execute that strategy in the Florida and particularly Central Florida market with the Vintage and Hanover Family acquisitions.

So Florida the share, 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 a very exciting for us given as you know all the growth prospects, the demographics, and then just the imbalance in terms of demand and support of supply in that end of the market.

But as it relates to how that's helped us just the first couple of months here and then overall, I will let Mike address that..

Alex. 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're performing at a very high level.

And we believe that 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 controlling of blobs through the limb. The Hanover Family land company, which we inherited the options through the acquisitions.

Its a great way to manage our balance sheet in the growth in that market by just getting just some time lot delivery through that entity that we now control through those options and contracts.

So its again a great testament to the organization that we acquired that made them a high-performing super capital efficient home builder and that Central Florida market. And now that we're 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..

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 FORENA. 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 overtime..

Alex, I'll address it from a cash flow perspective and then I'll turn it to Mike in terms of how the market and sales portions there. 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 FORENA on 14th and 6th. Avora were completely sold out.

I think we have a couple units to deliver, so we've actually returned a significant amount of that capital already back to the balance sheet. And what we have left now is just FORENA, and our capital, our equity commitment there is about I would say approximately $30 million.

And as we look to not only sell out, we are also expected 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 homebuilding business..

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 FORENA 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 FORENA 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 as we're 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..

And Mike, one last question. You mentioned, obviously that the last 6 to 9 months a year, you were piecing sales, given sort of market dynamics and the ability to get building materials and whatnot.

Can you update us on 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 are starting more specs.

So how does that work into the business plan this year?.

In 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 a generalized approach that I've grown up with in the industry. Being more specific, 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 Landsea family.

But that being said, in Arizona, we are deploying more of a small-er release process. Normally, if we would have a sales release of 8-10, maybe 10-12, we're still around three to four and then coming back re-pricing 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 round 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..

That's 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 applying it up in that market.

And then in the bay area, because the way that the building configuration were a little higher 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, in 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, as we're talking about as 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 result of just trying to anticipate delays through the government agencies that are permitting the starts over 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, 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. There's literally no inventory that's available for immediate move-in in any of our communities today.

So that idea of spec standing out, there are 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 the catch-up on the production cycle..

Sounds great. Thank you..

Thank you. [Operator Instructions] I'm showing no further questions in the queue. I would now like to turn the call back over to John Ho for closing remarks..

Thank you, everyone. We look forward to speaking with you in the next earnings call, that will be coming up shortly here. Thank you..

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect..