Management Commentary
“Landsea Homes posted strong year-over-year top and bottom-line growth in the third quarter of 2022, as home sales revenue increased 56% to $326 million and earnings grew 130% to $0.49 per diluted share,” said John Ho, Chief Executive Officer of Landsea Homes. “We also continued to make progress on the margin front generating a 480 basis-point improvement to our home sales gross margin, which came in at 20.9%. Our teams did an excellent job overcoming operational obstacles and supply chain issues in the quarter, particularly our Florida division, where we experienced closing delays but no major property damage due to Hurricane Ian.”
Mr. Ho continued, “As has been widely reported, new home sales activity slowed in the third quarter, as the combination of higher interest rates and negative buyer psychology weighed on demand. These factors also led to an increase in cancellation activity in our backlog, resulting in a cancellation rate of 9% of beginning backlog for the quarter. We are proactively adjusting our sales efforts to spur demand but expect the landscape to remain uncertain until there is more clarity on the interest rate outlook.”
Mr. Ho concluded, “Despite these near-term headwinds, we remain optimistic about the long-term outlook for our industry and our company. Existing home inventory remains scarce in our markets, and we believe that we have positioned our company in markets with great long-term housing fundamentals that are expected to experience outsized job and population growth. These factors, combined with our attractive product profile, solid balance sheet and operational discipline, give us confidence in the future of Landsea Homes.”
Operating Results
Total revenue increased 57% to $335.6 million compared to $214.1 million in the third quarter of 2021 primarily driven by increases in average sales price across our divisions, increased performance from our Florida division, and the delivery of units from our New York operations.
Total homes delivered increased 43% to 543 homes at an average sales price of $601,000 compared to 380 homes delivered at an average sales price of $550,000 in the third quarter of 2021. The increase in deliveries was attributable to the larger contribution of our Florida operations, coupled with deliveries from New York.
Net new home orders were 257 homes with a dollar value of $165.5 million, an average sales price of $644,000 and a monthly absorption rate of 1.5 sales per active community. This compares to 275 homes with a dollar value of $184.9 million, an average sales price of $673,000 and a monthly absorption rate of 2.6 sales per active community in the prior year period. The decrease in new home orders was due to slowing demand related to the significant increase in interest rates which have created uncertainty with homebuyers and impacted affordability.
Total homes in backlog increased 18% to 1,285 homes with a dollar value of $741.1 million and an average sales price of $577,000 at September30, 2022. This compares to 1,092 homes with a dollar value of $606.2 million and an average sales price of $555,000 at September30, 2021. The increase in units and value is due to acquired inventory from our homebuilder acquisition in January. Average sales prices in backlog increased for all of our divisions, reflecting price appreciation from earlier in the year.
Total lots owned or controlled at September30, 2022, increased 27% to 12,410 compared to 9,756 at September30, 2021, primarily due to the acquisition of Hanover Family Builders and additional lots under control in Texas. Additionally, we have accelerated our asset-light strategy and now control 57% of our lots compared to 43% owned.
Home sales gross margin increased to 20.9% from 16.1% in the prior year period. Adjusted home sales gross margin (a non-GAAP measure) increased to 27.2% compared to 21.4% in the prior year period. The lift was primarily due to price appreciation and an increase in gross margins within our California and Florida segments.
Net income attributable to Landsea Homes increased to $20.0 million compared to $10.8 million in the prior year period. Adjusted net income attributable to Landsea Homes (a non-GAAP measure) increased to $27.6 million compared to $8.2 million in the prior year period. Net income per share on a fully diluted basis increased to $0.49 compared to $0.23 in the third quarter of 2021. Adjusted net income per share (a non-GAAP measure) on a fully diluted basis increased to $0.69 compared to $0.18 in the third quarter of 2021.
Adjusted EBITDA (a non-GAAP measure) increased to $47.4 million compared to $19.3 million in the prior year period.
Balance Sheet
As of September30, 2022, the Company had total liquidity of $198.1 million consisting of cash and cash equivalents and cash held in escrow of $117.4 million and $60.7 million in availability under the Company’s $675 million unsecured revolving credit facility. Total debt was $585.1 million compared to $461.1 million at December31, 2021.
Landsea Homes’ ratio of debt to capital was 46.1% at September30, 2022 and the Company’s net debt to net book capitalization (a non-GAAP measure) was 40.6% at September30, 2022.
2022 Outlook
Fourth quarter 2022
- New home deliveries anticipated to be in a range of 750 to 800
- Delivery ASPs expected to be in a range of $560,000 to $580,000
- Home sales gross margin to be approximately 20% on a GAAP basis, or 26% to 27% on an adjusted basis.
Conference Call
The Company will hold a conference call today at 7:00 a.m. Pacific Time (10:00 a.m. Eastern time) to discuss its third quarter 2022 results.
- Toll-free dial-in number: 1-888-999-3182
- International dial-in number: 1-848-280-6330
The conference call will be broadcast live and available for replay here and via the Investors section of the Landsea Homes website at https://ir.landseahomes.com/.
A replay of the conference call will be available after 1:00 p.m. Eastern time on the same day through the same time on November 17, 2022.
Replay Details:
- Toll-free replay number: 1-844-512-2921
- International replay number: 1-412-317-6671
- Replay ID: 11152571
About Landsea Homes
Landsea Homes Corporation (Nasdaq: LSEA) is a publicly traded residential homebuilder based in Newport Beach, CA that designs and builds best-in-class homes and sustainable master-planned communities in some of the nation’s most desirable markets. The company has developed homes and communities in New York, Boston, New Jersey, Arizona, Florida, Texas and throughout California in Silicon Valley, Los Angeles and Orange County. Landsea Homes was named the 2022 winner of the prestigious Builder of the Year award, presented by BUILDER magazine, in recognition of a historical year of transformation.
An award-winning homebuilder that builds suburban, single-family detached and attached homes, mid-and high-rise properties, and master-planned communities, Landsea Homes is known for creating inspired places that reflect modern living and provides homebuyers the opportunity to “Live in Your Element.” Our homes allow people to live where they want to live, how they want to live – in a home created especially for them.
Driven by a pioneering commitment to sustainability, Landsea Homes’ High Performance Homes are responsibly designed to take advantage of the latest innovations with home automation technology supported by Apple®. Homes include features that make life easier and provide energy savings that allow for more comfortable living at a lower cost through sustainability features that contribute to healthier living for both homeowners and the planet.
Led by a veteran team of industry professionals who boast years of worldwide experience and deep local expertise, Landsea Homes is committed to positively enhancing the lives of our homebuyers, employees and stakeholders by creating an unparalleled lifestyle experience that is unmatched.
For more information on Landsea Homes, visit: www.landseahomes.com.
Forward-Looking Statements
Certain statements in this press release may constitute “forward-looking statements” within the meaning of the federal securities laws, including, but not limited to, our expectations for future financial performance, business strategies or expectations for our business, including as they relate to anticipated effects of the business combination with LF Capital Acquisition Corporation on January 7, 2021 (the “Business Combination”). These statements constitute projections, forecasts, and forward-looking statements, and are not guarantees of performance. Landsea Homes cautions that forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Words such as “may,” “can,” “should,” “will,” “estimate,” “plan,” “project,” “forecast,” “intend,” “expect,” “anticipate,” “believe,” “seek,” “target,” “look” or similar expressions may identify forward-looking statements. Specifically, forward-looking statements may include statements relating to:
- the benefits of the Business Combination and the acquisitions of Vintage Estate and Hanover (the “Acquisitions”);
- the future financial performance of the Company;
- changes in the market for Landsea Homes’ products and services; and
- other expansion plans and opportunities.
These forward-looking statements are based on information available as of the date of this press release and our management’s current expectations, forecasts, and assumptions, and involve a number of judgments, risks and uncertainties that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements.
These risks and uncertainties include, but not are limited to, the risk factors described by Landsea Homes in its filings with the Securities and Exchange Commission (“SEC”). These risk factors and those identified elsewhere in this press release, among others, could cause actual results to differ materially from historical performance and include, but are not limited to:
- the ability to recognize the anticipated benefits of the Acquisitions, which may be affected by, among other things, competition, the ability to integrate the combined businesses and the acquired business, and the ability of the combined business and the acquired business to grow and manage growth profitably;
- costs related to continuing as a public company;
- the ability to maintain the listing of Landsea Homes’ securities on Nasdaq;
- the outcome of any legal proceedings that may be instituted against the Company;
- changes in applicable laws or regulations;
- the inability to launch new Landsea Homes products or services or to profitably expand into new markets;
- the possibility that the Company may be adversely affected by other economic, business, and/or competitive factors;
- risks and uncertainties relating to the material weaknesses in our internal controls over financial reporting;
- the possibility that additional information may arise that would require us to make further adjustments or revisions to our historical financial statements, report additional material weaknesses or delay the filing of our current financial statements; and
- other risks and uncertainties indicated in Landsea Homes’ SEC reports or documents filed or to be filed with the SEC by Landsea Homes.
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.
Investor Relations Contact:
Drew Mackintosh
Mackintosh Investor Relations, LLC
drew@mackintoshir.com
(310) 924-9036
Media Contact:
Annie Noebel
Cornerstone Communications
anoebel@cornerstonecomms.com
(949) 449-2527
Landsea Homes Corporation
Consolidated Balance Sheets – Unaudited
| September 30, 2022 | December 31, 2021 | ||||
| (dollars in thousands) | |||||
| Assets | |||||
| Cash and cash equivalents | $ | 110,192 | $ | 342,810 | |
| Cash held in escrow | 7,190 | 4,079 | |||
| Restricted cash | — | 443 | |||
| Real estate inventories | 1,179,418 | 844,792 | |||
| Due from affiliates | 5,180 | 4,465 | |||
| Investment in and advances to unconsolidated joint ventures | — | 470 | |||
| Goodwill | 68,639 | 24,457 | |||
| Other assets | 98,239 | 43,998 | |||
| Total assets | $ | 1,468,858 | $ | 1,265,514 | |
| Liabilities | |||||
| Accounts payable | $ | 82,347 | $ | 73,734 | |
| Accrued expenses and other liabilities | 114,836 | 97,724 | |||
| Due to affiliates | 2,357 | 2,357 | |||
| Warrant liability | — | 9,185 | |||
| Notes and other debts payable, net | 585,065 | 461,117 | |||
| Total liabilities | 784,605 | 644,117 | |||
| Commitments and contingencies | |||||
| Equity | |||||
| Stockholders’ equity: | |||||
| Preferred stock, $0.0001 par value, 50,000,000 shares authorized, none issued and outstanding as of September30, 2022 and December31, 2021, respectively | — | — | |||
| Common stock, $0.0001 par value, 500,000,000 shares authorized, 42,110,794 issued and 40,950,043 outstanding as of September30, 2022, 46,281,091 issued and outstanding as of December31, 2021 | 4 | 5 | |||
| Additional paid-in capital | 497,078 | 535,345 | |||
| Retained earnings | 132,767 | 84,797 | |||
| Total stockholders’ equity | 629,849 | 620,147 | |||
| Noncontrolling interests | 54,404 | 1,250 | |||
| Total equity | 684,253 | 621,397 | |||
| Total liabilities and equity | $ | 1,468,858 | $ | 1,265,514 | |
Landsea Homes Corporation
Consolidated Statements of Operations – Unaudited
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||
| (dollars in thousands, except per share amounts) | |||||||||||||||
| Revenue | |||||||||||||||
| Home sales | $ | 326,496 | $ | 208,916 | $ | 975,269 | $ | 603,281 | |||||||
| Lot sales and other | 9,089 | 5,213 | 45,222 | 21,541 | |||||||||||
| Total revenues | 335,585 | 214,129 | 1,020,491 | 624,822 | |||||||||||
| Cost of sales | |||||||||||||||
| Home sales | 258,362 | 175,349 | 770,220 | 511,177 | |||||||||||
| Lot sales and other | 10,737 | 3,419 | 40,546 | 16,929 | |||||||||||
| Total cost of sales | 269,099 | 178,768 | 810,766 | 528,106 | |||||||||||
| Gross margin | |||||||||||||||
| Home sales | 68,134 | 33,567 | 205,049 | 92,104 | |||||||||||
| Lot sales and other | (1,648 | ) | 1,794 | 4,676 | 4,612 | ||||||||||
| Total gross margin | 66,486 | 35,361 | 209,725 | 96,716 | |||||||||||
| Sales and marketing expenses | 21,063 | 12,299 | 64,366 | 34,880 | |||||||||||
| General and administrative expenses | 21,111 | 16,905 | 70,734 | 45,826 | |||||||||||
| Total operating expenses | 42,174 | 29,204 | 135,100 | 80,706 | |||||||||||
| Income from operations | 24,312 | 6,157 | 74,625 | 16,010 | |||||||||||
| Other income (expense), net | 920 | 394 | (793 | ) | 3,927 | ||||||||||
| Equity in net income of unconsolidated joint ventures | 70 | 168 | 139 | 814 | |||||||||||
| Gain (loss) on remeasurement of warrant liability | — | 7,040 | (7,315 | ) | (3,245 | ) | |||||||||
| Pretax income | 25,302 | 13,759 | 66,656 | 17,506 | |||||||||||
| Provision for income taxes | 4,021 | 2,977 | 17,460 | 3,160 | |||||||||||
| Net income | 21,281 | 10,782 | 49,196 | 14,346 | |||||||||||
| Net income (loss) attributable to noncontrolling interests | 1,311 | (15 | ) | 1,226 | (41 | ) | |||||||||
| Net income attributable to Landsea Homes Corporation | $ | 19,970 | $ | 10,797 | $ | 47,970 | $ | 14,387 | |||||||
| Income per share: | |||||||||||||||
| Basic | $ | 0.49 | $ | 0.23 | $ | 1.10 | $ | 0.31 | |||||||
| Diluted | $ | 0.49 | $ | 0.23 | $ | 1.09 | $ | 0.31 | |||||||
| Weighted average common shares outstanding: | |||||||||||||||
| Basic | 39,935,152 | 45,281,091 | 42,768,269 | 45,077,015 | |||||||||||
| Diluted | 40,097,269 | 45,329,891 | 42,943,871 | 45,146,552 | |||||||||||
Home Deliveries and Home Sales Revenue
| Three Months Ended September 30, | ||||||||||||||||||||||||
| 2022 | 2021 | % Change | ||||||||||||||||||||||
| Homes | Dollar Value | ASP | Homes | Dollar Value | ASP | Homes | Dollar Value | ASP | ||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||
| Arizona | 154 | $ | 69,690 | $ | 453 | 171 | $ | 63,464 | $ | 371 | (10 | )% | 10 | % | 22 | % | ||||||||
| California | 128 | 118,978 | 930 | 121 | 110,046 | 909 | 6 | % | 8 | % | 2 | % | ||||||||||||
| Florida | 243 | 103,086 | 424 | 81 | 30,306 | 374 | 200 | % | 240 | % | 13 | % | ||||||||||||
| Metro New York | 11 | 28,132 | 2,557 | — | — | — | N/A | N/A | N/A | |||||||||||||||
| Texas | 7 | 6,610 | 944 | 7 | 5,100 | 729 | — | % | 30 | % | 29 | % | ||||||||||||
| Total | 543 | $ | 326,496 | $ | 601 | 380 | $ | 208,916 | $ | 550 | 43 | % | 56 | % | 9 | % | ||||||||
| Nine Months Ended September 30, | ||||||||||||||||||||||||
| 2022 | 2021 | % Change | ||||||||||||||||||||||
| Homes | Dollar Value | ASP | Homes | Dollar Value | ASP | Homes | Dollar Value | ASP | ||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||
| Arizona | 451 | $ | 200,881 | $ | 445 | 560 | $ | 192,808 | $ | 344 | (19 | )% | 4 | % | 29 | % | ||||||||
| California | 389 | 342,217 | 880 | 384 | 346,680 | 903 | 1 | % | (1 | )% | (3 | )% | ||||||||||||
| Florida | 766 | 318,711 | 416 | 152 | 55,406 | 365 | 404 | % | 475 | % | 14 | % | ||||||||||||
| Metro New York | 43 | 95,758 | 2,227 | — | — | N/A | N/A | N/A | N/A | |||||||||||||||
| Texas | 18 | 17,702 | 983 | 10 | 8,387 | 839 | 80 | % | 111 | % | 17 | % | ||||||||||||
| Total | 1,667 | $ | 975,269 | $ | 585 | 1,106 | $ | 603,281 | $ | 545 | 51 | % | 62 | % | 7 | % | ||||||||
Net New Home Orders, Dollar Value of Orders, and Monthly Absorption Rates
| Three Months Ended September 30, | ||||||||||||||||||||||||
| 2022 | 2021 | % Change | ||||||||||||||||||||||
| Homes | Dollar Value | ASP | Monthly Absorption Rate | Homes | Dollar Value | ASP | Monthly Absorption Rate | Homes | Dollar Value | ASP | Monthly Absorption Rate | |||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||
| Arizona | 38 | $ | 15,397 | $ | 405 | 0.8 | 98 | $ | 47,922 | $ | 489 | 2.5 | (61 | )% | (68 | )% | (17 | %) | (68 | )% | ||||
| California | 68 | 56,460 | 830 | 1.8 | 142 | 107,442 | 757 | 4.6 | (52 | )% | (47 | )% | 10 | % | (61 | )% | ||||||||
| Florida | 134 | 70,973 | 530 | 1.8 | 29 | 13,869 | 478 | 1.1 | 362 | % | 412 | % | 11 | % | 64 | % | ||||||||
| Metro New York | 7 | 13,472 | 1,925 | 2.3 | 8 | 13,220 | 1,653 | 2.7 | (13 | )% | 2 | % | 16 | % | (15 | )% | ||||||||
| Texas(1) | 10 | 9,172 | 917 | 1.7 | (2 | ) | 2,487 | N/A | (0.4 | ) | (600 | )% | 269 | % | — | % | (525 | )% | ||||||
| Total | 257 | 165,474 | $ | 644 | 1.5 | 275 | 184,940 | $ | 673 | 2.6 | (7 | )% | (11 | )% | (4 | )% | (42 | )% | ||||||
| (1) | The ASP calculation for our Texas segment for the three months ended September 30, 2021 is not a meaningful disclosure due to cancellations exceeding sales as contracts are renegotiated. Our three new sales contracts during the three months ended September 30, 2021 had an ASP of $1,088 thousand. |
| Nine Months Ended September 30, | |||||||||||||||||||||||||
| 2022 | 2021 | % Change | |||||||||||||||||||||||
| Homes | Dollar Value | ASP | Monthly Absorption Rate | Homes | Dollar Value | ASP | Monthly Absorption Rate | Homes | Dollar Value | ASP | Monthly Absorption Rate | ||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||||
| Arizona | 310 | $ | 154,420 | $ | 498 | 2.6 | 531 | $ | 213,907 | $ | 403 | 4.4 | (42 | )% | (28 | )% | 24 | % | (41 | )% | |||||
| California | 357 | 330,705 | 926 | 3.4 | 422 | 379,979 | 900 | 4.2 | (15 | )% | (13 | )% | 3 | % | (19 | )% | |||||||||
| Florida | 728 | 350,029 | 481 | 3.0 | 76 | 35,556 | 468 | 1.6 | 858 | % | 884 | % | 3 | % | 88 | % | |||||||||
| Metro New York | 20 | 50,662 | 2,533 | 2.2 | 13 | 26,518 | 2,040 | 2.4 | 54 | % | 91 | % | 24 | % | (8 | )% | |||||||||
| Texas(1)(2) | 17 | 16,268 | 957 | 0.8 | (11 | ) | (5,584 | ) | N/A | (1.6 | ) | (255 | )% | (391 | )% | N/A | (150 | )% | |||||||
| Total | 1,432 | $ | 902,084 | $ | 630 | 2.9 | 1,031 | $ | 650,376 | $ | 631 | 3.7 | 39 | % | 39 | % | — | % | (22 | )% | |||||
| (1) | Monthly absorption rates for Florida and Texas in 2021 are based on five months, for the time subsequent to the acquisition of Vintage Estate Homes in May 2021. |
| (2) | The ASP calculation for our Texas segment for the nine months ended September 30, 2021 is not a meaningful disclosure due to cancellations exceeding sales as contracts are renegotiated. Our three new sales contracts during the nine months ended September 30, 2021 had an ASP of $1,088 thousand. |
Average Selling Communities
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | % Change | 2022 | 2021 | % Change | ||||
| Arizona | 16.3 | 13.3 | 23 | % | 13.1 | 13.3 | (2 | )% | |
| California | 12.3 | 10.3 | 19 | % | 11.7 | 11.1 | 5 | % | |
| Florida(1) | 25.3 | 9.0 | 181 | % | 26.9 | 9.6 | 180 | % | |
| Metro New York | 1.0 | 1.0 | — | % | 1.0 | 0.6 | 67 | % | |
| Texas(1) | 2.0 | 1.7 | 18 | % | 2.3 | 1.4 | 64 | % | |
| Total | 57.0 | 35.3 | 61 | % | 55.0 | 31.1 | 77 | % | |
| (1) | Average selling communities calculations for Florida and Texas for the nine months ended September 2021 are based on five months, for the time subsequent to the acquisition of Vintage Estate Homes in May 2021. |
Backlog
| September 30, 2022 | September 30, 2021 | % Change | ||||||||||||||||||||||
| Homes | Dollar Value | ASP | Homes | Dollar Value | ASP | Homes | Dollar Value | ASP | ||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||
| Arizona | 281 | $ | 134,771 | $ | 480 | 479 | $ | 194,031 | $ | 405 | (41 | )% | (31 | )% | 19 | % | ||||||||
| California | 224 | 214,864 | 959 | 280 | 249,709 | 892 | (20 | )% | (14 | )% | 8 | % | ||||||||||||
| Florida(1) | 767 | 374,953 | 489 | 301 | 118,632 | 394 | 155 | % | 216 | % | 24 | % | ||||||||||||
| Metro New York | 2 | 5,591 | 2,796 | 13 | 26,518 | 2,040 | (85 | )% | (79 | )% | 37 | % | ||||||||||||
| Texas | 11 | 10,914 | 992 | 19 | 17,347 | 913 | (42 | )% | (37 | )% | 9 | % | ||||||||||||
| Total | 1,285 | $ | 741,093 | $ | 577 | 1,092 | $ | 606,237 | $ | 555 | 18 | % | 22 | % | 4 | % | ||||||||
| (1) | Backlog acquired in Florida at the date of the Hanover acquisition was 522 homes with a value of $228,097thousand. |
Lots Owned or Controlled
| September 30, 2022 | September 30, 2021 | |||||||||||||
| Lots Owned | Lots Controlled | Total | Lots Owned | Lots Controlled | Total | % Change | ||||||||
| Arizona | 2,302 | 2,191 | 4,493 | 3,842 | 1,246 | 5,088 | (12 | )% | ||||||
| California | 628 | 1,948 | 2,576 | 1,005 | 1,137 | 2,142 | 20 | % | ||||||
| Florida | 2,420 | 1,978 | 4,398 | 806 | 697 | 1,503 | 193 | % | ||||||
| Metro New York | 7 | — | 7 | 50 | — | 50 | (86 | )% | ||||||
| Texas | 18 | 918 | 936 | 55 | 918 | 973 | (4 | )% | ||||||
| Total | 5,375 | 7,035 | 12,410 | 5,758 | 3,998 | 9,756 | 27 | % | ||||||
Home Sales Gross Margins
Home sales gross margin measures the price achieved on delivered homes compared to the costs needed to build the home. In the following table, we calculate gross margins adjusting for interest in cost of sales, inventory impairments (if applicable), and purchase price accounting for acquired work in process inventory (if applicable).This non-GAAP financial measure should not be used as a substitute for the Company’s operating results in accordance with GAAP. An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP. We believe this non-GAAP measure is meaningful because it provides insight into the impact that financing arrangements and acquisitions have on our homebuilding gross margin and allows for comparability of our gross margins to competitors that present similar information.
| Three Months Ended September 30, | |||||||||||
| 2022 | % | 2021 | % | ||||||||
| (dollars in thousands) | |||||||||||
| Home sales revenue | $ | 326,496 | 100.0 | % | $ | 208,916 | 100.0 | % | |||
| Cost of home sales | 258,362 | 79.1 | % | 175,349 | 83.9 | % | |||||
| Home sales gross margin | 68,134 | 20.9 | % | 33,567 | 16.1 | % | |||||
| Add: Interest in cost of home sales | 10,138 | 3.1 | % | 7,262 | 3.5 | % | |||||
| Add: Inventory impairments | — | — | % | — | — | % | |||||
| Adjusted home sales gross margin excluding interest and inventory impairments | 78,272 | 24.0 | % | 40,829 | 19.5 | % | |||||
| Add: Purchase price accounting for acquired inventory | 10,612 | 3.3 | % | 3,840 | 1.8 | % | |||||
| Adjusted home sales gross margin excluding interest, inventory impairments, and purchase price accounting for acquired inventory | $ | 88,884 | 27.2 | % | $ | 44,669 | 21.4 | % | |||
| Nine Months Ended September 30, | |||||||||||
| 2022 | % | 2021 | % | ||||||||
| (dollars in thousands) | |||||||||||
| Home sales revenue | $ | 975,269 | 100.0 | % | $ | 603,281 | 100.0 | % | |||
| Cost of home sales | 770,220 | 79.0 | % | 511,177 | 84.7 | % | |||||
| Home sales gross margin | 205,049 | 21.0 | % | 92,104 | 15.3 | % | |||||
| Add: Interest in cost of home sales | 31,224 | 3.2 | % | 25,551 | 4.2 | % | |||||
| Add: Inventory impairments | — | — | % | — | — | % | |||||
| Adjusted home sales gross margin excluding interest and inventory impairments | 236,273 | 24.2 | % | 117,655 | 19.5 | % | |||||
| Add: Purchase price accounting for acquired inventory | 41,162 | 4.2 | % | 10,969 | 1.8 | % | |||||
| Adjusted home sales gross margin excluding interest, inventory impairments, and purchase price accounting for acquired inventory | $ | 277,435 | 28.4 | % | $ | 128,624 | 21.3 | % | |||
EBITDA and Adjusted EBITDA
The following table presents EBITDA and Adjusted EBITDA for the three and nine months ended September30, 2022 and 2021. Adjusted EBITDA is a non-GAAP financial measure used by management in evaluating operating performance. We define Adjusted EBITDA as net income before (i) income tax expense (benefit), (ii) interest expenses, (iii) depreciation and amortization, (iv) inventory impairments, (v) purchase accounting adjustments for acquired work in process inventory related to business combinations, (vi) loss (gain) on debt extinguishment or forgiveness, (vii) transaction costs related to the Merger and business combinations, (viii) the impact of income or loss allocations from our unconsolidated joint ventures, and (ix) loss on remeasurement of warrant liability. We believe Adjusted EBITDA provides an indicator of general economic performance that is not affected by fluctuations in interest, effective tax rates, levels of depreciation and amortization, and items considered to be non-recurring. The economic activity related to our unconsolidated joint ventures is not core to our operations and is the reason we have excluded those amounts. Accordingly, we believe this measure is useful for comparing our core operating performance from period to period. Our presentation of Adjusted EBITDA should not be considered as an indication that our future results will be unaffected by unusual or non-recurring items.
| Three Months Ended September 30, | |||||||
| 2022 | 2021 | ||||||
| (dollars in thousands) | |||||||
| Net income | $ | 21,281 | $ | 10,782 | |||
| Provision for income taxes | 4,021 | 2,977 | |||||
| Interest in cost of sales | 10,150 | 7,282 | |||||
| Interest relieved to equity in net income of unconsolidated joint ventures | — | 281 | |||||
| Interest expense | — | 11 | |||||
| Depreciation and amortization expense | 1,382 | 1,287 | |||||
| EBITDA | 36,834 | 22,620 | |||||
| Purchase price accounting in cost of home sales | 10,612 | 3,840 | |||||
| Transaction costs | — | 328 | |||||
| Equity in net income of unconsolidated joint ventures, excluding interest relieved | (70 | ) | (449 | ) | |||
| Loss (gain) on debt extinguishment or forgiveness | — | — | |||||
| Gain on remeasurement of warrant liability | — | (7,040 | ) | ||||
| Adjusted EBITDA | $ | 47,376 | $ | 19,299 | |||
| Nine Months Ended September 30, | |||||||
| 2022 | 2021 | ||||||
| (dollars in thousands) | |||||||
| Net income | $ | 49,196 | $ | 14,346 | |||
| Provision for income taxes | 17,460 | 3,160 | |||||
| Interest in cost of sales | 31,276 | 25,648 | |||||
| Interest relieved to equity in net income of unconsolidated joint ventures | 70 | 1,056 | |||||
| Interest expense | — | 32 | |||||
| Depreciation and amortization expense | 4,445 | 3,240 | |||||
| EBITDA | 102,447 | 47,482 | |||||
| Purchase price accounting in cost of home sales | 41,162 | 10,969 | |||||
| Transaction costs | 1,205 | 4,492 | |||||
| Equity in net income of unconsolidated joint ventures, excluding interest relieved | (209 | ) | (1,870 | ) | |||
| Loss (gain) on debt extinguishment or forgiveness | 2,496 | (4,266 | ) | ||||
| Loss on remeasurement of warrant liability | 7,315 | 3,245 | |||||
| Adjusted EBITDA | $ | 154,416 | $ | 60,052 | |||
Adjusted Net Income
Adjusted Net Income to Landsea Homes is a non-GAAP financial measure that we believe is useful to management, investors and other users of our financial information in evaluating our operating results and understanding our operating results without the effect of certain expenses that were historically pushed down by our parent company and other non-recurring items. We believe excluding these items provides a more comparable assessment of our financial results from period to period. Adjusted Net Income to Landsea Homes is calculated by excluding the effects of related party interest that was pushed down by our parent company, purchase accounting adjustments for acquired work in process inventory related to business combinations, the impact from our unconsolidated joint ventures, loss (gain) on debt extinguishment or forgiveness, and loss on remeasurement of warrant liability, merger related transaction costs, and tax-effected using a blended statutory tax rate. The economic activity related to our unconsolidated joint ventures is not core to our operations and is the reason we have excluded those amounts. We also adjust for the expense of related party interest pushed down from our parent company as we have no obligation to repay the debt and related interest.
| Three Months Ended September 30, | |||||||
| 2022 | 2021 | ||||||
| (dollars in thousands, except share and per share amounts) | |||||||
| Net income attributable to Landsea Homes Corporation | $ | 19,970 | $ | 10,797 | |||
| Previously capitalized related party interest included in cost of sales | 714 | 2,571 | |||||
| Equity in net income of unconsolidated joint ventures | (70 | ) | (168 | ) | |||
| Purchase price accounting for acquired inventory | 10,612 | 3,840 | |||||
| Loss (gain) on debt extinguishment or forgiveness | — | — | |||||
| Gain on remeasurement of warrant liability | — | (7,040 | ) | ||||
| Total adjustments | 11,256 | (797 | ) | ||||
| Tax-effected adjustments (1) | 8,270 | (2,458 | ) | ||||
| Adjusted net income attributable to Landsea Homes Corporation | $ | 28,240 | $ | 8,339 | |||
| Net income attributable to Landsea Homes Corporation | $ | 19,970 | $ | 10,797 | |||
| Less: undistributed earnings allocated to participating shares | (487 | ) | (239 | ) | |||
| Net income attributable to common stockholders | $ | 19,483 | $ | 10,558 | |||
| Adjusted net income attributable to Landsea Homes Corporation | $ | 28,240 | $ | 8,339 | |||
| Less: adjusted undistributed earnings allocated to participating shares | (689 | ) | (184 | ) | |||
| Adjusted net income attributable to common stockholders | $ | 27,551 | $ | 8,155 | |||
| Earnings per share | |||||||
| Basic | $ | 0.49 | $ | 0.23 | |||
| Diluted | $ | 0.49 | $ | 0.23 | |||
| Adjusted earnings per share | |||||||
| Basic | $ | 0.69 | $ | 0.18 | |||
| Diluted | $ | 0.69 | $ | 0.18 | |||
| Weighted average common shares outstanding used in EPS – basic | 39,935,152 | 45,281,091 | |||||
| Weighted average common shares outstanding used in EPS – diluted | 40,097,269 | 45,329,891 | |||||
| (1) | Our tax-effected adjustments are based on our federal rate and a blended state rate adjusted for certain discrete items. |
| Nine Months Ended September 30, | |||||||
| 2022 | 2021 | ||||||
| (dollars in thousands, except share and per share amounts) | |||||||
| Net income attributable to Landsea Homes Corporation | $ | 47,970 | $ | 14,387 | |||
| Previously capitalized related party interest included in cost of sales | 3,831 | 9,813 | |||||
| Equity in net income of unconsolidated joint ventures | (139 | ) | (814 | ) | |||
| Purchase price accounting for acquired inventory | 41,162 | 10,969 | |||||
| Merger related transaction costs | — | 2,656 | |||||
| Loss (gain) on debt extinguishment or forgiveness | 2,496 | (4,266 | ) | ||||
| Loss on remeasurement of warrant liability | 7,315 | 3,245 | |||||
| Total adjustments | 54,665 | 21,603 | |||||
| Tax-effected adjustments (1) | 44,599 | 15,583 | |||||
| Adjusted net income attributable to Landsea Homes Corporation | $ | 92,569 | $ | 29,970 | |||
| Net income attributable to Landsea Homes Corporation | $ | 47,970 | $ | 14,387 | |||
| Less: undistributed earnings allocated to participating shares | (1,094 | ) | (315 | ) | |||
| Net income attributable to common stockholders | $ | 46,876 | $ | 14,072 | |||
| Adjusted net income attributable to Landsea Homes Corporation | $ | 92,569 | $ | 29,970 | |||
| Less: adjusted undistributed earnings allocated to participating shares | (2,111 | ) | (656 | ) | |||
| Adjusted net income attributable to common stockholders | $ | 90,458 | $ | 29,314 | |||
| Earnings per share | |||||||
| Basic | $ | 1.10 | $ | 0.31 | |||
| Diluted | $ | 1.09 | $ | 0.31 | |||
| Adjusted earnings per share | |||||||
| Basic | $ | 2.12 | $ | 0.65 | |||
| Diluted | $ | 2.11 | $ | 0.65 | |||
| Weighted shares outstanding | |||||||
| Weighted average common shares outstanding used in EPS – basic | 42,768,269 | 45,077,015 | |||||
| Weighted average common shares outstanding used in EPS – diluted | 42,943,871 | 45,146,552 | |||||
| (1) | Our tax-effected adjustments are based on our federal rate and a blended state rate adjusted for certain discrete items. |
Net Debt to Net Capital
The following table presents the ratio of debt to capital as well as the ratio of net debt to net capital which is a non-GAAP financial measure. The ratio of debt to capital is computed as the quotient obtained by dividing total debt, net of issuance costs, by total capital (sum of total debt, net of issuance costs, plus total equity).
The non-GAAP ratio of net debt to net capital is computed as the quotient obtained by dividing net debt (which is total debt, net of issuance costs, less cash, cash equivalents, and restricted cash as well as cash held in escrow to the extent necessary to reduce the debt balance to zero) by net capital (sum of net debt plus total equity). The most comparable GAAP financial measure is the ratio of debt to capital. We believe the ratio of net debt to net capital is a relevant financial measure for investors to understand the leverage employed in our operations and as an indicator of our ability to obtain financing. We believe that by deducting our cash from our debt, we provide a measure of our indebtedness that takes into account our cash liquidity. We believe this provides useful information as the ratio of debt to capital does not take into account our liquidity and we believe that the ratio of net debt to net capital provides supplemental information by which our financial position may be considered.
See table below reconciling this non-GAAP measure to the ratio of debt to capital.
| September 30, 2022 | December 31, 2021 | ||||||
| (dollars in thousands) | |||||||
| Total notes and other debts payable, net | $ | 585,065 | $ | 461,117 | |||
| Total equity | 684,253 | 621,397 | |||||
| Total capital | $ | 1,269,318 | $ | 1,082,514 | |||
| Ratio of debt to capital | 46.1 | % | 42.6 | % | |||
| Total notes and other debts payable, net | $ | 585,065 | $ | 461,117 | |||
| Less: cash, cash equivalents, and restricted cash | 110,192 | 343,253 | |||||
| Less: cash held in escrow | 7,190 | 4,079 | |||||
| Net debt | 467,683 | 113,785 | |||||
| Total equity | 684,253 | 621,397 | |||||
| Net capital | $ | 1,151,936 | $ | 735,182 | |||
| Ratio of net debt to net capital | 40.6 | % | 15.5 | % | |||
