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LH

Landsea Homes Corp (LSEA)·Q3 2024 Earnings Summary

Executive Summary

  • Solid quarter with broad-based growth: revenues rose 22% YoY to $338.5M, home sales revenue +26% to $325.6M, deliveries +40% to 629; diluted EPS was $0.30 and home sales gross margin beat guidance at 17.1% (adj. 22.8%) .
  • Mix and scale tailwinds: SG&A ratio improved 250 bps YoY to 13.9% on scale and cost actions; incentives eased vs Q2 in July before rising again with rate volatility; adjusted EBITDA increased to $37.7M .
  • Guidance reset: FY24 deliveries raised to 2,890–3,000 (from 2,500–2,900), ASP to $520k–$535k (from $500k–$525k), but GAAP home sales gross margin guided down to ~15% (from 17–18%); adjusted gross margin guided ~21% .
  • Stock catalysts: Q3 beat vs company’s prior guide on gross margin, ASP, and adjusted margin; tempered Q4 margin tone (higher cost of 3.99% buydowns and 10Y volatility) and deleveraging trajectory (mid‑40% debt/cap target by Q1’25) frame near‑term narrative .
  • Estimates: S&P Global consensus for Q3 2024 was unavailable in our system; we cannot provide beat/miss vs Street for EPS and revenue (SPGI mapping error).

What Went Well and What Went Wrong

  • What Went Well

    • Deliveries, revenue, and orders accelerated: deliveries +40% YoY to 629, revenue +22% to $338.5M, net new orders +29% to 626; absorption was 2.5/month with 83.3 average selling communities (+40% YoY) .
    • Margins beat internal guide: GAAP home sales gross margin of 17.1% (vs ~15% guided), adjusted home sales gross margin 22.8% (vs 20–21% guided); CEO cited “above our stated guidance range” .
    • Operating leverage and scale: SG&A as % of revenue improved 250 bps YoY; cycle times reduced and purchase/pricing scale benefits emerging; adjusted EBITDA rose to $37.7M .

  • What Went Wrong

    • Margin pressure drivers persist: discounts/incentives and higher interest costs weighed on gross margins vs prior year; cancellations ticked to 11% (from 9%) .
    • Q4 margin tone more cautious: management signaled Q4 margins likely lower than prior Q2 guide due to costlier 3.99% incentive offers and rising 10Y yields; competitive intensity elevated in FL/TX .
    • Leverage still elevated vs target: debt/cap at 51.8% (net debt/cap 49.2%) as of Q3 end; path to mid‑40% debt/cap targeted by Q1’25 .

Financial Results

  • Income statement and operating metrics (chronological columns)
MetricQ1 2024Q2 2024Q3 2024
Total Revenues ($M)$294.0 $431.1 $338.5
Home Sales Revenue ($M)$292.6 $418.2 $325.6
Diluted EPS ($)$0.01 $0.08 $0.30
Home Sales Gross Margin % (GAAP)14.9% 14.9% 17.1%
Adjusted Home Sales Gross Margin %19.4% 21.1% 22.8%
Deliveries (Units)505 760 629
ASP ($)$579,000 $550,000 $518,000
Net New Orders (Units)612 760 626
  • Q3 2024 by geography vs prior year
RegionQ3 2023 HomesQ3 2023 Revenue ($M)Q3 2023 ASP ($k)Q3 2024 HomesQ3 2024 Revenue ($M)Q3 2024 ASP ($k)
Arizona115 $50.314 438 192 $85.333 444
California115 $103.982 904 110 $96.900 881
Colorado———40 $18.881 472
Florida218 $103.766 476 162 $72.768 449
Texas———125 $51.728 414
Total448 $258.062 576 629 $325.610 518
  • KPIs across quarters
KPIQ1 2024Q2 2024Q3 2024
Net New Orders (Units)612 760 626
Monthly Absorption Rate3.3 3.0 2.5
Cancellations (% of Gross Orders)10% 11% 11%
Backlog (Units)624 694 691
Backlog ($M)$384.3 $391.1 $373.1
Avg. Selling Communities62.6 84.0 83.3
SG&A % of Home Sales Revenue15.2% 13.0% 13.9%
Backlog Conversion (%)——91%
  • Q3 vs Company Guidance (issued on Aug 1, 2024)
MetricQ3 2024 Guide (Aug 1)Actual Q3 2024Result
Deliveries (Units)625–700 629 In line
Delivery ASP ($)$495k–$510k $518k Above
GAAP Home Sales Gross Margin %~15% 17.1% Beat
Adjusted Home Sales Gross Margin %20%–21% 22.8% Beat

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
New Home Deliveries (Units)FY 20242,500–2,900 (May 1) 2,890–3,000 (Nov 4) Raised
Delivery ASP ($)FY 2024$500k–$525k (May 1) $520k–$535k (Nov 4) Raised
Home Sales Gross Margin % (GAAP)FY 202417%–18% (May 1) ~15% (Nov 4) Lowered
Adjusted Home Sales Gross Margin %FY 2024—~21% (Nov 4) New/Provided
GAAP Home Sales Gross Margin %Q4 202418%–19% (Aug 1) Management signaled lower than prior given higher cost of 3.99% incentives and 10Y volatility (Nov 4) Lowered (qualitative)
Tax RateFY 2024—24%–26% (Nov 4) Provided

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Incentives and Mortgage Rate BuydownsElevated, ~5% of revenue in Q1; ~6% in Q2; rate volatility dictates levels Costlier 3.99% vs 4.99% offers; competitive intensity in FL/TX; watching impact into Q4 Pressure persisting
Cycle Times and Build EfficiencyImproved cycle times; goal to drive turns and cash flow Further reductions; single‑family cycle down by 25 days QoQ in some markets Improving
Mix shift: Quick Move‑In vs Build‑to‑OrderHigh spec to meet 45–60 day close demand Gentle pivot toward build‑to‑order (20–30%) with higher margins; still maintaining spec for competitiveness Mixed, cautiously favorable for margin
SG&A LeverageQ2 SG&A 13% with cost realignment; targeting 11–12% next year Q3 SG&A 13.9% with further leverage expected in Q4; 250 bps YoY improvement Improving
Land‑Light Strategy & Lots57% controlled lots in Q2; focus on options/land bankers 56% controlled in Q3; lots totaled 11,868; continued asset‑light focus Stable
Regional TrendsFL, AZ, CA strong in Q2; TX ramping post acquisition Solid demand; storms didn’t disrupt FL ops; TX/CO contributed to volume Positive but competitive
Leverage TargetsDebt/cap 52.8% in Q2; deleveraging priority Debt/cap 51.8% and net debt/cap 49.2%; mid‑40% by Q1’25 target Improving trajectory
Pricing/Cost InputsSome lumber cost relief; land costs sticky Costs down 3–5% YoY in direct build; targeted price increases in select markets Mixed tailwinds

Management Commentary

  • “Home sales gross margin came in above our stated guidance range at 17.1%, and SG&A as a percent of home sales revenue improved 250 basis points… Earnings of $0.30 per diluted share, a 36% improvement over the prior year period.” – CEO John Ho .
  • “Incentives and discounts for the quarter were just below 6% of home sales revenue… We have also seen more aggressively advertised fixed rate incentives… many offering 3.99% rates, which cost more… than the 4.99% rates we have been using.” – CFO Chris Porter .
  • “We reduced cycle times for our typical single‑family detached home by 25 calendar days just from last quarter alone… a 13.4% decrease.” – President/COO Michael Forsum .
  • “We expect to achieve our mid‑40% [debt‑to‑cap] target by the end of the first quarter of 2025.” – CEO John Ho .
  • “Backlog ended the quarter with 691 homes for a total value of $373.1 million… During the quarter, we had 91% backlog conversion rate.” – CFO Chris Porter .

Q&A Highlights

  • Mix pivot and margins: Company is gently shifting to more build‑to‑order (20–30%) which typically runs 100–200 bps higher margin than quick move‑in; will maintain spec inventory for competitiveness .
  • Margin guide dynamics: Q3 beat prior gross margin guide largely due to lower incentive costs and some mix; Q4 margins likely below prior Q2 guide given higher costs for 3.99% buydowns and 10Y volatility .
  • Purchase accounting cadence: ~$5.6M in Q3 (~1.7% impact), with similar magnitude expected in Q4; larger amortization in 2025 (Antares/Florida) .
  • SG&A path: structural actions drive leverage; target aligns with industry (10–12%) over time .
  • Demand into October: absorption ticked up vs Aug/Sep; strong fall season commentary .

Estimates Context

  • We attempted to fetch S&P Global consensus for Q3 2024 EPS and revenue, but the mapping for LSEA was unavailable in our system (SPGI mapping error). As a result, we cannot provide a validated beat/miss vs Street for EPS and revenue for Q3 2024.
  • Company did beat its own Q3 guidance on GAAP and adjusted gross margin and ASP, and delivered units within the guidance range .

Key Takeaways for Investors

  • Execution exceeded internal targets: Q3 gross margin and adjusted gross margin both beat company guidance, with ASP above guide and deliveries in range—supportive for near‑term sentiment despite a tougher incentive backdrop .
  • Margin headwinds into Q4: management’s more cautious tone on Q4 gross margins (3.99% incentives, 10Y volatility) suggests near‑term gross margin pressure vs prior Q2 guidance; watch incentive intensity and Treasury moves .
  • Scale benefits accruing: SG&A leverage improved 250 bps YoY, cycle times down, and rebates/purchasing scale aiding direct costs—continuation could offset some incentive pressure in 2025 .
  • Mix and geography matter: build‑to‑order share rise and Texas/Colorado contributions carry implications for margins and ASP; California strength offset by competitive Florida/Texas markets .
  • Deleveraging roadmap: debt/cap 51.8% and net debt/cap 49.2% with target mid‑40% debt/cap by Q1’25; progress would expand financial flexibility and may improve valuation perception .
  • Raised FY outlook (units, ASP) but lower GAAP margin guide: top‑line confidence is higher while acknowledging pricing/incentive headwinds—model scenarios should reflect raised volume/ASP but tempered gross margin .
  • Monitoring points: incentive rate offers vs peers (3.99% vs 4.99%), absorption trajectory, backlog conversion, and SG&A leverage pace; Q4 margin print and 2025 commentary will be key stock drivers .

Other Q3-Period Press Releases (Context)

  • Operational expansions: Added more homes in Kyle, TX (Oct 15), and signed a 14,725 sq ft Dallas office lease (Nov 18), reinforcing Texas presence and scaling efforts .
  • Investor engagement: Presented at 16th Annual Southwest IDEAS conference (Nov 8) .

Notes:

  • All financial and operational data cited above come from company 8‑K filings, press releases, and the Q3 2024 earnings call transcript as referenced.
  • S&P Global consensus estimates for Q3 2024 were unavailable in our system; thus, no Street beat/miss assessment is provided.