Earnings call transcript: Landsea Homes Q1 2025 sees stock surge despite EPS miss

Landsea Homes Corp (LSEA) reported a net loss of $7.3 million, or $0.20 per share, for the first quarter of 2025, missing analysts’ expectations of a $0.0825 EPS. Despite this miss, the company’s stock surged by 60.01% in after-hours trading, closing at $11.23, up from $7.015. According to InvestingPro data, this surge follows a strong week where LSEA gained 20.95%. The stock appears undervalued based on InvestingPro’s Fair Value analysis, with analysts setting price targets as high as $15. This unexpected market reaction may be attributed to strong operational performance and strategic initiatives.

Key Takeaways

• Landsea Homes missed EPS forecasts, reporting a loss of $0.20 per share.
• Despite the earnings miss, the stock price surged by 60.01% post-earnings.
• The company reported a 27% increase in home deliveries year-over-year.
• Strategic focus on presold homes and product differentiation was emphasized.
• Strong growth in Florida and Texas markets contributed to positive sentiment.

Company Performance

Landsea Homes demonstrated robust operational performance in Q1 2025, with a 27% rise in home deliveries compared to the previous year. The company is strategically shifting towards presold homes, aiming for a balanced mix with speculative homes. Despite a 20% decline in average closing prices, the focus on high-performance home series and catering to lifestyle needs, such as work-from-home, appears to have resonated positively with investors.

Financial Highlights

• Revenue: $310.81 million, a 2% increase year-over-year.
• Earnings per share: -$0.20, missing the forecast by $0.1175.
• Gross margin before inventory impairments: 13.5%.
• Adjusted gross margin: 20%.

Earnings vs. Forecast

Landsea Homes reported an EPS of -$0.20, significantly missing the forecast of -$0.0825. This miss reflects challenges in managing costs and inventory impairments, particularly in the DFW asset, which saw a $1.5 million impairment.

Market Reaction

Despite the earnings miss, Landsea Homes’ stock experienced a remarkable 60.01% surge in after-hours trading. This may be attributed to investor confidence in the company’s strategic direction and strong market presence in key regions like Florida and Texas.

Outlook & Guidance

Looking ahead, Landsea Homes remains optimistic about the industry’s long-term outlook. The company expects elevated incentive levels through 2025, with Q2 incentives projected between 7-9%. Liquidity stands at $256 million, and the debt-to-total capital ratio is 52.1%. InvestingPro analysis shows the company trading at an attractive Price/Book ratio of 0.38, suggesting potential value opportunity. Analysts tracked by InvestingPro maintain a positive outlook, forecasting profitability for the full year 2025.

Executive Commentary

CEO John Ho expressed confidence in the industry’s future, stating, "We believe the long term outlook for our industry remains positive." He emphasized the importance of product differentiation in uncertain times. President Mike Forsom highlighted the company’s competitive edge, noting, "We are outselling our competition based on our first quarter absorption pace."

Risks and Challenges

• Continued lot cost inflation poses a margin challenge.
• Uneven new home demand conditions may affect future sales.
• Mortgage rate fluctuations could impact buyer affordability.
• Inventory impairments may continue to pressure financial results.
• Maintaining competitive advantage in a rapidly changing market environment.

Q&A

No Q&A session was held during the earnings call due to a transaction announcement.

Full transcript - Landsea Homes Corp (LSEA) Q1 2025:

Conference Operator: Good day, everyone, and welcome to today’s Landsea Homes Corporation First Quarter twenty twenty five Earnings Call. At this time, all participants are in a listen only mode. Please note, this call may be recorded, and I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Drew McIntosh, Investor Relations. Please go ahead.

Drew McIntosh, Investor Relations, Landsea Homes: Good morning and welcome to Lansing Homes’ first quarter twenty twenty five earnings call. Before the call begins, would like to note that this call will include forward looking statements within the meaning of the federal securities laws. Land C 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 Land C Homes in filings with the Securities and Exchange Commission. We do not undertake any obligation to update forward looking statements.

Additionally, reconciliation of non GAAP financial measures discussed on this call to the most comparable GAAP measures can be accessed through Lansing Homes’ website and in its SEC filings. Hosting the call today are John Ho, Lansing’s Chief Executive Officer Mike Forsom, President and Chief Operating Officer and Chris Porter, Chief Financial Officer. With that, I’d like to turn the call over to John.

John Ho, Chief Executive Officer, Landsea Homes: Good morning, and thank you for joining us today as we go over our results for the first quarter of twenty twenty five and provide an update on our operations. Fancy Homes recorded a net loss of $7,300,000 in the first quarter or a net loss of $0.20 per diluted share. Home sales revenue increased 2% year over year on a 27% increase in deliveries, partially offset by a 20% decline in average closing prices. Decline in average prices were due in part to a mix shift from higher priced California communities to a higher contribution of closings from our Florida and Texas operations. Elevated incentive activity during the quarter also contributed to a decrease in ASPs.

Net new orders for the quarter increased 11% year over year on a sales pace of three point zero homes per community per month. Overall, we are encouraged by the demand elasticity we saw during the quarter as buyers responded to declines in mortgage rates and higher incentives. Order activity started off slowly to begin the year, then picked up as the quarter progressed. Affordability remains an important issue for most buyers, so financing incentives were a key driver of sales during the quarter. We continue to balance pace versus price at each of our communities with a slight lean towards pace, all things being equal.

As a production homebuilder, we feel it is important to price to market, maintain a base level of sales activity. We also made the strategic decision to sell through some of our spec home inventory in an effort to return to a more balanced approach between spec sales and built to order homes, with 67% of our first quarter deliveries also sold in the same quarter. Our goal is to return to a fifty-fifty split between specs and build to order closings over time. There are several reasons for this strategic shift. First, build times have returned to pre COVID levels, which has shortened the time frame between selling and closing on a presold home.

Second, the margin opportunities are much greater with a presold home, as it gives us the ability to charge more for lot premiums and other new home amenities. It also allows the buyer to pick out high margin options and upgrades for their home as opposed to the standardized packages found in spec homes. Finally, reducing our spec levels lowers the cash tied up and standing inventory and gives us better visibility into our future closings with the buildup of a solid backlog. A more balanced strategy is also aligned with our company’s approach to homebuilding, which emphasizes product differentiation as a way to attract customers and grow market share. We believe our core customer is a more discerning buyer who wants more out of a home than just a place to live.

That is why we have developed and refined our high performance home series to offer the latest in new home technology and innovation. While the pandemic has been over for some time, people continue to spend more time at home than ever before. Whether it’s a work from home situation, in home entertainment, or just dining in, we feel that the stay at home dynamic plays into our strengths and believe buyers will pay a premium for a home that fits their lifestyle. Of course, there are other factors that play into the decision making process when buying a home, the biggest of which is affordability. That is why we continue to work with buyers to find a new home solution and monthly payment that suits their needs.

Financing incentives remain a popular option for our customers looking to lower the monthly cost of home ownership, serve as a great selling tool with buyers looking at both new and resale homes. These incentives do, however, come at a cost to our company, representing 9% of the average closing price in the first quarter. We are optimistic that the combination of better pricing strategies and a higher mix of presold homes will offset some of the negative effects that incentives have had on our margins. We head into the latter half of the spring selling season. We continue to see opportunities to refine our operations and increase our size and scale in the markets we currently build in.

While there is some uncertainty surrounding the near term macro environment, we believe the long term outlook for our industry remains positive, given the need for additional housing supply and the desire for homeownership that is on display at our communities each week. Product differentiation is more important than ever when selling homes in uncertain times, and we feel that having communities in desirable locations and new home designs that stand out from the competition give us a distinct advantage. As a result, I remain optimistic about Landseat’s ability to compete and grow our operations over time. With that, I’d like to turn the call over to Mike, who will provide more details on our operations. Mike?

Mike Forsom, President and Chief Operating Officer, Landsea Homes: Thanks, John. Good morning to everyone. Land Sea delivered six forty three homes during the first quarter of twenty twenty five, which was near the midpoint of our guidance of 600 to 700 closings. Florida led the way in terms of delivery contribution followed by Arizona and Texas. As John mentioned, the 20% decline in ASPs was a result of a mix shift away from higher priced communities in California combined with greater contributions from lower priced regions.

ASPs were actually up year over year in Florida and Texas while ASPs in Arizona declined only slightly. The sales pace in the first quarter came at the lower end of our targeted range of three to four sales per community per month. Arizona posted the highest absorption pace at 3.8 followed by Colorado at 3.7 and Florida at 2.9. Overall, I would characterize current new home demand conditions as uneven with consistent traffic levels being offset by hesitancy to move forward on behalf of buyers. In most instances, however, can find a way to keep conversion levels steady with the right combination of incentives and pricing adjustments.

Build conditions continue to be favorable with good trade labor availability and steady flow of materials to our job sites. The lessons learned during the pandemic and the best practices put in place have resulted in a more streamlined homebuilding operation for our company leading to much faster backlog conversions and build times. We have not seen any impact from the announced tariffs or the increased scrutiny on migrant labor so far. Lot cost inflation will continue to be a margin headwind for our company in the near term though we have had success renegotiating the terms of our lot takedowns. We remain disciplined in our approach to new land deals and have seen similar discipline from our competitors giving us optimism that future land prices will reflect the realities of today’s new home economics.

We believe the homebuilding ecosystem self corrects over time and the industry’s move a more land light operating model may accelerate the timing of that self correction. Overall, my sense is that we are outselling our competition based on our first quarter absorption pace relative to our publicly traded peers. While we have experienced some margin compression as a result of our use of incentives, we feel it is the appropriate strategy given the current market conditions and the opportunities to reinvest our capital on the other side of this. Our increased focus on presales versus spec should alleviate some of that margin pressure and give us better visibility through the buildup of sold backlog. Now I’d like to turn the call over to Chris who will provide more detail on our financial results for the first quarter and give an update on our outlook.

Chris?

Chris Porter, Chief Financial Officer, Landsea Homes: Thanks, Mike. As Mike and John mentioned, our top line growth of 11% on orders, 27% on deliveries and 2% on home sales revenue were bright spots in the quarter. Florida delivered a strong 52% delivery growth and a 53% revenue growth in the quarter. Texas also pulled its weight with 126 deliveries and $48,000,000 in home sales revenue. Texas as a percentage of our portfolio was 20% of our home deliveries and 16% of our revenue.

Discounts and incentives for the quarter continued to weigh on gross margins though, representing 9.6% of our gross home sales revenue. Mortgage incentives, which followed the ten year treasury, were volatile through the quarter, starting out at elevated levels, lowered some in the January through mid February, and then peaked again in March. This drove our home sales gross margin before inventory impairments of $1,500,000 to 13.5%, the midpoint of our guidance. Adjusted gross margin was reported at a consistent 20%. The $1,500,000 inventory impairment was on a DFW asset, where we were closing out homes and represented about 50% of our gross margin impact.

Interest capitalized through cost of goods sold represented 4.6% of gross margin and the amortization of $5,600,000 in purchase price accounting in the quarter represented another 1.9% impact. Our SG and A as a percentage of home sales revenue was 17%, a 180 basis point increase, primarily related to higher sales and marketing costs. Despite not having DFW operations in our comparable numbers from last year, our G and A expenses were up only $731,000 or 2.8% over first quarter of last year, but remained flat as a percentage of home sales revenue. All of these factored into our reported net loss for the quarter of $7,250,000 or $0.20 per share. On an adjusted basis, our net loss reduced to $1,730,000 or $05 per share.

We expect incentive levels to remain elevated through 2025 with the actual costs fluctuating with the overall mortgage rate environment. Although after the first of the year, consistently saw rate downs in the 4.99% to 5.2% range for quick move in homes, towards late February and throughout March, these moved to 3.99% in many of our markets as competed for closings. As we look into the second quarter, we would anticipate incentive levels to be in the 7% to 9% range. Turning to our balance sheet. We ended the quarter with $256,000,000 in liquidity, dollars 52,300,000.0 in cash and cash equivalents, and $2.00 $4,000,000 in availability under our revolver.

This was a roughly $15,000,000 improvement from fourth quarter. Our debt to total capital ratio was 52.1% at the end of the quarter, a 30 basis point increase from year end, and our net debt to total capital ratio finished the quarter at 48.3%.

Conference Operator: At this time, I would like to turn the call back to Drew McIntosh for closing remarks.

Drew McIntosh, Investor Relations, Landsea Homes: Thanks, Raiza. In light of the transaction announcement last night, we will not be opening the call for questions. Thank you for your participation.

Conference Operator: This concludes today’s program. Thank you for your participation, and you may disconnect at any time.

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