Landsea Homes Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 1, 2023

There are 11 speakers on the call.

Operator

Welcome to the Lansing Homes Corporation Second Quarter 2023 Earnings Call. Mode. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Drew McIntosh. Thank you, sir.

Operator

Mode. You may begin.

Speaker 1

Good morning, and welcome to Landsea Homes' Q2 of 2023 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. Landsey Homes cautions that forward looking mode. These risks and uncertainties include, but are not limited to, of the risk factors described by Landsea Homes in its filings with the Securities and Exchange Commission. Accordingly, mode.

Speaker 1

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 only mode 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, mode except as may be required under applicable securities laws. Additionally, reconciliations of non GAAP financial measures only mode. Discussed on this call to the most comparable GAAP measures can be accessed through Landsea Homes' website and in its SEC filings. Only.

Speaker 1

Hosting the call today are John Ho, Landseas, Chief Executive Officer Mike Foursome, President and Chief Operating Officer and Chris Porter, Chief Financial Officer. With that, I'd like to turn the call over to John.

Speaker 2

Good morning, and Thank you for joining us today as we review our 2nd quarter results and provide an update on our operations. Clancy Homes continue to benefit from a combination of strong industry and company specific fundamentals, of $4,900,000 for the Q2 of 2023 or $0.12 per diluted share. Thanks mainly to our strong top line results, which are driven by a home closings total that was well in excess of our previously stated guidance. Order activity was solid throughout the quarter as we generated a sales pace of 3.3 per community per month comparable to where we were last year at this time. There continues to be a dearth of existing home inventory in our markets, which has brought an increasing number of prospective buyers to the new home market.

Speaker 2

While this dynamic has benefited all homebuilders, we believe Landsea is uniquely positioned to capitalize on this trend. No thanks to our high performance homes, which offer the latest in home innovation and technology, setting us apart from other homebuilders, especially the existing home market. We expect existing home inventory to remain constrained as long as rates stay elevated, keeping buyers with lower mortgage rates in their current homes. A big part of our strategy is to rapidly increase our market share in the high growth markets we've established a presence in. We understand that this is a business of scale and that returns and profitability are often correlated with the builder size.

Speaker 2

We have made great strides towards growing our presence in places like Phoenix and Central Florida in a short amount of time, and we want to continue that momentum in these markets and elsewhere. To that end, we decided to raise $250,000,000 in capital through a private no debt deal in July. This capital will provide us with the dry powder we need to make investments in our markets, maintain the high growth trajectory we've demonstrated since our inception. Only. One of the regions we view as a big opportunity for our company is Texas.

Speaker 2

Back in March, we announced the relocation of our corporate headquarters to Dallas, signaling our commitment to the state and our intent on becoming a national homebuilder. Texas has established itself as a business friendly state of favorable demographics and in migration patterns. We are excited about the prospects for our current operations in the Austin area. Look forward to expanding our presence in that market and others around the state like Dallas and Houston. Despite Lansing's strong track record of growth and profitability, we have believed for some time that our stock's valuation did not reflect the true value of our company.

Speaker 2

Only. One of the factors we felt was causing this was a lack of float or shares available to trade in the open market. To alleviate this problem, we work with our largest shareholder, Lancey Green, to facilitate a secondary offering of a portion of the company's shares. In June, we went to market with this offering and was met with great enthusiasm from investors, resulting in upsizing of the transaction. Of positions.

Speaker 2

We still feel our stock is undervalued even at current levels and have been actively repurchasing shares as a result. We bought 443,000 shares in the secondary offering for $3,300,000 and purchased an additional 623,000 shares in the open market for about $5,000,000 through the end of June. We completed the remaining piece of our share repurchase program in July for a total of just over 1,100,000 shares

Operator

for $10,000,000 in the open market.

Speaker 2

In total, we have purchased roughly 4% of our outstanding shares since March. And last week, We received board approval for additional $10,000,000 in capacity at our meeting. We will continue to strike a balance between a reasonable level of shares outstanding and opportunistic share repurchases throughout the remainder of the year. As we look to the second half of the year, we believe Lansing Homes is in a great position to capitalize on the positive housing fundamentals of existing our markets. There is a sense of urgency among homebuyers as they realize that there are few options available to them in the existing home market.

Speaker 2

And we feel that our high performance homes present a very appealing affordable option for these buyers. No. Pricing environment has remained firm given the supply demand dynamics in place and we're seeing less discounting in the market. Supply chain issues that have impacted our industry for the last few years seem to be abating, giving us better clarity on our delivery schedules of faster inventory turns. Our balance sheet is in great shape and we have the necessary capital and liquidity to achieve our growth objectives.

Speaker 2

Only. For all these reasons, I'm extremely optimistic about the future of Landsea Homes. With that, I'll turn the call over to Mike, who will provide more detail on our operations this quarter. Mike?

Speaker 3

Thanks, John. Market selling conditions remain favorable throughout the Q2 as we sold 565 homes, representing a 5% increase over the prior on year quarter and sequentially up 13% from the Q1. Orders were fairly consistent in April May, while June was a bit lower, which we attributed to the faster than expected closeout of some existing communities and our decision earlier in the year to hold off on new community openings until model complexes were finished. Additionally, we saw interest rates start to increase again in June. Several of those new communities are now open and have been selling well.

Speaker 3

For example, since opening in March of this year, we have sold 81 homes at our Narra Hills master plan community located in the Southern California City of Montana. We are of They're experiencing similar pricing power across our markets as the lack of existing inventory John mentioned has definitely put a floor in pricing. We continue to utilize financing incentives such as rate locks and buy downs to make our homes more affordable from a monthly payment standpoint. Buyers appear to have accepted that we will be in a higher rate environment for the foreseeable future and view the ability to lock in a rate in the 5% range as a real incentive to move forward with their purchase. All of our markets are performing well with the exception of the core San Francisco Bay Area, which seems to be feeling the effects of the recently announced layoffs in the tech sector.

Speaker 3

We took a $4,700,000 impairment in the 2nd quarter related to our project in the Bay Area to reflect these lower and slower market conditions. Outside of this, we remain positive about our existing positions in Northern California and we believe there is still solid demand for new homes in the market given the lack of inventory and the high cost of rental options. Our operations in Southern California, Arizona and Florida all experienced strong order activity in the Q2 and we saw that momentum carry into July. From an operational standpoint, we have shifted away from the heavy spec start strategy we employed earlier in the year to a more balanced approach. We have seen a return of the to be built buyer to the marketplace now that cycle times have come down from their peak, which has allowed us to build and deliver homes in a timeframe that is more acceptable for buyers.

Speaker 3

We are still comfortable with starting homes without a contract in place, but we are more focused on selling those homes earlier in the construction process that our industry are behind us and we feel that we have become a smarter and more efficient builder as a result of the adjustments we have made to overcome these obstacles. Overall, we feel really good about where our operations stand heading into the back half of the year. We either closed, sold or started everything we need to hit our delivery goals for 2023 and feel confident in our ability to hit those targets. We have a strong and growing presence in some of the best markets in the country and a compelling product offering that differentiates us from the competition. Our build times have come down considerably from the peak and we expect to see further improvements from here.

Speaker 3

The void in the housing market that has resulted from the lack of existing home inventory has created a real opportunity for homebuilders and Landsea is well positioned to take advantage of that opportunity. Now. I'd like to turn the call over to Chris, who'll provide more detail on our financial results this quarter. Chris?

Speaker 4

Thanks Mike. For the Q2, we generated $292,000,000 in homebuilding revenue, a 17% decrease over Q2 of 2022, no. Taken to a total of $532,000,000 for the first half of the year. 2nd quarter revenue was impacted by a 6% of year over year decline in deliveries and a 12% decrease in average selling price, which were largely driven by the closeout of our operations in New York. No.

Speaker 4

Excluding New York, our core markets of California, Arizona and Florida achieved a 2% increase in average sale price and delivered the same number of homes as the Q2 of last year. On a sequential basis, both Arizona and Florida's ASPs were up 3% and California was up 9%. We reported total revenue of $293,000,000 for the Q2 compared to $369,000,000 in the Q2 of last year. The Q2 of 2022, we generated $18,000,000 in lot sales and other revenue, primarily from bulk sales contracts that did not occur this year. Our pre tax income for the quarter was $7,500,000 compared to $23,200,000 last year.

Speaker 4

The difference in home sales revenue from New York, of the inventory impairment of $4,700,000 and a 230 basis point decrease in gross margin primarily rated to incentives were the drivers of these change. In the Q2, our sales and marketing expense as a percentage of home sales revenue improved 60 basis points from Q2 of last year. Our G and A expense of $26,000,000 was $1,100,000 lower than last year, but remained elevated as a percentage of home sales revenue. This quarter we had some one time charges related to capital markets transactions along with additional relocation fees related to our corporate move to Dallas. On operating efficiency improvements.

Speaker 4

We reported GAAP home sales gross margin of 17.4% compared to 21 point on 3% in the Q2 of 2022. As we've mentioned during the quarter, we recorded a $4,700,000 impairment on inventory that runs through cost of goods sold and represents 160 basis point decrease in our gross margin. Excluding this inventory impairment, our gross margin would have been 19%, Which was above our guidance for the quarter. On a fully adjusted basis, which excludes the impact of interest and cost of goods sold, Real Estate Inventory Impairments and Purchase Price Accounting, our gross margin was 23.5% in the quarter, a decrease of 5 60 basis points from a year ago, but up 160 basis points sequentially from the Q1. As John mentioned, we are very pleased with our new order volume and the consistency produced in the quarter.

Speaker 4

New orders were $565,000 with an average selling price of $474,000 and a total order volume of $324,000,000 Orders were up 5% from a year ago and 14% sequentially from the Q1. We also ended the quarter with an average of 50 on selling communities up 7% from a year earlier. Throughout this year, we've remained disciplined on our land acquisitions as we assess the current market conditions and ended the quarter with just over 11,000 lots owned or controlled. 54% of these lots no. We're under an option agreement as we continue to focus on our asset light strategy.

Speaker 4

Our tax expense in the second quarter was $1,600,000 which represents an effective tax rate of 21.8%. For the year, we anticipate our effective tax rate will be in the range of 22% to 23%. Now. Now turning to our balance sheet, we ended the 2nd quarter with $261,000,000 in liquidity, dollars 76,000,000 in cash cash equivalents and $185,000,000 in availability under our revolver. With interest rates increasing, we are managing our outstanding revolver more efficiently and reducing cash on hand where we only.

Speaker 4

Our tangible book value per share increased to $15.02 as of June 30, a 14% increase from June 30 last year. Additionally, our leverage ratios remained in line with our stated policies ending the quarter at 40% debt to total capital, down 200 basis points from 1st quarter and 34% net debt to total capital, up from 31% from Q1 reflecting our more efficient use of the revolver. Now. Now I'd like to provide some guidance for the Q3 and full year. This guidance is based on our best estimate as of today with current market conditions.

Speaker 4

As inflation and interest rates continue to change their impact may affect our overall results. We anticipate 3rd quarter new home deliveries to be in the range of 400 to 475 units and delivery average selling prices to be in the range of $535,000 to $545,000 We anticipate GAAP home sales gross margin to remain relatively consistent with this quarter at around 19%. Only. For the full year 2023, we now anticipate new home deliveries to be in the range of 1900 to 2,100 homes, no from our previous guidance and delivery average selling prices to be between $550,000 $560,000 only. With that, that concludes our prepared remarks.

Speaker 4

And now operator, we'd like to open the call up for questions.

Operator

Mode. Thank you. We will now be conducting a question and answer session. Our first question

Speaker 5

comes

Operator

from Alex Rygiel with B. Riley Securities. Please go ahead.

Speaker 6

Thank you. Good morning, gentlemen. John, first question is for you. Congratulations on a number of capital markets transactions here. Only mode.

Speaker 6

If you could, though, sort of talk about how it's better positioned you for accelerating growth in the future years?

Speaker 5

Hey, Alex. Thank you. Yes, I think one of the key things that we did this quarter, One of it is the private placement, which has got a 5 year term on it, really allows us to on diversify our debt capital stack with some longer term permanent debt capital And then obviously, it diverges our balance sheet, given sort of the volatility, whether it's in banking or overall with interest rates in the market, gives us more flexibility to continue to operate a business and also the opportunity to grow if we find acquisitions and land that we can continue to buy in the markets that we're currently in. The other thing that we did on the capital markets front was a very successful on secondary offering that really helped increase the liquidity in the stock, allowed us to attract more U. S.

Speaker 5

Of institutional investors in the name and really continue to allow us to tell our story. And then lastly, we actually just on extending our revolving line of credit for another year. So that Goes out another 3 years from 2023 to 2026. So I think we've positioned the company really well for any more market volatility that comes at us and also to capitalize on opportunities to go forward and grow the business and grow it in scale.

Speaker 6

Very helpful. And then Mike, talked a little bit about a shift away from spec builds towards More to be built. Included in that was a comment about maximizing profit opportunities from buyer option selections. Can you talk a little bit about

Speaker 7

Sure, Alex. Generally, when we're able to get our on home buying prospects actually going to escrow homeowners into our design centers. We have

Speaker 5

a unique ability to move them

Speaker 7

towards upgrading and customizing our home towards certain materials and of levels of specs that they want. And in so doing,

Speaker 3

we have a higher on profit margin generally around those items and we can also pay a partner

Speaker 5

to Bob. So there's 2 things first. 1, it deepens the relationship

Speaker 7

with the of wire in the escrow process with us allows us to take additional deposits into the transaction And then accretively add revenue and then profits because most of our options are 30% to 50%. And so from that standpoint, it's one of those things that we really like to do. When you expect those, you sort of pre select many options. And what happens is that You do price up

Speaker 8

for those options, but you

Speaker 7

have a tendency to also pull back on the options that you're also very concerned about the overall price of the house, no. So you have to be thoughtful about that. Whereas again, we get homeowners into our design centers. They're sort of unmettered in terms of how much they want to add, what they want to add, as long as again that the mortgages could support that additional of cost of the house. So it's a good thing.

Speaker 7

It's always been a good thing. So we like to

Speaker 2

do it if we can.

Speaker 6

Very helpful. And then Chris, only. Any guidance on what the lot count might look like at year end and maybe going out 12, 18 months?

Speaker 4

Yes. Alex, as opposed to the lot count, I think last year at the end of the year Sorry,

Speaker 6

I meant I meant community count, sorry, not lock count.

Speaker 4

Good, because that's where I was going to go. Okay. So we ended about 53 active selling communities on average and we said we'd be up 15% to of 20%. It looks like we'll be on the closer to the top end of that for this year and be up Probably about 20% on an organic basis year over year. So we should end about 20% higher on community count, average selling community count than

Operator

Our next question comes from Carl Richard with BTIG. Please go ahead.

Speaker 9

Thanks. Hey, guys. I was going to ask the community count question, so thank you for that. Chris, can you talk about when the purchase accounting will start to bleed off and not impact the margins?

Speaker 4

Yes. It will probably be on in 2024. So we put about $100,000,000 or so, a little over $100,000,000 on when we bought The Hanover acquisition in Q1 of 'twenty two, we burned through about $50 ish million last year. We've gone through we'll go through probably about that amount this year as well. So My guess is that it will start bleeding off completely in 2024.

Speaker 9

Okay. Thank you for that. And then on the line, only. So you're at I think 185 out of 675 on the line, the notes went to pay down the line. So what do you anticipate happening from a cash flow perspective in the back half of the year and where you expect that line to be when we get to the end of the year In terms of what's how much you've got paid down, how much outstanding?

Speaker 4

Yes. So I think we will Really look at managing within the targeted leverage ratios that we've talked about. And so we've talked about being at the 40%, 45% total leverage. We ended the quarter at 40% debt to cap. And I think we'll manage the company within that.

Speaker 4

We may ebb and flow within that range, but that would be of where we've committed to running the company and then kind of on a net debt to cap would be in that mid-30s level.

Speaker 9

Okay. All right. Thank you for that. And then, Jim, the bigger picture question I have is really related to returns in your leverage is Reasonably high for the public traded homebuilder at this moment. That will change.

Speaker 9

But on a return basis, of given the high book value return on equity is reasonably thin. So can you talk about the strategy for improving returns? And is that likely to be of sort of more margin focused or more asset turn focused. How do you fix the real question is, how do you get ROE higher? Thanks.

Speaker 5

Hey, Karl, this is John. Hey, John. I'll take that question first and then I'll hand it over to Mike and Chris. So Obviously, we do believe ROIC is very important. I think it's highly correlated as well to on stock price as well.

Speaker 5

One of the things that we think that we're doing a very good job of today is really growing the company pretty quickly. I think you look at our track record since we went public in 2021, we've really done everything we said we're going to do, of expanded to high growth markets like Texas and Florida, and continue to grow the business of scale in these markets that we've chosen to be in. I think the markets that we've expanded into, particularly like Texas and Florida, we do have the opportunity to turn inventory much faster. But it's also turning inventory much faster with scale as well. Obviously, being a publicly traded company and being currently the of Smallest publicly traded company, there is a certain fixed cost that comes with running a public company.

Speaker 5

So growing the business of scale in these markets is important as well as that higher inventory term. So one of the things that Mike can speak to in more detail is our thoughts about growing in these markets on second half of the year into next year, because if we can get to the scale that we want to be in these markets, I think we'll see our returns more comparable to our peers as well as we have a more diversified portfolio, and that we're turning these inventories a lot faster. Mike?

Speaker 7

Sure. Hi, Karl. Look real quickly, I would just add that in terms of our inventory turns, We've been pretty excited about our cycle times coming way down from where they were last year. In fact, one of the highlights on is in Arizona. We just had a cycle time of our last release that went to 5.5 months, Which is literally half of what it was a year ago.

Speaker 7

So from that standpoint, we're really seeing great improvements in getting the house started, built and closed Commensurate with what we would consider to be, I think, best in class currently in the markets in which we're operating in. Along with that and to John's point, we are also still actively looking for targets in the markets in which we're operating in and expand no. In markets in which we're not. And so we're having some great conversations currently with several candidates. I think again, we're one of the builders of choice for those that are the size in which are commensurate with the Hanover or Garrett Walker of acquisitions.

Speaker 7

We know how to do that. We know how to transact on that and we know how to integrate those companies and get them online quickly to help us get that

Speaker 2

skill that John was talking about.

Speaker 9

I appreciate the comment.

Speaker 4

Yes, Karl. Oh sorry guys. No, I was going to say and one of the things that we've talked about as well is on. Kind of continue to manage our G and A as well to help improve those overall profitability margins. It's something that we're continuing to focus on Again, back to the point of scale, we feel like we've got the right scale now to grow from.

Speaker 4

We all. Do need a scale to be a public company and I think that you would see a nice leveraging of that current G and A once we start growing.

Operator

Only. Our next question comes from Matthew Bouley with Barclays. Please go ahead.

Speaker 10

Hey, good morning everyone. Thanks for taking the questions. I wanted to ask just about the sales pace. It was, of I believe 3.3 per month in the quarter. I know you gave some color around orders.

Speaker 10

I'm curious, I guess, number 1, how did the sales pace Trend through the quarter and into July and then maybe a little bit higher level. I don't think we have a great on. Kind of historical set of data given you guys went public around a rather volatile time in housing.

Speaker 2

Open. So could you kind

Speaker 10

of speak to the with the communities you have today, what do you think is the normal seasonality for sales pace of In the second half of this year relative to that 3.3? Thanks, guys.

Speaker 7

Let me try to answer that by saying that we generally like to always run our communities at roughly around a 3.0 to 3.5 net absorption rate Per month, we think that that is the right velocity in any community regardless of price point generally in terms of where we are. It keeps the proper momentum to build through a community at a consistent pace. So whether the market is going up or going down, we're always trying to all. Find the right clearing price, the proper incentives, whatever is really necessary to continue at that kind of level of pace. So that's where we are.

Speaker 7

From that standpoint, I believe that where we are right now and what we're seeing at the community level It's a good healthy sales environment. Cancellation rates have come down substantially from where they were a year prior. We're settling in, in that 10% to 15% cancellation rate against the gross absorptions, which is really a healthy number traditionally. This is of where we would like to operate in. Getting in that sort of low single digit cancellation rate probably isn't great.

Speaker 7

Certainly, if you're above 20, That's not where you want to be either. So we're settling in at a nice pace on a gross absorptions against cancellation rate that's getting us a good solid net. All of our communities, we're seeing good steady pace of traffic coming through, of people that are anxious and willing buyers and are not ready to transact. And so from that standpoint as well, We're very excited about that. We saw a little bit of a tail off in June, and that was probably around A couple of factors, one is a little bit of seasonality, which is what we expected.

Speaker 7

We also had sort of a gapping of some communities that were supposed to be coming online. That's it. No. We had a little bit of a I think some things around weather and some other things that people have been dealing with. But for the most part, It was just a bit of a lull that righted itself going into July.

Speaker 7

So July has been on. Strong growth and net stabilization around the cancellation rates and we're Very pleased with how things are looking this summer as we go forward around that part of our business.

Speaker 10

Got it. Okay, perfect. Thank you for that color. And then secondly, maybe just moving down to the gross margin, I think you guided the GAAP Margin to be flat sequentially in Q3 and correct me if I'm wrong, but it did tick up nicely there in Q2 relative to the Q1. I think you called out some tailwinds on price, and then everything you're doing around of options and shifting back to to be built.

Speaker 10

So I guess what are the puts and takes? What would prevent the gross margin from continuing to rise given your guidance there. Thank you.

Speaker 4

Yes, Matt. It's Chris. I'll take that one. I think that we're of still a little cautious with the Fed movement and where interest rates tend to be. I think that we've all experienced of what happens in a spike in interest rates and where incentives need to be to continue the sales momentum.

Speaker 4

So I think that that's probably the biggest factor that's out there is what incentives are needed. We've seen those start to abate this year. So assuming where mortgage rates on. We think that that's a favorable tailwind behind us. We do see some on cost improvements that are starting to bleed through cost of goods sold.

Speaker 4

And we do think that that's a little bit of a tailwind as well. But really the Questionable factor out there is around mortgage rates and where those head and maintaining the cancellation rates that Mike has talked about and making sure that we have that right price to mortgage rate balance and get to

Speaker 10

of payments. Got it. Okay, that's helpful. And then lastly, just one more for you, Chris. Of following the private placement and the capital markets transactions, any thoughts on how to think about capitalized interest as we get out either later this year or into next year?

Speaker 9

Yes. I think

Speaker 4

that effectively, Matt, there's about a 300 basis point difference delta between where our revolvers price today and where The 5 year term loan is, I think that the communities that are active in selling today, on? It takes roughly 4 or 5 years as that kind of bleeds through overall. So We've got what's being constructed plus then your new communities that will be in there. And so we'll see that bleed out over the next 3 to 5 years really.

Speaker 10

All right. Well, thank you, Chris. Thanks, guys. Good luck.

Speaker 5

Thanks, Matt.

Operator

Our Our next question comes from Jay McCanless with Wedbush. Please go ahead.

Speaker 5

Mode. Hey, good morning.

Speaker 8

Thanks for taking my questions. So my first one, if you could talk about cycle time for the entire company. That was good news on Arizona. But just trying to triangulate if you're going to get to roughly 70 communities by year end and you're selling at a 3 pace. What does that look like for deliveries as we start to think about 24?

Speaker 7

Hey, Dave, it's Mike. I'll take that one. I think for the most part, we are seeing a large decrease in the elongated cycle times that we get faced over the last year or so. As you said, the highlight has really been Arizona, which we've been excited to get that on that pipeline range, which is really important in that marketplace because we want to get those two times terms per year out of there. So, we're seeing actual improvements everywhere, including Florida and Southern California is doing a great job in terms on their cycle times and actually they weirdly of all places probably had the least disruption around their cycle times And with the supply chain, so they've done a really great job.

Speaker 7

Northern California seems to also be getting their arms around their cycle I'm bringing it down substantially. Really the challenge has been up there is we call these sort of splice box or these electrical boxes that have been a challenge And they really impact attached product, which we build primarily up there in the corporate area. So, but that seems to also be resolving itself. So I would say that we're ranging anywhere between that 5.5 to 8.5 day on product type across the country, which has been terrific because it was much, much higher than that prior. So we're seeing, as I said, really good improvements.

Speaker 8

Great. Thanks, Mike. And so I guess as we think about July, it sounds like whatever limiting of orders you guys During June, those restrictions by and large are off. So we should think about a pace maybe In line to higher than what you're able to achieve in 2Q. Is that the right way to think about it?

Speaker 7

I think so. Yes.

Speaker 8

And then the other question I had Was just around lumber cost, lumber seems to be moving up. We really haven't seen much deflation in some of the other goods. I guess the gross margin guide that you provided, does that include some increase, some of the lumber effect or when should we expect some of these higher lumber prices to be rolled into the gross margin?

Speaker 7

I'll let Chris probably handle some of that around the gross margin side of it. But you're right, lumber is going back up again. That's generally though again starts that we'll see closings till Q1 of next year. So what we hopeful on. We're hoping for Jay is that we'll continue to see lower lumber costs and frankly lower other material costs and labor costs That were embedded in the starts that took place at the beginning of the year to roll through the balance of the year.

Speaker 4

Yes. I think Mike said that really well, Jay. I think that just The time it takes to embed into our cost of goods sold and by the time we close those homes, I think you'll see the benefit of that for the balance of this year and then start to pick up at the beginning of this year.

Speaker 8

Okay, sounds good. That's all I had. Thank you.

Speaker 5

Thanks, Jay.

Operator

Our next question comes from Alex Barron with Housing Research Center. Please go ahead.

Speaker 9

Good morning, gentlemen. Yes,

Speaker 4

I was just hoping to get an update from you on your Texas Operations and a couple of units left in New York. Thanks.

Speaker 5

Hey, Alex. I'll take the New York question and then I'll hand it over to Mike. So New York, we just have 2 penthouse units, No units left in our 14th and 6th Street building in Manhattan. There's a lot of construction going on there right now with of the MTA, but we think that once that's done and then there's better access to building, we should be done with that building and then we will no longer have any continue to have any sales activity in the New York area. Mike can take the Texas question.

Speaker 7

Sure. Really excited about what's Going on for us in Texas, particularly Austin currently, we are well underway at our Anthem community in Kyle, Texas. Mode. Let's say multi segmented, multi planning area, master plan community, and we look to be going vertical with instruction here in early fall, as well as 3 other communities that we acquired over the last year There were all finished lot communities are delivering to us delivered to us in finished lots. We have those coming online here and we're going to begin construction over the next couple of months on 2 of those.

Speaker 7

So we're very excited about the progress that we're making there and getting energy and Looking to add to our revenue base through our ops and operations here very soon as well as of some other opportunities that we're looking at throughout Texas in general.

Speaker 4

So it sounds like first deliveries and revenues won't come till next year. And can you guys give us some type of guidance in terms of of what average price point to assume and maybe how many closings you would expect next year roughly speaking? Yes. So I think that typically we're not giving guidance on property by property or state by state. But if you think about, we will start delivering homes in Texas in the 1st part of next year and then do our typical ramp up there.

Speaker 4

So you'll see a ramp through the year in 2024 on our Anthem community. Yes, average selling prices should be consistent with what we're seeing in Arizona and Florida and more in line with what our typical average selling price is in those communities.

Operator

Mode. There are no further questions at this time. So I would like to turn the floor back over to John Ho, Chief Executive Officer for closing comments.

Speaker 5

Thank you everyone for your time today. We're really mode. Excited about how this year has performed and looking forward to the next quarter when we speak again. Thank you.

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Earnings Conference Call
Landsea Homes Q2 2023
00:00 / 00:00