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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-38545
Landsea Homes Corporation
(Exact Name of Registrant as Specified in Its Charter)
| | | | | | | | |
Delaware | | 82-2196021 |
(State or Other Jurisdiction of | | (I.R.S. Employer |
Incorporation or Organization) | | Identification Number) |
| | |
660 Newport Center Drive, Suite 300 | | |
Newport Beach, CA | | 92660 |
(Address of Principal Executive Offices) | | (Zip Code) |
(949) 345-8080
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common Stock, par value $0.0001 per share | | LSEA | | The Nasdaq Capital Market |
Warrants exercisable for Common Stock | | LSEAW | | The Nasdaq Capital Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | |
Large accelerated filer | ☐ | Accelerated filer | ☒ |
Non-accelerated filer | ☐ | Smaller reporting company | ☒ |
| | Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 1, 2022, 40,950,043 Class A common stock, par value $0.0001 per share, were outstanding.
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Landsea Homes Corporation |
Form 10-Q Index |
For the Three and Nine Months Ended September 30, 2022 |
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PART I - FINANCIAL INFORMATION | Page |
Item 1. Unaudited Financial Statements | |
Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021 | |
Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2022 and 2021 | |
Consolidated Statements of Equity for the Three and Nine Months Ended September 30, 2022 and 2021 | |
Consolidated Statements of Cash Flows for the Three and Nine Months Ended September 30, 2022 and 2021 | |
Notes to the Consolidated Financial Statements | |
Item 2. Management's Discussion and Analysis of Financial Condition and Result of Operations | |
Item 3. Quantitative and Qualitative Disclosures About Market Risk | |
Item 4. Controls and Procedures | |
PART II - OTHER INFORMATION | |
Item 1. Legal Proceedings | |
Item 1A. Risk Factors | |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | |
Item 3. Defaults Upon Senior Securities | |
Item 4. Mine Safety Disclosures | |
Item 5. Other Information | |
Item 6. Exhibits | |
Signatures | |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
| | |
Landsea Homes Corporation |
Consolidated Balance Sheets - (Unaudited) |
(in thousands, except share and per share amounts) |
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
Assets | | | |
Cash and cash equivalents | $ | 110,192 | | | $ | 342,810 | |
Cash held in escrow | 7,190 | | | 4,079 | |
Restricted cash | — | | | 443 | |
| | | |
Real estate inventories (including related party interest of $3,909 and $7,509, respectively) | 1,179,418 | | | 844,792 | |
| | | |
Due from affiliates | 5,180 | | | 4,465 | |
Investment in and advances to unconsolidated joint ventures (including related party interest of $0 and $70, respectively) | — | | | 470 | |
| | | |
Goodwill | 68,639 | | | 24,457 | |
Other assets (including right-of-use assets with a related party of $1,454 and $2,010, respectively) | 98,239 | | | 43,998 | |
Total assets | $ | 1,468,858 | | | $ | 1,265,514 | |
| | | |
Liabilities | | | |
Accounts payable | $ | 82,347 | | | $ | 73,734 | |
Accrued expenses and other liabilities (including lease liabilities with a related party of $1,454 and $2,010, respectively) | 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 September 30, 2022 and December 31, 2021, respectively | — | | | — | |
Common stock, $0.0001 par value, 500,000,000 shares authorized, 42,110,794 issued and 40,950,043 outstanding as of September 30, 2022, 46,281,091 issued and outstanding as of December 31, 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 | |
See accompanying notes to the consolidated financial statements.
Landsea Homes Corp. | Q3 2022 Form 10-Q | 1
| | | | | | | | |
Landsea Homes Corporation |
Consolidated Statements of Operations - (Unaudited) |
(in thousands, except share and per share amounts) |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
Revenue | | | | | | | |
Home sales | $ | 326,496 | | | $ | 208,916 | | | $ | 975,269 | | | $ | 603,281 | |
Lot sales and other (including to related parties of $0, $0, $1,249 and $0, respectively) | 9,089 | | | 5,213 | | | 45,222 | | | 21,541 | |
Total revenues | 335,585 | | | 214,129 | | | 1,020,491 | | | 624,822 | |
| | | | | | | |
Cost of sales | | | | | | | |
Home sales (including related party interest of $714, $2,571, $3,831 and $9,813, respectively) | 258,362 | | | 175,349 | | | 770,220 | | | 511,177 | |
| | | | | | | |
Lot sales and other (including cost of sales to related parties of $0, $0, $1,256 and $0, respectively) | 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 (including related party interest expense of $0, $278, $69 and $1,042, respectively) | 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 | |
See accompanying notes to the consolidated financial statements.
Landsea Homes Corp. | Q3 2022 Form 10-Q | 2
| | |
Landsea Homes Corporation |
Consolidated Statements of Equity - (Unaudited) |
(in thousands, except shares) |
| | | | | | | | | | | | | | | | | | | | |
| Common Stock | | | | |
| Shares | Amount | Additional paid-in capital | Retained earnings | Noncontrolling interests | Total stockholders' equity |
Balance at June 30, 2022 | 40,925,579 | | $ | 4 | | $ | 496,170 | | $ | 112,797 | | $ | 56,165 | | $ | 665,136 | |
| | | | | | |
| | | | | | |
Shares issued under share-based awards | 24,464 | | — | | — | | — | | — | | — | |
| | | | | | |
Stock-based compensation expense | — | | — | | 908 | | — | | — | | 908 | |
| | | | | | |
| | | | | | |
Distributions to noncontrolling interests | — | | — | | — | | — | | (3,072) | | (3,072) | |
Net income | — | | — | | — | | 19,970 | | 1,311 | | 21,281 | |
Balance at September 30, 2022 | 40,950,043 | | $ | 4 | | $ | 497,078 | | $ | 132,767 | | $ | 54,404 | | $ | 684,253 | |
| | | | | | |
| Common Stock | | | | |
| Shares | Amount | Additional paid-in capital | Retained earnings | Noncontrolling interests | Total stockholders' equity |
Balance at December 31, 2021 | 46,281,091 | | $ | 5 | | $ | 535,345 | | $ | 84,797 | | $ | 1,250 | | $ | 621,397 | |
| | | | | | |
Shares issued under share-based awards | 228,529 | | — | | — | | — | | — | | — | |
Cash paid for shares withheld for taxes | — | | — | | (848) | | — | | — | | (848) | |
Stock-based compensation expense | — | | — | | 2,780 | | — | | — | | 2,780 | |
Repurchase of common stock | (5,559,577) | | (1) | | (40,199) | | — | | — | | (40,200) | |
Contributions from noncontrolling interests | — | | — | | — | | — | | 55,000 | | 55,000 | |
Distributions to noncontrolling interests | — | | — | | — | | — | | (3,072) | | (3,072) | |
Net income | — | | — | | — | | 47,970 | | 1,226 | | 49,196 | |
Balance at September 30, 2022 | 40,950,043 | | $ | 4 | | $ | 497,078 | | $ | 132,767 | | $ | 54,404 | | $ | 684,253 | |
| | | | | | |
| Common Stock | | | | |
| Shares | Amount | Additional paid-in capital | Retained earnings | Noncontrolling interests | Total stockholders' equity |
Balance at June 30, 2021 | 46,281,091 | | $ | 5 | | $ | 530,660 | | $ | 35,601 | | $ | 1,275 | | $ | 567,541 | |
| | | | | | |
| | | | | | |
Stock-based compensation expense | — | | — | | 1,227 | | — | | — | | 1,227 | |
Net income (loss) | — | | — | | — | | 10,797 | | (15) | | 10,782 | |
Balance at September 30, 2021 | 46,281,091 | | $ | 5 | | $ | 531,887 | | $ | 46,398 | | $ | 1,260 | | $ | 579,550 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
See accompanying notes to the consolidated financial statements.
Landsea Homes Corp. | Q3 2022 Form 10-Q | 3
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Landsea Homes Corporation |
Consolidated Statements of Equity - (Unaudited) |
(in thousands, except shares) |
| | | | | | | | | | | | | | | | | | | | |
| Common Stock | | | | |
| Shares | Amount | Additional paid-in capital | Retained earnings | Noncontrolling interests | Total stockholders' equity |
Balance at December 31, 2020 | 1,000 | | $ | — | | $ | 496,174 | | $ | 32,011 | | $ | 1,301 | | $ | 529,486 | |
Retroactive application of recapitalization | 32,556,303 | | 3 | | (3) | | — | | — | | — | |
Adjusted balance, beginning of period | 32,557,303 | | $ | 3 | | $ | 496,171 | | $ | 32,011 | | $ | 1,301 | | $ | 529,486 | |
Recapitalization transaction, net of fees and deferred taxes | 13,673,722 | | 2 | | 31,660 | | — | | — | | 31,662 | |
Vesting of restricted stock units | 50,066 | | — | | — | | — | | — | | — | |
Stock-based compensation expense | — | | — | | 4,056 | | — | | — | | 4,056 | |
| | | | | | |
| | | | | | |
Net income (loss) | — | | — | | — | | 14,387 | | (41) | | 14,346 | |
| | | | | | |
Balance at September 30, 2021 | 46,281,091 | | $ | 5 | | $ | 531,887 | | $ | 46,398 | | $ | 1,260 | | $ | 579,550 | |
| | | | | | |
See accompanying notes to the consolidated financial statements.
Landsea Homes Corp. | Q3 2022 Form 10-Q | 4
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Landsea Homes Corporation |
Consolidated Statements of Cash Flows - (Unaudited) |
(in thousands) |
| | | | | | | | | | | | | | | | | |
| | | Nine Months Ended September 30, |
| | | | | 2022 | | 2021 |
| | | (dollars in thousands) |
Cash flows from operating activities: | | | | | | | |
Net income | | | | | $ | 49,196 | | | $ | 14,346 | |
Adjustments to reconcile net income to net cash from operating activities: | | | | | | | |
Depreciation and amortization | | | | | 4,445 | | | 3,240 | |
Loss on remeasurement of warrant liability | | | | | 7,315 | | | 3,245 | |
| | | | | | | |
Stock-based compensation expense | | | | | 2,780 | | | 4,056 | |
Loss (gain) on extinguishment or forgiveness of debt | | | | | 2,496 | | | (4,265) | |
Abandoned project costs | | | | | 324 | | | 380 | |
| | | | | | | |
Equity in net income of unconsolidated joint ventures | | | | | (139) | | | (814) | |
Deferred taxes | | | | | (2,217) | | | (1,221) | |
Changes in operating assets and liabilities: | | | | | | | |
Cash held in escrow | | | | | (3,111) | | | (2,920) | |
Real estate inventories | | | | | (99,397) | | | (123,874) | |
Due from affiliates | | | | | (715) | | | (1,488) | |
| | | | | | | |
Other assets | | | | | (46,748) | | | (5,982) | |
Accounts payable | | | | | 2,284 | | | 17,461 | |
Accrued expenses and other liabilities | | | | | 287 | | | (28,110) | |
| | | | | | | |
Net cash used in operating activities | | | | | (83,200) | | | (125,946) | |
| | | | | | | |
Cash flows from investing activities: | | | | | | | |
Purchases of property and equipment | | | | | (4,062) | | | (2,309) | |
Distributions of capital from unconsolidated joint ventures | | | | | 578 | | | 17,855 | |
| | | | | | | |
Payments for business acquisition, net of cash acquired | | | | | (258,727) | | | (44,537) | |
Net cash used in investing activities | | | | | (262,211) | | | (28,991) | |
| | | | | | | |
Cash flows from financing activities: | | | | | | | |
Borrowings from notes and other debts payable | | | | | 361,910 | | | 491,535 | |
Repayments of notes and other debts payable | | | | | (240,526) | | | (424,006) | |
Proceeds from the Merger, net of fees and other costs | | | | | — | | | 64,434 | |
Cash paid for shares withheld for taxes | | | | | (848) | | | — | |
Payment for buyback of warrants | | | | | (16,500) | | | — | |
| | | | | | | |
| | | | | | | |
Repayment of convertible note | | | | | — | | | (1,500) | |
| | | | | | | |
Repurchases of common stock | | | | | (40,200) | | | — | |
| | | | | | | |
Contributions from noncontrolling interests | | | | | 55,000 | | | — | |
Distributions to noncontrolling interests | | | | | (3,072) | | | — | |
Deferred offering costs paid | | | | | — | | | (1,832) | |
Debt issuance and extinguishment costs paid | | | | | (3,414) | | | (1,382) | |
| | | | | | | |
Net cash provided by financing activities | | | | | 112,350 | | | 127,249 | |
| | | | | | | |
Net decrease in cash, cash equivalents, and restricted cash | | | | | (233,061) | | | (27,688) | |
Cash, cash equivalents, and restricted cash at beginning of period | | | | | 343,253 | | | 110,048 | |
Cash, cash equivalents, and restricted cash at end of period | | | | | $ | 110,192 | | | $ | 82,360 | |
See accompanying notes to the consolidated financial statements.
Landsea Homes Corp. | Q3 2022 Form 10-Q | 5
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Landsea Homes Corporation |
Notes to the Consolidated Financial Statements - (unaudited) |
1. Company
Landsea Homes Corporation (together with its subsidiaries, “LHC” or the “Company”), a majority owned subsidiary of Landsea Holdings Corporation (“Landsea Holdings”), is engaged in the acquisition, development, and sale of homes and lots in Arizona, California, Florida, New Jersey, New York, and Texas. The Company's operations are organized into the following five reportable segments: Arizona, California, Florida, Metro New York, and Texas.
On August 31, 2020, LHC and its parent, Landsea Holdings, entered into an Agreement and Plan of Merger (the “Merger Agreement”) with LF Capital Acquisition Corp. (“LF Capital”) and LFCA Merger Sub, Inc. (the “Merger Sub”), a direct, wholly-owned subsidiary of LF Capital. The Merger Agreement provided for, among other things, the merger of Merger Sub with and into Landsea Homes Incorporated (“LHI”), previously a wholly-owned subsidiary of Landsea Holdings, with LHI continuing as the surviving corporation (the “Merger”).
On January 7, 2021 (the “Closing Date”), the Merger was consummated pursuant to the Merger Agreement (the “Closing”). The name of LF Capital was changed at that time to Landsea Homes Corporation. Subject to the terms of the Merger Agreement, Landsea Holdings received $343.8 million of stock consideration, consisting of 32.6 million newly issued shares of LF Capital’s publicly-traded Class A common stock. The shares were valued at $10.56 per share for purposes of determining the aggregate number of shares payable to Landsea Holdings (the “Stock Consideration”).
Upon Closing, Level Field Capital, LLC (the “Sponsor”) held 1.0 million shares that are subject to surrender and forfeiture for no consideration in the event the common stock does not reach certain thresholds during the 24-month period following the closing of the Merger (“Earnout Shares”). The Sponsor transferred 0.5 million Earnout Shares to Landsea Holdings. Additionally, the Sponsor forfeited 2.3 million private placement warrants and transferred 2.2 million private placement warrants to Landsea Holdings (such private placement warrants, each exercisable to purchase one share of Common Stock at an exercise price of $11.50 per share, are referred to as the “Private Placement Warrants”, and together with the Company’s public warrants, are referred to as the “Warrants”).
In connection with the Merger, the Company received $64.4 million from the Merger after payments of $28.7 million related to the public warrant amendment and $7.5 million representing transaction expenses incurred. The Company incurred direct and incremental costs of approximately $16.7 million related to the equity issuance, consisting primarily of investment banking, legal, accounting and other professional fees, which were recorded to additional paid-in capital as a reduction of proceeds. The Company recorded $2.7 million in general and administrative expenses during the nine months ended September 30, 2021 related to the accelerated vesting of certain phantom awards. At the time of the Merger, the Company paid cash of $2.9 million for the phantom stock awards and issued 0.2 million shares with an issuance date value of $1.9 million.
The Merger was accounted for as a reverse recapitalization. Under this method of accounting, LF Capital is treated as the “acquired” company for financial reporting purposes. This determination was primarily based on the current stockholder of LHC, Landsea Holdings, holding a relative majority of the voting power of the combined entity; the operations of LHI prior to the Merger comprising the only ongoing operations of the combined entity; and senior management of LHI comprising the senior management of the combined entity. Accordingly, for accounting purposes, the financial statements of the combined entity represent a continuation of the financial statements of LHI with the acquisition being treated as the equivalent of LHI issuing stock for the net assets of LF Capital, accompanied by a recapitalization. The net assets of LHI are stated at historical cost, with no goodwill or other intangible assets recorded. The shares and net income per share available to holders of the LHI’s common stock, prior to the Merger, have been retroactively restated as shares reflecting the exchange ratio established in the Merger Agreement.
2. Summary of Significant Accounting Policies
Basis of Presentation and Consolidation—The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”)
Landsea Homes Corp. | Q3 2022 Form 10-Q | 6
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Landsea Homes Corporation |
Notes to the Consolidated Financial Statements - (unaudited) |
and include the accounts of the Company and all subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
Landsea Holdings holds a series of notes payable to affiliated entities of its parent. The cash Landsea Holdings received from the notes payable was partially utilized to fund operations of the Company. Related party interest incurred by Landsea Holdings (the “Related Party Interest”) was historically pushed down to the Company and reflected on the consolidated balance sheets of the Company, primarily in real estate inventories, and on the consolidated statements of operations in cost of sales. Refer to Note 6 - Capitalized Interest for further detail. As the Company did not guarantee the notes payable nor have any obligations to repay the notes payable, and as the notes payable will not be assigned to the Company, the notes payable do not represent a liability of the Company and accordingly have not been reflected in the consolidated balance sheets. Additionally, in connection with the Merger, LHC is precluded from repaying Landsea Holdings' notes payable to the affiliated entities of its parent. Therefore, as of January 7, 2021, the Related Party Interest is no longer pushed down to LHC.
The accompanying unaudited consolidated financial statements have been prepared in accordance with GAAP for interim financial information and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) and should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 16, 2022. The accompanying unaudited consolidated financial statements include all adjustments, consisting of normal recurring entries, necessary for a fair presentation of the Company’s results for the interim periods presented. Results for the interim periods are not necessarily indicative of the results to be expected for the full year due to seasonal variations and other factors.
Use of Estimates—The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ materially from these estimates.
Recent Accounting Pronouncements
In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting. These changes are intended to simplify the market transition from the London Interbank Offered Rate (“LIBOR”) to alternative reference rates. ASU 2020-04 generally considers contract modifications related to reference rate reform to be an event that does not require contract remeasurement at the modification date nor a reassessment of a previous accounting determination. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, which clarified the scope and application of ASU 2020-04. The guidance in ASU 2020-04 may be elected over time, through December 31, 2022, as reference rate reform activities occur. Once ASU 2020-04 is elected, the guidance must be applied prospectively for all eligible contract modifications. In June 2022, the Company modified its credit facility to use the Secured Overnight Financing Rate (“SOFR”) as a reference rate rather than LIBOR. The Company elected to apply this guidance which preserves the presentation of the loan consistent with the presentation prior to the modification.
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40), which provides clarity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. Particularly, the update states that an entity should treat a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange as an exchange of the original instrument for a new instrument. The standard is effective for fiscal years beginning after December 15, 2021, with early adoption permitted. The adoption did not have a material impact on the Company's consolidated financial statements.
Landsea Homes Corp. | Q3 2022 Form 10-Q | 7
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Landsea Homes Corporation |
Notes to the Consolidated Financial Statements - (unaudited) |
In October 2021, the FASB issued ASU 2021-08, which requires application of Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, to recognize and measure contract assets and liabilities from contracts with customers acquired in a business combination. ASU 2021-08 creates an exception to the general recognition and measurement principle in ASC 805, Business Combinations, and will result in recognition of contract assets and contract liabilities consistent with those recorded by the acquiree immediately before the acquisition date. The standard is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The adoption is not expected to have a material impact on the Company's consolidated financial statements.
3. Business Combinations
On January 18, 2022, the Company acquired 100% of Hanover Family Builders, LLC (“Hanover”), a Florida-based homebuilder, for an aggregate cash purchase price, net of working capital adjustments, of $262.6 million. The aggregate purchase price included a pay-off of $69.3 million related to debt held by Hanover and a payment of $15.6 million for land-related deposits. The total assets of Hanover included approximately 20 development projects and 3,800 lots in various stages of development. The determination of the final purchase accounting allocation related to the working capital calculations and resulting goodwill are in process as of the date the consolidated financial statements were issued.
In accordance with ASC 805, the assets acquired and liabilities assumed from the acquisition of Hanover were measured and recognized at fair value as of the date of the acquisition to reflect the purchase price paid.
Acquired inventories consist of land, land deposits, and work in process inventories. For acquired land and land options, the Company typically utilizes, with the assistance of a third-party appraiser, a sales comparison approach. For work in process inventories, the Company estimates the fair value based upon the stage of production of each unit and a gross margin that management believes a market participant would require to complete the remaining development and requisite selling efforts. On the acquisition date, the stage of production for each lot ranged from recently started lots to fully completed homes. The intangible asset acquired relates to the Hanover trade name, which is estimated to have a fair value of $1.6 million and is being amortized over one year. Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed and relates primarily to the assembled workforce and business synergies. Goodwill of $44.2 million was preliminarily recorded on the consolidated balance sheets as a result of this transaction and is expected to be deductible for tax purposes over 15 years. The acquired goodwill is included in the Florida reporting segment in Note 12, Segment Reporting. The Company incurred transaction related costs of less than $0.1 million and $0.7 million related to the Hanover acquisition during the three and nine months ended September 30, 2022, respectively.
The Company's results of operations include homebuilding revenues from the Hanover acquisition of $72.2 million and $231.5 million for the three and nine months ended September 30, 2022, respectively. The accompanying results of operations also include pretax income of $4.5 million and $8.6 million from the Hanover acquisition during the three and nine months ended September 30, 2022. respectively. The pretax income is inclusive of purchase price accounting and an allocation of corporate general and administrative expenses.
Landsea Homes Corp. | Q3 2022 Form 10-Q | 8
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Landsea Homes Corporation |
Notes to the Consolidated Financial Statements - (unaudited) |
The following is a summary of the allocation of the purchase price based on the fair value of assets acquired and liabilities assumed (dollars in thousands).
| | | | | |
Assets Acquired | |
Cash | $ | 3,857 | |
Real estate inventories | 232,071 | |
Goodwill | 44,182 | |
Trade name | 1,590 | |
Other assets | 378 | |
Total assets | $ | 282,078 | |
| |
Liabilities Assumed | |
Accounts payable | $ | 6,329 | |
Accrued expenses | 13,165 | |
Total liabilities | 19,494 | |
Net assets acquired | $ | 262,584 | |
On May 4, 2021, the Company acquired 100% of Mercedes Premier Homes, LLC (also known as Vintage Estate Homes, LLC, or “Vintage”), a Florida- and Texas-based homebuilder, for cash consideration of approximately $54.6 million. In addition, the Company assumed $32.1 million of debt, of which it paid down $3.8 million in connection with the acquisition. Total assets included approximately 20 development projects and 1,800 lots in various stages of development. The intangible asset acquired relates to the Vintage trade name, which was estimated to have a fair value of $1.6 million and was amortized over one year. Goodwill of $3.8 million was recorded on the consolidated balance sheets as a result of this transaction and is expected to be deductible for tax purposes over 15 years. The acquired goodwill is included in the Florida reporting segment. The Company incurred transaction costs of $0.3 million and $0.8 million related to the Vintage acquisition during the three and nine months ended September 30, 2021.
The following is a summary of the allocation of the purchase price based on the fair value of assets acquired and liabilities assumed (dollars in thousands).
| | | | | |
Assets Acquired | |
Cash | $ | 10,063 | |
Real estate inventories | 93,699 | |
Goodwill | 3,752 | |
Trade name | 1,550 | |
Other assets | 3,956 | |
Total assets | $ | 113,020 | |
| |
Liabilities Assumed | |
Accounts payable | $ | 1,641 | |
Accrued expenses | 24,660 | |
| |
Notes payable | 32,119 | |
Total liabilities | 58,420 | |
Net assets acquired | $ | 54,600 | |
Unaudited Pro Forma Financial Information
Unaudited pro forma revenue and net income (loss) for the following periods presented give effect to the results of the acquisitions of Hanover and Vintage as though the respective acquisition dates were as of January 1, 2021 and January 1, 2020, the beginning of the year preceding the respective acquisitions. Unaudited pro forma net income (loss) adjusts the operating results of Hanover and Vintage to reflect the additional costs that would have been
Landsea Homes Corp. | Q3 2022 Form 10-Q | 9
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Landsea Homes Corporation |
Notes to the Consolidated Financial Statements - (unaudited) |
recorded assuming the fair value adjustments had been applied as of the beginning of the year preceding the year of acquisition including the tax-effected amortization of the acquired trade name and transaction related costs.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (dollars in thousands) |
Revenue | $ | 335,585 | | | $ | 266,786 | | | $ | 1,025,600 | | | $ | 818,382 | |
| | | | | | | |
Pretax income (loss) | 35,935 | | | 1,586 | | | 108,188 | | | (22,298) | |
Provision (benefit) for income taxes | 4,858 | | | (3,811) | | | 28,339 | | | (4,025) | |
Net income (loss) | $ | 31,077 | | | $ | 5,397 | | | $ | 79,849 | | | $ | (18,273) | |
4. Variable Interest Entities
The Company consolidates two joint venture (“JV”) variable interest entities (“VIEs”). The consolidated VIEs include one active project in the Metro New York area (“14th Ave JV”) and one JV with the purpose of acquiring undeveloped land (the “LCF JV”). The Company has determined that it is the primary beneficiary of these VIEs as it has the power to direct activities of the operations that most significantly affect their economic performance.
Both consolidated VIEs are financed by equity contributions from the Company and the JV partner. The 14th Ave JV was also funded by third-party debt which was paid off in April 2022 with proceeds from a loan provided by the Company. The intercompany loan is eliminated upon consolidation.
The following table summarizes the carrying amount and classification of the VIEs’ assets and liabilities in the consolidated balances sheets as of September 30, 2022 and December 31, 2021.
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| (dollars in thousands) |
Cash | $ | 4,960 | | | $ | 130 | |
Cash held in escrow | 11 | | | — | |
Restricted cash | — | | | 443 | |
Real estate inventories | 113,109 | | | 121,040 | |
Due from affiliates | 317 | | | — | |
Other assets | 4,185 | | | 195 | |
Total assets | $ | 122,582 | | | $ | 121,808 | |
| | | |
Accounts payable | $ | 1,596 | | | $ | 1,779 | |
Accrued expenses and other liabilities | 5,484 | | | 1,400 | |
Due to affiliates | — | | | 226 | |
Notes payable, net | — | | | 81,584 | |
Total liabilities | $ | 7,080 | | | $ | 84,989 | |
5. Real Estate Inventories
Real estate inventories are summarized as follows:
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| (dollars in thousands) |
Deposits and pre-acquisition costs | $ | 98,764 | | | $ | 65,724 | |
Land held and land under development | 216,945 | | | 243,310 | |
Homes completed or under construction | 846,291 | | | 526,950 | |
Model homes | 17,418 | | | 8,808 | |
Total real estate inventories | $ | 1,179,418 | | | $ | 844,792 | |
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Landsea Homes Corp. | Q3 2022 Form 10-Q | 10
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Landsea Homes Corporation |
Notes to the Consolidated Financial Statements - (unaudited) |
Deposits and pre-acquisition costs include land deposits and other due diligence costs related to potential land acquisitions. Land held and land under development includes costs incurred during site development such as development, indirect costs, and permits. Homes completed or under construction and model homes include all costs associated with home construction, including land, development, indirect costs, permits, materials, and labor.
In accordance with ASC 360, Property, Plant, and Equipment, real estate inventories are stated at cost, unless the carrying amount is determined not to be recoverable, in which case inventory is written down to its fair value. The Company reviews each real estate asset at the community-level, on a quarterly basis, or whenever indicators of impairment exist. We generally determine the estimated fair value of each community by using a discounted cash flow approach based on the estimated future cash flows at discount rates that reflect the risk of the community being evaluated. The discounted cash flow approach can be impacted significantly by the Company’s estimates of future home sales revenue, home construction costs, pace of homes sales, and the applicable discount rate, all of which are Level 3 inputs.
For each of the three and nine months ended September 30, 2022 and 2021 the Company did not recognize any impairments on real estate inventories.
6. Capitalized Interest
Interest is capitalized to real estate inventories and investment in unconsolidated joint ventures during development and as a result of other qualifying activities. Interest capitalized as a cost of real estate inventories is included in cost of sales as related inventories are delivered. Interest capitalized to investments in unconsolidated JVs is relieved to equity in net income of unconsolidated joint ventures as related joint venture homes close.
For the periods reported, interest incurred, capitalized, and expensed was as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (dollars in thousands) | | (dollars in thousands) |
Related party interest incurred | $ | 74 | | | $ | 183 | | | $ | 231 | | | $ | 183 | |
Other interest incurred | 13,759 | | | 6,597 | | | 28,352 | | | 18,701 | |
Total interest incurred | 13,833 | | | 6,780 | | | 28,583 | | | 18,884 | |
| | | | | | | |
Related party interest capitalized | 74 | | | 183 | | | 231 | | | 183 |
Other interest capitalized | 13,759 | | | 6,597 | | | 28,352 | | | 18,701 | |
Total interest capitalized | 13,833 | | | 6,780 | | | 28,583 | | | 18,884 | |
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Previously capitalized related party interest included in cost of sales | $ | 714 | | | $ | 2,571 | | | $ | 3,831 | | | $ | 9,813 | |
Previously capitalized other interest included in cost of sales | 9,436 | | | 4,711 | | | 27,445 | | | 15,835 | |
Related party interest relieved to equity in income from unconsolidated joint ventures | — | | | 278 | | | 69 | | | 1,042 | |
Other interest relieved to equity in income from unconsolidated joint ventures | — | | | 3 | | | 1 | | | 14 | |
Other interest expensed | — | | | 11 | | | — | | | 32 | |
Total interest expense included in pretax income | $ | 10,150 | | | $ | 7,574 | | | $ | 31,346 | | | $ | 26,736 | |
7. Other Assets
As of September 30, 2022 and December 31, 2021, the Company had contract assets of $16.6 million and $6.1 million, respectively, related to lot sales and other revenue. The contract asset balance is included in other assets on the Company’s consolidated balance sheets and represents cash to be received for work already performed on lot sales and other contracts. The amount of the transaction price for lot sales and other contracts remaining to be recognized as revenue for performance obligations that were not fully satisfied as of September 30, 2022 and December 31, 2021 was $20.6 million and $63.9 million, respectively. As of September 30, 2022 and December 31,
Landsea Homes Corp. | Q3 2022 Form 10-Q | 11
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Landsea Homes Corporation |
Notes to the Consolidated Financial Statements - (unaudited) |
2021, the Company had $0.4 million and $4.0 million of deferred revenue, respectively, related to lot sales and other revenue included in accrued expenses and other liabilities in the Company’s consolidated balance sheets. The Company reduces these liabilities and recognizes revenue as development progresses and the related performance obligations are completed. The Company recognized $0.0 million and $4.0 million of lot sales and other revenue during the three and nine months ended September 30, 2022, respectively, related to the deferred revenue balance as of December 31, 2021.
8. Notes and Other Debts Payable, net
Amounts outstanding under notes and other debts payable, net consist of the following:
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| (dollars in thousands) |
Construction loan | $ | — | | | $ | 82,617 | |
Line of credit facilities | 594,300 | | 390,300 |
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Notes payable | 594,300 | | | 472,917 | |
Deferred loan costs | (9,235) | | | (11,800) |
Notes and other debts payable, net | $ | 585,065 | | | $ | 461,117 | |
In October 2021, the Company entered into a line of credit agreement (the “Credit Agreement”). The Credit Agreement provides for a senior unsecured borrowing of up to $675.0 million as of September 30, 2022. The Company may increase the borrowing amount up to $850.0 million, under certain conditions. Borrowings under the Credit Agreement bear interest at SOFR plus 3.35% or Prime Rate (as defined in the Credit Agreement) plus 2.75%. The interest rate includes a floor of 3.85%. As of September 30, 2022, the interest rate on the loan was 5.95%. The Credit Agreement was modified in June 2022 to increase the borrowing commitment by $70.0 million to $655.0 million and replace LIBOR with SOFR as an index rate. The Credit Agreement was modified again in September 2022 to increase the commitment by an additional $20.0 million to $675.0 million. The Credit Agreement matures in October 2024.
In addition, the Company previously had one project-specific construction loan. In April 2022, the construction loan was repaid in full with proceeds from borrowings under the Credit Agreement. In connection with this payoff, the Company incurred $2.5 million of debt extinguishment fees which are included in other income, net, in the consolidated statements of operations.
The Company received a Paycheck Protection Program (“PPP”) loan during the second quarter of 2020 in the amount of $4.3 million, and received a notice of forgiveness of the PPP loan in June 2021. The forgiveness was recorded as other income in the consolidated statements of operations of the Company.
The Company’s loan has certain financial covenants, such as requirements for the Company to maintain a minimum liquidity balance, minimum tangible net worth, and leverage and interest coverage ratios. As of September 30, 2022, the Company was in compliance with all financial covenants.
9. Commitments and Contingencies
Legal—The Company is currently involved in various legal actions and proceedings that arise from time to time and may be subject to similar or other legal and/or regulatory actions in the future. The Company is currently unable to estimate the likelihood of an unfavorable result in any such proceeding that could have a material adverse effect on the Company’s results of operations, financial position, or liquidity.
In the fourth quarter of 2021, certain insurers paid $14.9 million on behalf of the Company and others to settle a wrongful death suit. The insurers contend they are entitled to seek reimbursement from the Company for some or all of such amounts, which the Company disputes. At this time the Company is unable to estimate the amount or outcome of the insurers’ claims against the Company. In addition, the Company is unable to estimate the amount or outcome of its recovery actions against relevant third parties.
Landsea Homes Corp. | Q3 2022 Form 10-Q | 12
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Landsea Homes Corporation |
Notes to the Consolidated Financial Statements - (unaudited) |
Performance Obligations—In the ordinary course of business, and as part of the entitlement and development process, the Company’s subsidiaries are required to provide performance bonds to assure completion of certain public facilities. The Company had $117.0 million and $94.7 million of performance bonds outstanding as of September 30, 2022 and December 31, 2021, respectively.
Warranty—Estimated future direct warranty costs are accrued and charged to cost of sales in the period when the related homebuilding revenues are recognized. Changes in the Company’s warranty accrual are detailed in the table below:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (dollars in thousands) |
Beginning warranty accrual | $ | 18,010 | | | $ | 13,595 | | | $ | 15,692 | | | $ | 11,730 | |
Warranty provision | 1,359 | | | 1,107 | | | 4,602 | | | 3,972 | |
Warranty payments | (1,118) | | | (436) | | | (2,043) | | | (1,436) | |
Ending warranty accrual | $ | 18,251 | | | $ | 14,266 | | | $ | 18,251 | | | $ | 14,266 | |
Operating Leases—The Company primarily enters into operating leases for the right to use office space, model homes, and computer and office equipment, which have remaining lease terms that range from 1 to 8 years and often include one or more options to renew. During December 2021, the Company sold model homes and immediately leased back these models for up to two years. Certain of these model homes were not complete at the time of sale. All of the leases from the sale-leasebacks are accounted for as operating leases and are reflected as part of the Company’s right-of-use assets and lease liabilities in the accompanying consolidated balance sheets. Certain of these sales were to a related party; refer to Note 10 - Related Party Transactions for further detail. The weighted average remaining lease term as of September 30, 2022 and December 31, 2021 was 4.6 and 4.1 years, respectively. Renewal terms are included in the lease term when it is reasonably certain the option will be exercised.
The Company established a right-of-use asset and a lease liability based on the present value of future minimum lease payments at the commencement date of the lease, or, if subsequently modified, the date of modification for active leases. As the rate implicit in each lease is not readily determinable, the Company’s incremental borrowing rate is used in determining the present value of future minimum payments as of the commencement date. The weighted average rate as of September 30, 2022 was 3.8%. Lease components and non-lease components are accounted for as a single lease component. As of September 30, 2022, the Company had $12.8 million and $13.6 million recognized as a right-of-use asset and lease liability, respectively, which are presented on the consolidated balance sheets within other assets and accrued expenses and other liabilities, respectively. As of December 31, 2021, the Company had $12.6 million and $13.2 million recognized as a right-of-use asset and lease liability, respectively.
Operating lease expense for the three and nine months ended September 30, 2022 was $0.5 million and $1.6 million, and is included in general and administrative expenses on the consolidated statements of operations. For the three and nine months ended September 30, 2021 operating lease expense was $0.5 million and $1.3 million, respectively.
Future minimum payments under the noncancelable operating leases in effect at September 30, 2022 were as follows (dollars in thousands):
| | | | | |
2022 | $ | 1,194 | |
2023 | 4,101 | |
2024 | 2,988 | |
2025 | 2,043 | |
2026 | 1,765 | |
Thereafter | 2,808 | |
Total lease payments | 14,899 | |
Less: Discount | (1,274) | |
Present value of lease liabilities | $ | 13,625 | |
Landsea Homes Corp. | Q3 2022 Form 10-Q | 13
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Landsea Homes Corporation |
Notes to the Consolidated Financial Statements - (unaudited) |
10. Related Party Transactions
Following the Merger, the Company continues to pay for certain costs on behalf of its former parent and current majority shareholder while the two companies’ respective processes are separated. The Company records a due from affiliate balance for all such payments. As of September 30, 2022 and December 31, 2021, the Company had a net receivable due from affiliates balance of $2.8 million and $2.1 million, respectively.
In June 2022, the Company entered into two transactions with its majority shareholder, Landsea Holdings. On June 1, 2022, the Board of Directors authorized the Company to buyback 4.4 million shares of common stock held by Landsea Holdings. The Company paid $30.0 million at a price of $6.82 per share, a discount of 5% compared to the closing price on May 31, 2022 of $7.18. Additionally, the Company repurchased all 5.5 million outstanding Private Placement Warrants, of which Landsea Holdings held 2.2 million. The Company paid Landsea Holdings $6.6 million at $3.00 per Private Placement Warrant. In addition, 2.8 million of the repurchased Private Placement Warrants were held by Level Field Capital, LLC, a related party that is controlled by a member of the Company’s Board of Directors. The Company paid Level Field Capital, LLC $8.4 million at $3.00 per Private Placement Warrant. The Company’s common stock and Warrants are discussed further in Note 15 – Stockholders’ Equity.
In June 2022, Landsea Capital Fund, who is under common control with the Company, contributed $55.0 million to the LCF JV. The LCF JV, which is consolidated by the Company, used these proceeds to purchase undeveloped land from the Company. The Company distributed $3.1 million to Landsea Capital Fund during the three and nine months ended September 30, 2022. All intercompany transactions between the Company and the LCF JV have been eliminated upon consolidation.
In December 2021, the Company sold model homes to a related party for total consideration of $15.2 million. Construction of certain of these model homes was not complete at the time of sale. The Company recognized lot sales and other revenue of $1.2 million during the nine months ended September 30, 2022 related to the model homes still under construction on the sale date. Corresponding lot and other cost of sales of $1.3 million was also recognized during the same period. The Company did not recognize any revenue or other cost of sales related to these model homes during the three months ended September 30, 2022. All other model homes sold were completed homes and the revenue was fully recognized in home sales revenue at the time of sale. As part of this transaction, the Company leased back these models. The total amount of rent payments made during the three and nine months ended September 30, 2022 is $0.2 million and $0.6 million, respectively. The right-of-use asset and lease liability balances associated with these leases is $1.5 million and $1.5 million, respectively, as of September 30, 2022 and $2.0 million and $2.0 million, respectively, as of December 31, 2021.
In July 2021, the Company entered into a landbank agreement for a project in its California segment with a related party. The Company will make regular payments to the related party based on an annualized rate of 7% of the undeveloped land costs while the land is developed and may purchase, at the Company’s discretion, the lots at a predetermined price of $28.9 million. The total amount of interest payments made during the three and nine months ended September 30, 2022 is $0.2 million and $0.8 million, respectively. During the three and nine months ended September 30, 2022 payments of $1.7 million and $7.9 million, including fees, have been made to purchase developed lots from the related party, respectively.
In connection with the Merger in January 2021, the Company transferred a deferred tax asset (“DTA”) to Landsea Holdings, its majority shareholder, of $12.1 million. The DTA represented the deferred tax on interest, expensed through Cost of Sales, from a related party loan that remained with Landsea Holdings after the Merger.
11. Income Taxes
The effective tax rate of the Company was 15.9% and 26.2% for the three and nine months ended September 30, 2022, respectively, with an effective tax rate of 21.6% and 18.1% for the three and nine months ended September 30, 2021, respectively. The difference between the statutory tax rate and the effective tax rate for the nine months ended September 30, 2022 is primarily related to state income taxes net of federal income tax benefits, estimated deduction limitations for executive compensation, warrant fair market value adjustments, and tax credits for energy efficient homes. The difference between the statutory tax rate and the effective tax rate for the nine months ended
Landsea Homes Corp. | Q3 2022 Form 10-Q | 14
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Landsea Homes Corporation |
Notes to the Consolidated Financial Statements - (unaudited) |
September 30, 2021 is primarily related to state income taxes net of federal income tax benefits, estimated deduction limitations for executive compensation, warrant fair market value adjustments, the gain on forgiveness of the PPP loan, and tax credits for energy efficient homes.
The accounting for deferred taxes is based upon estimates of future results. Differences between the anticipated and actual outcomes of these future results could have a material impact on the Company’s consolidated results of operations or financial position. Also, changes in existing federal and state tax laws and tax rates could affect future tax results and the valuation of the Company’s deferred tax assets.
The Inflation Reduction Act (“IRA”) of 2022 was enacted into law on August 16, 2022. The IRA introduces a 15% corporate alternative minimum tax on average annual adjusted financial statement income for applicable corporations, and a 1% excise tax on stock repurchases made by publicly traded US corporations after December 31, 2022. The IRA also retroactively extends the federal tax credit for building new energy efficient homes for homes delivered from January 1, 2022 through December 31, 2032. The federal energy tax credits were recognized in the three and nine months ended September 30, 2022. The Company is currently evaluating the other potential effects of the IRA on its consolidated financial statements.
12. Segment Reporting
The Company is engaged in the acquisition, development, and sale of homes and lots in multiple states across the country. The Company is managed by geographic location and each of the five geographic regions targets a wide range of buyer profiles including: first time, move-up, and luxury homebuyers.
Management of the five geographic regions report to the Company's chief operating decision makers (“CODMs”), the Chief Executive Officer and Chief Operating Officer of the Company. The CODMs review the results of operations, including total revenues and pretax income to assess profitability and to allocate resources. Accordingly, the Company has presented its operations as the following five reportable segments:
•Arizona
•California
•Florida
•Metro New York
•Texas
The Company has also identified its Corporate operations as a non-operating segment, as they serve to support the homebuilding operations through functional departments such as executive, finance, treasury, human resources, accounting, and legal. The majority of Corporate personnel and resources are primarily dedicated to activities relating to operations and are allocated based on each segment's respective percentage of assets, revenue, and dedicated personnel.
Landsea Homes Corp. | Q3 2022 Form 10-Q | 15
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Landsea Homes Corporation |
Notes to the Consolidated Financial Statements - (unaudited) |
The following table summarizes total revenues and pretax income before income tax expense by segment:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (dollars in thousands) |
Revenue | | | | | | | |
Arizona | $ | 76,808 | | | $ | 65,502 | | | $ | 234,927 | | | $ | 202,750 | |
California | 118,977 | | | 110,046 | | | 343,466 | | | 346,680 | |
Florida | 103,564 | | | 31,161 | | | 320,358 | | | 59,519 | |
Metro New York | 28,132 | | | — | | | 95,758 | | | — | |
Texas | 8,104 | | | 7,420 | | | 25,982 | | | 15,873 | |
Total revenues | $ | 335,585 | | | $ | 214,129 | | | $ | 1,020,491 | | | $ | 624,822 | |
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Pretax income | | | | | | | |
Arizona | $ | 6,046 | | | $ | 5,103 | | | $ | 17,653 | | | $ | 10,371 | |
California | 20,059 | | | 7,965 | | | 68,085 | | | 22,706 | |
Florida | 4,172 | | | 147 | | | 8,028 | | | 1,032 | |
Metro New York | (810) | | | (622) | | | 646 | | | ( |