| Prospectus Supplement No. 8 |
Filed Pursuant to Rule 424(b)(3) |
| (to prospectus dated March 19, 2021) |
Registration No. 333-252569 |
Landsea Homes Corporation
41,301,645 Shares of Common Stock
5,500,000 Warrants to Purchase Common Stock
This prospectus supplement no. 8 is being filed to update and supplement
information contained in the prospectus dated March 19, 2021 (the “Prospectus”) related to: (1) the issuance by us of up to
7,052,500 shares of our common stock, par value $0.0001 per share (“Common Stock”) that may be issued upon exercise of warrants
to purchase Common Stock at an exercise price of $11.50 per share of Common Stock, including the public warrants and the Private Placement
Warrants (as defined in the Prospectus); and (2) the offer and sale, from time to time, by the Selling Holders (as defined in the Prospectus)
identified in the Prospectus, or their permitted transferees, of (i) up to 41,301,645 shares of Common Stock and (ii) up to 5,500,000
Private Placement Warrants, with the information contained in our Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
2021 (the “Report”). Accordingly, we have attached the Report to this prospectus supplement. Any document, exhibit or information
contained in the Report that has been deemed furnished and not filed in accordance with Securities and Exchange Commission rules shall
not be included in this prospectus supplement.
This prospectus supplement updates and supplements the information in the
Prospectus and is not complete without, and may not be delivered or utilized except in combination with, the Prospectus, including any
amendments or supplements thereto. This prospectus supplement should be read in conjunction with the Prospectus and any prior amendments
or supplements thereto and if there is any inconsistency between the information therein and this prospectus supplement, you should rely
on the information in this prospectus supplement.
Our Common Stock and warrants are traded on the Nasdaq
Global Market under the symbols “LSEA” and “LSEAW,” respectively. On August 11, 2021, the closing price of our
Common Stock was $8.95 per share and the closing price of our warrants was $0.27 per warrant.
Investing in our securities involves risks. See
“Risk Factors” beginning on page 16 of the Prospectus and in any applicable prospectus supplement.
Neither the Securities and Exchange Commission nor
any other regulatory body have approved or disapproved these securities, or passed upon the accuracy or adequacy of this prospectus supplement.
Any representation to the contrary is a criminal offense.
The date of this prospectus supplement is August 12,
2021.
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 June 30,
2021
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:
|
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|
|
|
|
|
|
|
| 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.
|
|
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|
|
|
|
|
|
|
|
|
| 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 August
9, 2021, 46,281,091
Class A common stock, par value $0.0001 per share, were issued and outstanding.
|
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|
|
| Landsea
Homes Corporation |
|
Form
10-Q Index |
|
For
the Six Months Ended June 30, 2021 |
|
|
|
|
|
|
| PART
I - FINANCIAL INFORMATION |
Page |
| Item
1. Financial Statements |
|
| Consolidated
Balance Sheets as of June 30, 2021 and December 31, 2020 |
|
| Consolidated
Statements of Operations for the Three and Six Months Ended June 30, 2021 and 2020 |
|
| Consolidated
Statements of Equity for the Three and Six Months Ended June 30, 2021 and 2020 |
|
| Consolidated
Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020 |
|
| 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) |
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2021 |
|
December
31, 2020 |
| Assets |
|
|
|
| Cash
and cash equivalents |
$ |
147,287 |
|
|
$ |
105,778 |
|
| Cash
held in escrow |
10,761 |
|
|
11,618 |
|
| Restricted
cash |
— |
|
|
4,270 |
|
|
|
|
|
|
Real
estate inventories (including related party interest of $11,479
and $18,721,
respectively) |
877,883 |
|
|
687,819 |
|
|
|
|
|
| Due
from affiliates |
3,584 |
|
|
2,663 |
|
|
Investment
in and advances to unconsolidated joint ventures (including related party interest of $556
and $1,320,
respectively) |
11,604 |
|
|
21,342 |
|
|
|
|
|
| Goodwill |
24,607 |
|
|
20,705 |
|
| Other
assets |
33,093 |
|
|
41,569 |
|
| Total
assets |
$ |
1,108,819 |
|
|
$ |
895,764 |
|
| |
|
|
|
| Liabilities |
|
|
|
| Accounts
payable |
$ |
54,912 |
|
|
$ |
36,243 |
|
| Accrued
expenses and other liabilities |
70,786 |
|
|
62,869 |
|
| Due
to affiliates |
2,176 |
|
|
2,357 |
|
|
|
|
|
| Warrant
liability |
21,560 |
|
|
— |
|
| Notes
and other debts payable, net |
391,844 |
|
|
264,809 |
|
|
|
|
|
| Total
liabilities |
541,278 |
|
|
366,278 |
|
| |
|
|
|
| Commitments
and contingencies |
|
|
|
| |
|
|
|
| Equity |
|
|
|
| Stockholders'
equity: |
|
|
|
|
Preferred
stock, $0.0001
par value, 50,000,000
shares authorized, none
issued and outstanding as of June 30, 2021 and December 31, 2020, respectively |
— |
|
|
— |
|
|
Common
stock, $0.0001
par value, 500,000,000
shares authorized, 46,281,091
and 32,557,303
issued and outstanding as of June 30, 2021 and December 31, 2020, respectively |
5 |
|
|
3 |
|
| Additional
paid-in capital |
530,660 |
|
|
496,171 |
|
| Retained
earnings |
35,601 |
|
|
32,011 |
|
| Total
stockholders' equity |
566,266 |
|
|
528,185 |
|
| Noncontrolling
interests |
1,275 |
|
|
1,301 |
|
| Total
equity |
567,541 |
|
|
529,486 |
|
| Total
liabilities and equity |
$ |
1,108,819 |
|
|
$ |
895,764 |
|
See
accompanying notes to the consolidated financial statements.
-
1 -
|
|
|
|
|
|
|
|
|
| Landsea
Homes Corporation |
| Consolidated
Statements of Operations - (Unaudited) |
| (in
thousands, except share and per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30, |
|
Six
Months Ended June 30, |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
| Revenue |
|
|
|
|
|
|
|
| Home
sales |
$ |
239,600 |
|
|
$ |
95,058 |
|
|
$ |
394,365 |
|
|
$ |
231,353 |
|
| Lot
sales and other |
10,674 |
|
|
— |
|
|
16,328 |
|
|
— |
|
| Total
revenue |
250,274 |
|
|
95,058 |
|
|
410,693 |
|
|
231,353 |
|
| |
|
|
|
|
|
|
|
| Cost
of sales |
|
|
|
|
|
|
|
|
Home
sales (including related party interest of $4,340,
$1,694,
$7,242
and $4,540,
respectively) |
198,987 |
|
|
85,908 |
|
|
335,828 |
|
|
205,476 |
|
| Inventory
impairments |
— |
|
|
3,413 |
|
|
— |
|
|
3,413 |
|
| Lot
sales and other |
8,730 |
|
|
— |
|
|
13,510 |
|
|
— |
|
| Total
cost of sales |
207,717 |
|
|
89,321 |
|
|
349,338 |
|
|
208,889 |
|
| |
|
|
|
|
|
|
|
| Gross
margin |
|
|
|
|
|
|
|
| Home
sales |
40,613 |
|
|
5,737 |
|
|
58,537 |
|
|
22,464 |
|
| Lot
sales and other |
1,944 |
|
|
— |
|
|
2,818 |
|
|
— |
|
| Total
gross margin |
42,557 |
|
|
5,737 |
|
|
61,355 |
|
|
22,464 |
|
| |
|
|
|
|
|
|
|
| Sales
and marketing expenses |
12,650 |
|
|
7,982 |
|
|
22,581 |
|
|
17,618 |
|
| General
and administrative expenses |
13,935 |
|
|
9,934 |
|
|
28,921 |
|
|
19,950 |
|
| Total
operating expenses |
26,585 |
|
|
17,916 |
|
|
51,502 |
|
|
37,568 |
|
| |
|
|
|
|
|
|
|
| Income
(loss) from operations |
15,972 |
|
|
(12,179) |
|
|
9,853 |
|
|
(15,104) |
|
| |
|
|
|
|
|
|
|
| Other
income (expense), net |
3,594 |
|
|
(739) |
|
|
3,533 |
|
|
70 |
|
|
|
|
|
|
|
|
|
|
Equity in net
income (loss) of unconsolidated joint ventures (including related party interest of $416,
$347,
$764
and $625,
respectively) |
667 |
|
|
(13,870) |
|
|
646 |
|
|
(15,613) |
|
| Loss
on remeasurement of warrant liability |
(5,335) |
|
|
— |
|
|
(10,285) |
|
|
— |
|
| Pretax
income (loss) |
14,898 |
|
|
(26,788) |
|
|
3,747 |
|
|
(30,647) |
|
| |
|
|
|
|
|
|
|
| Provision
(benefit) for income taxes |
4,248 |
|
|
(6,496) |
|
|
183 |
|
|
(7,731) |
|
| |
|
|
|
|
|
|
|
| Net
income (loss) |
10,650 |
|
|
(20,292) |
|
|
3,564 |
|
|
(22,916) |
|
| Net
loss attributable to noncontrolling interests |
(14) |
|
|
(22) |
|
|
(26) |
|
|
(110) |
|
| Net
income (loss) attributable to Landsea Homes Corporation |
$ |
10,664 |
|
|
$ |
(20,270) |
|
|
$ |
3,590 |
|
|
$ |
(22,806) |
|
| |
|
|
|
|
|
|
|
| Income
(loss) per share: |
|
|
|
|
|
|
|
| Basic |
$ |
0.23 |
|
|
$ |
(0.62) |
|
|
$ |
0.08 |
|
|
$ |
(0.70) |
|
| Diluted |
$ |
0.23 |
|
|
$ |
(0.62) |
|
|
$ |
0.08 |
|
|
$ |
(0.70) |
|
| |
|
|
|
|
|
|
|
| Weighted
average common shares outstanding: |
|
|
|
|
|
|
|
| Basic |
45,281,091 |
|
|
32,557,303 |
|
|
44,833,600 |
|
|
32,557,303 |
|
| Diluted |
45,281,091 |
|
|
32,557,303 |
|
|
44,837,454 |
|
|
32,557,303 |
|
See
accompanying notes to the consolidated financial statements.
-
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 March 31, 2021 |
46,231,025 |
|
$ |
5 |
|
$ |
530,427 |
|
$ |
24,937 |
|
$ |
1,289 |
|
$ |
556,658 |
|
| Recapitalization
transaction, net of fees and deferred taxes |
— |
|
— |
|
(220) |
|
— |
|
— |
|
(220) |
|
| Vesting
of restricted stock units |
50,066 |
|
— |
|
— |
|
— |
|
— |
|
— |
|
| Stock-based
compensation expense |
— |
|
— |
|
453 |
|
— |
|
— |
|
453 |
|
| Net
income (loss) |
— |
|
— |
|
— |
|
10,664 |
|
(14) |
|
10,650 |
|
| Balance
at June 30, 2021 |
46,281,091 |
|
$ |
5 |
|
$ |
530,660 |
|
$ |
35,601 |
|
$ |
1,275 |
|
$ |
567,541 |
|
|
|
|
|
|
|
|
|
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 |
— |
|
— |
|
2,829 |
|
— |
|
— |
|
2,829 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net
income (loss) |
— |
|
— |
|
— |
|
3,590 |
|
(26) |
|
3,564 |
|
| Balance
at June 30, 2021 |
46,281,091 |
|
$ |
5 |
|
$ |
530,660 |
|
$ |
35,601 |
|
$ |
1,275 |
|
$ |
567,541 |
|
| |
|
|
|
|
|
|
|
Common
Stock |
|
|
|
|
|
Shares |
Amount |
Additional
paid-in capital |
Retained
earnings |
Noncontrolling
interests |
Total
stockholders' equity |
| Balance
at March 31, 2020 |
1,000 |
|
$ |
— |
|
$ |
517,781 |
|
$ |
38,426 |
|
$ |
17,954 |
|
$ |
574,161 |
|
| Retroactive
application of recapitalization |
32,556,303 |
|
3 |
|
(3) |
|
|
|
— |
|
| Adjusted
balance, beginning of period |
32,557,303 |
|
$ |
3 |
|
$ |
517,778 |
|
$ |
38,426 |
|
$ |
17,954 |
|
$ |
574,161 |
|
| Contributions
from noncontrolling interests |
— |
|
— |
|
— |
|
— |
|
37 |
|
37 |
|
| Distributions
to noncontrolling interests |
— |
|
— |
|
— |
|
— |
|
(15,414) |
|
(15,414) |
|
| Net
loss |
— |
|
— |
|
— |
|
(20,270) |
|
(22) |
|
(20,292) |
|
| Net
transfers to parent |
— |
|
— |
|
(26,789) |
|
— |
|
(1,242) |
|
(28,031) |
|
| Balance
at June 30, 2020 |
32,557,303 |
|
$ |
3 |
|
$ |
490,989 |
|
$ |
18,156 |
|
$ |
1,313 |
|
$ |
510,461 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to the consolidated financial statements.
-
3 -
|
|
|
| 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, 2019 |
1,000 |
|
$ |
— |
|
$ |
524,516 |
|
$ |
40,962 |
|
$ |
17,892 |
|
$ |
583,370 |
|
| Retroactive
application of recapitalization |
32,556,303 |
|
3 |
|
(3) |
|
— |
|
— |
|
— |
|
| Adjusted
balance, beginning of period |
32,557,303 |
|
$ |
3 |
|
$ |
524,513 |
|
$ |
40,962 |
|
$ |
17,892 |
|
$ |
583,370 |
|
| Contributions
from noncontrolling interests |
— |
|
— |
|
— |
|
— |
|
187 |
|
187 |
|
| Distributions
to noncontrolling interests |
— |
|
— |
|
— |
|
— |
|
(15,414) |
|
(15,414) |
|
| Net
loss |
— |
|
— |
|
— |
|
(22,806) |
|
(110) |
|
(22,916) |
|
| Net
transfers to parent |
— |
|
— |
|
(33,524) |
|
— |
|
(1,242) |
|
(34,766) |
|
| Balance
at June 30, 2020 |
32,557,303 |
|
$ |
3 |
|
$ |
490,989 |
|
$ |
18,156 |
|
$ |
1,313 |
|
$ |
510,461 |
|
See
accompanying notes to the consolidated financial statements.
-
4 -
|
|
|
|
|
|
|
|
|
|
Landsea
Homes Corporation |
| Consolidated
Statements of Cash Flows - (Unaudited) |
| (in
thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended June 30, |
|
|
|
|
|
2021 |
|
2020 |
|
|
|
(dollars
in thousands) |
| Cash
flows from operating activities: |
|
|
|
|
|
|
|
| Net
income (loss) |
|
|
|
|
$ |
3,564 |
|
|
$ |
(22,916) |
|
| Adjustments
to reconcile net income (loss) to net cash used in operating activities: |
|
|
|
|
|
|
|
| Depreciation
and amortization |
|
|
|
|
1,953 |
|
|
1,785 |
|
| Loss
on remeasurement of warrant liability |
|
|
|
|
10,285 |
|
|
— |
|
| Inventory
impairments |
|
|
|
|
— |
|
|
3,413 |
|
| Stock-based
compensation expense |
|
|
|
|
2,829 |
|
|
— |
|
| Gain
on forgiveness of PPP loans |
|
|
|
|
(4,265) |
|
|
— |
|
| Abandoned
project costs |
|
|
|
|
216 |
|
|
— |
|
|
|
|
|
|
|
|
|
| Equity
in net (income) loss of unconsolidated joint ventures |
|
|
|
|
(646) |
|
|
15,613 |
|
| Deferred
taxes |
|
|
|
|
116 |
|
|
(4,986) |
|
| Changes
in operating assets and liabilities: |
|
|
|
|
|
|
|
| Cash
held in escrow |
|
|
|
|
857 |
|
|
660 |
|
| Real
estate inventories |
|
|
|
|
(94,614) |
|
|
(67,852) |
|
| Due
from affiliates |
|
|
|
|
(921) |
|
|
(325) |
|
|
|
|
|
|
|
|
|
| Other
assets |
|
|
|
|
(5,350) |
|
|
(3,342) |
|
| Accounts
payable |
|
|
|
|
17,028 |
|
|
10,148 |
|
| Accrued
expenses and other liabilities |
|
|
|
|
(16,928) |
|
|
(7,030) |
|
| Due
to affiliates |
|
|
|
|
(181) |
|
|
281 |
|
| Net
cash used in operating activities |
|
|
|
|
(86,057) |
|
|
(74,551) |
|
| |
|
|
|
|
|
|
|
| Cash
flows from investing activities: |
|
|
|
|
|
|
|
| Purchases
of property and equipment |
|
|
|
|
(768) |
|
|
(1,042) |
|
| Distributions
of capital from unconsolidated joint ventures |
|
|
|
|
10,384 |
|
|
— |
|
|
|
|
|
|
|
|
|
| Payments
for business acquisition, net of cash acquired |
|
|
|
|
(44,537) |
|
|
(128,528) |
|
| Net
cash used in investing activities |
|
|
|
|
(34,921) |
|
|
(129,570) |
|
| |
|
|
|
|
|
|
|
| Cash
flows from financing activities: |
|
|
|
|
|
|
|
| Borrowings
from notes and other debts payable |
|
|
|
|
369,787 |
|
|
318,054 |
|
| Repayments
of notes and other debts payable |
|
|
|
|
(271,516) |
|
|
(166,102) |
|
| Proceeds
from merger, net of fees and other costs |
|
|
|
|
64,434 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Repayment
of convertible note |
|
|
|
|
(1,500) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Contributions
from noncontrolling interests |
|
|
|
|
— |
|
|
187 |
|
| Distributions
to noncontrolling interests |
|
|
|
|
— |
|
|
(15,414) |
|
| Deferred
offering costs paid |
|
|
|
|
(1,832) |
|
|
— |
|
| Debt
issuance costs paid |
|
|
|
|
(1,156) |
|
|
(2,552) |
|
| Cash
distributed to parent, net |
|
|
|
|
— |
|
|
(6,230) |
|
| Net
cash provided by financing activities |
|
|
|
|
158,217 |
|
|
127,943 |
|
| |
|
|
|
|
|
|
|
| Net
increase (decrease) in cash, cash equivalents, and restricted cash |
|
|
|
|
37,239 |
|
|
(76,178) |
|
| Cash,
cash equivalents, and restricted cash at beginning of period |
|
|
|
|
110,048 |
|
|
156,378 |
|
| Cash,
cash equivalents, and restricted cash at end of period |
|
|
|
|
$ |
147,287 |
|
|
$ |
80,200 |
|
See
accompanying notes to the consolidated financial statements.
-
5 -
|
|
|
|
| Landsea
Homes Corporation |
| Notes
to Consolidated Financial Statements - (unaudited) |
1. Company
Landsea
Homes Corporation (“LHC” or the “Company”), a majority owned subsidiary of Landsea Holdings Corporation (“Landsea
Holdings”), together with its subsidiaries, is engaged in the acquisition, development and building of lots, homes, and condominiums
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 the surviving
company, LF Capital Acquisition Corp., 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 Acquisition Corp.’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 which are subject to surrender and forfeiture for no consideration in the event the common stock does not reach certain thresholds
during the twenty-four 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 public warrants they 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 of $7.5 million
in 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 in the six months ended June 30, 2021 related to the accelerated vesting of the phantom awards.
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
at the time of the Merger.
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,
having 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 (loss) 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.
|
|
|
|
| Landsea
Homes Corporation |
| Notes
to Consolidated Financial Statements - (unaudited) |
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") and include the accounts of the Company and all subsidiaries. All intercompany transactions and balances have
been eliminated in consolidation.
Prior
to the Merger, the Company was historically funded as part of Landsea Holdings' treasury program. Cash and cash equivalents were primarily
centrally managed through bank accounts legally owned by Landsea Holdings. Accordingly, cash and cash equivalents held by Landsea Holdings
at the corporate level were not attributed to the Company for any of the periods presented prior to the Merger. Only cash amounts legally
owned by entities consolidated by the Company are reflected in the consolidated balance sheets. Transfers of cash, both to and from Landsea
Holdings' treasury program, were reflected as a component of additional paid-in capital in the consolidated balance sheets and as a financing
activity on the accompanying consolidated statements of cash flows. As the functional departments that made up the Company were not held
by a single legal entity, balances between the Company and Landsea Holdings that were not historically cash settled were included in additional
paid-in capital.
Landsea
Holdings holds a series of notes payable to affiliated entities of its parent. The cash Landsea Holdings received from this debt 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
5 - 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 the 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.
During
the periods presented in the consolidated financial statements prior to the Merger, the Company was included in the consolidated U.S.
federal, and certain state and local income tax returns filed by Landsea Holdings, where applicable. Income tax expense and other income
tax related information contained in these consolidated financial statements are presented on a separate return basis as if the Company
had filed its own tax returns. Additionally, certain tax attributes such as net operating losses or credit carryforwards are presented
on a separate return basis, and accordingly, may differ in the future. In jurisdictions where the Company has been included in the tax
returns filed by Landsea Holdings, any income tax payables or receivables resulting from the related income tax provisions have been reflected
in the consolidated balance sheets and the effect of the push down is reflected within additional paid-in capital.
Management
of the Company believes that the assumptions underlying the consolidated financial statements reasonably reflect the utilization of services
provided or benefit received by the Company during the periods presented. Nevertheless, the consolidated financial statements may not
be indicative of the Company’s future performance and therefore periods prior to the Merger do not necessarily reflect the results
of operations, financial position, or cash flows of the Company if it had been an independent entity during those periods.
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
our consolidated financial statements and notes thereto included in our Current Report on Form 8-K/A for the year ended December 31, 2020
filed with the SEC on March 12, 2021. The accompanying unaudited consolidated financial statements include all adjustments (consisting
of normal recurring entries) necessary for the fair statement of our 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.
|
|
|
|
| Landsea
Homes Corporation |
| Notes
to Consolidated Financial Statements - (unaudited) |
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.
Warrant
liability—The
Company’s outstanding Private Placement Warrants are presented on the consolidated balance sheets as a liability recorded at fair
value with subsequent changes in fair value recognized in the consolidated statement of operations at each reporting date as a gain (loss)
on remeasurement of the warrant liability. Each Private Placement Warrant is exercisable at $11.50
into one share of common stock. The Warrants will expire five years after the completion of the Merger or earlier upon redemption or liquidation.
Refer to Note
16 - Stockholders' Equity
for additional information on the Warrants. The fair value of the Private Placement Warrants is determined by a Black-Scholes options
pricing model which includes Level 3 inputs as discussed further in Note
14 - Fair Value.
Lot
Sales and Other Revenue and Profit Recognition
Revenues
from lot sales and other revenue are recorded and a profit is recognized when performance obligations are satisfied, which includes transferring
a promised good or service to a customer. Lot sales and other revenue is recognized when all conditions of escrow are met, including delivery
of the real estate asset in the agreed-upon condition, passage of title, receipt of appropriate consideration, and collection of associated
receivables, if any, is probable, and other applicable criteria are met. Based upon the terms of the agreement, when it is determined
that the performance obligation is not satisfied, the sale and the related profit are deferred for recognition in future periods.
Under
the terms of certain lot sale and other contracts, the Company is obligated to perform certain development activities after the close
of escrow. Due to this continuing involvement, the Company recognizes lot sales and other revenue under the percentage-of-completion method,
whereby revenue is recognized in proportion to total costs incurred divided by total costs expected to be incurred. As of June 30, 2021,
the Company had $6.2 million
deferred revenue from lot sales and other revenue. As of December 31, 2020, the Company had no
deferred revenue. The Company recognizes these amounts as development progresses and the related performance obligations are completed.
The amount of the transaction price for lot sales and other contracts allocated to performance obligations that were unsatisfied, or partially
unsatisfied, as of June 30, 2021 was $12.9 million.
There was no
outstanding amount related to unsatisfied performance obligations as of December 31, 2020.
Recent
Accounting Pronouncements
In
December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2019-12, Income
Taxes (Topic 740): Simplifying the Accounting for Income Taxes,
which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general
principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application for fiscal years beginning after
December 15, 2020. The Company adopted the amendments in this update on January 1, 2021. The adoption did not have a material impact on
the Company's consolidated financial statements.
In
January 2020, the FASB issued ASU 2020-01, Investments
- Equity Securities (Topic 321), Investments - Equity Method and Joint Ventures (Topic 323), and Derivative and Hedging (Topic 815).
ASU 2020-01 clarifies the interaction of the accounting for equity securities under Topic 321 and investments accounted for under the
equity method of accounting in Topic 323 and the accounting for certain forward contracts and purchased options accounted for under Topic
815. The standard is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years, with
early adoption permitted. The Company adopted the amendments in this update on January 1, 2021. The adoption did not have a material impact
on the Company's consolidated financial statements.
In March 2020,
the FASB issued ASU 2020-04, Reference
Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting,
which provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects
of) reference rate reform, particularly the cessation of the London Interbank Offered Rate ("LIBOR"), on financial reporting. ASU 2020-04
is effective upon
|
|
|
|
| Landsea
Homes Corporation |
| Notes
to Consolidated Financial Statements - (unaudited) |
issuance, and
the provisions generally can be applied prospectively as of January 1, 2020 through December 31, 2022. In January 2021, the FASB issued
ASU 2021-01, Reference
Rate Reform (Topic 848): Scope,
which refines the scope of Topic 848 and clarifies some of its guidance. The adoption of this ASU did not have a material impact on the
Company's consolidated financial statements.
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 is not expected to have a material impact
on the Company's consolidated financial statements.
3.
Business
Combinations
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 an aggregate cash purchase price of $54.6 million.
In addition, we assumed $32.1 million
of debt, of which we paid down $3.8 million
in connection with the acquisition. The total assets of Vintage included approximately 20
development projects and 1,800
lots in various stages of development. The determination of the final purchase accounting allocation related to the fair value of acquired
inventory and goodwill is in process as of the date the consolidated financial statements were available to be issued.
In
accordance with Accounting Standards Codification ("ASC") Topic 805, Business Combinations, the assets acquired and liabilities assumed
from our acquisitions of Vintage and Garrett Walker Homes ("GWH") were measured and recognized at fair value as of the date of the acquisitions
to reflect the purchase price paid.
Acquired
inventories consist of land, land deposits, and work in process inventories. The Company determined the estimate of fair value for
acquired land inventory using a forecasted cash flow approach for the development, marketing, and sale of each community acquired. Significant
assumptions included in our estimate were future development costs, construction and overhead costs, mix of products, as well as average
selling price ("ASP"), and absorption rates. The Company estimated the fair value of acquired work in process inventories based upon
the stage of production of each unit and a profit margin that a market participant would require to complete the remaining production
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 Vintage 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. Goodwill of $3.9
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 in Note
13, Segment Reporting.
The Company incurred transaction related costs of $0.4
million related to the Vintage acquisition in the three and six months ended June 30, 2021.
The
Company's results of operations include homebuilding revenues of $36.8
million, and income before tax inclusive of purchase price accounting and corporate general and administrative expense allocation, of $1.3
million, from Vintage in the accompanying consolidated statement of operations for the three and six months ended June 30, 2021.
|
|
|
|
| Landsea
Homes Corporation |
| Notes
to Consolidated Financial Statements - (unaudited) |
The
following is a summary of the preliminary 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 |
93,599 |
|
| Goodwill |
3,902 |
|
| Trade
name |
1,550 |
|
| Other
assets |
3,906 |
|
| 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 |
|
On
January 15, 2020, the Company acquired 100%
of the membership interest of GWH for cash consideration of approximately $133.4
million. GWH is a residential homebuilder located in Phoenix, Arizona focused on building entry-level, single-family detached homes in
the Northwest Valley and Phoenix metropolitan. The total assets of GWH included approximately 20
development projects and 1,750
lots in various stages of development. The intangible asset acquired relates to the GWH trade name, which is estimated to have a fair
value of $1.6
million and is being amortized over three
years. Goodwill of $15.4
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 Arizona reporting segment in Note
13, Segment Reporting.
The Company incurred transaction related costs of $0.1 million
and $0.5 million
related to the GWH acquisition during the three and six months ended June 30, 2020, respectively. 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 |
$ |
2,905 |
|
| Real
estate inventories |
119,466 |
|
| Goodwill |
15,392 |
|
| Trade
name |
1,600 |
|
| Other
assets |
532 |
|
| Total
assets |
$ |
139,895 |
|
| |
|
| Liabilities
Assumed |
|
| Accounts
payable |
$ |
5,425 |
|
| Accrued
expenses |
1,037 |
|
| Total
liabilities |
6,462 |
|
| Net
assets acquired |
$ |
133,433 |
|
Unaudited
Pro Forma Financial Information
Unaudited
pro forma revenue and net (loss) income for the following periods presented give effect to the results of the acquisitions of Vintage
and GWH as though the respective acquisition dates were as of January 1, 2020 and January 1, 2019, the beginning of the year preceding
the respective acquisitions. Unaudited
pro forma net (loss) income adjusts the operating results of Vintage and GWH to reflect the additional costs that would have been 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.
|
|
|
|
| Landsea
Homes Corporation |
| Notes
to Consolidated Financial Statements - (unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30, |
|
Six
Months Ended June 30, |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
(dollars
in thousands) |
| Revenue |
$ |
266,357 |
|
|
$ |
136,661 |
|
|
$ |
466,104 |
|
|
$ |
306,244 |
|
|
|
|
|
|
|
|
|
| Pretax
income (loss) |
19,829 |
|
|
(22,936) |
|
|
12,394 |
|
|
(35,043) |
|
| Provision
(benefit) for income taxes |
5,718 |
|
|
(6,805) |
|
|
2,561 |
|
|
(8,840) |
|
| Net
income (loss) |
$ |
14,111 |
|
|
$ |
(16,131) |
|
|
$ |
9,833 |
|
|
$ |
(26,203) |
|
4.
Real
Estate Inventories
Real
estate inventories are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2021 |
|
December
31, 2020 |
|
(dollars
in thousands) |
| Deposits
and pre-acquisition costs |
$ |
56,999 |
|
|
$ |
34,102 |
|
| Land
held and land under development |
322,687 |
|
|
221,055 |
|
| Homes
completed or under construction |
470,634 |
|
|
395,926 |
|
| Model
homes |
27,563 |
|
|
36,736 |
|
| Total
real estate inventory |
$ |
877,883 |
|
|
$ |
687,819 |
|
|
|
|
|
|
|
|
|
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, inventory is stated at cost, unless the carrying amount is determined not to be recoverable, in which case inventory
is written down to its estimated 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 our estimates of future home sales revenue, home construction costs, and the applicable
discount rate, all of which are Level 3 inputs, refer to Note
14 - Fair Value
for additional information.
For
the three and six months ended June 30, 2021 the Company recognized no
real estate inventory impairments. For the three and six months ended June 30, 2020, the Company recognized real estate inventory impairments
of $3.4
million related to two
communities in the California segment. In both instances, the Company determined that additional incentives were required to sell the
remaining homes at estimated aggregate sales prices below the communities' previous carrying values. The fair values for the communities
impaired were calculated using discounted cash flow models using discount rates ranging from 7%-10%.
5.
Capitalized
Interest
Interest
is capitalized to real estate inventories and investment in unconsolidated joint ventures during development and 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 joint ventures is relieved to equity in net (loss) income of unconsolidated joint ventures
as related joint venture homes close.
|
|
|
|
| Landsea
Homes Corporation |
| Notes
to Consolidated Financial Statements - (unaudited) |
For
the periods reported, interest incurred, capitalized, and expensed was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30, |
|
Six
Months Ended June 30, |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
(dollars
in thousands) |
|
(dollars
in thousands) |
| Related
party interest pushed down |
$ |
— |
|
|
$ |
2,264 |
|
|
$ |
— |
|
|
$ |
4,893 |
|
| Other
interest incurred |
6,998 |
|
|
6,230 |
|
|
12,104 |
|
|
10,532 |
|
| Total
interest incurred |
6,998 |
|
|
8,494 |
|
|
12,104 |
|
|
15,425 |
|
| |
|
|
|
|
|
|
|
| Related
party interest capitalized |
— |
|
|
2,264 |
|
|
— |
|
|
4,893 |
| Other
interest capitalized |
6,998 |
|
|
6,230 |
|
|
12,104 |
|
|
10,532 |
|
| Total
interest capitalized |
6,998 |
|
|
8,494 |
|
|
12,104 |
|
|
15,425 |
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
| Previously
capitalized related party interest included in cost of sales |
$ |
4,340 |
|
|
$ |
1,694 |
|
|
$ |
7,242 |
|
|
$ |
4,540 |
|
| Previously
capitalized other interest included in cost of sales |
6,959 |
|
|
3,695 |
|
|
11,124 |
|
|
8,160 |
|
| Related
party interest relieved to equity in earnings (loss) from unconsolidated joint ventures |
416 |
|
|
347 |
|
|
764 |
|
|
625 |
|
| Other
interest relieved to equity in earnings (loss) from unconsolidated joint ventures |
6 |
|
|
5 |
|
|
11 |
|
|
9 |
|
| Other
interest expensed |
10 |
|
|
— |
|
|
21 |
|
|
11 |
|
| Total
interest expense included in pretax income (loss) |
$ |
11,731 |
|
|
$ |
5,741 |
|
|
$ |
19,162 |
|
|
$ |
13,345 |
|
6. Investment
in and Advances to Unconsolidated Joint Ventures
As
of June 30, 2021 and December 31, 2020, the Company had two
unconsolidated joint ventures with ownership interests of 51%
and 25%
in LS-NJ Port Imperial JV LLC and LS-Boston Point LLC, respectively, and concluded that these joint ventures were variable interest entities.
The Company concluded that it was not the primary beneficiary of the variable interest entities and, accordingly, accounted for these
entities under the equity method of accounting. The Company's maximum exposure to loss is limited to the investment in the unconsolidated
joint venture amounts included on the consolidated balance sheets.
The
condensed combined balance sheets for the Company’s unconsolidated joint ventures accounted for under the equity method are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2021 |
|
December
31, 2020 |
|
(dollars
in thousands) |
| Cash
and cash equivalents |
$ |
7,760 |
|
|
$ |
2,740 |
|
|
|
|
|
| Restricted
cash |
— |
|
|
4,870 |
|
| Real
estate inventories |
19,397 |
|
|
41,214 |
|
|
|
|
|
| Other
assets |
122 |
|
|
123 |
|
| Total
assets |
$ |
27,279 |
|
|
$ |
48,947 |
|
| |
|
|
|
| Accounts
payable |
$ |
224 |
|
|
$ |
188 |
|
| Accrued
expenses and other liabilities |
4,719 |
|
|
3,928 |
|
| Due
to affiliates |
825 |
|
|
5,735 |
|
|
|
|
|
|
|
|
|
| Total
liabilities |
5,768 |
|
|
9,851 |
|
| Members'
capital |
21,511 |
|
|
39,096 |
|
| Total
liabilities and members' capital |
$ |
27,279 |
|
|
$ |
48,947 |
|
|
|
|
|
| Landsea
Homes Corporation |
| Notes
to Consolidated Financial Statements - (unaudited) |
The
condensed combined statements of operations for the Company’s unconsolidated joint ventures accounted for under the equity method
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30, |
|
Six
Months Ended June 30, |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
(dollars
in thousands) |
|
(dollars
in thousands) |
| Revenues |
$ |
15,883 |
|
|
$ |
7,911 |
|
|
$ |
29,963 |
|
|
$ |
18,472 |
|
| Cost
of sales and expenses |
(13,756) |
|
|
(7,646) |
|
|
(27,187) |
|
|
(20,752) |
|
| Impairment
of real estate inventories |
— |
|
|
(27,094) |
|
|
— |
|
|
(27,094) |
|
|
|
|
|
|
|
|
|
| Net
income (loss) of unconsolidated joint ventures |
$ |
2,127 |
|
|
$ |
(26,829) |
|
|
$ |
2,776 |
|
|
$ |
(29,374) |
|
|
Equity in net
income (loss) of unconsolidated joint ventures (1) |
$ |
667 |
|
|
$ |
(13,870) |
|
|
$ |
646 |
|
|
$ |
(15,613) |
|
(1)
The equity in net income (loss) of unconsolidated joint ventures consists of two pieces. The allocation of the
Company's proportionate share of income or loss from the unconsolidated joint ventures of $1.1
million income and $13.5
million loss for the three months ended June 30, 2021 and 2020, respectively, and $1.4
million income and $15.0
million loss for the six months ended June 30, 2021 and 2020, respectively. In addition, expenses related to capitalized interest and
other costs were $0.4
million and $0.4
million for the three months ended June 30, 2021 and 2020, respectively, and $0.8
million and $0.6
million for the six months ended June 30, 2021 and 2020, respectively.
For
the three and six months ended June 30, 2021, no
impairment charges were recorded related to either of the unconsolidated joint ventures. For the three and six months ended June 30, 2020,
one of the Company's unconsolidated joint ventures recorded an impairment charge of $27.1
million, related to slowing absorption and weaker pricing than expected. The impairment charge, based on the Company's ownership percentage
of 51%,
was $13.8 million
and is reflected in the equity in net income (loss) of unconsolidated joint ventures line in the consolidated statements of operations.
7. Other
Assets
Other
assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2021 |
|
December
31, 2020 |
|
(dollars
in thousands) |
| Deferred
tax asset, net |
$ |
2,621 |
|
|
$ |
13,248 |
|
| Property,
equipment and capitalized selling and marketing costs, net |
6,321 |
|
|
6,386 |
|
| Right-of-use
asset |
6,471 |
|
|
5,973 |
|
| Deferred
offering costs |
— |
|
|
7,617 |
|
| Prepaid
income taxes |
4,048 |
|
|
1,003 |
|
| Intangible
asset, net |
2,173 |
|
|
1,046 |
|
| Prepaid
expenses |
8,544 |
|
|
3,029 |
|
| Other |
2,915 |
|
|
3,267 |
|
| Total
other assets |
$ |
33,093 |
|
|
$ |
41,569 |
|
|
|
|
|
| Landsea
Homes Corporation |
| Notes
to Consolidated Financial Statements - (unaudited) |
8.
Accrued
Expenses and Other Liabilities
Accrued
expenses and other liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2021 |
|
December
31, 2020 |
|
(dollars
in thousands) |
| Land
development and home construction accrual |
$ |
23,668 |
|
|
$ |
25,910 |
|
| Warranty
accrual |
13,595 |
|
|
11,730 |
|
| Accrued
compensation and benefits |
5,653 |
|
|
10,966 |
|
| Lease
liabilities |
6,949 |
|
|
6,396 |
|
| Interest
payable |
2,080 |
|
|
1,134 |
|
| Income
tax payable |
2,839 |
|
|
1,355 |
|
| Deferred
revenue |
6,173 |
|
|
— |
|
|
|
|
|
| Sales
tax payable |
916 |
|
|
1,867 |
|
| Other
deposits and liabilities |
8,913 |
|
|
3,511 |
|
| Total
accrued expenses and other liabilities |
$ |
70,786 |
|
|
$ |
62,869 |
|
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 June 30, |
|
Six
Months Ended June 30, |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
(dollars
in thousands) |
| Beginning
warranty accrual |
$ |
12,020 |
|
|
$ |
9,296 |
|
|
$ |
11,730 |
|
|
$ |
8,693 |
|
| Warranty
provision |
1,948 |
|
|
686 |
|
|
2,865 |
|
|
1,393 |
|
| Warranty
payments |
(373) |
|
|
(97) |
|
|
(1,000) |
|
|
(201) |
|
| Ending
warranty accrual |
$ |
13,595 |
|
|
$ |
9,885 |
|
|
$ |
13,595 |
|
|
$ |
9,885 |
|
9.
Notes
and Other Debts Payable, net
Amounts
outstanding under notes and other debts payable, net consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2021 |
|
December
31, 2020 |
|
(dollars
in thousands) |
| Construction
loans |
$ |
107,300 |
|
|
$ |
67,757 |
|
| Line
of credit facilities |
289,818 |
|
|
199,358 |
|
|
|
|
| Loan
payable |
862 |
|
|
5,144 |
|
| Notes
Payable |
397,980 |
|
|
272,259 |
| Deferred
loan costs |
(6,136) |
|
|
(7,450) |
| Notes
and other debts payable, net |
$ |
391,844 |
|
|
$ |
264,809 |
|
The
Company has various construction loan agreements secured by various real estate developments (“Construction Loans”) with maturity
dates extending from February 2022 through March 2024. The Construction Loans have variable interest rates based on Prime or LIBOR. As
of June 30, 2021, interest rates on the Construction Loans ranged from 4.00%
to 5.50%.
In 2018, the Company assumed two
loans from a third-party land seller in connection with the acquisition of real estate inventories. Both loans have a variable interest
rate of LIBOR plus 6.50%
with a floor of 8.25%.
As of June 30, 2021, the interest rate on both loans was 8.25%.
The Company has certain construction loans sourced from EB-5 investors with maturity dates ranging from June 2023 through May 2024. As
of June 30, 2021, the loans have fixed interest rates of 5.30%
to 6.00%.
In
2018, the Company entered into a secured line of credit (“LOC”) with a bank. In 2020, the Company extended the LOC resulting
in a new maturity date of February 2024. As of June 30, 2021 the total commitment on the LOC was
|
|
|
|
| Landsea
Homes Corporation |
| Notes
to Consolidated Financial Statements - (unaudited) |
$195.0
million and it had an outstanding balance of $114.5
million. The LOC has a variable interest rate of Prime plus 1.25%
with a floor of 5.25%.
As of June 30, 2021, the interest rate was 5.25%.
In
connection with the acquisition of GWH, the Company entered into an additional line of credit ("LOC2") with a bank as part of the transaction.
On the date of acquisition, the Company drew $70.0
million from the LOC2. As of June 30, 2021 the total commitment on the LOC2 was $150.0
million and it had an outstanding balance of $128.1
million. The LOC2 has an interest rate of Prime plus 1.00%
with a floor of 5.00%
and matures in January 2024. As of June 30, 2021, the interest rate was 5.00%.
On
April 15, 2020, Landsea Holdings entered into a Paycheck Protection Program (“PPP”) Note evidencing an unsecured loan in the
amount of $4.3 million
made to the Company under the PPP. The PPP was established under the Coronavirus Aid, Relief, and Economic Security Act and is administered
by the U.S. Small Business Association. The proceeds from the PPP Note were restricted to only being used for payroll costs (including
benefits), interest on mortgage obligations, rent, utilities and interest on certain other debt obligations. The proceeds from the PPP
Note were used in the operation of the Company and therefore the debt was included in the consolidated balance sheets of the Company.
We fully utilized the proceeds from this loan to satisfy certain payroll and benefit obligations and applied for relief of the full amount
of the loan under the PPP. In June 2021, the PPP loan was forgiven and the liability removed from the Company's consolidated balance sheets.
The forgiveness was recorded as a gain on debt forgiveness and is included in other income (expense), net. in the consolidated statements
of operations of the Company.
The
Company’s loans have certain financial covenants, such as requirements for the Company to maintain a minimum liquidity balance,
minimum tangible net worth, gross profit margin, leverage and interest coverage ratios. The Company's loans are secured by the assets
of the Company and contain various representations, warranties, and covenants that are customary for these types of agreements. As of
June 30, 2021, the Company was in compliance with all financial loan agreement covenants.
The
aggregate maturities of the principal balances of the notes and other debts payable during the five years subsequent to June 30,
2021 are as follows (dollars
in thousands):
|
|
|
|
|
|
| 2021 |
$ |
21 |
|
| 2022 |
86,402 |
|
| 2023 |
36,470 |
|
| 2024 |
274,384 |
|
| 2025 |
703 |
|
| Thereafter |
— |
|
| |
$ |
397,980 |
|
10. Commitments
and Contingencies
Legal—We
are subject to various legal and regulatory actions that arise from time to time and may be subject to similar or other claims in the
future. In addition, we are currently involved in various other legal actions and proceedings. We are currently unable to estimate the
likelihood of an unfavorable result in any such proceeding that could have a material adverse effect on our results of operations, financial
position, or liquidity.
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 $97.6
million and $78.0
million of performance bonds outstanding as of June 30, 2021 and December 31, 2020, respectively.
|
|
|
|
| Landsea
Homes Corporation |
| Notes
to Consolidated Financial Statements - (unaudited) |
Operating
Leases—The
Company has various operating leases, most of which relate to office facilities. Future
minimum payments under the noncancelable operating leases in effect at June 30, 2021 were as follows
(dollars in thousands):
|
|
|
|
|
|
| 2021 |
$ |
896 |
|
| 2022 |
1,828 |
|
| 2023 |
1,609 |
|
| 2024 |
1,400 |
|
| 2025 |
1,079 |
|
| Thereafter |
1,245 |
|
| Total
lease payments |
8,057 |
|
| Less:
Discount |
(1,108) |
|
| Present
value of lease liabilities |
$ |
6,949 |
|
Operating
lease expense for the three and six months ended June 30, 2021 was $0.4
million and $0.8
million, respectively, and is included in general and administrative expense on the consolidated statements of operations. For the three
and six months ended June 30, 2020 operating lease expense was $0.6
million and $1.1
million, respectively.
The
Company primarily enters into operating leases for the right to use office space and computer and office equipment, which have remaining
lease terms that range from one
to seven
years and often include one or more options to renew. The weighted average remaining lease term as of June 30, 2021
and December 31, 2020 was 4.6
and 4.4
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 later
of January 1, 2019, 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 June 30, 2021 was 5.9%.
Lease components and non-lease components are accounted for as a single lease component. As of June 30, 2021, the Company had $6.5
million and $6.9
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, 2020, the Company had $6.0
million and $6.4
million recognized as a right-of-use asset and lease liability, respectively.
11. Related
Party Transactions
The
Company has entered into agreements with its unconsolidated joint ventures to provide management services related to underlying projects
for a management fee and reimbursement of agreed upon out of pocket operating expenses. As of June 30, 2021 and December 31,
2020, the Company had a net receivable due from affiliates balance of $1.4
million and $0.3
million, respectively.
On
June 30, 2020, the Company transferred its interest in a consolidated real estate joint venture that was previously included in the Metro
New York segment to LHC. The interest was removed from the consolidated financial
|
|
|
|
| Landsea
Homes Corporation |
| Notes
to Consolidated Financial Statements - (unaudited) |
statements
of the Company on a prospective basis. The
real estate joint venture had net assets at the date of transfer of $28.9
million and a noncontrolling interest of $1.2
million as follows (dollars
in thousands):
|
|
|
|
|
|
| Assets
Transferred |
|
| Cash |
$ |
338 |
|
| Real
estate inventories |
49,705 |
|
| Other
assets |
174 |
|
| Total
assets |
$ |
50,217 |
|
| |
|
| Liabilities
Transferred |
|
| Accounts
payable |
$ |
1,416 |
|
| Construction
loan |
17,825 |
|
| Accrued
expenses and other liabilities |
2,102 |
|
| Total
liabilities |
21,343 |
|
| Net
assets transferred |
28,874 |
|
| Noncontrolling
interest transferred |
$ |
1,242 |
|
In
connection with the Merger we transferred a deferred tax asset ("DTA") to Landsea Holdings, our majority shareholder, of $12.1 million.
The DTA represented the deferred tax on interest expensed through Cost of Sales from a related party loan which remained with Landsea
Holdings during the Merger.
12. Income
Taxes
During
the periods presented herein prior to the Merger, the
Company reported income taxes on the consolidated income tax returns of Landsea Holdings since it was a wholly owned subsidiary of Landsea
Holdings. The income tax provision and related balances in these consolidated financial statements have been calculated as if the Company
filed a separate tax return and was operating as a separate business from Landsea Holdings. Therefore, cash tax payments and items of
current and deferred taxes during that period may not be reflective of the Company’s actual tax balances.
The
effective tax rate of the Company was 28.5%
and 4.9%
for the three and six months ended June 30, 2021 with a benefit rate of 24.2%
and 25.2%
for the three and six months ended June 30, 2020, respectively. The difference between the statutory tax rate and the effective tax rate
for the six months ended June 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 difference between the statutory tax rate and the effective tax rate for the six months ended June 30,
2020 is primarily related to state income taxes net of federal income tax benefits and tax credits for energy efficient homes.
13.
Segment
Reporting
The
Company is engaged in the development, design, construction, marketing and sale of single-family homes and condos 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.
The
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 revenue and income before income tax expense
to assess profitability and to allocate resources. Accordingly, the Company has presented its operations as the following five
reportable segments:
•Arizona
•California
•Florida
|
|
|
|
| Landsea
Homes Corporation |
| Notes
to Consolidated Financial Statements - (unaudited) |
•Metro
New York
•Texas
The
Company has also identified Corporate operations as a non-operating segment, as it serves to support the homebuilding operations through
functional departments such as executive, finance, treasury, human resources, accounting and legal. The majority of the corporate personnel
and resources are primarily dedicated to activities relating to the homebuilding operations and are allocated based on each segment's
respective percentage of assets, revenue and dedicated personnel.
The
following table summarizes total revenue and income before income tax expense by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30, |
|
Six
Months Ended June 30, |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
(dollars
in thousands) |
| Revenue |
|
|
|
|
|
|
|
| Arizona |
$ |
71,922 |
|
|
$ |
53,298 |
|
|
$ |
137,248 |
|
|
$ |
106,352 |
|
| California |
141,541 |
|
|
41,760 |
|
|
236,634 |
|
|
125,001 |
|
| Florida |
28,358 |
|
|
— |
|
|
28,358 |
|
|
— |
|
|
Metro
New York
(1) |
— |
|
|
— |
|
|
— |
|
|
— |
|
| Texas |
8,453 |
|
|
— |
|
|
8,453 |
|
|
— |
|
| Total
revenue |
$ |
250,274 |
|
|
$ |
95,058 |
|
|
$ |
410,693 |
|
|
$ |
231,353 |
|
| |
|
|
|
|
|
|
|
| Pretax
income (loss) |
|
|
|
|
|
|
|
| Arizona |
$ |
3,835 |
|
|
$ |
(1,168) |
|
|
$ |
5,268 |
|
|
$ |
(2,140) |
|
| California |
14,900 |
|
|
(8,789) |
|
|
14,741 |
|
|
(7,297) |
|
| Florida |
885 |
|
|
— |
|
|
885 |
|
|
— |
|
|
Metro
New York (1) |
(139) |
|
|
(14,467) |
|
|
(970) |
|
|
(17,263) |
|
| Texas |
395 |
|
|
— |
|
|
395 |
|
|
— |
|
| Corporate |
(4,978) |
|
|
(2,364) |
|
|
(16,572) |
|
|
(3,947) |
|
| Total
pretax income (loss) |
$ |
14,898 |
|
|
$ |
(26,788) |
|
|
$ |
3,747 |
|
|
$ |
(30,647) |
|
(1)
The Metro New York reportable segment does not currently generate any revenue. Included in income (loss) before
income tax expense is income from unconsolidated joint ventures of $0.7
million and $0.6
million for the three and six months ended June 30, 2021, respectively, and losses of $13.9
million and $15.6
million for the three and six months ended June 30, 2020, respectively.
The following
table summarizes total assets by segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2021 |
|
December
31, 2020 |
|
(dollars
in thousands) |
| Assets |
|
|
|
| Arizona |
$ |
308,146 |
|
|
$ |
268,141 |
|
| California |
451,051 |
|
|
409,705 |
|
| Florida |
95,371 |
|
|
— |
|
| Metro
New York |
124,246 |
|
|
120,168 |
|
| Texas |
19,068 |
|
|
— |
|
| Corporate |
110,937 |
|
|
97,750 |
|
| Total
assets |
$ |
1,108,819 |
|
|
$ |
895,764 |
|
As
of June 30, 2021 goodwill of $20.7
million and $3.9
million were allocated to the Arizona and Florida segments, respectively. As of December 31, 2020, goodwill of $20.7
million was allocated to the Arizona segment.
|
|
|
|
| Landsea
Homes Corporation |
| Notes
to Consolidated Financial Statements - (unaudited) |
14. Fair
Value
ASC
820 defines fair value as the price that would be received for selling an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date and requires assets and liabilities carried at fair value to be classified and disclosed
in the following three categories:
Level 1
— Quoted prices for identical instruments in active markets.
Level 2
— Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are
inactive; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets
at measurement date.
Level 3
— Valuations derived from techniques where one or more significant inputs or significant value drivers are unobservable in active
markets at measurement date.
The following
table presents carrying values and estimated fair values of financial instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2021 |
|
December
31, 2020 |
|
Hierarchy |
|
Carrying
Value |
|
Fair
Value |
|
Carrying
Value |
|
Fair
Value |
|
|
|
(dollars
in thousands) |
| Liabilities: |
|
|
|
|
|
|
|
|
|
|
Construction
loans (1) |
Level
2 |
|
$ |
107,300 |
|
|
$ |
107,300 |
|
|
$ |
67,757 |
|
|
$ |
67,757 |
|
|
Line of credit
facilities (1) |
Level
2 |
|
$ |
289,818 |
|
|
$ |
289,818 |
|
|
$ |
199,358 |
|
|
$ |
199,358 |
|
|
|
|
|
|
|
|
|
|
|
|
Loan payable
(2) |
Level
2 |
|
$ |
862 |
|
|
$ |
862 |
|
|
$ |
5,144 |
|
|
$ |
5,144 |
|
| Warrant
liability |
Level
3 |
|
$ |
21,560 |
|
|
$ |
21,560 |
|
|
$ |
— |
|
|
$ |
— |
|
(1)
Carrying amount approximates fair value due to the variable interest rate terms of these loans.
(2)
Carrying amount approximates fair value due to recent issuances of debt having similar characteristics, including
interest rate.
The
carrying values of accounts and other receivables, restricted cash, deposits and accounts payable and accrued liabilities approximate
the fair value for these financial instruments based upon an evaluation of the underlying characteristics, market data and because of
the short period of time between origination of the instruments and their expected realization. The fair value of cash and cash equivalents
is classified in Level 1 of the fair value hierarchy. Non-financial assets such as real estate inventories are measured at fair value
on a nonrecurring basis using a discounted cash flow approach with Level 3 inputs within the fair value hierarchy. This measurement is
performed when events and circumstances indicate the asset's carrying value is not recoverable.
The
Private Placement Warrants are measured at fair value on a recurring basis using a Black-Scholes option pricing model. The significant
unobservable input as of June 30, 2021 was the volatility rate implied from the public warrants, which are exchanged on an open market,
of 68.7%.
The
following table reconciles the beginning and ending balances for the Level 3 recurring fair value measurements during the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended June 30, |
|
|
2021 |
|
2020 |
| Warrant
liability |
|
(dollars
in thousands) |
|
Beginning
balance(1) |
|
$ |
11,275 |
|
|
$ |
— |
|
| Changes
in fair value |
|
10,285 |
|
|
— |
|
| Ending
balance |
|
$ |
21,560 |
|
|
$ |
— |
|
(1)
The beginning balance for the period ended June 30, 2021 represents the balance as of January 7, 2021, the
Closing Date of the Merger.
|
|
|
|
| Landsea
Homes Corporation |
| Notes
to Consolidated Financial Statements - (unaudited) |
15. Stock-Based
Compensation
During
2018, Landsea Holdings created a long-term incentive compensation program designed to align the interests of Landsea Holdings, the Company,
and its executives by enabling key employees to participate in the Company’s future growth through the issuance of phantom equity
awards. Landsea Holdings’ phantom equity awards issued on or after January 1, 2018 were accounted for pursuant to ASC 710, Compensation,
as the value was not based on the shares of comparable public entities or other equity, but was based on the book value of Landsea Holdings'
equity. Landsea Holdings measured the value of phantom equity awards on a quarterly basis using the intrinsic value method and pushed
down the expense to the Company as the employees participating in the long-term incentive compensation program primarily benefit the Company.
In connection with the Merger all of the phantom equity awards vested and were either paid out in cash or were converted to stock of LHC
and the program was terminated. The Company recorded $2.7 million
in general and administrative expenses in the six months ended June 30, 2021 related to the accelerated vesting of the phantom awards.
The Company paid cash of $2.9 million
for the phantom stock awards and granted 0.2 million
shares with a grant date value of $1.9 million
at the time of the Merger.
The
Company adopted the Landsea Homes Corporation 2020 Stock Incentive Plan ("the Plan") which provides for the grant of Options, Stock Appreciation
Rights, Restricted Stock Units and Restricted Stock, any of which may be performance-based, as determined by the Company's Compensation
Committee.
During
the three and six months ended June 30, 2021, the Company granted 0.1 million
and 0.6 million
restricted stock units (“RSUs”), respectively, covering shares of common stock with a weighted grant date fair value of $9.44
and $9.63,
respectively, per share.
During
the three and six months ended June 30, 2021, the Company granted 0.2 million
long term performance share unit awards (“PSUs”) to certain executives under the Plan with a grant date fair value of $9.44
per share. The PSUs are earned based upon the Company’s performance over three years, measured by adjusted earnings per share ("EPS")
over fiscal years 2021, 2022 and 2023 (the "Performance Periods"). Each award is conditioned upon the Company achieving adjusted EPS targets
over the Performance Periods. Target awards of 100% will be earned if the Company’s adjusted EPS meets set thresholds in each of
the Performance Periods ("Target Goals"). If adjusted EPS exceeds the target thresholds by defined amounts, 200% of Target Goals will
be earned (“Maximum Goals”).
Our
stock compensation expense is presented below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30, |
|
Six
Months Ended June 30, |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
| Stock
compensation expense |
(dollars
in thousands) |
| RSUs
and PSUs |
$ |
453 |
|
|
$ |
— |
|
|
$ |
2,829 |
|
|
$ |
— |
|
Stock-based
compensation expense is included in general and administrative expenses on our consolidated statements of operations. The Company did
not
grant any RSUs or PSUs and did not recognize any stock-based compensation expense during the three and six months ended June 30, 2020.
A
summary of our outstanding RSUs and PSUs, assuming current estimated level of performance achievement, are as follows (in thousands, except
years):
|
|
|
|
|
|
|
|
|
|
|
June
30, 2021 |
|
|
(in
thousands, except period) |
| Unvested
units |
|
755 |
|
| Remaining
cost on unvested units |
|
$ |
6,776 |
|
| Remaining
vesting period |
|
2.81
years |
|
|
|
|
| Landsea
Homes Corporation |
| Notes
to Consolidated Financial Statements - (unaudited) |
In
accordance with ASC 718, the PSUs were valued on the date of grant at their fair value. The fair value of these grants was equal to the
closing price of our stock on the date of grant. ASC 718 does not permit recognition of expense associated with performance-based stock
awards until achievement of the performance targets are probable of occurring.
16. Stockholders'
Equity
The
Company’s authorized capital stock consists of 500.0
million shares of common stock with a par value of $0.0001
per share, and 50.0
million shares of preferred stock with a par value of $0.0001
per share. As of June 30, 2021, there were 46.3
million shares of common stock issued and outstanding, and no
shares of preferred stock outstanding.
On
January 7, 2021, the Merger was consummated pursuant to the Merger Agreement. Prior to the Merger, LF Capital was authorized to issue,
and had outstanding, two classes of common shares, Class A and Class B. Upon the consummation of the Merger, all issued and outstanding
shares of Class B common stock converted to shares of Class A. Public stockholders were offered the opportunity to redeem, upon closing
of the Merger, shares of Class A common stock for cash. All outstanding shares of Common Stock are validly issued, fully paid and nonassessable.
Following the merger, the Company's equity was retroactively adjusted to reflect the 32.6 million
shares issued to Landsea Holdings.
As
of June 30, 2021 there were 21,025,000
outstanding Warrants, consisting of 15,525,000
public warrants and 5,500,000
Private Placement Warrants. At the time of the Merger, the Warrant Agreement was amended so that each public warrant is exercisable at
$1.15
into one tenth share of common stock. As part of the amendment, each holder of the public warrants received $1.85
for a total of $28.7 million
paid by the Company upon closing of the Merger. Each Private Placement Warrant is exercisable at $11.50
into one
share of common stock. The Warrants will expire five
years after the completion of the Merger or earlier upon redemption or liquidation.
The
Private Placement Warrants are identical to the public warrants, except for the rate of exchange upon exercise. Additionally, the Private
Placement Warrants will be non-redeemable as long as they are held by the initial purchasers or such purchasers’ permitted transferees.
If the Private Placement Warrants are held by someone other than the initial stockholders or their permitted transferees, the Private
Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the public warrants, except
that they will retain their rate of exchange as one-for-one.
The
Company may call the public warrants for redemption (except with respect to the Private Placement Warrants):
•in
whole and not in part;
•at
a price of $0.01
per warrant;
•upon
a minimum of 30
days’ prior written notice of redemption; and
•if,
and only if, the last reported closing price of the shares equals or exceeds $18.00
per share for any 20
trading days within a 30-trading
day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders.
If
the Company calls the public warrants for redemption, management will have the option to require all holders that wish to exercise the
public warrants to do so on a “cashless basis,” as described in the Warrant Agreement.
The
exercise price and number of common shares issuable upon exercise of the Warrants may be adjusted in certain circumstances including in
the event of a share dividend, or recapitalization, reorganization, merger or consolidation. However, the Warrants will not be adjusted
for issuance of common shares at a price below its exercise price. Additionally, in no event will the Company be required to net cash
settle the Warrants shares. Accordingly, the Warrants may expire worthless.
|
|
|
|
| Landsea
Homes Corporation |
| Notes
to Consolidated Financial Statements - (unaudited) |
17. Earnings
Per Share
We
use the treasury stock method to calculate EPS as our currently issued Warrants do not have participating rights.
The
following table sets forth the computation of basic and diluted EPS for the three and six months ended June 30, 2021 and 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30, |
|
Six
Months Ended June 30, |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
(dollars
in thousands, except share and per share amounts) |
| Numerator |
|
|
|
|
|
|
|
| Net
income (loss) attributable to Landsea Homes Corporation |
$ |
10,664 |
|
|
$ |
(20,270) |
|
|
$ |
3,590 |
|
|
$ |
(22,806) |
|
| Less:
undistributed earnings allocated to participating shares |
(236) |
|
|
— |
|
|
(78) |
|
|
— |
|
| Net
income (loss) attributable to common stockholders |
$ |
10,428 |
|
|
$ |
(20,270) |
|
|
$ |
3,512 |
|
|
$ |
(22,806) |
|
|
|
|
|
|
|
|
|
| Denominator |
|
|
|
|
|
|
|
| Weighted
average common shares outstanding - basic |
46,281,091 |
|
|
32,557,303 |
|
|
45,800,267 |
|
|
32,557,303 |
|
| Adjustment
for weighted average participating shares outstanding |
(1,000,000) |
|
|
— |
|
|
(966,667) |
|
|
— |
|
|
|
|
|
|
|
|
|
| Adjusted
weighted average common shares outstanding under two class method - basic |
45,281,091 |
|
|
32,557,303 |
|
|
44,833,600 |
|
|
32,557,303 |
|
| Dilutive
effect of warrants |
— |
|
|
— |
|
|
— |
|
|
— |
|
| Dilutive
effect of share-based awards |
— |
|
|
— |
|
|
3,854 |
|
|
— |
|
| Adjusted
weighted average common shares outstanding under two class method - diluted |
45,281,091 |
|
|
32,557,303 |
|
|
44,837,454 |
|
|
32,557,303 |
|
|
|
|
|
|
|
|
|
| Earnings
per share |
|
|
|
|
|
|
|
| Basic |
$ |
0.23 |
|
|
$ |
(0.62) |
|
|
$ |
0.08 |
|
|
$ |
(0.70) |
|
| Diluted |
$ |
0.23 |
|
|
$ |
(0.62) |
|
|
$ |
0.08 |
|
|
$ |
(0.70) |
|
Warrants
are excluded from the calculation of diluted EPS as they are antidilutive. We excluded 7.1 million
common stock unit equivalents from our diluted EPS during the three and six months ended June 30, 2021.
|
|
|
|
| Landsea
Homes Corporation |
| Notes
to Consolidated Financial Statements - (unaudited) |
18. Supplemental
Disclosures of Cash Flow Information
The
following table presents certain supplemental cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended June 30, |
|
2021 |
|
2020 |
|
(dollars
in thousands) |
| Supplemental
disclosures of cash flow information |
|
|
|
| Interest
paid, net of amounts capitalized |
$ |
21 |
|
|
$ |
11 |
|
| Income
taxes paid |
$ |
3,416 |
|
|
$ |
89 |
|
| |
|
|
|
| Supplemental
disclosures of non-cash investing and financing activities |
|
|
|
| Transfer
of deferred tax asset to Landsea Holdings |
$ |
12,119 |
|
|
$ |
— |
|
| Conversion
of deferred offering costs to additional paid-in-capital |
$ |
9,229 |
|
|
$ |
— |
|
| Amortization
of deferred financing costs |
$ |
2,066 |
|
|
$ |
2,083 |
|
| Distribution
of real estate joint venture to LHC, net of cash provided |
$ |
— |
|
|
$ |
27,294 |
|
|
|
|
|
| Business
acquisition holdback |
$ |
— |
|
|
$ |
2,000 |
|
| Right-of-use
assets obtained in exchange for operating lease liabilities for new or modified operating leases |
$ |
— |
|
|
$ |
1,053 |
|
| |
|
|
|
| Cash,
cash equivalents, and restricted cash reconciliation: |
|
|
|
| Cash
and cash equivalents |
$ |
147,287 |
|
|
$ |
80,182 |
|
| Restricted
cash |
— |
|
|
18 |
|
| Total
cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows |
$ |
147,287 |
|
|
$ |
80,200 |
|
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The
following discussion should be read in conjunction with and is qualified in its entirety by the consolidated financial statements and
notes thereto included elsewhere in this document. This item contains forward-looking statements that involve risks and uncertainties.
Actual results may differ materially from those indicated in such forward-looking statements. Factors that may cause such a difference
include, but are not limited to, those discussed in the section entitled “Risk Factors” of our Annual Report on Form 10-K/A,
filed with the Securities and Exchange Commission (the “SEC”) on July 6, 2021, as well as our Form 10-Q for the quarter ended
March 31, 2021, filed with the SEC on May 17, 2021, and in this report. This section discusses certain items in the three- and six-month
periods ended June 30, 2021 and 2020 and year-to-year comparisons between those 2021 and 2020 periods.
Consolidated
Financial Data
The following
table summarizes our results of operations for the three and six months ended June 30, 2021 and 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30, |
|
Six
Months Ended June 30, |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
(dollars
in thousands, except per share amounts) |
|
(dollars
in thousands, except per share amounts) |
| Revenue |
|
|
|
|
|
|
|
| Home
sales |
$ |
239,600 |
|
|
$ |
95,058 |
|
|
$ |
394,365 |
|
|
$ |
231,353 |
|
| Lot
sales and other |
10,674 |
|
|
— |
|
|
16,328 |
|
|
— |
|
| Total
revenue |
250,274 |
|
|
95,058 |
|
|
410,693 |
|
|
231,353 |
|
| |
|
|
|
|
|
|
|
| Cost
of sales |
|
|
|
|
|
|
|
|
Home sales (including
related party interest of $7,242 and $4,540, respectively) |
198,987 |
|
|
85,908 |
|
|
335,828 |
|
|
205,476 |
|
| Inventory
impairments |
— |
|
|
3,413 |
|
|
— |
|
|
3,413 |
|
| Lot
sales and other |
8,730 |
|
|
— |
|
|
13,510 |
|
|
— |
|
| Total
cost of sales |
207,717 |
|
|
89,321 |
|
|
349,338 |
|
|
208,889 |
|
| |
|
|
|
|
|
|
|
| Gross
margin |
|
|
|
|
|
|
|
| Home
sales |
40,613 |
|
|
5,737 |
|
|
58,537 |
|
|
22,464 |
|
| Lot
sales and other |
1,944 |
|
|
— |
|
|
2,818 |
|
|
— |
|
| Total
gross margin |
42,557 |
|
|
5,737 |
|
|
61,355 |
|
|
22,464 |
|
| |
|
|
|
|
|
|
|
| Sales
and marketing expenses |
12,650 |
|
|
7,982 |
|
|
22,581 |
|
|
17,618 |
|
| General
and administrative expenses |
13,935 |
|
|
9,934 |
|
|
28,921 |
|
|
19,950 |
|
| Total
operating expenses |
26,585 |
|
|
17,916 |
|
|
51,502 |
|
|
37,568 |
|
| |
|
|
|
|
|
|
|
| Income
(loss) from operations |
15,972 |
|
|
(12,179) |
|
|
9,853 |
|
|
(15,104) |
|
| |
|
|
|
|
|
|
|
| Other
income (expense), net |
3,594 |
|
|
(739) |
|
|
3,533 |
|
|
70 |
|
|
Equity in net
(loss) income of unconsolidated joint ventures (including related party interest of $764 and $625, respectively) |
667 |
|
|
(13,870) |
|
|
646 |
|
|
(15,613) |
|
| Loss
on remeasurement of warrant liability |
(5,335) |
|
|
— |
|
|
(10,285) |
|
|
— |
|
| Pretax
income (loss) |
14,898 |
|
|
(26,788) |
|
|
3,747 |
|
|
(30,647) |
|
| |
|
|
|
|
|
|
|
| Provision
(benefit) for income taxes |
4,248 |
|
|
(6,496) |
|
|
183 |
|
|
(7,731) |
|
| |
|
|
|
|
|
|
|
| Net
income (loss) |
10,650 |
|
|
(20,292) |
|
|
3,564 |
|
|
(22,916) |
|
| Net
loss attributable to noncontrolling interests |
(14) |
|
|
(22) |
|
|
(26) |
|
|
(110) |
|
| Net
income (loss) attributable to Landsea Homes Corporation |
$ |
10,664 |
|
|
$ |
(20,270) |
|
|
$ |
3,590 |
|
|
$ |
(22,806) |
|
| |
|
|
|
|
|
|
|
| Income
(loss) per share: |
|
|
|
|
|
|
|
| Basic |
$ |
0.23 |
|
|
$ |
(0.62) |
|
|
$ |
0.08 |
|
|
$ |
(0.70) |
|
| Diluted |
$ |
0.23 |
|
|
$ |
(0.62) |
|
|
$ |
0.08 |
|
|
$ |
(0.70) |
|
|
|
|
|
|
|
|
|
| Weighted
average common shares outstanding: |
|
|
|
|
|
|
|
| Basic |
45,281,091 |
|
|
32,557,303 |
|
|
44,833,600 |
|
|
32,557,303 |
|
| Diluted |
45,281,091 |
|
|
32,557,303 |
|
|
44,837,454 |
|
|
32,557,303 |
|
Business Overview
Driven
by a pioneering commitment to sustainability, Landsea Homes Corporation ("LHC") designs and builds homes and communities in Arizona, California,
Florida, Texas and the Metro New York area that reflect modern living–inspired spaces and features, built in vibrant, prime locations
where they connect seamlessly with their surroundings and enhance the local lifestyle for living, working and playing. The defining principle,
“Live in Your Element®,” creates the foundation for our customers to live where they want to live, how they want to live
– in a home created especially for them.
The
Company's operations are engaged in the development, design, construction, marketing and sale of single-family attached and detached homes
in the states of Arizona, California, Florida, New Jersey, New York, and Texas. The Company's operations are organized into five reportable
segments: Arizona, California, Florida, Metro New York, and Texas. The Company builds and sells an extensive range of home types across
a variety of price points.
In
response to the novel strain of coronavirus ("COVID-19") pandemic and government restrictions, we shifted our sales process to offer additional
virtual online tours and appointments and, where permitted, appointment-only in-person meetings that comply with social distancing and
other health and safety requirements and protocols. There is still uncertainty regarding the extent, duration, and lasting effects of
the COVID-19 pandemic, as the situation has continued to evolve, even as vaccinations become wide-spread. We have seen a general lack
of housing inventory that has allowed us to increase prices and derive additional revenue from our home deliveries; however, we frequently
see those increased revenues offset by higher costs associated with labor and supply shortages for certain key materials.
The
industry continued to see a shift in focus to entry-level homes with more attractive price points as housing prices rise across the nation.
The Company continues to capitalize on opportunities to shift inventory and product to more affordable offerings through our recent growth
in Arizona, Florida, and Texas primarily through acquisitions. During May 2021, we completed the acquisition of Vintage Estate Homes ("Vintage"),
a Florida- and Texas-based homebuilder. The Vintage acquisition added the Florida and Texas reportable segments. During January 2020,
we completed our second homebuilder acquisition in the Phoenix, Arizona market within the last three years by purchasing 100% of the membership
interests of Garrett Walker Homes ("GWH"). These acquisitions fit with and continue to advance our overall business strategy by expanding
into new geographic and diverse markets.
Strategy
Our
strategy is focused on maximizing stockholder returns through profitability and efficiency, while balancing appropriate amounts of leverage.
In general, we are focused on the following long-term strategic objectives:
•Expand
community count in current markets and enhance operating returns
•Maintain
an appropriate supply of lots
•Continue
to focus on entry-level product offerings
•Continue
geographic expansion and diversification into new markets
•Leverage
existing SG&A base to enhance stockholder returns and profitability
•Become
a top-ten homebuilder in the United States
Non-GAAP Financial Measures
Non-GAAP
financial measures are defined as numerical measures of a company’s performance that exclude or include amounts so as to be different
than the most comparable measures calculated and presented in accordance with accounting principles generally accepted in the United States
(“GAAP”). The presentation of non-GAAP financial measures should not be considered in isolation or as a substitute for the
Company’s related financial results prepared in accordance with GAAP.
We
present non-GAAP financial measures of adjusted home sales gross margin, net debt to net capital, EBITDA and adjusted EBITDA, and adjusted
net income in their respective sections below to enhance an investor’s evaluation of the ongoing operating results and to facilitate
meaningful comparison of the results between periods. Management uses these non-GAAP measures to evaluate the ongoing operations and for
internal planning and forecasting.
Summary
Results of Operations
For
the six months ended June 30, 2021, home sales revenue increased 70% and home deliveries increased 43% to 726 units from 507 units as
compared to the same prior year period. The increase in home deliveries and home sales revenue year-over-year is derived primarily from
our California segment which saw significant demand and price appreciation during 2021. During 2020, our California operations were negatively
impacted by the COVID-19 mandatory stay at home orders, which caused meaningful delays in our operations and in some communities prohibited
us from delivering homes to our customers. The most restrictive of these government orders were lifted towards the end of 2020. We also
saw price appreciation in the Arizona segment, and we had 74 home deliveries generating revenue of $28.4 million from our Vintage acquisition.
We
remain focused on growth and view our leverage ratios as a key factor in allowing us to expand. Even as the Company has grown organically
and through acquisitions in recent years we remain in a position to act on our strategy and to be opportunistic about acquisitions and
other growth opportunities. Our debt-to-capital ratio increased to 40.8% as of June 30, 2021 compared to 33.3% as of December 31,
2020. We believe the strength of our balance sheet and operating platform have positioned us well to continue to execute our growth strategy.
We
anticipate the homebuilding markets in each of our operating segments to be tied to both the local economy and the macro-economic environment.
Accordingly, net orders, home deliveries, and average selling prices ("ASPs") in future years could be negatively affected by economic
conditions, such as decreases in employment and median household incomes, as well as decreases in household formations and increasing
supply of inventories. Shortages in labor or materials could also significantly increase costs, reduce gross margins, and lower our overall
profitability. During the second quarter of 2021 we experienced increases in our production cycle times due to labor and material shortages
that have caused us to reduce our absorption rate in certain markets. Additionally, the results could be impacted by a decrease in
home affordability as a result of price appreciation, increases in mortgage interest rates, or tightening of mortgage lending standards.
Results of Operations
and Assets by Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30, |
|
Six
Months Ended June 30, |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
| Pretax
income (loss) |
(dollars
in thousands) |
|
(dollars
in thousands) |
| Arizona |
$ |
3,835 |
|
|
$ |
(1,168) |
|
|
$ |
5,268 |
|
|
$ |
(2,140) |
|
| California |
14,900 |
|
|
(8,789) |
|
|
14,741 |
|
|
(7,297) |
|
| Florida |
885 |
|
|
— |
|
|
885 |
|
|
— |
|
| Metro
New York |
(139) |
|
|
(14,467) |
|
|
(970) |
|
|
(17,263) |
|
| Texas |
395 |
|
|
— |
|
|
395 |
|
|
— |
|
| Corporate |
(4,978) |
|
|
(2,364) |
|
|
(16,572) |
|
|
(3,947) |
|
| Total |
$ |
14,898 |
|
|
$ |
(26,788) |
|
|
$ |
3,747 |
|
|
$ |
(30,647) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2021 |
|
December
31, 2020 |
| Assets |
|
(dollars
in thousands) |
| Arizona |
|
$ |
308,146 |
|
|
$ |
268,141 |
|
| California |
|
451,051 |
|
|
409,705 |
|
| Florida |
|
95,371 |
|
|
— |
|
| Metro
New York |
|
124,246 |
|
|
120,168 |
|
| Texas |
|
19,068 |
|
|
— |
|
| Corporate |
|
110,937 |
|
|
97,750 |
|
| Total
assets |
|
$ |
1,108,819 |
|
|
$ |
895,764 |
|
Our
Arizona segment recorded pretax income for the three and six months ended June 30, 2021 compared to a pretax loss in the comparable periods
during 2020 primarily due to an increase in gross margins stemming from high demand which has allowed us to increase pricing.
Our
California segment incurred pretax income for the three and six months ended June 30, 2021 due to significantly more home deliveries than
the comparable periods in 2020 as shown below. This was partially due to strengthening market conditions in the current periods while
the prior periods were impacted by COVID-19 related restrictions and delays. Additionally the California segment recorded real estate
inventory impairments of $3.4 million in the three and six months ended June 30, 2020.
The
Company began operations in the Florida and Texas segments in May 2021 following the acquisition of Vintage.
The
Metro New York segment experienced a decrease in pretax loss for the three and six months ended June 30, 2021 as compared to the same
prior periods, due to lower loss from unconsolidated joint venture at the LS-NJ Port Imperial JV LLC ("Avora") unconsolidated joint venture.
This was primarily due to strengthening market conditions in the current periods while the prior periods were impacted by COVID-19 related
delays and pricing pressure. Avora recorded an impairment charge of $27.1 million in the three and six months ended June 30, 2020 resulting
in a $13.8 million loss on unconsolidated joint venture.
We
have also identified the Company's Corporate operations as a non-operating segment, as it serves to support the operations through functional
departments such as executive, finance, treasury, human resources, accounting, and legal. The majority of the corporate personnel and
resources are primarily dedicated to activities relating to the business operations and are allocated accordingly.
Home
Deliveries and Home Sales Revenue
Changes
in home sales revenue are the result of changes in the number of homes delivered and the ASP of those delivered homes. Commentary on significant
changes for each of the segments in these metrics is provided below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30, |
|
2021 |
|
2020 |
|
%
Change |
|
Homes |
|
Dollar
Value |
|
ASP |
|
Homes |
|
Dollar
Value |
|
ASP |
|
Homes |
|
Dollar
Value |
|
ASP |
|
(dollars
in thousands) |
| Arizona |
207 |
|
|
$ |
69,672 |
|
|
$ |
337 |
|
|
191 |
|
|
$ |
53,298 |
|
|
$ |
279 |
|
|
8 |
% |
|
31 |
% |
|
21 |
% |
| California |
144 |
|
|
141,541 |
|
|
983 |
|
|
46 |
|
|
41,760 |
|
|
908 |
|
|
213 |
% |
|
239 |
% |
|
8 |
% |
| Florida |
71 |
|
|
25,100 |
|
|
354 |
|
|
— |
|
|
— |
|
|
N/A |
|
N/A |
|
N/A |
|
N/A |
| Metro
New York |
— |
|
|
— |
|
|
N/A |
|
— |
|
|
— |
|
|
N/A |
|
N/A |
|
N/A |
|
N/A |
| Texas |
3 |
|
|
3,287 |
|
|
1,096 |
|
|
— |
|
|
— |
|
|
N/A |
|
N/A |
|
N/A |
|
N/A |
| Total |
425 |
|
|
$ |
239,600 |
|
|
$ |
564 |
|
|
237 |
|
|
$ |
95,058 |
|
|
$ |
401 |
|
|
79 |
% |
|
152 |
% |
|
41 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended June 30, |
|
2021 |
|
2020 |
|
%
Change |
|
Homes |
|
Dollar
Value |
|
ASP |
|
Homes |
|
Dollar
Value |
|
ASP |
|
Homes |
|
Dollar
Value |
|
ASP |
|
(dollars
in thousands) |
| Arizona |
389 |
|
|
$ |
129,344 |
|
|
$ |
333 |
|
|
386 |
|
|
$ |
106,352 |
|
|
$ |
276 |
|
|
1 |
% |
|
22 |
% |
|
21 |
% |
| California |
263 |
|
|
236,634 |
|
|
900 |
|
|
121 |
|
|
125,001 |
|
|
1,033 |
|
|
117 |
% |
|
89 |
% |
|
(13) |
% |
| Florida |
71 |
|
|
25,100 |
|
|
354 |
|
|
— |
|
|
— |
|
|
N/A |
|
N/A |
|
N/A |
|
N/A |
| Metro
New York |
— |
|
|
— |
|
|
N/A |
|
— |
|
|
— |
|
|
N/A |
|
N/A |
|
N/A |
|
N/A |
| Texas |
3 |
|
|
3,287 |
|
|
1,096 |
|
|
— |
|
|
— |
|
|
N/A |
|
N/A |
|
N/A |
|
N/A |
| Total |
726 |
|
|
$ |
394,365 |
|
|
$ |
543 |
|
|
507 |
|
|
$ |
231,353 |
|
|
$ |
456 |
|
|
43 |
% |
|
70 |
% |
|
19 |
% |
Our
Arizona segment delivered 207 and 389
homes and generated $69.7 million and $129.3 million in home sales revenue for the three and six months ended June 30, 2021, respectively.
The growth in home sales revenue was primarily attributable to an increase in ASP which increased 21% for the six months ended June 30,
2021 over the same period in 2020. The increase was primarily due to price appreciation in the Arizona market and a larger number of homes
delivered in communities with higher-end products.
Our
California segment delivered 144 and 263 homes and generated $141.5 million and $236.6 million in home sales revenue for the three and
six months ended June 30, 2021, respectively, compared to 46 and 121 homes delivered with $41.8 million and $125.0 million in home sales
revenue for the three and six months ended June 30, 2020. The year-over-year increase in deliveries and home sales revenue within our
California segment for the three and six months ended June 30, 2021 was the result of strengthening market conditions, including strong
demand and rising prices in the current period while the prior period was impacted by COVID-19 related restrictions and delays in the
average construction period. The decrease in ASP was partially offset by a change in mix of homes delivered during the six months ended
June 30, 2021 with a lower price point compared to the same period in 2020.
The
Company began operations in the Florida and Texas segments in May 2021 following the acquisition of Vintage.
The
Metro New York segment has not yet delivered any homes, other than those through unconsolidated joint ventures. Therefore, there are no
home sale revenues or deliveries for the six months ended June 30, 2021 and 2020.
Home Sales Gross
Margins
Home
sales gross margin measures the price achieved on delivered homes compared to the costs needed to build the home. In the following table,
we calculate gross margins adjusting for interest in cost of sales, inventory impairments (if applicable), and purchase price accounting
for acquired work in process inventory (if applicable). We believe the below information is meaningful as it isolates the impact
that indebtedness and acquisitions have on the gross margins and allows for comparability to previous periods and competitors. See Note
3 - Business Combinations
within the accompanying notes to the consolidated financial statements for additional discussion regarding acquired work in process inventory.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30, |
|
2021 |
|
% |
|
2020 |
|
% |
|
(dollars
in thousands) |
| Home
sales revenue |
$ |
239,600 |
|
|
100.0 |
% |
|
$ |
95,058 |
|
|
100.0 |
% |
| Cost
of home sales |
198,987 |
|
|
83.0 |
% |
|
89,321 |
|
|
94.0 |
% |
| Home
sales gross margin |
40,613 |
|
|
17.0 |
% |
|
5,737 |
|
|
6.0 |
% |
| Add:
Interest in cost of home sales |
11,276 |
|
|
4.7 |
% |
|
5,389 |
|
|
5.7 |
% |
| Add:
Inventory impairments |
— |
|
|
— |
% |
|
3,413 |
|
|
3.6 |
% |
|
Adjusted home
sales gross margin excluding interest and inventory impairments (1) |
51,889 |
|
|
21.7 |
% |
|
14,539 |
|
|
15.3 |
% |
| Add:
Purchase price accounting for acquired inventory |
4,328 |
|
|
1.8 |
% |
|
2,794 |
|
|
2.9 |
% |
|
Adjusted home
sales gross margin excluding interest, inventory impairments, and purchase price accounting for acquired inventory (1) |
$ |
56,217 |
|
|
23.5 |
% |
|
$ |
17,333 |
|
|
18.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended June 30, |
|
2021 |
|
% |
|
2020 |
|
% |
|
(dollars
in thousands) |
| Home
sales revenue |
$ |
394,365 |
|
|
100.0 |
% |
|
$ |
231,353 |
|
|
100.0 |
% |
| Cost
of home sales |
335,828 |
|
|
85.2 |
% |
|
208,889 |
|
|
90.3 |
% |
| Home
sales gross margin |
58,537 |
|
|
14.8 |
% |
|
22,464 |
|
|
9.7 |
% |
| Add:
Interest in cost of home sales |
18,289 |
|
|
4.6 |
% |
|
12,700 |
|
|
5.5 |
% |
| Add:
Inventory impairments |
— |
|
|
— |
% |
|
3,413 |
|
|
1.5 |
% |
|
Adjusted home
sales gross margin excluding interest and inventory impairments (1) |
76,826 |
|
|
19.5 |
% |
|
38,577 |
|
|
16.7 |
% |
| Add:
Purchase price accounting for acquired inventory |
7,129 |
|
|
1.8 |
% |
|
5,579 |
|
|
2.4 |
% |
|
Adjusted home
sales gross margin excluding interest, inventory impairments, and purchase price accounting for acquired inventory (1) |
$ |
83,955 |
|
|
21.3 |
% |
|
$ |
44,156 |
|
|
19.1 |
% |
(1)
This non-GAAP financial measure should not be used as a substitute for the Company's operating results in accordance
with GAAP. An analysis of any non-GAAP financial measure should be used in conjunction with results presented in accordance with GAAP.
We believe this non-GAAP measure is meaningful because it provides insight into the impact that financing arrangements and acquisitions
have on our homebuilding gross margin and allows for comparability of our gross margins to competitors that present similar information.
Home
sales gross margin increased 11.0% and 5.1% for the three and six months ended June 30, 2021, respectively, compared to the corresponding
periods in 2020 primarily due to price appreciation and an impairment charge of $3.4 million recorded in 2020. Adjusted home sales gross
margin excluding interest, inventory impairments, and purchase price accounting for acquired inventory increased 5.3% and 2.2% for the
three and six months ended June 30, 2021, primarily due to price appreciation and an increase in gross margins within our California segment,
partially offset by higher costs.
Lot Sales and
Other Revenue
Lot
sales and other revenue and gross margin can vary significantly between reporting periods based on (1) the number of lots sold, and (2)
the percentage of completion related to the development activities required as part of the lot sales and other contracts. For the three
and six months ended June 30, 2021 we recognized $10.7 million and $16.3 million, respectively, of lot sales and other revenue from the
sale of lots in our Arizona, Florida and Texas
segments
and the subsequent development of the lots and homes under contract. For the three and six months ended June 30, 2020, we did not have
any lot sales or revenue from lot sales and other contracts.
Sales, Marketing,
and General and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30, |
|
As
a Percentage of Home Sales |
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
|
(dollars
in thousands) |
| Sales
and marketing expenses |
|
$ |
12,650 |
|
|
$ |
7,982 |
|
|
5.3 |
% |
|
8.4 |
% |
| General
and administrative expenses |
|
13,935 |
|
|
9,934 |
|
|
5.8 |
% |
|
10.5 |
% |
| Total
sales, marketing, and G&A expenses |
|
$ |
26,585 |
|
|
$ |
17,916 |
|
|
11.1 |
% |
|
18.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended June 30, |
|
As
a Percentage of Home Sales |
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
|
|
(dollars
in thousands) |
| Sales
and marketing expenses |
|
$ |
22,581 |
|
|
$ |
17,618 |
|
|
5.7 |
% |
|
7.6 |
% |
| General
and administrative expenses |
|
28,921 |
|
|
19,950 |
|
|
7.3 |
% |
|
8.6 |
% |
| Total
sales, marketing, and G&A expenses |
|
$ |
51,502 |
|
|
$ |
37,568 |
|
|
13.0 |
% |
|
16.2 |
% |
For
the three and six months ended June 30, 2021, the sales, marketing, and general and administrative ("SG&A") expense rate as a percentage
of home sales revenue was 11.1% and 13.0%, respectively, a decrease of 7.8% and 3.2%, respectively, from the prior periods due to the
increase in home sales revenue during the current periods. The increase in total SG&A expenses was primarily due to higher closing
costs due to the increase in home deliveries. $4.2 million of transaction related expenses related to the Merger were incurred in the
six months ended June 30, 2021, and the Vintage acquisition and other potential acquisitions, along with an increase in SG&A expenses
related to being a publicly traded company also drove the increase in the both the three and six months ended June 30, 2021.
Net New Home
Orders, Dollar Value of Orders, and Monthly Absorption Rates
Changes
in the dollar value of net new orders are impacted by changes in the number of net new orders and the ASP of those homes. Monthly Absorption
Rate is calculated as total net new orders per period, divided by the average active communities during the period, divided by the number
of months per period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30, |
|
2021 |
|
2020 |
|
%
Change |
|
Homes |
|
Dollar
Value |
ASP |
Monthly
Absorption Rate |
|
Homes |
|
Dollar
Value |
ASP |
Monthly
Absorption Rate |
|
Homes |
Dollar
Value |
ASP |
Monthly
Absorption Rate |
|
(dollars
in thousands) |
| Arizona |
150 |
|
|
$ |
60,267 |
|
$ |
402 |
|
4.3 |
|
|
327 |
|
|
$ |
99,223 |
|
$ |
303 |
|
5.5 |
|
|
(54 |
%) |
(39 |
%) |
33 |
% |
(22 |
%) |
| California |
137 |
|
|
120,151 |
|
877 |
|
4.2 |
|
|
132 |
|
|
107,756 |
|
816 |
|
3.7 |
|
|
4 |
% |
12 |
% |
7 |
% |
14 |
% |
|
Florida(1) |
47 |
|
|
21,687 |
|
461 |
|
2.2 |
|
|
— |
|
|
— |
|
N/A |
— |
|
|
N/A |
N/A |
N/A |
N/A |
| Metro
New York |
5 |
|
|
13,298 |
|
2,660 |
|
2.4 |
|
|
— |
|
|
— |
|
N/A |
— |
|
|
N/A |
N/A |
N/A |
N/A |
|
Texas(1) |
(9) |
|
|
(8,071) |
|
897 |
|
(4.5) |
|
|
— |
|
|
— |
|
N/A |
— |
|
|
N/A |
N/A |
N/A |
N/A |
| Total |
330 |
|
|
$ |
207,332 |
|
$ |
628 |
|
3.5 |
|
|
459 |
|
|
$ |
206,979 |
|
$ |
451 |
|
4.8 |
|
|
(28 |
%) |
— |
% |
39 |
% |
(27 |
%) |
(1) Monthly
absorption rates for Florida and Texas in 2021 are based on two months, for the time subsequent to the acquisition of Vintage in May 2021.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended June 30, |
|
2021 |
|
2020 |
|
%
Change |
|
Homes |
|
Dollar
Value |
ASP |
Monthly
Absorption Rate |
|
Homes |
|
Dollar
Value |
ASP |
Monthly
Absorption Rate |
|
Homes |
Dollar
Value |
ASP |
Monthly
Absorption Rate |
|
(dollars
in thousands) |
| Arizona |
433 |
|
|
$ |
165,985 |
|
$ |
383 |
|
5.4 |
|
|
717 |
|
|
$ |
209,941 |
|
$ |
293 |
|
6.0 |
|
|
(40 |
%) |
(21 |
%) |
31 |
% |
(10 |
%) |
| California |
280 |
|
|
272,537 |
|
973 |
|
4.1 |
|
|
255 |
|
|
244,020 |
|
957 |
|
3.9 |
|
|
10 |
% |
12 |
% |
2 |
% |
5 |
% |
|
Florida(1) |
47 |
|
|
21,687 |
|
461 |
|
2.2 |
|
|
— |
|
|
— |
|
N/A |
— |
|
|
N/A |
N/A |
N/A |
N/A |
| Metro
New York |
5 |
|
|
13,298 |
|
2,660 |
|
2.8 |
|
|
— |
|
|
— |
|
N/A |
— |
|
|
N/A |
N/A |
N/A |
N/A |
|
Texas(1) |
(9) |
|
|
(8,071) |
|
897 |
|
(4.5) |
|
|
— |
|
|
— |
|
N/A |
— |
|
|
N/A |
N/A |
N/A |
N/A |
| Total |
756 |
|
|
$ |
465,436 |
|
$ |
616 |
|
4.3 |
|
|
972 |
|
|
$ |
453,961 |
|
$ |
467 |
|
5.3 |
|
|
(22 |
%) |
3 |
% |
32 |
% |
(19 |
%) |
(1) Monthly
absorption rates for Florida and Texas in 2021 are based on two months, for the time subsequent to the acquisition of Vintage in May 2021.
For
the three and six months ended June 30, 2021, the decrease in net new orders and dollar value in Arizona is primarily due to a decrease
in the number of active selling communities. In certain circumstances we may also delay entering into sales contracts to allow for constraints
in our production processes due to labor and material shortages for homes currently under construction. The decrease in the dollar value
of net new home orders was partially offset by a 31% increase in ASP during the six months ended June 30, 2021 compared to the same period
in 2020, primarily due to price appreciation in the Arizona market and a larger number of homes delivered in communities with higher-end
products.
For
the three and six months ended June 30, 2021, the increase in net new orders in California was primarily due to an increase in the number
of active communities and home inventory shortages across the segment.
The
Company began operations in the Florida and Texas segments in May 2021 following the acquisition of Vintage. Our Texas segment had nine
cancellations due to older sales contracts that did not reflect current costs.
The
Metro New York segment began selling homes during the three and six months ended June 30, 2021 at its one active community.
Average Selling
Communities
Average
Selling Communities is the sum of communities actively selling homes each month, divided by the total months in the calculation period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30, |
|
Six
Months Ended June 30, |
|
2021 |
%
Change |
2020 |
|
2021 |
%
Change |
2020 |
| Arizona |
11.7 |
|
(42 |
%) |
20.0 |
|
|
13.3 |
|
(34 |
%) |
20.0 |
|
| California |
11.0 |
|
(8 |
%) |
12.0 |
|
|
11.5 |
|
6 |
% |
10.8 |
|
|
Florida(1) |
10.5 |
|
N/A |
— |
|
|
10.5 |
|
N/A |
— |
|
|
Metro New York(2) |
0.7 |
|
N/A |
— |
|
|
0.3 |
|
N/A |
— |
|
|
Texas(1) |
1.0 |
|
N/A |
— |
|
|
1.0 |
|
N/A |
— |
|
| Total |
31.0 |
|
(3 |
%) |
32.0 |
|
|
29.0 |
|
(6 |
%) |
30.8 |
|
(1) Average
selling communities calculations for Florida and Texas in 2021 are based on two months, for the time subsequent to the acquisition of
Vintage in May 2021.
(2) Metro
New York began selling at one community in May 2021.
Backlog
Backlog
reflects the number of homes, net of cancellations, for which we have entered into a sales contract with a customer but have not yet delivered
the home.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2021 |
|
June
30, 2020 |
|
%
Change |
|
Homes |
|
Dollar
Value |
|
ASP |
|
Homes |
|
Dollar
Value |
|
ASP |
|
Homes |
|
Dollar
Value |
|
ASP |
|
(dollars
in thousands) |
| Arizona |
552 |
|
|
$ |
209,573 |
|
|
$ |
380 |
|
|
660 |
|
|
$ |
190,791 |
|
|
$ |
289 |
|
|
(16) |
% |
|
10 |
% |
|
31 |
% |
| California |
259 |
|
|
252,314 |
|
|
974 |
|
|
196 |
|
|
185,523 |
|
|
947 |
|
|
32 |
% |
|
36 |
% |
|
3 |
% |
|
Florida(1) |
353 |
|
|
135,070 |
|
|
383 |
|
|
— |
|
|
— |
|
|
N/A |
|
N/A |
|
N/A |
|
N/A |
| Metro
New York |
5 |
|
|
13,298 |
|
|
2,660 |
|
|
— |
|
|
— |
|
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
Texas(2) |
28 |
|
|
19,960 |
|
|
713 |
|
|
— |
|
|
— |
|
|
N/A |
|
N/A |
|
N/A |
|
N/A |
| Total |
1,197 |
|
|
$ |
630,215 |
|
|
$ |
526 |
|
|
856 |
|
|
$ |
376,314 |
|
|
$ |
440 |
|
|
40 |
% |
|
67 |
% |
|
20 |
% |
(1) Florida
includes backlog acquired in the Vintage acquisition of 377 homes with a value of $138,483 thousand.
(2) Texas
includes backlog acquired in the Vintage acquisition of 40 homes with a value of $31,318 thousand.
The
increase in the number of backlog homes and value as of June 30, 2021 as compared to June 30, 2020 is primarily attributable
to a greater number of home orders in the California segment from newer entry-level communities that sold at a much faster pace and the
Vintage acquisition. Additionally, the Metro New York segment began sales in the May of 2021. The offsetting decrease in the number of
backlog homes in Arizona and the increase in value and ASP coincides with the net new home orders for the three and six months ended June
30, 2021.
Lots Owned or
Controlled
The
table below summarizes the lots owned or controlled by reportable
segment as
of the dates presented. Lots controlled includes lots where we have placed a deposit and have a signed purchase contract or rolling option
contract.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June
30, 2021 |
|
December
31, 2020 |
|
|
|
Lots
Owned |
|
Lots
Controlled |
|
Total |
|
Lots
Owned |
|
Lots
Controlled |
|
Total |
|
%
Change |
| Arizona |
3,425 |
|
|
1,167 |
|
|
4,592 |
|
3,094 |
|
|
1,770 |
|
|
4,864 |
|
(6 |
%) |
| California |
1,053 |
|
|
1,210 |
|
|
2,263 |
|
1,104 |
|
|
662 |
|
|
1,766 |
|
28 |
% |
| Florida |
685 |
|
|
902 |
|
|
1,587 |
|
— |
|
|
— |
|
|
— |
|
N/A |
| Metro
New York |
50 |
|
|
— |
|
|
50 |
|
50 |
|
|
— |
|
|
50 |
|
— |
% |
| Texas |
57 |
|
|
7 |
|
|
64 |
|
— |
|
|
— |
|
|
— |
|
N/A |
| Total |
5,270 |
|
3,286 |
|
8,556 |
|
4,248 |
|
2,432 |
|
6,680 |
|
28 |
% |
The
total lots owned and controlled at June 30, 2021 increased 28% from December 31, 2020, primarily due to the acquisition of Vintage,
which added approximately 1,800 lots owned and controlled.
Equity in Net
Income (Loss) of Unconsolidated Joint Ventures
As
of June 30, 2021 and December 31, 2020, we held membership interests in two unconsolidated joint ventures related to homebuilding
activities, both of which are part of the Metro New York segment. As of June 30, 2021, one of the joint ventures, Avora, had active
homebuilding activities with orders and deliveries, while the other LS-Boston Point LLC ("Boston Point") was effectively closed out with
only customary post-closing, warranty-related activities remaining.
Our
share of joint venture income for the three and six months ended June 30, 2021 was $0.7 million and $0.6 million, respectively, compared
to losses of $13.9 million and $15.6 million for the three and six months ended June 30, 2020. The Company's joint venture losses in 2020
were due to an impairment charge of $27.1 million in the three and six months ended June 30, 2020 related to slowing deliveries during
COVID-19, increased competition from neighboring communities, and weaker pricing than expected.
The
following sets forth supplemental operational and financial information about the unconsolidated joint ventures. Such information is not
included directly in the financial statements, but is reflected in the results as a component of equity in net (loss) income of unconsolidated
joint ventures. This data is included for informational purposes only.
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended June 30, |
|
2021 |
|
2020 |
| Unconsolidated
Joint Ventures Operational Data |
(dollars
in thousands) |
| Net
new home orders |
21 |
|
|
14 |
|
| New
homes delivered |
22 |
|
|
18 |
|
| Selling
communities at end of period |
1 |
|
|
1 |
|
| Backlog
(dollar value) |
$ |
4,626 |
|
|
$ |
1,226 |
|
| Backlog
(homes) |
3 |
|
|
2 |
|
| Units
owned and controlled |
17 |
|
|
54 |
|
Provision
(Benefit) for Income Taxes
The
provision (benefit) for income taxes for the six months ended June 30, 2021 was a provision of $0.2 million, as compared to a benefit
of $7.7 million for the six months ended June 30, 2020. The effective tax rate for the six months ended June 30, 2021 was 4.9%, as
compared to 25.2% for the six months ended June 30, 2020. The difference between the statutory tax rate and the effective tax rate
for the six months ended June 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 difference between the statutory tax rate and the effective tax rate for the six months ended June 30, 2020 is primarily related to
state income taxes net of federal income tax benefits and tax credits for energy efficient homes.
Other
income (expense), net
Other
income (expense), net for the three and six months ended June 30, 2021 reflects the $4.3 million gain on our Paycheck Protection Program
("PPP") loan forgiveness partially offset by other expenses.
Critical
Accounting Policies
Critical
accounting estimates are those that we believe are both significant and that require us to make difficult, subjective or complex judgments,
often because we need to estimate the effect of inherently uncertain matters. We base our estimates and judgments on historical experiences
and various other factors that we believe to be appropriate under the circumstances. Actual results may differ from these estimates, and
the estimates included in the consolidated financial statements might be impacted if we used different assumptions or conditions. There
have been no material changes to our critical accounting policies and estimates as compared to those described in our Form 8-K, which
contains our annual report for the fiscal year ended December 31, 2020, except as noted below.
Warrant
liability—The
Company has Private Placement Warrants outstanding presented on the consolidated balance sheets as a liability recorded at fair value
with subsequent changes in fair value recognized in the consolidated statement of operations at each reporting date. Each Private Placement
Warrant is exercisable at $11.50 into one share of common stock. The Private Placement Warrants will expire five years after the completion
of the Merger or earlier upon redemption or liquidation. Refer to Note
16 - Stockholders' Equity
for additional information on the Private Placement Warrants. The Private Placement Warrants are recorded at fair value each reporting
period with the change in fair value between periods recorded as a gain (loss) on remeasurement of the warrant liability in the accompanying
consolidated statements of operations. The fair value is determined by a Black-Scholes options pricing model which includes Level 3 inputs
which are discussed in Note
14 - Fair Value.
Liquidity and
Capital Resources
Overview
As
of June 30, 2021, we had $147.3 million of cash, cash equivalents, and restricted cash, a $37.2 million increase from December 31,
2020, primarily due to $64.4 million of net cash received in the Merger, an increase in net debt borrowings of $98.3 million, and $10.4
million received through distributions from an unconsolidated joint venture. These receipts were partially offset by an increase in real
estate inventories of $94.6 million and payment of $54.6 million for the Vintage acquisition.
Our
principal sources of capital are cash generated from home and land sales activities, borrowings from credit facilities, and distributions
from unconsolidated joint ventures. Principal uses of capital are land purchases, land development, home construction, repayments on credit
facilities, contributions and advances to unconsolidated joint ventures, the acquisitions of other homebuilders, and the payment of routine
liabilities.
Cash
flows for each community depend on the community's stage in the development cycle and can differ substantially from reported earnings.
Early stages of development or expansion require significant cash outlays for land acquisitions, entitlements and other approvals, and
construction of model homes, roads, utilities, general landscaping and other amenities. Because these costs are a component of inventory
and not recognized in the consolidated statements of operations until a home closes, we incur significant cash outlays prior to recognition
of earnings. In the later stages of community development, cash inflows may significantly exceed earnings reported for financial statement
purposes, as the cash outflow associated with home and land construction was previously
incurred.
From a liquidity standpoint, we are actively acquiring and developing lots in our markets to maintain and grow our supply of lots and
active selling communities.
We
expect to generate cash from the sale of our inventory including unsold and presold homes under construction. After making required loan
repayments under our various credit facilities, we intend to re-deploy the cash generated from the sale of inventory to acquire and develop
strategic, well-positioned lots that represent opportunities to generate future income and cash flows for long-term success. As we continue
to expand our business, we expect that our cash outlays for land purchases and land development to increase our lot inventory may, at
times, exceed our cash generated by operations.
We
intend to utilize debt as part of our ongoing financial strategy, coupled with redeployment of cash flows from operations to finance our
business. As of June 30, 2021, we had outstanding borrowings of $398.0 million in aggregate principal, excluding deferred loan costs.
We will consider a number of factors when evaluating our level of indebtedness and when making decisions regarding the incurrence of new
indebtedness, including the purchase price of assets to be acquired with debt financing, the market value of our assets and the ability
of particular assets, and our business as a whole, to generate cash flow to cover the expected debt service. In addition, our credit facilities
contain certain financial covenants, among others, that limit the amount of leverage we can maintain, and minimum tangible net worth and
liquidity requirements.
We
believe that we will be able to fund our current and foreseeable liquidity needs with our cash on hand, cash generated from operations,
and cash expected to be available from our credit facilities or through accessing debt or equity capital as needed.
Credit
Facilities
The
Company has a secured line of credit ("LOC") with total commitments of $195.0 million and a maturity date of February 2024. The LOC has
a variable interest rate of Prime plus 1.25% with a floor of 5.25%. As of June 30, 2021, the interest rate was 5.25%. As of June 30,
2021, the total available amount under the credit facility based on the collateral within the LOC was $165.1 million, of which there was
$114.5 million outstanding, compared to $65.5 million outstanding as of December 31, 2020.
In
connection with the acquisition of GWH, the Company entered into an additional $75.0 million line of credit ("LOC2") with a bank, that
was later expanded to $150.0 million. On the date of acquisition, the Company drew $70.0 million from the LOC2. The LOC2 has an interest
rate of Prime plus 1.00% with a floor of 5.00% and matures in January 2024. As of June 30, 2021, the total available amount under
the LOC2 based on the borrowing base was $150.0 million, of which there was $128.1 million outstanding, compared to $74.6 million outstanding
as of December 31, 2020.
We
had a total of $107.3 million in project specific construction, secured loan agreements ("Construction Loans") outstanding as of June 30,
2021 with various banks, and maturity dates extending from February 2022 to March 2024. The maturity dates of the Construction Loans generally
coincide with the estimated completion dates of the underlying communities and collateral. The Construction Loans have variable interest
rates based on Prime or LIBOR and as of June 30, 2021, ranged from 4.00% to 5.50%. In 2018, the Company assumed two loans from a
third-party land seller in connection with the acquisition of real estate inventories. Both loans have a variable interest rate of LIBOR
plus 6.50% with a floor of 8.25%. As of June 30, 2021, the interest rate on both loans was 8.25%. Additionally, we have certain construction
loans sourced from EB-5 investors with maturity dates ranging from June 2023 to May 2024 that are also generally tied to the estimated
completion dates of the associated communities to which they benefit. As of June 30, 2021, the loans have fixed interest rates of
5.30% to 6.00%.
We
received a PPP loan during the second quarter of 2020 in the amount of $4.3 million. We 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.
Letters
of Credit and Performance Bonds
In
the normal course of business, we post letters of credit and performance bonds related to the land development performance obligations
with local municipalities. As of June 30, 2021 and December 31, 2020, we had $97.6 million and $78.0 million, respectively,
in performance bonds issued and outstanding. Although significant development and construction activities have been completed related
to the improvements at these sites, the letters of credit and performance bonds are generally not released until all development and construction
activities are completed.
Financial
Covenants
Our
loans have certain financial covenants, including requirements for us to maintain a minimum liquidity balance, minimum tangible net worth,
gross profit margin, leverage and interest coverage ratios. See the table below for the covenant calculations.
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|
|
|
|
|
|
|
|
|
|
|
June
30, 2021 |
|
December
31, 2020 |
| Financial
Covenants |
|
Actual |
|
Covenant
Requirement |
|
Actual |
|
Covenant
Requirement |
|
|
(dollars
in thousands) |
|
(dollars
in thousands) |
| Minimum
Liquidity Covenant |
|
$ |
147,287 |
|
$ |
40,000 |
|
$ |
105,778 |
|
$ |
40,000 |
|
Interest Coverage
Ratio - EBITDA to Interest Incurred (¹) |
|
3.2 |
|
1.5 |
|
2.4 |
|
1.0 |
| Tangible
Net Worth |
|
$ |
542,932 |
|
$ |
189,832 |
|
$ |
588,702 |
|
$ |
189,832 |
|
Maximum Leverage
Ratio (²) |
|
41.9 |
% |
|
<65% |
|
34.3 |
% |
|
<75% |
|
Annual Gross
Margin (3) |
|
N/A |
|
N/A |
|
12.9 |
% |
|
11.0 |
% |
|
Annual Net Margin
(3) |
|
N/A |
|
N/A |
|
4.8 |
% |
|
3.5 |
% |
(1)
Calculation is based on Adjusted EBITDA.
(2)
Calculation is consolidated debt divided by total capitalization excluding the effects of goodwill.
(3)
Calculation is N/A as of June 30, 2021 as these covenant requirements are only on an annual basis.
The
loan agreements also contain certain restrictive covenants, including limitations on incurrence of other indebtedness, liens, dividends
and other distributions, asset dispositions, investments, and limitations on fundamental changes. The agreements contain customary events
of default, subject to cure periods in certain circumstances, that would result in the termination of the commitments and permit the lender
to accelerate payment on outstanding borrowings. These events of default include nonpayment of principal, interest and fees or other amounts;
violation of covenants; inaccuracy of representations and warranties; cross default to certain other indebtedness; unpaid judgments; change
in control; and certain bankruptcy and other insolvency events. As of June 30, 2021, we were in compliance with all required covenants.
Cash
Flows—Six Months Ending June 30, 2021 Compared to the Six Months Ending June 30, 2020
For
the six months ended June 30, 2021 and 2020, the comparison of cash flows is as follows:
•Net
cash used in operating activities was $86.1 million during the six months ended June 30, 2021 compared to $74.6 million used during the
same period in 2020. The change in net cash used was primarily due to an increase in spending on real estate inventories of $94.6 million
compared to $67.9 million in the same period in 2020, which was the result of additional land acquisitions and higher construction costs
during the period related to a higher number of active communities. This increased spending on real estate inventories was partially offset
by an increase in accounts payable at the end of the period.
•Net
cash used in investing activities was $34.9 million during the six months ended June 30, 2021, compared to $129.6 million cash used during
the same period in 2020. This difference was primarily related to the size of our acquisitions in the comparable periods. Payments for
the acquisition of Vintage during the six months ended June 30, 2021, net of cash received, was $44.5 million while payments for the acquisition
of GWH during the six months ended June 30, 2020, net of cash was $128.5 million.
•Net
cash provided by financing activities was $158.2 million during the six months ended June 30, 2021, compared to $127.9 million during
the same period in 2020. The increase was largely due to net proceeds of $64.4 million from the Merger which consisted of cash proceeds
of $100.7 million less cash paid to the public warrant holders to amend the public warrants of $28.7 million and $7.5 million paid for
offering related costs. Cash from the Merger was also used to pay off a convertible note of $1.5 million assumed in the Merger. Additionally,
there were net borrowings from notes and other debts payable of $98.3 million for the six months ended June 30, 2021. Net cash provided
by financing activities for the six months ended June 30, 2020 was primarily due to net borrowings from notes and other debts payable
of $152.0 million stemming from the acquisition of GWH.
Off-Balance
Sheet Arrangements
Option
Contracts
In
the ordinary course of business, we enter into land purchase contracts in order to procure lots for the construction of homes. We are
subject to customary obligations associated with entering into contracts for the purchase of land and improved lots. These purchase contracts
typically require a cash deposit, and the purchase of properties under these contracts is generally contingent upon satisfaction of certain
requirements, including obtaining applicable property and development entitlements. We also utilize option contracts with land sellers
and others as a method of acquiring land in staged takedowns, to help manage the financial and market risk associated with land holdings,
and to reduce the use of funds from financing sources. Option contracts generally require payment of a non-refundable deposit for the
right to acquire lots over a specified period of time at pre-determined prices. Our obligations with respect to purchase contracts and
option contracts are generally limited to the forfeiture of the related non-refundable cash deposits. As of June 30, 2021, we had
outstanding purchase and option contracts totaling $386.6 million, and had $55.2 million of related cash deposits pertaining to these
contracts.
The
utilization of land option contracts is dependent on, among other things, the availability of land sellers willing to enter into option
takedown arrangements, the availability of capital to financial intermediaries to finance the development of optioned lots, general housing
market conditions, and local market dynamics. Options may be more difficult to procure from land sellers in strong housing markets and
are more prevalent in certain geographic regions.
Contractual
Obligations
The
contractual obligations as of June 30, 2021 were as follows:
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|
|
|
|
|
|
|
|
|
|
|
|
Payments
due by Periods |
|
Total |
|
Less
than 1 year |
|
1-3
years |
|
4-5
years |
|
More
than 5 years |
|
(dollars
in thousands) |
|
Long-term debt
maturities (1) |
$ |
397,980 |
|
|
$ |
21 |
|
|
$ |
122,872 |
|
|
$ |
275,087 |
|
|
$ |
— |
|
|
Operating leases
(2) |
8,057 |
|
|
896 |
|
|
3,437 |
|
|
2,479 |
|
|
1,245 |
|
|
Land option and
purchase contracts (3) |
386,608 |
|
|
82,351 |
|
|
277,229 |
|
|
27,028 |
|
|
— |
|
| Total
contractual obligations |
$ |
792,645 |
|
|
$ |
83,268 |
|
|
$ |
403,538 |
|
|
$ |
304,594 |
|
|
$ |
1,245 |
|
(1)
Principal payments in accordance with the LOC, LOC2, Construction Loans, and other loans payable.
(2)
Operating lease obligations do not include payments to property owners covering common area maintenance charges.
(3)
Includes the remaining purchase price for all land option and purchase contracts, net of deposits, as of June 30,
2021.
We
are subject to certain obligations associated with entering into contracts (including land purchase contracts) for the purchase, development,
and sale of real estate in the routine conduct of business. Option contracts for the purchase of land enable us to defer acquiring portions
of properties owned by third parties until the Company has determined whether to exercise its option, which may serve to reduce its financial
risks associated with long-term land holdings. As of June 30, 2021, the Company had $55.2 million of deposits, of which $0.6
million are refundable. We expect to acquire the majority of such land within the next four years. The Company's
performance,
including the timing and amount of purchase, if any, on the remaining purchase and option contracts is subject to change.
Seasonality
Historically,
the homebuilding industry experiences seasonal fluctuations in quarterly operating results and capital requirements. We typically experience
the highest new home order activity during the spring, although this activity is also highly dependent on the number of active selling
communities, timing of new community openings and other market factors. Since it typically takes four to eight months to construct
a new home, we deliver more homes in the second half of the year as spring and summer home orders convert to home deliveries. Because
of this seasonality, home starts, construction costs and related cash outflows have historically been highest in the third and fourth
quarters, and the majority of cash receipts from home deliveries occurs during the second half of the year. We expect this seasonal pattern
to continue over the long-term, although it may be affected by volatility in the homebuilding industry.
Non-GAAP Financial
Measures
We
include non-GAAP financial measures of adjusted home sales gross margin, EBITDA and adjusted EBITDA, net debt to net capital, and adjusted
net income. These non-GAAP financial measures are presented to provide investors additional insights to facilitate the analysis of our
results of operations. These non-GAAP financial measures are not in accordance with, or an alternative for, GAAP and may be different
from non-GAAP financial measures used by other companies. In addition, these non-GAAP financial measures are not based on any comprehensive
or standard set of accounting rules or principles. Accordingly, the calculation of our non-GAAP financial measures may differ from the
definitions of non-GAAP financial measures other companies may use with the same or similar names. This limits, to some extent, the usefulness
of this information for comparison purposes. Non-GAAP financial measures have limitations in that they do not reflect all of the amounts
associated with our financial results as determined in accordance with GAAP. This information should only be used to evaluate our financial
results in conjunction with the corresponding GAAP information. Accordingly, we qualify our use of non-GAAP financial measures whenever
non-GAAP financial measures are presented.
Net
Debt to Net Capital
The
following table presents the ratio of debt to capital as well as the ratio of net debt to net capital which is a non-GAAP financial measure.
The ratio of debt to capital is computed as the quotient obtained by dividing total debt, net of issuance costs, by total capital (sum
of total debt, net of issuance costs plus total equity).
The
non-GAAP ratio of net debt to net capital is computed as the quotient obtained by dividing net debt (which is total debt, net of issuance
costs less cash, cash equivalents and restricted cash to the extent necessary to reduce the debt balance to zero) by net capital (sum
of net debt plus total equity). The most comparable GAAP financial measure is the ratio of debt to capital. We believe the ratio of net
debt to net capital is a relevant financial measure for investors to understand the leverage employed in our operations and as an indicator
of our ability to obtain financing. We believe that by deducting our cash from our debt, we provide a measure of our indebtedness that
takes into account our cash liquidity. We believe this provides useful information as the ratio of debt to capital does not take into
account our liquidity and we believe that the ratio of net debt to net capital provides supplemental information by which our financial
position may be considered.
See
table below reconciling this non-GAAP measure to the ratio of debt to capital.
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|
|
|
|
|
|
|
|
|
|
June
30, 2021 |
|
December
31, 2020 |
|
(dollars
in thousands) |
| Total
notes and other debts payable, net |
$ |
391,844 |
|
|
$ |
264,809 |
|
| Total
equity |
567,541 |
|
|
529,486 |
|
| Total
capital |
$ |
959,385 |
|
|
$ |
794,295 |
|
| Ratio
of debt to capital |
40.8 |
% |
|
33.3 |
% |
| |
|
|
|
| Total
notes and other debts payable, net |
$ |
391,844 |
|
|
$ |
264,809 |
|
| Less:
cash, cash equivalents and restricted cash |
147,287 |
|
|
110,048 |
|
| Net
debt |
244,557 |
|
|
154,761 |
|
| Total
equity |
567,541 |
|
|
529,486 |
|
| Net
capital |
$ |
812,098 |
|
|
$ |
684,247 |
|
| Ratio
of net debt to net capital |
30.1 |
% |
|
22.6 |
% |
EBITDA
and Adjusted EBITDA
The
following table presents EBITDA and Adjusted EBITDA for the three and six months ended June 30, 2021 and 2020. Adjusted EBITDA is a non-GAAP
financial measure used by management in evaluating operating performance. We define Adjusted EBITDA as net income before (i) income tax
expense (benefit), (ii) interest expenses, (iii) depreciation and amortization, (iv) inventory impairments, (v) purchase accounting adjustments
for acquired work in process inventory related to business combinations, (vi) (gain) loss on debt extinguishment, (vii) transaction costs
related to the Merger and business combinations, (viii) the impact of income or loss allocations from our unconsolidated joint ventures,
(ix) gain on forgiveness of PPP loan, and (x) gain (loss) on remeasurement of warrant liability. We believe Adjusted EBITDA provides an
indicator of general economic performance that is not affected by fluctuations in interest, effective tax rates, levels of depreciation
and amortization, and items considered to be non-recurring. The economic activity related to our unconsolidated joint ventures is not
core to our operations and is the reason we have excluded those amounts. Accordingly, we believe this measure is useful for
comparing
our core operating performance from period to period. Our presentation of Adjusted EBITDA should not be considered as an indication that
our future results will be unaffected by unusual or non-recurring items.
|
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|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30, |
|
2021 |
|
2020 |
|
(dollars
in thousands) |
| Net
income (loss) |
$ |
10,650 |
|
|
$ |
(20,292) |
|
| Provision
(benefit) for income taxes |
4,248 |
|
|
(6,496) |
|
| Interest
in cost of sales |
11,299 |
|
|
5,389 |
|
| Interest
relieved to equity in net loss (income) of unconsolidated joint ventures |
422 |
|
|
352 |
|
| Interest
expense |
10 |
|
|
— |
|
| Depreciation
and amortization expense |
1,039 |
|
|
969 |
|
| EBITDA |
27,668 |
|
|
(20,078) |
|
| Inventory
impairments |
— |
|
|
3,413 |
|
| Purchase
price accounting in cost of home sales |
4,328 |
|
|
2,794 |
|
| Transaction
costs |
637 |
|
|
71 |
|
| Equity
in net (income) loss of unconsolidated joint ventures, net of interest |
(1,089) |
|
|
13,518 |
|
| Gain
on PPP loan forgiveness |
(4,266) |
|
|
— |
|
| Loss
on remeasurement of warrant liability |
5,335 |
|
|
— |
|
|
|
|
|
| Adjusted
EBITDA |
$ |
32,613 |
|
|
$ |
(282) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended June 30, |
|
2021 |
|
2020 |
|
(dollars
in thousands) |
| Net
income (loss) |
$ |
3,564 |
|
|
$ |
(22,916) |
|
| Provision
(benefit) for income taxes |
183 |
|
|
(7,731) |
|
| Interest
in cost of sales |
18,366 |
|
|
12,700 |
|
| Interest
relieved to equity in net loss (income) of unconsolidated joint ventures |
775 |
|
|
634 |
|
| Interest
expense |
21 |
|
|
11 |
|
| Depreciation
and amortization expense |
1,953 |
|
|
1,785 |
|
| EBITDA |
24,862 |
|
|
(15,517) |
|
| Inventory
impairments |
— |
|
|
3,413 |
|
| Purchase
price accounting in cost of home sales |
7,129 |
|
|
5,579 |
|
| Transaction
costs |
4,164 |
|
|
475 |
|
| Equity
in net (income) loss of unconsolidated joint ventures, net of interest |
(1,421) |
|
|
14,979 |
|
| Gain
on PPP loan forgiveness |
(4,266) |
|
|
— |
|
| Loss
on remeasurement of warrant liability |
10,285 |
|
|
— |
|
|
Less:
Imputed interest in cost of sales
(1) |
— |
|
|
(388) |
|
| Adjusted
EBITDA |
$ |
40,753 |
|
|
$ |
8,541 |
|
(1)
Imputed interest related to a land banking transaction that was treated as a product financing arrangement.
Adjusted
Net Income
Adjusted
Net Income to LHC is a non-GAAP financial measure that we believe is useful to management, investors and other users of our financial
information in evaluating our operating results and understanding our operating results without the effect of certain expenses that were
historically pushed down by our parent company and other non-recurring items. We believe excluding these items provides a more comparable
assessment of our financial results from period to period. Adjusted Net Income to LHC is calculated by excluding the effects of related
party interest that was pushed down by our parent company, purchase accounting adjustments for acquired work in process inventory related
to business combinations, the impact from our unconsolidated joint ventures, merger related transaction costs, gain on forgiveness of
PPP loan, and gain (loss) on remeasurement of warrant liability, and tax-effected using a blended statutory tax rate. The economic activity
related to our unconsolidated joint ventures is
not
core to our operations and is the reason we have excluded those amounts. We also adjust for the expense of related party interest pushed
down from our parent company as we have no obligation to repay the debt and related interest.
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30, |
|
2021 |
|
2020 |
|
(dollars
in thousands) |
| Net
income (loss) attributable to Landsea Homes Corporation |
$ |
10,664 |
|
|
$ |
(20,270) |
|
| |
|
|
|
| Inventory
impairments |
— |
|
|
3,413 |
|
| Previously
capitalized related party interest included in cost of sales |
4,340 |
|
|
1,694 |
|
| Equity
in net (income) loss of unconsolidated joint ventures |
(667) |
|
|
13,870 |
|
| Purchase
price accounting for acquired inventory |
4,328 |
|
|
2,794 |
|
|
|
|
|
| Gain
on PPP loan forgiveness |
(4,266) |
|
|
— |
|
| Loss
on remeasurement of warrant liability |
5,335 |
|
|
— |
|
| Total
adjustments |
9,070 |
|
|
21,771 |
|
|
Tax-effected
adjustments (1) |
6,870 |
|
|
16,492 |
|
| Adjusted
net income attributable to Landsea Homes Corporation |
$ |
17,534 |
|
|
$ |
(3,778) |
|
(1) Our
tax-effected adjustments are based on our federal rate and a blended state rate adjusted for certain discrete items.
|
|
|
|
|
|
|
|
|
|
|
|
|
Six
Months Ended June 30, |
|
2021 |
|
2020 |
|
(dollars
in thousands) |
| Net
income (loss) attributable to Landsea Homes Corporation |
$ |
3,590 |
|
|
$ |
(22,806) |
|
| |
|
|
|
| Inventory
impairments |
— |
|
|
3,413 |
|
| Previously
capitalized related party interest included in cost of sales |
7,242 |
|
|
4,540 |
|
| Equity
in net (income) loss of unconsolidated joint ventures |
(646) |
|
|
15,613 |
|
| Purchase
price accounting for acquired inventory |
7,129 |
|
|
5,579 |
|
| Merger
related transaction costs |
2,656 |
|
|
— |
|
| Gain
on PPP loan forgiveness |
(4,266) |
|
|
— |
|
| Loss
on remeasurement of warrant liability |
10,285 |
|
|
— |
|
| Total
adjustments |
22,400 |
|
|
29,145 |
|
|
Tax-effected
adjustments (1) |
17,895 |
|
|
21,793 |
|
| Adjusted
net income attributable to Landsea Homes Corporation |
$ |
21,485 |
|
|
$ |
(1,013) |
|
(1) Our
tax-effected adjustments are based on our federal rate and a blended state rate adjusted for certain discrete items.
Item
3. Quantitative and Qualitative Disclosures about Market Risk
Due
to the nature of homebuilding and our business we are exposed to market risks in the ordinary course of our business, including the effects
of interest rate changes and inflation as described below. We are also exposed to market risk from fluctuations in our stock prices and
related characteristics, which impact the fair value of our warrant liability.
Interest
Rates
Market
risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates
and commodity prices. The Company's primary exposure to market risk is interest rate risk associated with variable rate debt and credit
facilities. Borrowings under variable rate debt and credit facilities bear interest at a floating rate equal to the adjusted Prime Rate
or LIBOR plus an applicable margin between 0.75% to 6.50% per annum.
Inflation
Operations
can be adversely impacted by inflation, primarily from higher land, financing, labor, material and construction costs. In addition, inflation
can lead to higher mortgage rates, which can significantly affect the affordability of mortgage financing to homebuyers. While we attempt
to pass on cost increases to customers through increased prices, when weak housing market conditions exist, we are often unable to offset
cost increases with higher selling prices.
Item
4. Controls and Procedures
Evaluation
of Disclosure Controls and Procedures
We
maintain a system of disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of
1934, as amended (the "Exchange Act") that are designed to ensure that information required to be disclosed by us in our reports filed
or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s
rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer
and principal accounting officer or persons performing similar functions, as appropriate, to allow timely decisions regarding required
disclosure.
As
of June 30, 2021, management, under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated
the effectiveness of the Company’s disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that the Company’s disclosure controls and procedures were not effective as of such date due to
material weaknesses in internal control over financial reporting as described under the section Material
Weakness in Internal Control Over Financial Reporting
below.
Based
upon SEC staff guidance, an assessment of internal controls over financial reporting of a recently acquired business may be excluded from
management's evaluation of disclosure controls and procedures for up to a year from the date of acquisition. We excluded Vintage Estate
Homes from our assessment of disclosure controls and procedures as of June 30, 2021 because it was acquired by the Company in a purchase
business combination during Q2 2021. The elements of the acquired business’ internal controls over financial reporting that have
been excluded represent less than 1% of our total assets, at June 30, 2021 and 15% of our total revenue for the three months ended June
30, 2021 and 9% of our total revenue for the six months ended June 30, 2021.
Material
Weakness in Internal Control Over Financial Reporting
As
previously disclosed in “Part II. Item 9A. Controls and Procedures” in our Annual Report on Form 10-K/A for the year ended
December 31, 2020, during the quarter ended June 30, 2021, we identified the material weakness in
our
internal control over financial reporting described below. A material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or
interim financial statements will not be prevented or detected on a timely basis. We did not design and maintain effective controls over
the accounting for warrants issued in connection with the initial public offering of LF Capital and assumed by us in the Merger.
Remediation
Efforts
Management
has redesigned the existing control that resulted in the material weakness. In redesigning the control, management has implemented a specific
control activity to include a review of the accounting for warrants by the Corporate Controller, in consultation with third party experts.
Although
we have redesigned the control as described above, the control has not been in place and has not operated for a sufficient period of time
as of June 30, 2021 to demonstrate the material weakness has been remediated.
Changes
in Internal Control over Financial Reporting
As
described above under Remediation Efforts, there were changes in our internal control over financial reporting during the fiscal quarter
ended June 30, 2021, that have materially affected, or are reasonably likely to materially affect, our internal control over financial
reporting.
PART II. OTHER
INFORMATION
Item
1. Legal Proceedings
We
are subject to various legal and regulatory actions that arise from time to time and may be subject to similar or other claims in the
future. In addition, we are currently involved in various other legal actions and proceedings. We are currently unable to estimate the
likelihood of an unfavorable result in any such proceeding that would not be covered by insurance and could have a material adverse effect
on our results of operations, financial position, or liquidity.
Item
1A. Risk Factors
There
have been no material changes to the risk factors we previously disclosed in our Annual Report on Form 10-K/A for the year ended December
31, 2020 that was filed with the SEC on July 6, 2021 and Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 that was filed
with the SEC on May 17, 2021.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item
3. Defaults Upon Senior Securities
None.
Item
4. Mine Safety Disclosures
Not applicable.
Item
5. Other Information
None.
Item
6. Exhibits
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Exhibit
Description |
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| 101 |
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The
following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, formatted
in Inline XBRL: (i) Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020; (ii) Consolidated Statements of Operations
for the three and six months ended June 30, 2021 and 2020, (iii) Consolidated Statements of Equity for the three and six months ended
June 30, 2021 and 2020; (iv) Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020 and (v) Notes to Consolidated
Financial Statements, tagged as blocks of text and including detailed tags. |
| 104 |
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The
Cover page from the Company’s Quarterly Report on Form 10-Q for the six months ended June 30, 2021, formatted in Inline XBRL (included
as Exhibit 101). |
* Filed
herewith.
** Furnished
herewith.
^ Management
contract or compensatory plan or arrangement.
+ Certain
schedules to or portions of this Exhibit have been omitted in accordance with Item 601(b)(10) of Regulation S-K. The Company hereby agrees
to furnish supplementally a copy of all omitted schedules to the SEC upon request.
SIGNATURES
Pursuant to
the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
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Landsea
Homes Corporation |
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| Date:
August 12, 2021 |
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By: |
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/s/
John Ho |
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John
Ho |
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Chief
Executive Officer and Interim Chief Financial Officer |
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(Principal
Executive Officer) |
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| Date:
August 12, 2021 |
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By: |
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/s/
Trent Schreiner |
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Trent
Schreiner |
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Chief
Accounting Officer |
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(Principal
Accounting Officer) |