Landsea Homes Corp [LSEAW] Filings

10-Q 1 lhi-20230930.htm 10-Q lhi-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

☐ 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)

1717 McKinney Avenue, Suite 1000
Dallas, Texas						75202
(Address of Principal Executive Offices)						(Zip Code)

(949) 345-8080

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

LSEA

The Nasdaq Capital Market

Warrants exercisable for Common Stock

LSEAW

The Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October 27, 2023, 37,795,191 Class A common stock, par value $0.0001 per share, were outstanding.


Landsea Homes Corporation
Form 10-Q Index
For the Three and Nine Months Ended September 30, 2023


PART I - FINANCIAL INFORMATION			Page
Item 1. Unaudited Financial Statements
Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022			1
Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2023 and 2022			2
Consolidated Statements of Equity for the Three and Nine Months Ended September 30, 2023 and 2022			3
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022			5
Notes to the Consolidated Financial Statements			6
Item 2. Management’s Discussion and Analysis of Financial Condition and Result of Operations			20
Item 3. Quantitative and Qualitative Disclosures About Market Risk			38
Item 4. Controls and Procedures			38
PART II - OTHER INFORMATION
Item 1. Legal Proceedings			39
Item 1A. Risk Factors			39
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			39
Item 3. Defaults Upon Senior Securities			39
Item 4. Mine Safety Disclosures			39
Item 5. Other Information			39
Item 6. Exhibits			40
Signatures			41

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements


Landsea Homes Corporation
Consolidated Balance Sheets - (Unaudited)
(in thousands, except share and per share amounts)


	September 30, 2023		December 31, 2022
Assets
Cash and cash equivalents	$	133,491	$	123,634
Cash held in escrow	10,956		17,101


Real estate inventories	1,155,661		1,093,369

Due from affiliates	4,232		3,744


Goodwill	68,639		68,639
Other assets	104,108		134,009
Total assets	$	1,477,087	$	1,440,496

Liabilities
Accounts payable	$	72,287	$	74,445
Accrued expenses and other liabilities	150,079		149,426
Due to affiliates	881		884


Line of credit facility, net	317,010		505,422
Senior notes, net	235,383		—

Total liabilities	775,640		730,177

Commitments and contingencies (Note 8)

Equity
Stockholders’ equity:
Preferred stock, $0.0001 par value, 50,000,000 shares authorized, none issued and outstanding as of September 30, 2023 and December 31, 2022, respectively	—		—
Common stock, $0.0001 par value, 500,000,000 shares authorized, 41,382,453 issued and 37,795,191 outstanding as of September 30, 2023, 42,110,794 issued and 40,884,268 outstanding as of December 31, 2022	4		4
Additional paid-in capital	477,837		497,598
Retained earnings	175,109		158,348
Total stockholders’ equity	652,950		655,950
Noncontrolling interests	48,497		54,369
Total equity	701,447		710,319
Total liabilities and equity	$	1,477,087	$	1,440,496

See accompanying notes to the consolidated financial statements.

Landsea Homes Corp. | Q3 2023 Form 10-Q | 1


Landsea Homes Corporation
Consolidated Statements of Operations - (Unaudited)
(in thousands, except share and per share amounts)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenue
Home sales	$	258,062	$	326,496	$	790,199	$	975,269
Lot sales and other	19,286		9,089		22,133		45,222
Total revenues	277,348		335,585		812,332		1,020,491

Cost of sales
Home sales	209,753		258,362		647,642		770,220

Lot sales and other	13,309		10,737		15,770		40,546
Total cost of sales	223,062		269,099		663,412		810,766

Gross margin
Home sales	48,309		68,134		142,557		205,049
Lot sales and other	5,977		(1,648)		6,363		4,676
Total gross margin	54,286		66,486		148,920		209,725

Sales and marketing expenses	16,930		21,063		51,672		64,366
General and administrative expenses	25,463		21,111		74,223		70,734
Total operating expenses	42,393		42,174		125,895		135,100

Income from operations	11,893		24,312		23,025		74,625

Other income (loss), net	656		990		2,770		(654)


Loss on remeasurement of warrant liability	—		—		—		(7,315)
Pretax income	12,549		25,302		25,795		66,656

Provision for income taxes	3,066		4,021		6,323		17,460

Net income	9,483		21,281		19,472		49,196
Net income attributable to noncontrolling interests	887		1,311		2,711		1,226
Net income attributable to Landsea Homes Corporation	$	8,596	$	19,970	$	16,761	$	47,970

Income per share:
Basic	$	0.22	$	0.49	$	0.43	$	1.10
Diluted	$	0.22	$	0.49	$	0.42	$	1.09

Weighted average common shares outstanding:
Basic	38,336,100		39,935,152		39,402,507		42,768,269
Diluted	38,440,392		40,097,269		39,549,035		42,943,871

See accompanying notes to the consolidated financial statements.

Landsea Homes Corp. | Q3 2023 Form 10-Q | 2


Landsea Homes Corporation
Consolidated Statements of Equity - (Unaudited)
(in thousands, except shares)


	Common Stock
	Shares	Amount		Additional paid-in capital		Retained earnings		Noncontrolling interests		Total stockholders' equity
Balance at June 30, 2023	39,183,181	$	4	$	490,741	$	166,513	$	54,348	$	711,606



Stock options exercised	3,877	—		37		—		—		37

Stock-based compensation expense	—	—		879		—		—		879
Repurchase of common stock and associated tax	(1,391,867)	—		(13,820)		—		—		(13,820)

Distributions to noncontrolling interests	—	—		—		—		(6,738)		(6,738)
Net income	—	—		—		8,596		887		9,483
Balance at September 30, 2023	37,795,191	$	4	$	477,837	$	175,109	$	48,497	$	701,447

	Common Stock
	Shares	Amount		Additional paid-in capital		Retained earnings		Noncontrolling interests		Total stockholders’ equity
Balance at December 31, 2022	40,884,268	$	4	$	497,598	$	158,348	$	54,369	$	710,319

Shares issued under share-based awards	267,782	—		—		—		—		—
Stock options exercised	3,877	—		37		—		—		37
Cash paid for shares withheld for taxes	—	—		(695)		—		—		(695)
Stock-based compensation expense	—	—		2,249		—		—		2,249
Repurchase of common stock and associated tax	(2,360,736)	—		(21,352)		—		—		(21,352)
Forfeiture and cancellation of Earnout Shares	(1,000,000)	—		—		—		—		—

Distributions to noncontrolling interests	—	—		—		—		(8,583)		(8,583)
Net income	—	—		—		16,761		2,711		19,472
Balance at September 30, 2023	37,795,191	$	4	$	477,837	$	175,109	$	48,497	$	701,447

See accompanying notes to the consolidated financial statements.

Landsea Homes Corp. | Q3 2023 Form 10-Q | 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 June 30, 2022	40,925,579	$	4	$	496,170	$	112,797	$	56,165	$	665,136


Shares issued under share-based awards	24,464	—		—		—		—		—

Stock-based compensation expense	—	—		908		—		—		908

Distributions to noncontrolling interests	—	—		—		—		(3,072)		(3,072)
Net income (loss)	—	—		—		19,970		1,311		21,281
Balance at September 30, 2022	40,950,043	$	4	$	497,078	$	132,767	$	54,404	$	684,253

	Common Stock
	Shares	Amount		Additional paid-in capital		Retained earnings		Noncontrolling interests		Total stockholders’ equity
Balance at December 31, 2021	46,281,091	$	5	$	535,345	$	84,797	$	1,250	$	621,397

Shares issued under share-based awards	228,529	—		—		—		—		—
Cash paid for shares withheld for taxes	—	—		(848)		—		—		(848)
Stock-based compensation expense	—	—		2,780		—		—		2,780
Repurchase of common stock	(5,559,577)	(1)		(40,199)		—		—		(40,200)
Contributions from noncontrolling interests	—	—		—		—		55,000		55,000
Distributions to noncontrolling interests	—	—		—		—		(3,072)		(3,072)
Net income (loss)	—	—		—		47,970		1,226		49,196
Balance at September 30, 2022	40,950,043	$	4	$	497,078	$	132,767	$	54,404	$	684,253

See accompanying notes to the consolidated financial statements.

Landsea Homes Corp. | Q3 2023 Form 10-Q | 4


Landsea Homes Corporation
Consolidated Statements of Cash Flows - (Unaudited)
(in thousands)


	Nine Months Ended September 30,
		2023		2022
	(dollars in thousands)
Cash flows from operating activities:
Net income		$	19,472	$	49,196
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		3,778		4,445
Loss on remeasurement of warrant liability		—		7,315
Real estate inventories impairment		4,700		—
Stock-based compensation		2,249		2,780
Loss on extinguishment or forgiveness of debt		—		2,496
Abandoned project costs		745		324
Write-off of offering costs		436		—


Deferred taxes		(10)		(2,217)
Changes in operating assets and liabilities:
Cash held in escrow		6,145		(3,111)
Real estate inventories		(64,666)		(99,397)
Due from affiliates		(491)		(715)

Other assets		31,790		(46,887)
Accounts payable		(2,159)		2,284
Accrued expenses and other liabilities		123		287

Net cash provided by (used in) operating activities		2,112		(83,200)

Cash flows from investing activities:
Purchases of property and equipment		(5,530)		(4,062)
Distributions of capital from unconsolidated joint ventures		—		578

Payments for business acquisition, net of cash acquired		—		(258,727)
Net cash used in investing activities		(5,530)		(262,211)

Cash flows from financing activities:
Borrowings from notes and other debts payable		482,500		361,910
Repayments of notes and other debts payable		(429,300)		(240,526)

Cash paid for shares withheld for taxes		(695)		(848)
Payment for buyback of warrants		—		(16,500)




Proceeds from exercise of stock options		37		—
Repurchases of common stock		(21,160)		(40,200)

Contributions from noncontrolling interests		—		55,000
Distributions to noncontrolling interests		(8,583)		(3,072)
Deferred offering costs paid		(224)		—
Debt issuance and extinguishment costs paid		(9,300)		(3,414)

Net cash provided by financing activities		13,275		112,350

Net decrease in cash, cash equivalents, and restricted cash		9,857		(233,061)
Cash, cash equivalents, and restricted cash at beginning of period		123,634		343,253
Cash, cash equivalents, and restricted cash at end of period		$	133,491	$	110,192

See accompanying notes to the consolidated financial statements.

Landsea Homes Corp. | Q3 2023 Form 10-Q | 5


Landsea Homes Corporation
Notes to the Consolidated Financial Statements - (unaudited)

1. Company and Summary of Significant Account Policies

Landsea Homes Corporation (together with its subsidiaries, “Landsea Homes” or the “Company”), a majority owned subsidiary of Landsea Holdings Corporation (“Landsea Holdings”), is engaged in the acquisition, development, and sale of homes and lots in Arizona, California, Florida, New York, and Texas. The Company’s operations are organized into the following five reportable segments: Arizona, California, Florida, Metro New York, and Texas.

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, partnerships, and other entities in which the Company has a controlling interest as well as variable interest entities (“VIEs”) in which the Company is deemed the primary beneficiary. The Company’s investments in both unconsolidated entities in which a significant, but less than controlling, interest is held and in VIEs in which the Company is not deemed to be the primary beneficiary are accounted for under the equity method. All intercompany transactions and balances have been eliminated in consolidation.

The accompanying unaudited consolidated financial statements have been prepared in accordance with GAAP for interim financial information and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) and should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 9, 2023. The accompanying unaudited consolidated financial statements include all adjustments, consisting of normal recurring entries, necessary for a fair presentation of the Company’s results for the interim periods presented. Results for the interim periods are not necessarily indicative of the results to be expected for the full year due to seasonal variations and other factors.

Use of Estimates—The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Actual results could differ materially from these estimates.

Recent Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting. These changes are intended to simplify the market transition from the London Interbank Offered Rate (“LIBOR”) to alternative reference rates. ASU 2020-04 generally considers contract modifications related to reference rate reform to be an event that does not require contract remeasurement at the modification date nor a reassessment of a previous accounting determination. In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848): Scope, which clarified the scope and application of ASU 2020-04. In December 2022, the FASB issued ASU No. 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which defers the sunset date of the reference rate reform guidance to December 31, 2024. The guidance in ASU 2020-04 may be elected over time, through December 31, 2024, as reference rate reform activities occur. Once ASU 2020-04 is elected, the guidance must be applied prospectively for all eligible contract modifications. In June 2022, the Company modified its credit facility to use the Secured Overnight Financing Rate (“SOFR”) as a reference rate rather than LIBOR. The Company elected to apply this guidance which preserves the presentation of the loan consistent with the presentation prior to the modification.

In October 2021, the FASB issued ASU 2021-08, which requires application of Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, to recognize and measure contract assets and liabilities from contracts with customers acquired in a business combination. ASU 2021-08 creates an exception to the general recognition and measurement principle in ASC 805, Business Combinations, and will result in recognition of contract assets and contract liabilities consistent with those recorded by the acquiree immediately before the acquisition date. The standard is effective for fiscal years beginning after December 15, 2022, early adoption was permitted. The adoption did not have a material impact on the Company’s consolidated financial statements.

Landsea Homes Corp. | Q3 2023 Form 10-Q | 6


Landsea Homes Corporation
Notes to the Consolidated Financial Statements - (unaudited)

In March 2023, the FASB issued ASU 2023-01, which amends the application of ASU 2016-02, Leases (Topic 842), related to leases with entities under common control, also referred to as common control leases. The amendments to this update require an entity to consider the useful life of leasehold improvements associated with common control leases from the perspective of the common control group and amortize the leasehold improvements over the useful life of the assets to the common control group, instead of the term of the lease. Any remaining value for the leasehold improvement at the end of the lease would be adjusted through equity. The standard is effective for fiscal years beginning after December 15, 2023, with early adoption permitted. The adoption is not expected to have a material impact on the Company’s consolidated financial statements.

2. Business Combinations

On January 18, 2022, the Company acquired 100% of Hanover Family Builders, LLC (“Hanover”), a Florida-based homebuilder, for an aggregate cash purchase price, net of working capital adjustments, of $262.6 million. The aggregate purchase price included a pay-off of $69.3 million related to debt held by Hanover and a payment of $15.6 million for land-related deposits. The total assets of Hanover included approximately 20 development projects and 3,800 lots owned or controlled in various stages of development.

In accordance with ASC 805, the assets acquired and liabilities assumed from the acquisition of Hanover were measured and recognized at fair value as of the date of the acquisition to reflect the purchase price paid.

Acquired inventories consist of land, land deposits, and work in process inventories. For acquired land and land options, the Company typically utilizes, with the assistance of a third-party valuation specialist, a sales comparison approach. For work in process inventories, the Company estimates the fair value based upon the stage of production of each unit and a gross margin that management believes a market participant would require to complete the remaining development and requisite selling efforts. On the acquisition date, the stage of production for each lot ranged from recently started lots to fully completed homes. The intangible asset acquired related to the Hanover trade name, which was estimated to have a fair value of $1.6 million and was amortized over one year. Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed and relates primarily to the assembled workforce and business synergies. Goodwill of $44.2 million was 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 11 – Segment Reporting. The Company incurred transaction related costs of $0.1 million and $0.7 million related to the Hanover acquisition during the three and nine months ended September 30, 2022, 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	$	3,857
Real estate inventories	232,071
Goodwill	44,182
Trade name	1,590
Other assets	378
Total assets	$	282,078

Liabilities Assumed
Accounts payable	$	6,329
Accrued expenses	13,165
Total liabilities	19,494
Net assets acquired	$	262,584

Landsea Homes Corp. | Q3 2023 Form 10-Q | 7


Landsea Homes Corporation
Notes to the Consolidated Financial Statements - (unaudited)

Unaudited Pro Forma Financial Information

Unaudited pro forma revenue and net income for the following periods presented give effect to the results of the acquisition of Hanover as though the acquisition date was as of January 1, 2021, the beginning of the year preceding the acquisition. Unaudited pro forma net income adjusts the operating result of Hanover 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.


	Three Months Ended September 30,		Nine Months Ended September 30,
	2022		2022
	(dollars in thousands)
Revenue	$	335,585	$	1,025,600

Pretax income	34,994		103,890
Provision for income taxes	4,823		27,213
Net income	$	30,171	$	76,677

3. Variable Interest Entities

The Company consolidates two joint venture (“JV”) VIEs. The consolidated VIEs include one active project in the Metro New York area (“14th Ave JV”) and one JV with the purpose of acquiring undeveloped land (the “LCF JV”). The Company has determined that it is the primary beneficiary of these VIEs as it has the power to direct activities of the operations that most significantly affect their economic performance.

Both consolidated VIEs are financed by equity contributions from the Company and the JV partner. The 14th Ave JV was also funded by third-party debt which was paid off in April 2022 with proceeds from a loan provided by the Company. The intercompany loan is eliminated upon consolidation.

The following table summarizes the carrying amount and classification of the VIEs’ assets and liabilities in the consolidated balance sheets as of September 30, 2023 and December 31, 2022.


	September 30, 2023		December 31, 2022
	(dollars in thousands)
Cash	$	4,407	$	4,697


Real estate inventories	90,682		99,699
Due from affiliates	719		329
Other assets	2,104		2,124
Total assets	$	97,912	$	106,849

Accounts payable	$	288	$	1,577
Accrued expenses and other liabilities	4,950		5,616


Total liabilities	$	5,238	$	7,193

Landsea Homes Corp. | Q3 2023 Form 10-Q | 8


Landsea Homes Corporation
Notes to the Consolidated Financial Statements - (unaudited)

4. Real Estate Inventories

Real estate inventories are summarized as follows:


	September 30, 2023		December 31, 2022
	(dollars in thousands)
Deposits and pre-acquisition costs	$	101,429	$	101,395
Land held and land under development	280,755		191,047
Homes completed or under construction	720,265		779,352
Model homes	53,212		21,575
Total real estate inventories	$	1,155,661	$	1,093,369

Deposits and pre-acquisition costs include land deposits and other due diligence costs related to potential land acquisitions. Land held and land under development includes costs incurred during site development such as development, indirect costs, and permits. Homes completed or under construction and model homes include all costs associated with home construction, including land, development, indirect costs, permits, materials, and labor.

In accordance with ASC 360, Property, Plant, and Equipment, real estate inventories are stated at cost, unless the carrying amount is determined not to be recoverable, in which case inventory is written down to its fair value. The Company reviews each real estate asset at the community-level, on a quarterly basis or whenever indicators of impairment exist. The Company generally determines the estimated fair value of each community by using a discounted cash flow approach based on the estimated future cash flows at discount rates that reflect the risk of the community being evaluated. The discounted cash flow approach can be impacted significantly by the Company’s estimates of future home sales revenue, home construction costs, pace of homes sales, and the applicable discount rate.

During the nine months ended September 30, 2023 the Company recorded $4.7 million of real estate inventories impairment charges related to one community in its California segment. In this instance, the Company determined that additional incentives and persistent discounts were required to sell the remaining homes and was the primary cause of driving the estimated future cash flows for the community below its previous carrying values. No additional impairments were recorded during the three months ended September 30, 2023. The Company did not recognize any impairments on real estate inventories during the three and nine months ended September 30, 2022. Real estate inventories impairment charges are recorded to cost of home sales in the consolidated statements of operations.

The table below provides quantitative data for Level 3 inputs, for the periods presented, where applicable, used in determining the fair value of the impaired inventory.


	Impairment Data					Quantitative Data
Three Months Ended	Number of Projects Impaired	Real Estate Inventories Impairment		Fair Value of Inventory After Impairment		Discount Rate
	(dollars in thousands)
June 30, 2023	1	$	4,700	$	19,363	11	%
Total		$	4,700

5. Capitalized Interest

Interest is capitalized to real estate inventories during development and as a result of other qualifying activities. Interest capitalized as a cost of real estate inventories is included in cost of sales as related inventories are delivered.

For the three and nine months ended September 30, 2023, the Company incurred and capitalized interest of $14.4 million and $37.6 million, respectively. For the three and nine months ended September 30, 2022, the Company incurred and capitalized interest of $13.8 million and $28.6 million, respectively. Previously capitalized interest included in cost of sales during the three and nine months ended September 30, 2023 was $10.0 million and $21.9 million, respectively. Previously capitalized interest included in cost of sales during the three and nine months ended September 30, 2022 was $10.2 million and $31.3 million, respectively. These amounts included interest from certain related party transactions, refer to Note 9 – Related Party Transactions for additional information.

Landsea Homes Corp. | Q3 2023 Form 10-Q | 9


Landsea Homes Corporation
Notes to the Consolidated Financial Statements - (unaudited)

6. Other Assets

As of September 30, 2023 and December 31, 2022, the Company had contract assets of $6.3 million and $7.2 million, respectively, related to lot sales and other revenue. The contract asset balance is included in other assets on the Company’s consolidated balance sheets and represents cash to be received for work already performed on lot sales and other contracts. The amount of the transaction price for lot sales and other contracts remaining to be recognized as revenue for performance obligations that were not fully satisfied as of September 30, 2023 and December 31, 2022 was $3.7 million and $11.6 million, respectively. As of September 30, 2023, the Company had $1.0 million of deferred revenue related to lot sales and other revenue included in accrued expenses and other liabilities in the Company’s consolidated balance sheets. As of December 31, 2022, the Company had no deferred revenue related to lot sales and other revenue. The Company reduces these liabilities and recognizes revenue as development progresses and the related performance obligations are completed.

7. Notes and Other Debts Payable, net

Amounts outstanding under notes and other debts payable, net consist of the following:


	September 30, 2023		December 31, 2022
	(dollars in thousands)

Line of credit facility	$	325,000	$	514,300
Deferred loan costs	(7,990)		(8,878)
Line of credit facility, net	$	317,010	$	505,422


	September 30, 2023		December 31, 2022
	(dollars in thousands)

Senior notes	$	250,000	$	—
Discount and deferred loan costs	(14,617)		—
Senior notes, net	$	235,383	$	—

In October 2021, the Company entered into a line of credit agreement (the “Credit Agreement”). The Credit Agreement provides for a senior unsecured borrowing of up to $675.0 million of which there was $325.0 million outstanding as of September 30, 2023. The Company may increase the borrowing capacity up to $850.0 million, under certain conditions. Funds available under the Credit Agreement are subject to a borrowing base requirement which is calculated on specified percentages of our real estate inventories. Borrowings under the Credit Agreement bear interest at SOFR plus 3.35% or Prime Rate (as defined in the Credit Agreement) plus 2.75%. The interest rate includes a floor of 3.85%. The Credit Agreement was modified three times in 2022, which resulted in an increase in the borrowing commitment from $585.0 million to $675.0 million, the replacement of LIBOR with SOFR as an index rate, and an extension of the maturity date to October 2025. As of September 30, 2023, the interest rate on the loan was 8.68%. In July 2023, the Credit Agreement was modified to extend the maturity date and now matures in October 2026.

In July 2023, the Company entered into a new senior unsecured note (the “Note Purchase Agreement”). The Note Purchase Agreement provided for the private placement of $250.0 million aggregate principal amount of 11% senior notes (the “Senior Notes”). The Company received the proceeds, net of discount and fees, in July 2023. The Senior Notes matures in July 2028.

In addition, the Company previously had one project-specific construction loan. In April 2022, the construction loan was repaid in full with proceeds from borrowings under the Credit Agreement. In connection with this payoff, the Company incurred $2.5 million of debt extinguishment fees, which were included in other income, net, in the consolidated statements of operations during the year ended December 31, 2022.

The Credit Agreement and Note Purchase Agreement contain certain restrictive financial covenants, such as requirements for the Company to maintain a minimum liquidity balance, minimum tangible net worth, and leverage and interest coverage ratios. As of September 30, 2023, the Company was in compliance with all financial covenants.

Landsea Homes Corp. | Q3 2023 Form 10-Q | 10


Landsea Homes Corporation
Notes to the Consolidated Financial Statements - (unaudited)

8. Commitments and Contingencies

Legal—The Company is currently involved in various legal actions and proceedings that arise from time to time and may be subject to similar or other legal and/or regulatory actions in the future. The Company is currently unable to estimate the likelihood of an unfavorable result in any such proceeding that could have a material adverse effect on the Company’s results of operations, financial position, or liquidity.

In the fourth quarter of 2021, certain insurers paid $14.9 million on behalf of the Company and others to settle a wrongful death suit. The insurers contend they are entitled to seek reimbursement from the Company for some or all of such amounts, which the Company disputes. During October 2023, one of the insurers filed a lawsuit seeking reimbursement, however, at this time the Company is unable to estimate the amount or outcome of the insurers’ claims against the Company. In addition, the Company is unable to estimate the amount or outcome of its recovery actions against relevant third parties.

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 $101.2 million and $114.9 million of performance bonds outstanding as of September 30, 2023 and December 31, 2022, respectively.

Warranty—Estimated future direct warranty costs are accrued and charged to cost of sales in the period when the related homebuilding revenues are recognized. Changes in the Company’s warranty accrual are detailed in the table below:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	(dollars in thousands)
Beginning warranty accrual	$	46,227	$	18,010	$	46,657	$	15,692
Warranty provision	2,988		1,359		5,162		4,602
Warranty payments	(3,547)		(1,118)		(6,151)		(2,043)
Ending warranty accrual	$	45,668	$	18,251	$	45,668	$	18,251

Operating Leases—The Company primarily enters into operating leases for the right to use office space, model homes, and computer and office equipment, which have remaining lease terms that range from 1 to 8 years and often include one or more options to renew. During December 2021, the Company sold model homes and immediately leased back these models. Certain of these model homes were not complete at the time of sale. All of the leases from the sale-leasebacks are accounted for as operating leases and are reflected as part of the Company’s right-of-use assets and lease liabilities in the accompanying consolidated balance sheets. Certain of these sales were to a related party; refer to Note 9 – Related Party Transactions for further detail. The weighted average remaining lease term as of September 30, 2023 and December 31, 2022 was 5.8 and 5.7 years, respectively. Renewal terms are included in the lease term when it is reasonably certain the option will be exercised.

The Company established a right-of-use asset and a lease liability based on the present value of future minimum lease payments at the commencement date of the lease, or, if subsequently modified, the date of modification for active leases. As the rate implicit in each lease is not readily determinable, the Company’s incremental borrowing rate is used in determining the present value of future minimum payments as of the commencement date. The weighted average rate as of September 30, 2023 and December 31, 2022 was 5.4% and 4.6%, respectively. Lease components and non-lease components are accounted for as a single lease component. As of September 30, 2023, the Company had $12.9 million and $14.1 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, 2022, the Company had $15.6 million and $16.4 million recognized as a right-of-use asset and lease liability, respectively.

Operating lease expense for the three and nine months ended September 30, 2023 was $0.9 million and $2.8 million, respectively, and is included in general and administrative expenses on the consolidated statements of operations. For the three and nine months ended September 30, 2022 operating lease expense was $0.5 million and $1.6 million, respectively.

Landsea Homes Corp. | Q3 2023 Form 10-Q | 11


Landsea Homes Corporation
Notes to the Consolidated Financial Statements - (unaudited)

Future minimum payments under the noncancelable operating leases in effect at September 30, 2023 were as follows (dollars in thousands):


2023	$	1,042
2024	3,481
2025	2,582
2026	2,332
2027	2,101
Thereafter	4,737
Total lease payments	16,275
Less: Discount	(2,217)
Present value of lease liabilities	$	14,058

9. Related Party Transactions

The Company continues to pay for certain costs on behalf of Landsea Holdings. The Company records a due from affiliate balance for all such payments. As of September 30, 2023 and December 31, 2022, the Company had a net receivable due from affiliates balance of $3.4 million and $2.9 million, respectively.

In August 2023, the Company repurchased from the underwriters, at the public offering price of $9.75 per share, 800,000 shares of common stock that were sold by Green Investment Alpha Limited, a beneficial owner of the Company, in a registered secondary offering, for a total purchase price of $7.8 million. Green Investment Alpha Limited no longer qualifies as a related party upon the completion of the sale.

In June 2023, the Company repurchased from the underwriters, at the public offering price of $7.50 per share, 443,478 shares of common stock that were sold by Landsea Holdings, the Company’s majority stockholder, in a registered secondary offering, for a total purchase price of $3.3 million.

In June 2022, the Company entered into two transactions with Landsea Holdings. On June 1, 2022, the Board of Directors authorized the Company to repurchase 4.4 million shares of common stock held by Landsea Holdings. The Company paid $30.0 million at a price of $6.82 per share, a discount of 5% compared to the closing price on May 31, 2022 of $7.18. Additionally, the Company repurchased all 5.5 million outstanding Private Placement Warrants, of which Landsea Holdings held 2.2 million. The Company paid Landsea Holdings $6.6 million at $3.00 per Private Placement Warrant. In addition, 2.8 million of the repurchased Private Placement Warrants were held by Level Field Capital, LLC, a related party that is controlled by a member of the Company’s Board of Directors. The Company paid Level Field Capital, LLC $8.4 million at $3.00 per Private Placement Warrant. The Company’s common stock and Warrants are discussed further in Note 14 – Stockholders’ Equity.

In June 2022, Landsea Capital Fund, who is under common control with the Company, contributed $55.0 million to the LCF JV. The LCF JV, which is consolidated by the Company, used these proceeds to purchase undeveloped land from the Company. The Company distributed $6.7 million and $8.6 million to Landsea Capital Fund during the three and nine months ended September 30, 2023, respectively. All intercompany transactions between the Company and the LCF JV have been eliminated upon consolidation.

In December 2021, the Company sold model homes to a related party for total consideration of $15.2 million. Construction of certain of these model homes was not complete at the time of sale. The Company recognized lot sales and other revenue of $1.2 million during the nine months ended September 30, 2022 related to the model homes still under construction on the sale date. Corresponding lot and other cost of sales of $1.3 million was also recognized during the same period. No additional revenue or cost of sales related to this transaction were recognized during the three months ended September 30, 2022. The Company did not recognize any revenue or other cost of sales related to these model homes during the three and nine months ended September 30, 2023. As part of this transaction, the Company leased back these models. The total amount of rent payments made during the three and nine months ended September 30, 2023 is $0.2 million and $0.6 million, respectively. The total amount of rent payments made during the three and nine months ended September 30, 2022 is $0.2 million and $0.6 million, respectively. The right-of-use asset and lease liability balances associated with these leases is $0.7 million and $0.7 million, respectively, as of September 30, 2023 and $1.3 million and $1.3 million, respectively, as of December 31, 2022.

Landsea Homes Corp. | Q3 2023 Form 10-Q | 12


Landsea Homes Corporation
Notes to the Consolidated Financial Statements - (unaudited)

In July 2021, the Company entered into a landbank agreement for a project in its California segment with a related party. The Company will make regular payments to the related party based on an annualized rate of 7% of the undeveloped land costs while the land is developed and may purchase, at the Company’s discretion, the lots at a predetermined price of $28.9 million. The total amount of interest payments made during the three and nine months ended September 30, 2023 is $0.1 million and $0.5 million, respectively. The total amount of interest payments made during the three and nine months ended September 30, 2022 is $0.2 million and $0.8 million, respectively. During the three and nine months ended September 30, 2023, payments of $3.0 million and $7.0 million, including fees, have been made to purchase developed lots from the related party, respectively. During the three and nine months ended September 30, 2022, payments of $1.7 million and $7.9 million, including fees, were made to purchase developed lots from the related party, respectively. Capitalized interest included in real estate inventories on the consolidated balance sheets associated with this transaction was $0.9 million and $0.8 million as of September 30, 2023 and December 31, 2022, respectively. Previously capitalized related party interest included in cost of sales during the three and nine months ended September 30, 2023 was $0.4 million and $0.8 million, respectively. There was no previously capitalized related party interest included in cost of sales during the three and nine months ended September 30, 2022.

Landsea Holdings holds a series of notes payable to affiliated entities of its parent. The cash Landsea Holdings received from this debt was previously utilized to partially fund operations of the Company. Related party interest incurred by Landsea Holdings 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 were not assigned to the Company, the notes payable do not represent a liability of the Company and accordingly have not been reflected in the consolidated balance sheets. Additionally, in connection with the Merger (as defined below), the Company is precluded from repaying Landsea Holdings’ notes payable to the affiliated entities of its parent. Therefore, beginning January 7, 2021, additional interest from these notes payable is no longer pushed down to the Company. Capitalized interest included in real estate inventories on the consolidated balance sheets associated with this transaction was $0.6 million and $2.2 million as of September 30, 2023 and December 31, 2022, respectively. Previously capitalized related party interest included in cost of sales during the three and nine months ended September 30, 2023 was $0.3 million and $1.6 million, respectively. Previously capitalized related party interest included in cost of sales during the three and nine months ended September 30, 2022 was $0.7 million and $3.8 million, respectively.

10. Income Taxes

The effective tax rate of the Company was 24.4% and 24.5% for the three and nine months ended September 30, 2023, respectively, and 15.9% and 26.2% for the three and nine months ended September 30, 2022, respectively. The difference between the statutory tax rate and the effective tax rate for the nine months ended September 30, 2023 is primarily related to state income taxes net of federal income tax benefits, estimated deduction limitations for executive compensation under Section 162(m), and tax credits for energy-efficient homes. The difference between the statutory tax rate and the effective tax rate for the nine months ended September 30, 2022 is primarily related to state income taxes net of federal income tax benefits, estimated deduction limitations for executive compensation, warrant fair market value adjustments, and tax credits for energy-efficient homes.

The accounting for deferred taxes is based upon estimates of future results. Differences between the anticipated and actual outcomes of these future results could have a material impact on the Company’s consolidated results of operations or financial position. Also, changes in existing federal and state tax laws and tax rates could affect future tax results and the valuation of the Company’s deferred tax assets.

The Inflation Reduction Act (“IRA”) of 2022 was enacted into law on August 16, 2022. The IRA introduced a 15% corporate alternative minimum tax on average annual adjusted financial statement income for applicable corporations, and a 1% excise tax on stock repurchases made by publicly traded US corporations after December 31, 2022. The IRA also retroactively extended the federal tax credit for building new energy-efficient homes for homes delivered from January 1, 2022 through December 31, 2032.

Landsea Homes Corp. | Q3 2023 Form 10-Q | 13


Landsea Homes Corporation
Notes to the Consolidated Financial Statements - (unaudited)

11. Segment Reporting

The Company is engaged in the acquisition, development, and sale of homes and lots in multiple states across the country. The Company is managed by geographic location and each of the five geographic regions targets a wide range of buyer profiles including: first time, move-up, and luxury homebuyers.

Management of the five geographic regions report to the Company’s chief operating decision makers (“CODMs”), the Chief Executive Officer and Chief Operating Officer of the Company. The CODMs review the results of operations, including total revenue and pretax income to assess profitability and to allocate resources. Accordingly, the Company has presented its operations as the following five reportable segments:

•Arizona

•California

•Florida

•Metro New York

•Texas

The Company has also identified its Corporate operations as a non-operating segment, as it serves to support the homebuilding operations through functional departments such as executive, finance, treasury, human resources, accounting, and legal. The majority of Corporate personnel and resources are primarily dedicated to activities relating to operations and are allocated based on each segment’s respective percentage of assets, revenue, and dedicated personnel.

The following table summarizes total revenue and pretax income by segment:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	(dollars in thousands)
Revenue
Arizona	$	69,308	$	76,808	$	215,000	$	234,927
California	103,982		118,977		270,756		343,466
Florida	104,058		103,564		320,740		320,358
Metro New York	—		28,132		1,649		95,758
Texas	—		8,104		4,187		25,982
Total revenues	$	277,348	$	335,585	$	812,332	$	1,020,491

Pretax income (loss)
Arizona	$	5,253	$	6,046	$	4,826	$	17,653
California	9,795		20,059		17,184		68,085
Florida	4,378		4,172		23,993		8,028
Metro New York	(917)		(810)		(1,818)		646
Texas	(1,383)		(215)		(4,144)		(93)
Corporate	(4,577)		(3,950)		(14,246)		(27,663)
Total pretax income	$	12,549	$	25,302	$	25,795	$	66,656

Landsea Homes Corp. | Q3 2023 Form 10-Q | 14


Landsea Homes Corporation
Notes to the Consolidated Financial Statements - (unaudited)

The following table summarizes total assets by segment:


	September 30, 2023		December 31, 2022
	(dollars in thousands)
Assets
Arizona	$	346,411	$	357,788
California	545,670		513,549
Florida	432,565		422,045
Metro New York	42,249		45,277
Texas	54,669		26,923
Corporate	55,523		74,914
Total assets	$	1,477,087	$	1,440,496

Included in the Corporate segment assets is cash and cash equivalents of $21.3 million and $40.3 million as of September 30, 2023 and December 31, 2022, respectively.

As of September 30, 2023 and December 31, 2022, goodwill of $47.9 million and $20.7 million was allocated to the Florida and Arizona segments, respectively.

12. Fair Value

ASC 820, Fair Value Measurement, 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:


		September 30, 2023				December 31, 2022
	Hierarchy	Carrying Value		Fair Value		Carrying Value		Fair Value
		(dollars in thousands)
Liabilities:

Line of credit facility (1)	Level 2	$	325,000	$	325,000	$	514,300	$	514,300
Senior notes (2)	Level 2	$	250,000	$	242,500	$	—	$	—

(1) Carrying amount approximates fair value due to the variable interest rate terms of these loans. Carrying value excludes any associated discounts or deferred loan costs.

(2) Carrying amount, net of discount, approximates fair value due to the recency of the debt issuance. Carrying value excludes any associated discounts or deferred loan costs.

The carrying values of receivables, deposits, and other assets as well as 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 and goodwill are measured at fair value on a non-recurring 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 fully recoverable. During the nine months ended September 30, 2023, we

Landsea Homes Corp. | Q3 2023 Form 10-Q | 15


Landsea Homes Corporation
Notes to the Consolidated Financial Statements - (unaudited)

determined that real estate inventories with a carrying value of $24.1 million within one community in our California segment was not expected to be fully recoverable. Accordingly, we recognized real estate inventories impairment charges of an aggregate $4.7 million to reflect the estimated fair value of the community of $19.4 million. No additional impairments were recorded during the three months ended September 30, 2023. The Company determined that none of the real estate inventories or goodwill required impairment during the three and nine months ended September 30, 2022. Refer to Note 4 – Real Estate Inventories for additional information.

Prior to being purchased by the Company in June 2022, the Private Placement Warrants were historically measured at fair value on a recurring basis using a Black-Scholes option pricing model.

The following table reconciles the beginning and ending balances for the Level 3 recurring fair value measurements during the periods presented:


	Nine Months Ended September 30,
	2023		2022
Warrant liability	(dollars in thousands)
Beginning balance	$	—	$	9,185
Changes in fair value	—		7,315
Repurchases of warrants	—		(16,500)
Ending balance	$	—	$	—

13. Stock-Based Compensation

The following table presents a summary of the Company’s nonvested performance share units (“PSUs”) and restricted stock units (“RSUs”) for the nine months ended September 30, 2023:


	Awards	Weighted Average Grant Date Fair Value
	(in thousands)
Nonvested, at December 31, 2022	1,625	$	8.82
Granted	298	8.28
Vested	(375)	8.68
Forfeited	—	—
Nonvested, at September 30, 2023	1,548	$	8.75

The following table presents a summary of the Company’s stock options activity for the nine months ended September 30, 2023:


	Number of Shares	Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
	(in thousands)			(in years)	(in thousands)
Options outstanding at December 31, 2022	684	$	8.82
Granted	228	6.46
Exercised	(4)	8.83
Forfeited	(205)	8.73
Options outstanding at September 30, 2023	703	$	8.09	8.75	$	636
Options exercisable at September 30, 2023	163	$	8.82	8.36	$	28

Stock-based compensation expense totaled $0.9 million and $2.2 million during the three and nine months ended September 30, 2023, respectively, and is included in general and administrative expenses on the consolidated statements of operations. For the three and nine months ended September 30, 2022, stock-based compensation expense was $0.9 million and $2.8 million, respectively.

Landsea Homes Corp. | Q3 2023 Form 10-Q | 16


Landsea Homes Corporation
Notes to the Consolidated Financial Statements - (unaudited)

The following table presents a summary of the Company’s outstanding RSUs and PSUs, assuming the current estimated level of performance achievement (in thousands, except years):


	September 30, 2023
	(in thousands, except period)
Unvested units	1,548
Remaining cost on unvested units	$	2,995
Remaining vesting period	3.25 years

Stock-based compensation expense associated with the outstanding RSUs and PSUs is measured using the grant date fair value. The expense associated with the PSUs also incorporates the estimated achievement of the established performance criteria at the end of each reporting period until the performance period ends.

14. 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 September 30, 2023, there were 41.4 million shares of common stock issued and 37.8 million outstanding, and no shares of preferred stock issued or outstanding. All outstanding shares of common stock are validly issued, fully paid and nonassessable.

Stock Repurchases

In January 2022, the Board of Directors authorized a stock repurchase program. The program allowed for the repurchase of up to $10.0 million worth of common stock, inclusive of associated fees. The authorization to effect stock repurchases expired on June 30, 2022, with no remaining capacity to repurchase common stock. In April 2022, the Board of Directors authorized an extension of the stock repurchase program for the repurchase of an additional $10.0 million of capacity to repurchase common stock, with an expiration of December 31, 2022. In June 2022, the Board of Directors authorized a repurchase of 4,398,826 shares of our common stock directly from the Company’s majority shareholder for $30.0 million, or a per-share price of $6.82 per share.

During the nine months ended September 30, 2022, the Company repurchased 5,559,577 shares of common stock for a total of $40.0 million, which was recorded as a reduction to additional paid-in capital. A portion of these shares were repurchased directly from the Company’s majority shareholder. Refer to Note 9 – Related Party Transactions for additional information. No shares were repurchased during the three months ended September 30, 2022. As of September 30, 2022, the Company had approximately $10.0 million in remaining authorized capacity.

In March 2023, the Board of Directors authorized a stock repurchase program allowing for the repurchase of up to $10.0 million worth of common stock, with an expiration of December 31, 2023. In July 2023, the Board of Directors authorized additional capacity of approximately $3.3 million, with an expiration date of December 31, 2023, and an additional $10.0 million with no stated expiration date.

During the three and nine months ended September 30, 2023, the Company repurchased 1,391,867 and 2,360,736 shares of common stock for a total of $13.7 million and $21.2 million, respectively, which was recorded as a reduction to additional paid-in capital. A portion of these shares were repurchased directly from the Company’s majority shareholder. Refer to Note 9 – Related Party Transactions for additional information. As of September 30, 2023, the Company had approximately $2.1 million in remaining authorized capacity.

In October 2023, subsequent to the period covered by this report, the Board of Directors authorized additional capacity of $20.0 million with no stated expiration date.

The timing and amount of repurchases are based on a variety of factors such as the market price of the Company's common stock, corporate and contractual requirements, market and economic conditions, and legal requirements.

The Inflation Reduction Act of 2022 included a 1% excise tax on stock repurchases, net of new stock issuances, beginning in 2023. The tax is expected to be paid annually and the Company accrues the tax during interim periods with the offset to additional paid-in capital on the consolidated balance sheet.

Landsea Homes Corp. | Q3 2023 Form 10-Q | 17


Landsea Homes Corporation
Notes to the Consolidated Financial Statements - (unaudited)

Merger Transaction

On August 31, 2020, Landsea Homes and Landsea Holdings entered into an Agreement and Plan of Merger (the “Merger Agreement”) with LF Capital Acquisition Corp. (“LF Capital”) and LFCA Merger Sub, Inc. (the “Merger Sub”), a direct, wholly-owned subsidiary of LF Capital. The Merger Agreement provided for, among other things, the merger of Merger Sub with and into Landsea Homes Incorporated (“LHI”), previously a wholly-owned subsidiary of Landsea Holdings, with LHI continuing as the surviving corporation (the “Merger”). On January 7, 2021 (the “Closing Date”), the Merger was consummated pursuant to the Merger Agreement (the “Closing”). The name of LF Capital was changed at that time to Landsea Homes Corporation.

Upon closing of the Merger, Level Field Capital, LLC (the “Sponsor”) held 1.0 million shares that were subject to surrender and forfeiture for no consideration in the event the common stock did not reach certain thresholds during the 24-month period following the closing of the Merger (the “Earnout Shares”). The Sponsor transferred 0.5 million Earnout Shares to Landsea Holdings. In January 2023, the Company concluded that the threshold for the Earnout Shares was not met and therefore those shares were forfeited and cancelled. Additionally, the Sponsor transferred 2.2 million private placement warrants to Landsea Holdings (such private placement warrants, each exercisable to purchase one share of Common Stock at an exercise price of $11.50 per share, are referred to as the “Private Placement Warrants”, and together with the Company’s public warrants, are referred to as the “Warrants”). During the year ended December 31, 2022, the private placement warrants were repurchased by the Company and are no longer outstanding. Refer below for additional information.

Warrants

As of September 30, 2023, there were 15,525,000 outstanding Warrants consisting entirely of public warrants. At the time of the Merger, the Warrant Agreement was amended so that each public warrant is exercisable at $1.15 for one tenth of a share of common stock. As part of the amendment, each holder of the public warrants received $1.85 per warrant for a total of $28.7 million paid by the Company upon closing of the Merger. The Warrants will expire five years after the completion of the Merger or earlier upon redemption or liquidation.

The Company may call the public warrants for redemption:

•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.

In June 2022, the Company repurchased all 5.5 million outstanding Private Placement Warrants, which were exercisable at $11.50 into one share of common stock. The Company paid $16.5 million, or $3.00 per warrant, to repurchase all of the outstanding Private Placement Warrants. This amount included $6.6 million for the repurchase of 2.2 million of the Private Placement Warrants that were held by the Company’s majority shareholder, Landsea Holdings, and $8.4 million to Level Field Capital, LLC, a related party, for the repurchase of 2.8 million Private Placement Warrants. Refer to Note 9 – Related Party Transactions for additional information. The loss recognized on the repurchase of the Private Placement Warrants is recorded as loss on remeasurement of warrant liability on the Company’s consolidated statements of operations.

Landsea Homes Corp. | Q3 2023 Form 10-Q | 18


Landsea Homes Corporation
Notes to the Consolidated Financial Statements - (unaudited)

15. Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share (“EPS”) for the three and nine months ended September 30, 2023 and 2022:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	(dollars in thousands, except share and per share amounts)
Numerator
Net income attributable to Landsea Homes Corporation	$	8,596	$	19,970	$	16,761	$	47,970
Less: undistributed earnings allocated to participating shares	—		(487)		—		(1,094)
Net income attributable to common stockholders	$	8,596	$	19,483	$	16,761	$	46,876

Denominator
Weighted average common shares outstanding - basic	38,336,100		40,935,152		39,402,507		43,768,269
Adjustment for weighted average participating shares outstanding	—		(1,000,000)		—		(1,000,000)

Adjusted weighted average common shares outstanding under two class method - basic	38,336,100		39,935,152		39,402,507		42,768,269
Dilutive effect of warrants	—		—		—		—
Dilutive effect of share-based awards	104,292		162,117		146,528		175,602
Adjusted weighted average common shares outstanding under two class method - diluted	38,440,392		40,097,269		39,549,035		42,943,871

Earnings per share
Basic	$	0.22	$	0.49	$	0.43	$	1.10
Diluted	$	0.22	$	0.49	$	0.42	$	1.09

The Company excluded 2.0 million and 2.2 million common stock equivalents from diluted EPS related to antidilutive warrants, options, and share-based awards during the three and nine months ended September 30, 2023, respectively. The Company excluded 1.6 million common stock equivalents from diluted EPS during each of the three and nine months ended September 30, 2022.

16. Supplemental Disclosures of Cash Flow Information

The following table presents certain supplemental cash flow information:


	Nine Months Ended September 30,
	2023		2022
	(dollars in thousands)
Supplemental disclosures of cash flow information
Interest paid, net of amounts capitalized	$	—	$	—
Income taxes paid	$	8,736	$	32,454

Supplemental disclosures of non-cash investing and financing activities

Change in right-of-use assets for new, modified, or terminated operating leases	$	338	$	3,660

17. Subsequent Event

On October 10, 2023, the Company expanded into the Colorado market by acquiring certain assets of Richfield Homes, LLC. The Company paid an aggregate cash purchase price of $22.5 million to acquire approximately 290 owned or controlled lots in the greater Denver, Colorado area, including any construction in progress on those lots.

Landsea Homes Corp. | Q3 2023 Form 10-Q | 19

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, filed with the Securities and Exchange Commission (the “SEC”) on March 9, 2023. This section discusses certain items in the three and nine months ended September 30, 2023 and 2022 and year-to-year comparisons between those periods. References to “we”, “Landsea Homes”, the “Company”, “us”, or “our” refer to Landsea Homes Corporation.

Landsea Homes Corp. | Q3 2023 Form 10-Q | 20

Consolidated Financial Data

The following table summarizes our unaudited results of operations for the three and nine months ended September 30, 2023 and 2022.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
	(dollars in thousands, except per share amounts)				(dollars in thousands, except per share amounts)
Revenue
Home sales	$	258,062	$	326,496	$	790,199	$	975,269
Lot sales and other	19,286		9,089		22,133		45,222
Total revenues	277,348		335,585		812,332		1,020,491

Cost of sales
Home sales	209,753		258,362		647,642		770,220

Lot sales and other	13,309		10,737		15,770		40,546
Total cost of sales	223,062		269,099		663,412		810,766

Gross margin
Home sales	48,309		68,134		142,557		205,049
Lot sales and other	5,977		(1,648)		6,363		4,676
Total gross margin	54,286		66,486		148,920		209,725

Sales and marketing expenses	16,930		21,063		51,672		64,366
General and administrative expenses	25,463		21,111		74,223		70,734
Total operating expenses	42,393		42,174		125,895		135,100

Income from operations	11,893		24,312		23,025		74,625

Other income (loss), net	656		990		2,770		(654)

Loss on remeasurement of warrant liability	—		—		—		(7,315)
Pretax income	12,549		25,302		25,795		66,656

Provision for income taxes	3,066		4,021		6,323		17,460

Net income	9,483		21,281		19,472		49,196
Net income attributable to noncontrolling interests	887		1,311		2,711		1,226
Net income attributable to Landsea Homes Corporation	$	8,596	$	19,970	$	16,761	$	47,970

Income per share:
Basic	$	0.22	$	0.49	$	0.43	$	1.10
Diluted	$	0.22	$	0.49	$	0.42	$	1.09

Weighted average common shares outstanding:
Basic	38,336,100		39,935,152		39,402,507		42,768,269
Diluted	38,440,392		40,097,269		39,549,035		42,943,871

Landsea Homes Corp. | Q3 2023 Form 10-Q | 21

Business Overview

Driven by a commitment to sustainability, we design and build homes and communities in Arizona, California, Florida, Metro New York, and Texas. We create inspired spaces for modern living and feature homes and communities in vibrant, prime locations which 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.

We are engaged in the acquisition, development, and sale of homes and lots in the states of Arizona, California, Florida, New York, and Texas. Our operations are organized into five reportable segments: Arizona, California, Florida, Metro New York, and Texas. We build and sell an extensive range of home types across a variety of price points, but we focus our efforts on the first-time homebuyer. Our Corporate operations are a non-operating segment that supports our homebuilding operations by providing executive, finance, treasury, human resources, accounting, and legal services.

We continue to capitalize on opportunities to shift inventory and product to more affordable offerings through our acquisition in Florida. In January 2022, we acquired 100% of Hanover Family Builders, LLC (“Hanover”), a Florida-based homebuilder, for an aggregate cash purchase price, net of working capital adjustments, of $262.6 million. The Hanover acquisition increased our presence in Florida with a backlog of 522 units valued at $228.1 million as of the acquisition date. We believe this acquisition fits with and continues to advance our overall business strategy by expanding into new geographic and diverse markets.

During recent years, we saw significant increases in demand across our markets, fueled by historically low interest rates on mortgage loans and a generally tightening supply of homes for sale. This increased demand allowed us to increase prices and derive additional revenue from homes sales as we delivered more units than ever before. Supply chain issues, labor shortages, and the resulting cost increases partially offset some of the revenue growth that we experienced. Costs of construction of our homes have varied significantly over the past two years. During 2023, a significant portion of these supply chain and labor challenges have eased, however, recent increases, and the potential for future increases, in federal interest rates have put downward pressure on demand in our industry by reducing affordability for homebuyers across all of our markets.

While specific products are still occasionally difficult to procure, we expect to continue to manage this challenge by partnering with suppliers that can dedicate their attention and products to us, expanding our operational forecasts to assist in making purchase orders with sufficient lead time, using standard size products that are interchangeable, and holding select products on hand to ensure availability. The improvement in our supply chain is allowing us to be more strategic in the contracts we enter into and the vendors we use. We have seen improvements in our cycle time from beginning construction on a home to final delivery to the homebuyer, and we believe these steps will allow us to continue to shorten that cycle time.

Rising interest rates have put downward pressure on demand due to decreased affordability for many potential homebuyers across the nation. Challenges to affordability negatively impacted absorption and cancellation rates, particularly in the second half of 2022. During the first half of 2023, both metrics showed signs of improving and stabilizing, however continued inflation and federal interest rate increases, and the potential for future increases, have continued to cause affordability concerns and market uncertainty which could create further challenges across the homebuilding industry. We continue to monitor mortgage interest rates but are unsure of the length and magnitude of any future interest rate increases by the Federal Reserve which ultimately drive these rates. This has led us to respond to the current market by focusing sales and marketing efforts on addressing affordability and interest rates as well as providing certain purchase incentives, subject to managing our inventory levels in the market. We manage certain marketing programs nationwide, however the majority of incentives we offer are tailored to each community’s circumstances. We regularly perform stress tests on our backlog to identify homebuyers that are most likely to cancel their sales contracts, without intervention, due to higher costs from rising interest rates. Additionally, through a licensing agreement, we partnered with NFM Lending as a preferred lender to provide mortgage services under the name Landsea Mortgage. In connection with this arrangement, we have focused many of our incentives on mortgage interest rates and assisting homebuyers with buydowns on their home loans. This has helped achieve certain goals related to sales pace and absorption, but the added discounts and incentives have lowered revenue and gross margins. We continue to monitor the credit worthiness of our homebuyers with NFM Lending to ensure as many of our sales as possible lead to successful home deliveries.

Landsea Homes Corp. | Q3 2023 Form 10-Q | 22

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

•Strengthen unique brand position through product differentiation

•Continue geographic expansion and diversification into new markets

•Leverage existing sales, marketing, and general and administrative 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 total capital, earnings before interest, taxes, depreciation, and amortization (“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 nine months ended September 30, 2023, home sales revenue decreased 19% to $790.2 million from $975.3 million and home deliveries decreased 12% to 1,459 units from 1,667 units, in each case as compared to the same period in the prior year. The decrease in home deliveries and home sales revenue year-over-year is primarily the result of a decrease in demand and affordability as mortgage interest rates have risen significantly compared to the prior year period. In addition, our Metro New York segment has nearly completed delivering homes at its one community, with only two units remaining to deliver. In total, our net income for the nine months ended September 30, 2023 was $19.5 million compared to $49.2 million in the corresponding prior year period.

We remain focused on growth and view our leverage ratios as a key factor in allowing us to expand. While we have 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 marginally to 44.1% as of September 30, 2023 compared to 41.6% as of December 31, 2022. We believe the continued 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 price (“ASP”) can be negatively affected by economic conditions, such as rising interest rates, decreases in employment and median household incomes, as well as decreases in household formations and increasing supply of inventories. Shortages in labor or materials can also significantly increase costs, reduce gross margins, and lower our overall profitability. During the nine months ended September 30, 2023 we observed improved absorption rates compared to the same period in the prior year, primarily due to successful sales promotions that have helped generate sales, offset by interest rates remaining high and continued concerns about affordability. We are seeing signs of stabilization in metrics such as cancellation rates compared to the second half of 2022. Our results have been impacted, and could be further impacted, by continued challenges in home affordability as a result of price appreciation, increases in mortgage interest rates, or tightening of mortgage lending standards.

Landsea Homes Corp. | Q3 2023 Form 10-Q | 23

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. Commentary on significant changes for each of the segments in these metrics is provided below.


	Three Months Ended September 30,
	2023						2022						% 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	136	$	59,444	$	437	2.7	38	$	15,397	$	405	0.8	258	%	286	%	8	%	238	%
California	140	128,352		917		4.1	68	56,460		830		1.8	106	%	127	%	10	%	128	%
Florida	210	97,245		463		2.3	134	70,973		530		1.8	57	%	37	%	(13)	%	28	%
Metro New York	—	—		N/A		—	7	13,472		1,925		2.3	N/A		N/A		N/A		N/A
Texas	—	—		N/A		—	10	9,172		917		1.7	N/A		N/A		N/A		N/A
Total	486	$	285,041	$	587	2.7	257	$	165,474	$	644	1.5	89	%	72	%	(9)	%	80	%


	Nine Months Ended September 30,
	2023						2022						% 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	474	$	201,452	$	425	3.2	310	$	154,420	$	498	2.6	53	%	30	%	(15)	%	23	%
California	520	446,045		858		4.9	357	330,705		926		3.4	46	%	35	%	(7)	%	44	%
Florida	551	240,269		436		2.1	728	350,029		481		3.0	(24	%)	(31	%)	(9)	%	(30	%)
Metro New York	—	—		N/A		—	20	50,662		2,533		2.2	N/A		N/A		N/A		N/A
Texas	4	4,194

Landsea Homes Corp [LSEAW] Filings
Landsea Homes Corp [LSEA] Filings
10-Q	[2023-11-02]
10-Q	[2023-08-01]
10-Q	[2023-05-04]
10-K	[2023-03-09]
10-Q	[2022-11-03]
10-Q	[2022-08-05]
10-Q	[2022-05-05]
10-K	[2022-03-16]
10-Q	[2021-11-15]
10-Q	[2021-08-12]
10-Q	[2021-05-17]
10-K	[2021-03-12]
S-1	[2021-01-29]
10-Q	[2020-11-09]
10-Q	[2020-08-07]
10-Q	[2020-05-05]
10-K	[2020-02-24]
10-Q	[2019-11-08]
10-Q	[2019-08-09]
10-Q	[2019-05-09]
10-K	[2019-03-05]
10-Q	[2018-11-13]
10-Q	[2018-08-13]
S-1	[2018-05-18]

Landsea Homes Corp [LSEAW] Filings

Landsea Homes Corp [LSEA] Filings