Lennar Corporation (LEN) Earnings Call Transcript & Summary

[indiscernible] Annual Meeting of Stockholders. I would like to introduce the first presenter, Stuart Miller, Executive Chairman of Lennar.

Very good, and good morning, everyone. Welcome to Lennar Corporation's 2021 Annual Meeting of Stockholders. I'm Stuart Miller, Executive Chair of Lennar. It is my pleasure to welcome you here today for this meeting. And I'd like to introduce Sid Lapidus, our Lead Director of the Board of Directors of Lennar Corporation.

Good morning. I am Sid Lapidus, Lead Director of the Board. I will be presiding at this virtual meeting. I call the meeting to order, and I would like to introduce the other members of the Board: Stuart Miller, Executive Chair, who you've just met; Amy Banse, Senior Adviser to the Executive Committee of Comcast Corp; Rick Beckwitt, Co-Chief Executive Officer and Co-President of Lennar; Irving Bolotin, former Senior Vice President of Lennar; Steve Gerard, Chairman and Former Chief Executive Officer of CBIZ; Tig Gilliam, Chief Executive Officer of NES Global Talent; Sherill Hudson, former Chair and Chief Executive of TECO Energy; Jon Jaffe, Co-Chief Executive Officer and Co-President of Lennar; Teri McClure, former Chief Human Resources Officer and Senior Vice President, Labor of UPS; Armando Olivera, former Chief Executive Officer of Florida Power & Light; Jeffrey Sonnenfeld, the Lester Crown Professor in the Practice of Management for the Yale School of Management; and Scott Stowell, former Executive Chair of the Board of Directors at Lennar. Mr. Bolotin and Mr. Stowell are not standing for the election at today's Annual Meeting of Stockholders. Mr. Bolotin and Mr. Stowell have been valuable members of the company's Board, and we appreciate their years of service. I would like to now introduce the officers of the company at today's meeting: Diane Bessette, Vice President, Chief Financial Officer and Treasurer; Mark Sustana, Vice President, General Counsel and Secretary; David Collins, Vice President and Controller; Jeff McCall, Executive Vice President. Also in attendance is Eric Rubin of Deloitte & Touche, LLP, the independent registered public accounting firm for Lennar Corp. Peter Descovich of Broadridge, who is with us today, will serve as Inspector of Elections. We will conduct the business portion of our meeting first and answer questions at the end of the meeting. Only validated stockholders may ask questions in the designated field on the web portal. Please limit yourself to 1 question. Though we may not be able to answer every question, we will do our best to provide a response to as many as possible. If a question posed was not otherwise answered, such matters can be raised separately after the annual meeting by contacting Investor Relations as set forth in the Investor Relations section of the company's website. Please note that this meeting is being recorded. However, no one attending is permitted to use any audio recording device. The Board of Directors fixed February 16, 2021, as the record date for determining stockholders entitled to vote at this meeting. An affidavit has been delivered attesting to the fact that the notice of this meeting, the proxy statement and the form of proxy were mailed on February 25, 2021, to all holders of record of the company's Class A and Class B common stock as of the close of business on February 16, 2021. The company and the inspector of elections each has a certified list of the holders of record of the Class A and Class B common stock of the company as of the close of business on February 16, 2021. We have been informed by Mr. Descovich that the necessary quorum is present in person or by proxy and have been presented a certificate evidencing that fact. Now the matters to be voted upon will be presented. Please note that we will give stockholders an opportunity to comment on the proposals themselves after all proposals have been presented. I will now ask Mr. Sonnenfeld, who is Chair of our Nominating and Corporate Governance Committee, to present the first proposal regarding the election of [indiscernible]. Jeff?

As set forth in the proxy statement, the Board of Directors, in accordance with the recommendation of the Nominating and Corporate Governance Committee, has designated Amy Banse, Rick Beckwitt, Steven Gerard, Tig Gilliam, Sherill Hudson, Jon Jaffe, Sid Lapidus, Teri McClure, Stuart Miller, Armando, Olivera and myself as nominees for director, each to serve terms that will expire at the company's 2022 Annual Meeting of Stockholders. Information concerning the principal occupations of each of the nominees for director as well as their service to the company and other matters regarding them are contained in the proxy statement.

Thank you, Mr. Sonnenfeld. I will now ask Mr. Gerard, who is Chair of our Compensation Committee, to present the second proposal regarding the approval, on an advisory basis, of the compensation of the company's named executive officers.

As set forth in the proxy statement, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 require that stockholders have an advisory vote on executive compensation at least once every 3 years. Lennar holds an advisory vote on executive compensation every year. The advisory vote is not binding on the company. However, if the vote indicates a stockholder is concerned, the Board and the Compensation Committee would consider that in setting executive compensation for the next year.

Thank you, Mr. Gerard. I will now ask Mr. Hudson, who is Chair of our Audit Committee, to present the third proposal regarding the ratification of Deloitte & Touche as the company's independent registered public accounting firm.

As set forth in the proxy statement, the Audit Committee has selected Deloitte & Touche as the company's independent registered public accounting firm for the fiscal year ending November 30, 2021, and has decided to ask the company's share stockholders to ratify that selection.

Thank you, Mr. Hudson. Proposal 4 is the vote on the stockholder proposal received from Mr. Chevedden regarding our common stock voting structure. Would Mr. Chevedden or his representative please present this proposal?

This is John Chevedden. Can you hear me okay?

Yes.

Yes. Just a point of order at this, the Q&A is closed on the computer screen. So I just want to make that point of order, and the meeting should probably be adjourned until that is -- Q&A is operating. But I'll go forward with Proposal 4, equal voting rights for each share. Shareholders requested our Board take the steps necessary to eventually enable all of our company's outstanding stock to have an equal 1 vote per share in each voting situation. This would encompass all practical steps, including encouragement and negotiation with current and future shareholders who have more than 1 vote per share, to request that they relinquish, for the common good of all shareholders, any preexisting rights, if necessary. This proposal topic received majority support from all the non-insider Lennar shares in 2018. Dual-class stocks tend to underperform the stock market. This proposal is important because [ of their share's ] supersized voting power with 10 votes per share compared to the weak 1 vote per share for retail shareholders. Shareholders of shares with supersized voting power are getting a free ride right at the expense of retail shareholders. Supersized voting power shares give [indiscernible] shareholders a disproportionate choice in the management of the company compared to their money at risk. Without a voice in proportion to their money at risk, retail shareholders cannot hold management accountable. Dual-class stocks create an inferior class of shareholders and han dover power to a privileged few who are then allowed to pass on the financial risk to others. With few constraints placed upon their managers holding superclass stock, can spin out of control. Families and senior managers can entrench themselves into the operations of the company regardless of their abilities and performance. Dual-class structures may allow management to make bad decisions with few consequences Hollinger International was a sad example of the negative effects of dual-class shares. Former CEO, Conrad Black, controlled all of the company's Class B shares which gave him 30% of the equity and 72% of the voting power. He ran the company as if he were the sole owner, exacting huge management fees, consulting payments and personal dividends. Hollinger's Board of Directors was filled with Black's friends who are unlikely to oppose his authority. Holders of publicly traded shares of Hollinger had almost no power to have any influence on executive pay, mergers and acquisitions, Board composition or poison pills. Hollinger's financial and share performance suffered under Black's control. The Council of Institutional Investors recommends a 7-year phaseout of dual-class shares. The international corporate governance network supports the council's recommendation to require a time-based sunset calls for dual-class shares to revert to a traditional 1 share, 1 vote structure in no more than 7 years. Please vote yes. Equal voting for each share, Proposal 4.

Polls are now open. If any shareholder would like to make a comment regarding any of the proposals, please submit your comment through the web portal. We appreciate that. And we do have 1 question, and that is, can you explain the shareholder proposal and why management is against this? So the proposal which I think was well articulated by the reader, and I appreciate the opinion of the reader. Management has had a long-standing program of a dual-class voting relationship between Class A and Class B shares. Buyers of Lennar stock have had the opportunity to consider whether this is a strength or a detriment to the company, and it is certainly part of the consideration that we welcome each shareholder to make as they purchase Lennar A or Lennar B shares. We believe that it is part of the strength of the company. Our Board has discussed the matter, believe that this new class structure is an advantage, works to the advantage not just of the company, but of shareholders. And it's reflected in the performance of our stock, certainly over the past year, a very difficult year. And we do not agree as a management team that the dual-class and dual-voting or differentiated voting rights should be overturned. So from the management standpoint, we encourage a vote against the proposal. I hope that's an adequate explanation.

Thank you, Mr. Miller. The polls are now open. Any stockholder who wants to vote at the meeting, but hasn't yet done so or wishes to change a vote cast by proxy may do so through the web portal and following the instructions there. Stockholders who have sent in proxies or voted via telephone or Internet and do not want to change their vote do not need to take any further action. [Voting]

Now that everyone has had the opportunity to vote, I declare the polls closed. Mr. Descovich, do we have preliminary voting results?

We do. The preliminary vote report shows that the nominees for election to the Board have been duly elected. The stockholders have approved the compensation of the company's named executive officers. The stockholders ratified the selection of Deloitte as the company's independent registered public accounting firm, and the stockholders did not approve the stockholder proposal regarding the company's common stock voting structure.

Thank you, Sir. The company will be reporting the filing vote results in Form 8-K to be filed with the SEC within 4 business days. There being no further business to come before the meeting, I order the Lennar Corporation 2021 Annual Meeting of Stockholders adjourned. Now Stuart Miller, our Executive Chairman, will give a brief presentation. Stuart?

Well, good morning, once again, everybody, and let me reflectively note that 2020, now a completed year, was quite an interesting year for our company. Given the rather extensive review of our company and our company's business in our first quarter earnings call, I'm going to keep my remarks relative to 2020 brief and very much an overview, and then endeavor to answer a couple of the questions that have come across as part of our meeting this morning. So let me just start by saying that 2020 was a complicated year in every sense of the matter. It was a quick start with an anticipated strong housing market that had us ramping up production and execution at the beginning of the year, a quick stop relative to a COVID pandemic that was just starting to define itself And then a very rapid restart as apparently the COVID pandemic really ignited the passion of people to carefully consider how important their dwelling, their home, their safe haven was to the way that they would live their lives in questionable times. And so the -- our management team operated in about the most effective way a management team could operate under circumstances that were rapidly changing. The management team was extraordinarily well-positioned for the beginning of the year and the growing housing market. Nobody was well positioned for the immediacy of the pandemic and pandemic response, but our management team quickly adapted to a virtual engagement program, working daily, meeting daily to manage a company across the country to make sure that we were up to the task of number one, managing our people issues first; and number two, running the business at hand and maintaining a sustainable financial platform that would be able to answer the calling of the demand in the market that would ultimately ensue. Daily meetings, around-the-clock meetings of our executive management team, the tireless efforts of the people who run this company, quickly adjusted to changing cross currents in the environment and not only kept our company migrating forward in a safe and well-positioned manner, but actually, were able to lead this company to extraordinary performance in this complicated year. As we look to our performance in 2020, we exceeded all expectations for our company. We ran a company that was responsive to the changing currents of demand and supply in the marketplace and positioned ourselves for ever better execution as we enter 2021. I would say parenthetically that the work done within our company for both positioning ourselves economically and positioning ourselves internally to be people first and focused on the safety and security of the associates of Lennar, our customer base, our trade partners and our communities across the board was heroic. The management team from our corporate executive group, through our regional presidents that operated exceptionally on a day-by-day basis, kept our field offices and division presence carefully in the loop and carefully connected to the objectives of the company, and through the company all the way through to our divisions and everybody working within our divisions, operate in an exemplary manner. And we're able to keep our company moving forward, adjusting as we move forward and keeping those adjustments neatly timed and tuned in to the changes in the marketplace. And we saw that reflect in the results of the company and the safety and security of our associates. So overall, this has been an extraordinary year for Lennar. It was a year which presented unique challenges, unique opportunities to define the ability of our management team. And the management team across the board rise up to the occasion and executed seamlessly through the most difficult of years.

With that said, let me turn to some of the questions that have come across. I know I won't answer all of them. I know that we're going to open for Q&A in just a minute, so let me just take a few of the questions. One of them is how has COVID affected Lennar? Has it hurt or has it helped? I would answer the question this way that COVID affected all of us. It affected all of us in the way that we operate. It affected all of us in the way that we operate our company. It would be impossible for me to say, and I think anyone to say, that COVID has helped. As with any very difficult circumstance, there are lessons learned and opportunities found in the context of very distressing times, and I think there are some of those opportunities that we identified in the context of COVID. COVID certainly recalibrated the way that people think about their home as more than just a safe haven and a place to live. It became an office. It became a gym. It became a homeschooling environment. The home became so much more and presented an opportunity for us to present products and programs that would appeal to the changing appetites of our customer base, which we did along the way. I think overall, COVID was an opportunity for management team to define itself as adaptable and able to rise to an occasion. I think we did that, and we did it in a way that was respectful and carefully -- we carefully crafted programs to keep our people healthy while we were able to continue to operate our business and provide the desperately needed home for our customer base across the country. So next question. Are there any plans to increase the dividend? We always are considering the way that we think about our cash and cash flow. As you've seen in our 2020 results, we had comfortably about $2.7 billion of cash on our balance sheet at year-end, and that juxtaposes with a revolver that was undrawn. So we certainly have a strong cash position and strong prospects for additional cash flow as we go forward. We do consider how we might return capital to shareholders. We have -- as we announced in our first quarter, started to dip into stock buybacks. We -- as we did last year, raised our dividend by, I believe, Diane, by 100% to $1 a share. And we are constantly, as a Board and a management team, considering how we might continue to return capital to shareholders as we continue to grow our business. Additionally, in our first quarter, we announced that we would be considering a spin-off of some of our ancillary businesses. While this is not a return of capital to shareholders, it does require a balance sheet foundation to be able to execute such a transaction, and therefore, our cash position, our balance sheet position are important to our ability to execute on that program as we go forward. And so keeping all of that in the balance is the important work of our executive team together with our Board. So all of these pieces will be considered as part of an overall strategy, and you'll hear more announcements as we go forward. The question of Class A, Class B shares, there is a question, could you explain the difference between Class A and Class B? And the trade -- one trade at a substantial discount than the other is another question. The difference between Class A and Class B is simply the number of votes. Otherwise, they are very similar in structure. It's the same ownership in the company. But the number of votes for Class A shares is 1 vote; Class B shares is 10 votes per share. That is the difference. In terms of the -- and I explained that our management group is of the belief that this is part of the strength of our company and how we operate most effectively. It has been that way for the better part of 3 decades. And we invite our shareholders as they buy or as they sell to consider the relative strengths and weaknesses and arguments for each as they choose to buy shares in Class A, Class B or divest. As it relates to the difference in price, these are determined by market forces. It is our suspicion that the difference in Class A, Class B share prices is more reflective of the liquidity in Class A versus Class B, but that's just an opinion, and we'll leave it to market analysts and others to make more definitive judgment on that topic. There are a couple of questions on some of the social issues that prevail in the market or in the world today, whether they are compensation issues and diversity issues. These are areas of extreme focus within the company. Our compensation programs are very carefully tied to the performance of the company. As I noted before, our management teams across the country have worked tirelessly over this very complicated year to execute and run the business that you, as shareholders, would expect us to run, and we think that compensation appropriately reflects the work that has been done and the bottom line performance that has been accomplished, including the total shareholder return that we've been able to focus on and continue to improve. You can expect that as we go forward, you'll continue to see, through our compensation committee on the Board, a careful alignment between our compensation throughout the company. Our executive compensation throughout will be tied to the performance of the company, and the execution embedded in the performance of the company by the executives within the company. As it relates to an inclusion and diversity, we proudly have a very active program of an advisory group within the company that is set up to manage and to oversee and to execute on inclusion and diversity initiatives throughout the company. We have taken this call to action that we've heard across the country very seriously. We work on a weekly basis and a monthly basis to engage active programs to broaden the reach of our employment base, of our building partner base and our customers to reach out to a broader range of economic and social participants within our broader community, and we're very proud of the progress that we continue to make all the way from the Board down to the executive team and throughout the company. And pursuing each of these social initiatives, you'll continue to see and hear more about that. I want to say on a third topic that Lennar has been and continues to be extremely focused on how we broaden our reach to our communities across the country. Through Lennar's charitable foundation, which, as of now, receives $1,000 per home delivered across our platform to do good works across the country, the Lennar Foundation continues to be tip of the spear for our company in terms of focusing on and engaging social justice and economic justice for a broad range, broad base of the community across the country. Marshall Ames, our chair of our charitable foundation, leads our company at the corporate level and all the way through each and every one of our divisions to be both engaged through philanthropic giving to important causes, and as well leads the cause for the active engagement of individuals to give up their time and their energy to make our world a better place. So Lennar proudly, not only recently, but through our history, as part of the culture of this company, reaches out to the breadth of community to make sure that we are engaged in the social issues that define making our communities across the country better. I think I'll stop there. I probably touched on most of the questions that we have, and we certainly do welcome more questions. So where do we go from here? That's it?

Allison, do we have any other questions?

That's all for now.

Thank you, ladies and gentlemen, for attending the Lennar 2021 Annual Meeting of Stockholders. I hereby declare the meeting adjourned.

Thank you. The Lennar Corporation 2021 Annual Meeting of Stockholders has now come to an end. Thank you for attending. You may now leave the virtual meeting.