Q4 2021 LGI Homes Inc Earnings Call

February 15, 2022

Welcome to the LTI homes fourth quarter and full year 2021 conference call. Today's call is being recorded and a replay will be on sale will be available on the company's website later today at www <unk> com, we have allocated an hour for prepared remarks.

In the Q&A.

Anyone should require operator assistance. During this conference. Please press star zero at this time I will turn the call over to Joshua <unk>, Vice President of Investor Relations at LTI homes. Mr. <unk> you may begin.

Thank you good afternoon, and welcome to our conference call to discuss our fourth quarter and full year 2021 results.

I'll remind listeners that this call will contain forward looking statements that include statements regarding LCI homes business strategy outlook plans objectives and guidance for 2022.

All such statements reflect management's current expectations. However, these statements involve assumptions and estimates and are therefore subject to risks and uncertainties that could cause managements expectations to prove to be incorrect.

You should review our filings with the SEC, including our risk factors and cautionary statement about forward looking statements section for a discussion of the risks uncertainties and other factors that could cause our actual results to differ from those presented in these forward looking statements.

You should consider all forward looking statements in light of the related risks and not place undue reliance on these forward looking statements, which speak only as of the date of this conference call and are not guarantees of future performance.

Additionally, we will discuss non-GAAP financial measures on today's call.

Such information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP.

Reconciliations of non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP can be found in the earnings press release that we issued this morning or our annual report on Form 10-K for the fiscal year ended December 31, 2021 that we expect to file with the SEC later today.

This filing will be accessible on the SEC website and on the Investor Relations section of our website.

Our hosts for todays call are Mr. Eric Lieber LG at Home's, Chief Executive Officer, and Chairman of the Board and Mr. Charles where Dan Chief Financial Officer, and Treasurer, I will now turn the call over to Eric.

Thank you Josh welcome to everyone, who joined our call today.

I'll open with highlights of our outstanding performance and key accomplishments in 2021, Charles will then provide details on our financial results.

Finally, I'll conclude with our current view on the market and details of our guidance for 2022.

Every account 2021 was extraordinary year for Lj homes. Despite numerous challenges, we again set new records for closings and revenues for.

For the second year in a row full year revenue increased nearly 29% to over $3 billion driven by a 12% increase in closings to 10442 homes, which was at the top end of our guidance in November and significantly higher than the closing guidance provided this time last year.

This marked our eighth consecutive year of double digit growth in both closings and revenue.

For the fourth quarter of 2021, we averaged over eight closings per community per month companywide.

Our top five markets for the quarter were <unk>.

FW with $13 six closings per community per month.

Houston with $12 five.

Daytona Beach in Nashville, each with $12, three and Las Vegas with 12.

We averaged a record eight three closings per community per month companywide. In 2021. This was an increase of 20% year over year and 26% higher than our historical five year average of $6 six.

Our number one market this year with San Antonio with 12, seven closings per community per month.

Austin and Dallas Fort worth tied for second place each with $12 four.

Houston came in fourth with 10 eight.

And rounding out the top five with Charlotte with $10 five closings per community per month.

Our ability to translate our closings and industry, leading absorptions into consistent profitability continues to differentiate our business.

We delivered all time records in every profitability metrics gross margin adjusted gross margin EBITDA pre tax income net income and EPS together, resulting in return on equity for the year of 34% significantly outperforming both the S&P 500 and most.

Of our sector.

In line with our November guidance, we finished the year with 101 active communities and we expanded our geographic presence in the mid Atlantic with the addition of two new markets, Baltimore, Maryland, and Norfolk, Virginia.

A few additional highlights from 2021, we.

We acquired two builders this year the added over 3600 owned and controlled lots to our inventory.

Both companies are fully integrated into our organization and are operating the <unk> way.

For the second year in a row, 100% of the homes. We closed included water sense fixtures energy star appliances, led lighting and other energy saving products designed to improve the efficiency of our homes saving our customers' money easing stretch on our infrastructure and reducing impacts to the environment.

Additionally, 90% of the homes, we closed in 2021 qualified for 45 L tax credits.

With a focus on our future growth, we invested over $1 billion last year, expanding our land portfolio to 92000 owned and controlled lots an increase of 49%.

Thanks to the efforts of our land acquisition teams across the country. We continue to source new land that meets our strict underwriting standards annual fuel our profitable growth for years to come.

During the year, we made significant progress strengthening our balance sheet and.

In April we amended our credit facility, increasing our capacity to $850 million, while simultaneously lowering the cost and.

In June we refinanced our 300 million senior notes due 2026, which in combination with the changes to our revolver will result in nearly $14 million in annualized interest savings.

During the year, we returned almost $194 million to shareholders through the purchase of one 3 million shares of our common stock and this morning, we announced our board's approval of an additional $200 million for future share repurchases.

Finally, I am pleased to announce that <unk> mortgage solutions, our joint venture with loan depot is now licensed in 12 States and we expect it to be operational in all of our markets by the end of the first quarter.

With that I will turn the call over to Charles for more details on our record financial results.

Thanks, Eric.

As highlighted in the press release. This morning revenue for the fourth quarter was $801 1 million a decrease of 10, 7% year over year due to lower community count and absorptions.

Offset by a 24% increase in average selling price.

Revenue was up six 6% sequentially and up 28, 8% year over year to $3 $1 billion.

During the quarter, we closed 2526 homes, including 369 homes sold through our wholesale business. This quarter, representing 14, 6% of our total closings compared to 360 homes or 10, 6% of our total closings in the same quarter last year.

Year.

As Eric highlighted we closed a record 10442 homes in 2021, an increase of 11, 8% year over year and our.

Our closings included 1515 homes sold through our wholesale business this year.

Representing 14, 5% of our total closings and generating $349 $3 million in revenue.

We currently expect that our wholesale business will represent approximately 10% of our total closings in 2022.

During the fourth quarter, we continued to raise prices to cover rising costs. Our average sales price during the fourth quarter was a record $317132, a 24% increase year over year and a five 4% increase over the prior quarter.

Increases were primarily driven by a favorable price environment higher price points in certain new markets and changes in product mix.

For the full year, our average sales price was $292104 an increase of 15, 2% year over year.

Higher average sales prices were primarily driven by a favorable demand environment higher price points in certain markets and were partially offset by the higher percentage of wholesale closings this year compared to 2020.

Gross margin as a percentage of sales in the fourth quarter was 26, 4% and adjusted gross margin was 27, 6%.

Adjusted gross margin excludes $7 $8 million of capitalized interest charged to cost of sales during the quarter and $1 8 million related to purchase accounting together, representing 120 basis points.

For the full year, our gross margin was a record 26, 8% compared to 25, 5% for the full year 2020, an increase of 130 basis points excluding.

The impact of our wholesale closings gross margin was up 170 basis points year over year.

Full year adjusted gross margin was also a new company record at 28, 2% compared to 27, 4% for full year 2020, an increase of 80 basis points.

Adjusted gross margin excludes $37 5 million of capitalized interest charged to cost of sales during the year and $5 million related to purchase accounting together, representing a 140 basis points.

Combined selling general and administrative expenses were eight 8% of revenue for the fourth quarter and eight 9% for the full year.

Our full year result represented a 120 basis points improvement over 2020 and was the lowest ratio we have reported as a public company.

Selling expenses for the quarter were $42 6 million or five 3% of revenue compared to $50 2 million or five 6% of revenue for the fourth quarter of 2020, a 30 basis point improvement.

As a percentage of revenue selling expenses were essentially flat sequentially.

And represented the lowest level, we have reported as a public company.

In addition to operating leverage realized from the increase in revenue our quarterly advertising spend was lower year over year as a result of favorable demand tailwind.

Sure.

For the full year, our selling expenses were $170 million or five 6% of revenue compared to $148 4 million or six 3% of revenue in 2020, a 70 basis point improvement.

This was the lowest level, we have delivered as a public company driven by continued operating leverage and lower advertising expenses when compared to the prior year.

General and administrative expenses totaled $27 9 million or three 5% of revenue in the fourth quarter compared to three 1% of revenue last year.

For the full year, our general and administrative expenses were approximately $103 million or three 3% of revenue compared to three 8% of revenue in 2020, a 50 basis point improvement primarily driven by operating leverage.

We expect advertising and operating expenses to increase this year as we grow community count.

As a result, we currently expect our full year 2020 to SG&A expense as a percentage of revenue will range between nine and 10%.

Full year EBITDA was a record $581 5 million an increase of 42, 2% over 2020 full.

Full year EBITDA margin was 19, 1%, a 180 basis point improvement over the prior year and a new company record.

Pre tax income for the quarter was $143 4 million or 17, 9% of revenue.

For the full year, we generated pre tax net income of $542 8 million.

An increase of 47, 6% over 2020.

Our pre tax net income represented 17, 8% of revenue an increase of 230 basis points over the prior year.

This was the highest annual pre tax net income and margin in our company's history.

Our full year tax rate was 28% in 2021 compared to 11, 9% in the previous year.

Year over year increase was the result of $29 $7 million in retroactive federal energy tax credits recognized in 2020.

Based on our current outlook and information available to us at this time, we estimate our full year effective tax rate for 2022 will range between 23, 5% and 24, 5% at.

At the midpoint. This is approximately 300 basis points higher than 2021 as a result of the exploration of the 45 L energy tax credits.

Our fourth quarter reported net income was $111 3 million or 13, 9% of revenue, resulting in earnings of $4 61 per basic share.

$4 53 per diluted share.

Our full year reported net income increased 32, 6% year over year to a record $429 6 million or 14, 1% of revenue.

This resulted in full year earnings of $17 46 per basic share.

$17 25 per diluted share representing year over year increases of 35, 5% and 35, 2% respectively.

Fourth quarter gross orders were 1907, a 37, 3% increase sequentially as we released more homes for sale in the fourth quarter.

Net orders were 1489 and the cancellation rate for the fourth quarter was 21, 9%.

Full year gross orders were 11813 net orders were $9 533, and the cancellation rate was 19, 3%.

We ended this year with 2055 homes in backlog valued at $659 $2 million.

During the year, we invested over $1 billion, acquiring and developing attractive land positions to support our long term growth objectives.

As of December 31, our land portfolio consisted of 91845 owned and controlled lots a 49, 3% increase over 2020.

54867, or 59, 7% of our lots at year end were owned.

Of these owned lots 3709 were completed homes information centers or homes in process.

Eight 415 were finished vacant lots and the remaining 42743 lots were raw or under development.

36978, or 43% of our lots at year end were controlled.

And of those controlled lots, 85% were raw and undeveloped compared to 78% at the end of 2020, and just 46% at the end of 2019.

I'll conclude with an update on our capital position, we ended the quarter with $2 1 billion of real estate inventory and total assets in excess of $2 4 billion.

As of December 31, we had $817 $4 million in total debt and we ended the year with $371 $8 million of total liquidity, including $55 million of cash and $321 3 million available under our revolving credit facility.

As a result of our strong operating results we ended the quarter with over $1 4 billion and total book equity a 22, 5% increase year over year and a net debt to capitalization ratio of 35, 1%.

Over the last year, we returned $193 $8 million to shareholders through the repurchase of $1 3 million shares of our common stock.

And we ended the year with $23 9 million shares outstanding.

While land investment to fuel future growth remains our primary capital allocation priority, we will continue to systematically and opportunistically repurchase shares of our common stock.

On February 11, 2022, our board of directors approved a $200 million increase to our share repurchase authorization, bringing the aggregate total amount available to $306 $6 million, including the $106 $6 million that was remaining at year end under the board's previous.

<unk>.

At this point I'll turn the call back over to Eric.

Thanks Charles.

Our achievements in 2021 reflect the unprecedented strength of the housing market and our ability to deliver outstanding results. Despite the numerous challenges that impacted our industry.

Tight supply chains labor shortages rising input costs and a limited supply of available lots where challenges that resulted in input price volatility and long delays in construction and development timelines.

We expect these dynamics will continue until lead times and product availability normalize we have built our guidance with the view that supply constraints and cost inflation will continue while demand remained strong throughout the year.

On February four we reported January closings of 442 homes. This represented four nine closings per community per month, which was well in excess of the average of 4.0 closings per community per month achieved in the same month over the prior eight years.

As highlighted we experienced a decrease in community count in 2021 due to accelerated absorptions time lags between closeout communities and their replacements and shortages of finished lots in some markets.

This dynamic has continued into 2022 and will likely persist until additional active communities open.

We expect to finish the year with 110 to 120 active selling communities.

Thereafter, we expect the loss we've acquired over the last two years, we will begin to fuel accelerating community count in 2023 2024 and beyond.

Additionally, we expect that 2022 will bring some normalization of demand the desire for homes over the last two years has been unlike anything we've experienced before and while we believe demand will remain strong we don't expect that an absorption rate of eight three homes per month is sustainable long term.

While it looks like absorption rates will move lower.

Compared to the record set last year.

We believe they will remain well above historical levels and will likely be more than the seven closings per community per month, we saw in 2020.

In combination with our community count expectations. This should result in full year closings between 9000 and.

And 10000 homes this year.

Throughout the year, we increased selling prices to cover costs and maintain margins in the fourth quarter, our ASP increased 5% over the prior quarter and we continue to see cost inflation in January resulting in additional price increases last month.

Despite these increases and the news around rising interest rates affordability concerns have not had a measurable impact on the demand for our homes.

We attribute this to the nation's healthy employment rate.

<unk> wage growth low inventory of homes for sale and the reality that both current and expected interest rates remains some of the most attractive we've seen in our lifetime.

We'll continue to raise prices as needed to cover costs and believe our average sales price for the full year will be in the range of 315 to $330000.

Finally, we believe our margin profile over the last eight years has been one of the highest and most consistent in our industry.

We expect to maintain that attractive consistency delivering full year gross margins between 26, five and 28, 5% and adjusted gross margins between 28 and 30%.

In conclusion, we are extremely pleased with our results this year.

Right. The numerous challenges, we delivered our multi successful and profitable year ever achieving double digit closing and revenue growth and setting new records for profitability in every category.

This year is off to a strong start and we are well positioned to achieve all of our objectives and deliver significant value to our shareholders. This year and for years to come now we'll be happy to take your questions.

Thank you and as a reminder to ask a question you will need to start wondering your telephone to withdraw your question. Please press the pound key please standby, while we compile the Q&A roster. Our first question comes from Deepa Raghavan with Wells Fargo Securities. Your line is open.

Hi, Good morning, everyone. Thanks for taking my question.

Eric.

Any initial buyer impacts so far.

Just given the interest rate spike as seen in your backlogs, even your front log.

Sales office for example.

Can you give us a little bit more color on what's your thoughts on.

And how it typically does it take for the buyer to react to such steep price increases are.

That we should be aware off.

Talk about this normalization of demand.

And you point to some of these macro headwinds out there.

Yes. Thanks, Steve This is Eric I can start great.

Great question.

We're monitoring it week by week office by office and the reports so far are as we're continuing to see very strong demand and I think thats reflective in our guidance.

Projecting more than seven closings per community per month, and even up to date as of last weekend. We had a very good sales weekend in the field, we are still nationwide in a position that as we release inventory for sale.

Most of those sales are going to close in the next 30 to 90 days as we are waiting longer to release houses and the demand is really strong even though we're selling homes to our consumers with interest rates.

About 100 basis points higher than they were a year ago, we're still seeing very strong demand.

How much of these motivated buyers are really out there that you would say maybe could benefit by pulling forward their purchasing decisions.

Therefore, you see the first half probably we will have a stronger housing market, but then second half.

We may have to see some moderation I mean is there any pallets you could draw from 2018 are candidly based on your experience. So.

We understand from a high level how to think about.

What's happening with the housing market.

Yes, I think deepa from our standpoint, we're very pro homeownership and people make housing decisions based on based on their lifestyle whats happening in there like we're also seeing a lot of investor activity.

I think everybody is in agreement rates are very likely to rise as they have already done and thats going to continue so that creates urgency for our buyers anyone that's interested in buying a home now is the time and that's the message we're spreading in the field and spreading to our consumers and the demand is still there if interest rates continue to rise, we're assuming that still.

In a very positive economic environment like we talked about in our scripted remarks.

We do anticipate if rates continue to rise.

Monthly payment at qualification is important to our borrowers, but we can see that.

As we saw in 2018, maybe they select a smaller square footage floor plan, even though the rates are higher and maybe they are selecting the <unk> Hunter square foot House, and 7800 square foot House as an example.

So we think it remains a pretty strong housing market throughout the year.

Yeah.

Okay.

This is my second question is on gross margin is there any first half second half cadence.

You should be aware off and anything.

I think you'd point to in Q1 quarter as we try to model some of those puts and takes Charles That's my final question. Thanks.

Yeah sure. Thanks Deepa.

I don't think so I think it's going to it's going to vary quarter to quarter. I think 2021, we saw the most consistent gross margin throughout the year.

But it will vary from quarter to quarter, but we would expect it to range within our guidance range that we provided.

Thanks, So much I'll pass it on.

Thank you. Our next question comes from Jay Mccanless with Wedbush Securities. Your line is open.

Okay. Your line is open are you muted.

I'll go to the next question.

With <unk> your line is now open.

Thanks, everybody.

I wanted to ask about.

Mix of communities that you are expecting to open in 'twenty two.

Instead, the southeast had a fairly good sized drop in communities in 'twenty, one versus 'twenty and you've got a fair amount of land I think I think seven years of island almost seven years of owned there. So are you are you likely to see a geographic mix shift in your store base in 'twenty two.

Not necessarily Carl I guess make pretty consistent around the country. We have been buying a lot of land a lot of that is raw land almost all of it is raw land that to get through the development type timeline with engineering and plant approvals and Thats a different.

Across the United States most of it is delayed in taking longer than it ever has.

Geographically I think it's going to be pretty widespread not as much growth in our per community basis in Texas.

This is where we have our largest concentration of <unk> in our established markets, but a lot of it a lot of growth in the southeast Florida.

No no really new markets, we are going to Salt Lake City, but we don't project that to be in the community count until 2023.

Okay. Thanks.

And then in terms of the cadence of community openings.

Likely to be relatively as you look at it now relatively even across the year or is there a front end or backend loaded.

Yes, we believe it's going to be backend loaded it would be spread throughout we think 90% is probably our lowest point maybe moves one or two in the month of February then from March on its ramping up but we do believe it's going be more backend weighted.

Okay. Thanks, a lot.

Youre welcome.

Thank you.

Our next question comes from Jay Mccanless Your line is open.

Okay. Thanks, sorry about that.

Following on what Karl was asking I guess.

A little more ambitious target that I expected from me.

For the community count for this year.

Have you seen an improvement in some of the municipal issues or is it just youre getting through the self development process a little faster.

Maybe just talk us because thats going from 90 to potentially 100, fifteen's pretty big move through the year.

Yes.

I think it's as expected J I think what it seems like it's larger than it is because of the 90, because we closed out so many communities.

At the end of the year.

In December so our ended the community count ended the year community Count was 101, and then 101 going to one 110 to 120, 10% to 20% community count increases is what we expect.

And like last year, that's what we expect we missed it last year, because closings and absorptions were higher we ended up closing a lot of communities faster than expected.

But the ramping up of new communities.

As challenging as it ever has been in that we have not seen any relief in that regard.

Okay.

And then I guess on the wholesale targets any specific reason why youre thinking you might sell less this year, especially with what we've seen in the press with the large amount of demand thats out there in <unk>.

Numerous institutions trying to get into the single family for rent business.

Yes couple of things I'd point to Jay first of all you're entirely correct. There is still very strong demand from the single family rental industry to buy homes from El Jai just starting off the year, we don't have a strong pipeline and we're limited on inventory.

In the retail business is very strong so we could sell as many as we did last year, but I think that would be under the case that the retail business.

Not as strong and we have not seen that yet.

Okay.

Great. Thanks for taking my questions.

Paul.

Thank you. Our next question comes from Alex Barron with housing Research Center. Your line is open.

Yes, thanks, guys.

I wanted to start to see if you could provide the number of homes you guys started.

In the quarter versus last year.

Yes, sure Alex as Charles just over <unk> hundred starts in the fourth quarter.

This year that compares to almost 2100 in the fourth quarter of 'twenty one.

500, okay.

16th.

Okay sorry.

The other question I wanted to ask is I know traditionally you guys used to sell homes that were more I would say closer to being finished.

And I think last year with.

Changes in the supply chain that change. So are you guys at this point basically going back or aiming to go back to pretty much selling completed houses or what how are you guys thinking about that.

Yeah. Alex This is Eric I can take that our business model didn't change, we're still a 100% spec builder, where we pre select the fit and finishes that head of sales what happened at.

At the start of the pandemic as we got way out ahead of ourselves and was sold of houses.

So the house and permitting stage and before we even went to permitting and we didn't build enough deflation target cells to protect our protect our margin and make sure. We can also deliver a house to a customer on the date, we agreed to deliver that house.

We have wins.

Also we get middle Middle of last year, we have just decided not to put a house up for sale.

Until that houses started because once the houses started essentially we know and are comfortable that our team will deliver that house on time and we're also comfortable that we understand all the costs involved. So we can price. It accordingly. So we're just taking out some of the margin of timing risk is the only thing that we have changed otherwise the business model is exactly the same.

Got it and in terms of that.

The business model I know.

It's new to emphasize.

Selling a lot of homes to first time buyers marketing to renters rental communities mailers that kind of stuff.

Is that still the case or has the shift the mix of the buyers.

Change.

As the ESP has gone up.

It's still the case and we're still selling to first time homebuyers, who is just it's just a little more expensive.

Everybody's price point is up and needed to be up because of inflation and supply chain.

But the customers are still the same we're selling more investors than we have or have so that is slightly different and obviously the wholesale business and sell into the big institutional investors didn't even exist four years five years ago. So that is new but our traditional business is still signed to first time homebuyers that is there are tarata brand, which.

Our luxury brand can be approximately 5% of our business this year, but the other 95% will be focused on that first time homebuyer.

Got it and if I could ask one last one.

I'm not sure if I missed it but did you guys provide any.

Estimate or guidance for first quarter deliveries should we just roughly take the <unk>.

January numbers or do you expect a significant ramp up some of that as each month goes by.

We didn't give first quarter guidance. We can we can tell you that we expect February closings to be between five and 600 will.

There will be a total closings for February so right in line with January on a per community basis and based on historical right online in line with our annual guidance.

Okay, Thanks, and best of luck.

Alright, Thanks al.

Thank you. Our next question comes from Michael Rehaut with Jpmorgan. Your line is open.

Thanks, Good afternoon, everyone.

Good day.

Couple of questions on the guidance.

<unk>.

On the gross margins.

Looking for a full year.

Range that.

The low end of the range its basically.

At or slightly above what you did in the fourth quarter.

And.

The midpoint being.

No.

Roughly plus or minus 100 basis points above what you did for full year 'twenty. One so just trying to understand what the assumptions are behind that.

If you are seeing.

If theres any assumption for better costs I believe you said in your prepared remarks that you werent necessarily baking that in.

Just trying to get a sense of.

Of that of that move in gross margin and also if that's something that would build throughout the year and we would end.

At the end of the year at a higher level than the full year average.

Yeah.

Yes, Great question, Mike This Charles I can I can start will certainly for 2021, where we were very pleased with record breaking gross margin results.

In terms of.

How we came in for the full year and I think we're still thinking about it like we always have which is constantly monitoring costs. We do think that costs are going.

Going to continue to rise.

Raised prices accordingly.

To balance out rising costs with.

With average sales prices, Eric had mentioned, maybe there might be a shift with affordability down to lower.

Floor plans and kind of assume we take that into account.

The geographic mix and then the closeout and transition between communities is certainly a factor that comes into play as we get into relatively more turnover from a community count standpoint, where there's community transition within the markets.

That certainly is a factor that we're taking into account when we're thinking about our 2022 gross margins.

So just so I understand I appreciate that Charles.

Kind of parsing through that answer is it fair to say that it's more just mix.

And cost basis.

Of the land Thats coming through in 'twenty. Two is that if you had to kind of boil it down is that.

What you could be the primary driver and again any comments in terms of cadence throughout the year would be helpful.

Sure No I think it's more of just our philosophy of pricing to margin I think that's how we're how we're thinking about it I think certainly all of those factors come into play because.

A good portion of our closings in 2022, we're going to come from communities that didn't exist in 2021. So that turnover is certainly a component I think on the cadence.

I think we're expecting.

Relative consistency across the quarters.

We tend to have slightly better margins in the higher absorption quarters.

This year in terms of 2021 was a little different.

In the sense of from a.

Absorptions being strong throughout the year. So as absorptions are lower in the quarter I think you can expect slightly.

Slightly lower gross margins, but.

We think it's going to be generally consistent across the quarters.

Okay. That's helpful.

Also on an MSP guidance.

$3 15 to $3 30.

Is that kind of also assuming kind of a normal.

Sort of a steady improvement throughout the year.

If there were to be further price increases as warranted by cost inflation, you might see upside, let's say to the higher end of that range.

Yes, Thats correct, Mike I think it just really depends on what's happened in the rate.

Discussion plays into that because our price ranges per community, there's usually about a $60000 difference between the smallest plan the largest plan and what plan.

The individual X has a bearing on our average sales price also there is a geographic mix component, if we exceed our expectations and our more expensive market that's going to have an influence on ASP.

Compared to some some of the lower price point market. So we think we put out a realistic range not as large a percentage increase this year as last year I think thats consistent with some of the forecast we see in the in the market as well.

Okay.

One last one if I could just on community count.

Comments around 23, showing greater growth.

Our accelerated growth 'twenty, three and 'twenty four.

I believe last.

Quarter, you may be talked about.

23 also showing growth but.

To be much more back half weighted that maybe the first half of 'twenty three might be similar to the end of 'twenty. Two just wanted to know if that's still kind of how you're thinking about things and when we think about growth maybe starting in the back half of 'twenty three 'twenty four.

Given the lot count growth that you've had over the past year.

Tom.

Up let's say on average 50% year over year should we be thinking something in a kind of a 20% plus growth type of dynamic.

Once you get through maybe a flattish first half into the second half is that the right way to think about it.

Yes, that's.

What we think is going to happen my we spent a lot of money on land.

We've got a lot of <unk> our teams in the field Theyre doing a great job, we're being selective with our underwriting criteria.

Jackson this year's for community count to be up 10% to 20% over year end 2023, we would expect that number to be larger so you.

And I would have to agree with that as community count up more than 20% in.

In 2023 is our expectation.

Yes.

Great. Thanks, a lot.

You bet. Thank you.

Next question comes from Truman Patterson with Wolfe Research Your line is open.

Hey, good afternoon, everyone. Thanks for taking my questions just.

Wanted to ask a little bit more explicitly but you all had 90 communities ending in January you expect it to.

Ramp the 115 by the end of the year so.

Just a two part question.

Can you help us think through what level of starts youre expecting in the first quarter, which.

Might be able to extrapolate for potential orders if demand remains healthy and then.

With communities kind of ramping through the year and being back half weighted is it safe to assume that your closings are also pretty back half weighted in 2002.

Yes, Truman I.

I can start with.

Starts, but I think we are.

In line to start roughly a similar number of houses and what we close maybe slightly more we kind of ended we ended the year around 3700 units in inventory.

That was similar to where we ended 2020 and slightly down from the third quarter. So I think our our pace in the first quarter is probably would be similar to what we close and then ramping up.

To your point and assuming that the back half.

It starts to pick up a little bit.

Okay, Okay and then.

Now that your mortgage JV has matured.

Any expectations for earnings in 'twenty two.

As Eric mentioned, we've got 12 states license.

Hopeful that we're going to get all of our states license by the end of the first quarter.

We will continue to work through our.

Our existing backlog.

Which is currently not the majority not in the joint venture.

So pacing out the year, we might be looking at.

Roughly around $1 billion ish in loan volume somewhere in that 40% to 50 basis points range for the year.

Okay. Okay. Thanks.

Okay. Thanks and final one for me.

You all mentioned.

Supply chain constraints and materials were really tight in 'twenty. One we've now had the AUM omicron flare, which looks to be dissipating just trying to check to see if theres been any.

Near term our recent improvement on the materials availability side of things I'm thinking roof trusses windows garage doors.

<unk>.

We have not seen that drove in EMEA. Our teams are doing a great job in the field.

Having a record breaking closings last year in our guidance. This year of nine to 10000, we expect there still to be challenges, but our teams we'll manage through that the best that we can and also on the development side getting these new communities online we have not seen relief in the supply chain challenges in that regard either.

Alright, thank you.

And Youre welcome you are welcome.

Thank you and at this time I'm showing no further questions I would like to hand, the conference back over to Mr. Eric <unk> for closing comments.

Thank you before we close I wanted to take a moment and welcome our two new board members Shay Lee for REIT, and Maria Sharp Shirley Ann Marie I bring a wealth of experience and expertise to our board and their valuable insights will contribute to our continued success and long term growth.

Thanks to everyone today for participating on the call and you for your interest in <unk> homes, we look forward to sharing our achievements throughout the year.

Ladies and gentlemen, thank you for your participation you may now disconnect everyone have a wonderful day.

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Welcome to the LTI homes fourth quarter and full year 2021 conference call today's call is being recorded and a replay will be on the Vale will be available on the company's website later today at Www <unk> Com, we have allocated an hour for prepared remarks, and the Q&A if any once you would recall.

Operator assistance during the conference. Please press Star Zero at this time I'll turn the call over to Joshua <unk>, Vice President of Investor Relations at LTI homes. Mr. Fetter, you may begin.

Thank you good afternoon, and welcome to our conference call to discuss our fourth quarter and full year 2021 results.

I'll remind listeners that this call will contain forward looking statements that include statements regarding LCI homes business strategy outlook plans objectives and guidance for 2022.

Additionally, we will discuss non-GAAP financial measures on today's call.

Such information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP.

This filing will be accessible on the SEC website and on the Investor Relations section of our website.

Our hosts for todays call are Mr. Eric Lieber, <unk>, Chief Executive Officer, and Chairman of the Board and Mr. Charles where Dan Chief Financial Officer, and Treasurer, I will now turn the call over to Eric.

Thank you Josh welcome to everyone, who joined our call today.

I'll open with highlights of our outstanding performance and key accomplishments in 2021, Charles will then provide details on our financial results.

Finally, I'll conclude with our current view on the market and details of our guidance for 2022.

By every account 2021 was an extraordinary year for Lj homes. Despite numerous challenges, we again set new records for closings and revenues.

For the second year in a row full year revenue increased nearly 29% to over $3 billion driven by a 12% increase in closings to 10442 homes.

At the top end of our guidance in November and significantly higher than the closing guidance provided this time last year.

This marked our eighth consecutive year of double digit growth in both closings and revenue.

For the fourth quarter of 2021, we averaged over eight closings per community per month companywide, our top five markets for the quarter were <unk>.

DFW with $13 six closings per community per month.

Houston was $12 five.

Daytona Beach in Nashville, each with $12 three.

And Las Vegas with 12.

We averaged a record eight three closings per community per month companywide. In 2021. This was an increase of 20% year over year and 26% higher than our historical five year average of $6 six.

Our number one market. This year was San Antonio with 12, seven closings per community per month.

Austin and Dallas Fort worth tied for second place each was $12 four.

Houston came in fourth was 10 eight.

And rounding out the top five with Charlotte with $10 five closings per community per month.

Our ability to translate our closings and industry, leading absorptions into consistent profitability continues to differentiate our business we.

Of our sector.

A few additional highlights from 2021, we.

We acquired two builders this year that added over 3600 owned and controlled lots to our inventory.

Both companies are fully integrated into our organization and are operating the <unk> way.

Additionally, 90% of the homes, we closed in 2021 qualified for 45 L tax credits.

With a focus on our future growth, we invested over $1 billion last year, expanding our land portfolio to 92000 owned and controlled lots an increase of 49%.

Thanks to the efforts of our land acquisition teams across the country. We continue to source new land that meets our strict underwriting standards and will fuel our profitable growth for years to come.

During the year, we made significant progress strengthening our balance sheet and.

In April we amended our credit facility, increasing our capacity to $850 million, while simultaneously lowering the cost and.

In June we refinanced our 300 million senior notes due 2026, which in combination with the changes to our revolver will result in nearly $14 million in annualized interest savings.

Finally, I am pleased to announce that LG mortgage solutions, our joint venture with loan depot is now licensed in 12 States and we expect it to be operational in all of our markets by the end of the first quarter.

With that I'll turn the call over to Charles for more details on our record financial results.

Thanks, Eric.

As highlighted in the press release. This morning revenue for the fourth quarter was $801 $1 million a decrease of 10, 7% year over year due to lower community count and absorptions offset by a 24% increase in average selling price.

Revenue was up six 6% sequentially and up 28, 8% year over year to $3 $1 billion.

Year.

As Eric highlighted we closed a record 10442 homes in 2021, an increase of 11, 8% year over year.

Our closings included $1 515 homes sold through our wholesale business. This year, representing 14, 5% of our total closings and generating $349 $3 million in revenue.

We currently expect that our wholesale business will represent approximately 10% of our total closings in 2022.

Increases were primarily driven by a favorable price environment higher price points in certain new markets and changes in product mix.

For the full year, our average sales price was $292104 an increase of 15, 2% year over year.

Gross margin as a percentage of sales in the fourth quarter was 26, 4% and adjusted gross margin was 27, 6%.

Adjusted gross margin excludes $7 8 million of capitalized interest charged to cost of sales during the quarter and $1 $8 million related to purchase accounting together, representing 120 basis points.

For the full year, our gross margin was a record 26, 8% compared to 25, 5% for the full year 2020, an increase of 130 basis points excluding.

Excluding the impact of our wholesale closings gross margin was up 170 basis points year over year.