Q2 2023 LGI Homes Inc Earnings Call

August 1, 2023

Yeah.

Welcome to LG is homes second quarter 2023 conference call today's call is being recorded and a replay will be available on the company's website at Ww Docs, Oh, Gee I homes Doc call. After many minutes in your prepared comments, there will be an opportunity to ask questions at this time.

I'll turn the call over to Josh radar, Vice President of Investor Relations and capital markets.

Yeah.

Thanks, and good afternoon.

I'll remind listeners that this call contains forward looking statements, including managements views on the company's business strategy outlook plans objectives and guidance for 2023.

Such statements reflect management's current expectations and involve assumptions and estimates that are subject to risks and uncertainties that could cause managements expectations to prove to be incorrect.

You should review our filings with the SEC for a discussion of the risks uncertainties and other factors that could cause actual results to differ from those presented today.

All forward looking statements must be considered in light of those related risks and you should not place undue reliance on such statements, which reflect management's current viewpoints and are not guarantees of future performance.

On this call we will discuss non-GAAP financial measures that are not intended to be considered in isolation or as substitutes for 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 press release, we issued this morning and in our quarterly report on Form 10-Q for the quarter ended June 32023 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.

I am joined on today's call by Eric Lieber L. J Homes', Chief Executive Officer, Chairman of the Board and Charles <unk>, Chief Financial Officer, and Treasurer, I'll now turn the call over to Eric.

Thanks, Josh good afternoon, and welcome to our earnings call.

The results we reported this morning represent significant progress towards our full year guidance and longer term objectives for.

We're proud of these recent accomplishments and grateful to our employees, who successfully executed our strategic initiatives against the backdrop of continued economic uncertainty.

In the second quarter, we closed 854 homes, a 36% increase over the first quarter and generated over $645 million in revenue.

We're continuing to invest in the growth of our business, bringing more new communities online.

<unk> opportunities for additional growth in the years to come.

We ended the second quarter with a total of 102 active communities a net increase of 10 communities compared to the same period last year.

Companywide, we averaged six one closings per community per month, a 30% improvement over the $4 seven <unk> delivered in the first quarter.

The increase resulted from our continued success at connecting motivated and qualified buyers with our highly trained sales teams and the flow through of the strong net order pace, we reported on our last call.

Our top market on a closings per community basis was Dallas Fort worth with 10, two closings per month.

Next with Charlotte with 10 closings, followed by Houston was seven nine.

Rounding out the top five or Fort Pierce, Florida, and Las Vegas, Nevada, each was seven eight closings per month.

Congratulations to the teams in these markets on your outstanding performance last quarter.

During the quarter, we made significant progress on two key initiatives.

First we increased affordability for our customers as.

As the market cooled last summer, we pivoted, starting smaller square footage homes that reduced average selling prices and enabled more customers to qualify for homeownership.

And a number of markets, we introduced an entirely new floor plans that bridge gaps between existing sizes or further reduce the size of our smallest offering.

The success of this initiative has started to materialize in our results.

The percentage of closings coming from homes smaller than 500 square feet went from 19% in the second quarter of last year to 27% in the quarter just completed.

This trend helped drive the decrease in selling prices year over year in four out of our five segments. Despite increasing prices in most of our communities during the quarter.

While future home sizes and selling prices in the coming quarters will vary we believe our continued efforts to reduce the cost of homeownership will be a key factor in the success of our future results.

The other key initiatives during the quarter was to increase profitability and our gross margins reflected that focus.

On our last call, we shared our intention to return profitability metrics back to their historical levels, starting with a 100 basis point increase in gross margins in the second quarter.

I am pleased to report that we're ahead of schedule.

In the second quarter, we achieved a 170 basis point improvement in both financial and adjusted gross margins through a combination of sales price increases reduced house costs and the successful opening of new communities at margin profiles in line with our historical results.

Returning margins they are industry, leading levels is foremost in every decision we are currently making.

While theres still work to do we're encouraged by the progress we've made year to date.

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

Thanks, Eric.

Revenue in the second quarter was $645 3 million based on 1854 homes closed sequentially.

Sequentially revenue was up 32, 4% and closings were up 35, 7% as we continued to benefit from healthy demand and began to see the first quarter's strong order pace start to flow through our results.

Of our total closings 139, where through our wholesale channel representing seven 5% of total closings similar to what we delivered in the same quarter last year and in the prior quarter. This year.

Our average selling price of $348000 and $42 was two 4% lower both year over year and sequentially the.

The decrease was attributable to a higher percentage of homes sold and our lower priced central southeast and Florida segments.

Community transitions and our success at delivering smaller more affordable floor plans.

Our second quarter gross margin was 22% and our adjusted gross margin was 23, 8%.

As Erik highlighted adjusted gross margin improved 170 basis points sequentially compared to the 100 basis point improvement, we guided to on our last call.

The outperformance was driven by our success in raising prices in most of our communities lower input costs and new community openings at higher margin profiles.

Adjusted gross margin excluded $9 1 million of capitalized interest charges cost of sales and.

And $2 $7 million related to purchase accounting together, representing a 180 basis points.

Combined selling general and administrative expenses for the second quarter were $76 9 million or 11, 9% of revenue a 300 basis point improvement over the prior quarter.

Selling expenses were $49 2 million or seven 6% of revenue compared to eight 8% in the first quarter of this year.

The 120 basis points sequential improvement was primarily due to reduced spending on advertising as we curtailed marketing in communities where inventory was limited.

General and administrative expenses totaled $27 6 million or four 3% of revenue compared to six 1% in the first quarter of this year.

The 180 basis points sequential improvement was primarily related to operating leverage realized from the increase in revenue.

We expect G&A dollars to remain relatively flat in the second half of the year with the potential for generating additional operating leverage dependent on volume.

At the same time, we expect selling expenses as a percentage of revenue to increase as we turn up advertising spend in the second half to support additional community openings and drive leads to existing communities as more inventory becomes available per sale.

As a result, we're maintaining our expectation for full year SG&A as a percentage of revenue to range between 12, 5% and 13, 5%.

Pre tax net income for the second quarter was $71 4 million or 11, 1% of revenue.

Our effective tax rate was 25, 6% compared to 24, 3% in the same quarter last year the.

The increase in the rate was primarily due to mix shift to higher tax geographies and fewer federal energy efficient home tax credits.

We currently expect that our full year effective tax rate will range between 24% and 25%.

Our second quarter reported net income was $53 1 million.

Or $2 26 per basic share and $2 25 per diluted share.

Second quarter gross orders were 2609 up 109, 7% over the same period last year.

Net orders were 1937 homes, an increase of 124, 2% over the second quarter of last year.

Our cancellation rate during the quarter was 25, 8% compared to 35% in the same period last year.

And at June 30, our backlog consisted of 1638 homes.

<unk> at $601 $3 million.

Of those homes 131, or 8% of total backlog were related to wholesale contracts with single family rental partners.

Turning to our land position.

At June 30, our portfolio consisted of 69226 owned and controlled lots a decrease of 23, 1% year over year and down slightly from the prior quarter.

Of those lots.

56763, or 82% were owned.

A decrease of eight 3% year over year, and one 5% sequentially.

Of our owned lots 43762 were raw land or land under development with approximately 24% of those lots and active development.

Of the remaining 13001 owned lots one.

124 were completed homes, including our information centers 3000 in 2007, where homes in progress and 8850 were finished vacant lots.

During the quarter, we started construction on 2000 and 351 homes, an increase of 37, 3% sequentially as we ramped up construction to meet demand.

We controlled 12463 lots at quarter end, a decrease of 55, 6% year over year, but an increase of three 1% sequentially.

With that I'll turn the call over to Josh for a discussion of our capital position.

Thank you Charles.

As of June 30, we had just over $1 billion of notes payable outstanding including $768 $1 million drawn on our credit facility.

Our debt to capital ratio was 37, 8% and our net debt to capital ratio was 36, 8%.

This marked our third consecutive quarter of Delevering.

Total liquidity was $384 $7 million, including $43 $3 million of cash on hand and.

341, 4 million of available capacity under our credit facility.

At June 30, our stockholders equity was $1 7 billion.

And our book value per share was <unk> $73 52.

An increase of 13% over the same period last year.

With that I'll turn the call back over to Eric.

Thanks, Josh in summary, we delivered a great quarter and we're entering the second half of the year well positioned to achieve all of our targets for 2023.

Demand trends remain positive and our recent performance has created significant momentum as we focus on driving growth improving profitability and continuing to create long term value for our shareholders.

Based on our performance year to date current backlog and continued momentum in sales activity, we're raising our year end closing guidance to a range between 60 570 200 homes.

Despite the decrease in our average selling price in the second quarter. We continue to expect that full year average selling prices will range between 345 and $360000.

We continue to expect to be active in 115 to 125 communities at year end with an additional 20% to 30% growth in our community count in 2024, as we expand our presence in existing markets and add new ones.

One of those new markets of Salt Lake City, we recently welcomed our new sales team from Utah to our corporate office for new hire training and expect to report our first closings from that state in the fourth quarter.

We're focused on increasing gross margins and expect to deliver an additional 150 basis points of margin improvement in the third quarter.

Given our progress to date, we're raising our full year gross margin guidance to 21, 5% to 23, 5%.

And adjusted gross margin to 23% to 25%.

I'll conclude by expressing my appreciation for the LTI homes teams around the country. You are intense focus on increasing affordability and enhancing profitability made our great performance last quarter possible.

For your continued commitment to our company and to our customers. We will now open the call for questions.

Thank you we will now conduct the question and answer session. As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced.

To withdraw your question. Please press star one again, please standby, while we compile the Q&A roster.

One moment please.

Our first question.

Comes from the line of Ken Zenner with Seaport. Please.

Please proceed.

Good morning, everybody.

Good morning, Josh.

Can you hear me.

We can hear you. Please proceed.

Great. So my question is.

Starting big picture looking into next year, you are 20% to 30% community count target range, but I assume that's based on year end communities just to get a sense of the ramp.

And then can you talk to how many of those communities.

Are going to be or what percent are going to be a new market. So if youre an.

X today, how many are you going to be in that you're not in currently.

Operator, you hearing management.

Yes. This is operator I am hearing you.

I didn't hear management they have not responded let me message.

Please hold.

And can you hear me now.

I can hear you now you must be using Verizon how are you guys doing.

Your question please.

Yes.

Thanks.

There is a little feedback I could re ask my question I wasn't sure if you heard it.

Yes, I heard you.

So at the end.

Okay.

We're getting feedback.

You went to reset it with the operator or.

Okay and can you hear me now in year two years three years.

Yeah.

I hear about <unk>.

Okay.

Yes.

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Yes.

Please stay in the meeting we are experiencing technical difficulties.

Please give us one moment.

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Yes.

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Please remain on the line your conference will resume shortly thank you for your patience.

Great.

I'll come back to the meeting can you hear me.

Okay.

Operator.

Sounds good we can hear you.

Okay.

Hello, everybody.

Welcome back Ed how are you.

Good I can hear you.

Hey, guys State My question is that Okay go ahead.

Hello.

So of the 20% to 30% community growth next year.

Is that really a fourth quarter year over year and then how many.

Of those are in new markets that you are going to be a chunkier than X today youre going to be in Y next year.

Okay. Ken this is there a great great question and apologize again for all the technical difficulties.

We've got that straightened out now so this year's ending community count end of year 2023, we expect to be $1 15 to $1 25, that's going to be backend loaded we're opening up a lot of new <unk> in Q4 that we expect to have closings in November and December of this year, the 20% to 30% growth in community count.

Next year is off of the year end number this year 2023, the only new market, we're entering at Salt Lake City, and we expect to have two communities opening.

And having closings by the end of 'twenty four.

Great.

And then just related to operations.

You start level high second quarter like it was last year do you think about that being at a certain level.

Absolute since whenever you start obviously, you're gonna sellers, there's seasonality and then.

I wanted to clarify your comments I heard plenty about sequential margins 150 bps I wasn't sure. If you were referring to gross margins there and the reason I ask is you've made very strong statements about returning to industry leading margin.

And if that's gross margin.

Is that confidence tied to your eight years of owned self developed land.

Separate from reductions in net pricing costs on the vertical thank you very much.

Yeah. Thanks, Ken I'll take the gross margin question and then Charles can follow up so on the gross margin question Thats on adjusted gross margin and gross margin of 150 basis points increase in Q3, and that's primarily driven from the strength of our backlog.

Sales have been positive we've been able to increase prices also most of the high cost houses high construction cost houses have already pushed through our backlog.

So we've got really good visibility into current Q3 gross margin that we're confident in that 150 basis points increase and they're getting back to two things one our historical adjusted gross margins in that 25% to 28% range and then also in that range that will be near industry, leading or certainly at the top of the tier group.

And you mentioned, Alan why and we believe we need to be there as well because we do own a lot of lot play and we do a lot of development and we need to be capturing that developer profit as well as our homebuilding profit as well and we're focused on that.

And Ken This is Charles I can take the third questions of 'twenty 350 starts in the second quarter I would describe is right on track that ended with about 4100 50 units in inventory I think what we when we highlighted in our.

Prepared remarks.

It's a little more weighted to work in progress and over 3000 of those units were in web. So normally we're looking for about 50% complete and 50% in Webb with just as an indicator.

That we were successful coming out at the end of the year monetizing our completed units.

Kind of.

Focused on making sure that we adjusted inventory and now we're ramping back up and then future starts.

Be determined based on.

Current orders on a community by community basis really looking for six months of inventory.

On a per community basis is what we're looking for.

Great and my last question is because your.

Right.

Production builder with a very distinct sales process can you talk to the ramp.

Sales personnel et cetera that youre doing for this community count next year as well as the dynamics or some of it too material changes you've made in how youre using the call that I would think about Glenn Clary Glen Roth always be closing.

How is that.

Changed here in the last.

Nine months.

In a meaning full way that you can communicate too much that you teach your salespeople. Thank you.

Sure Ken Thanks for that.

Yeah, We just came off our last sales training class, where we hired 22 additional salespeople for what we call. The July for any class that will be ramping up in October we anticipate hiring 40 to 50, new sales reps to.

Staff, the 10 or so new communities that are opening in Q4, and then continuing ramping up staff.

Next year, as well and I think that the positive thing about our our sales process and sales training it really hasn't changed much over the years the great thing about our sales processes are individuals.

I need to be great listeners all of the customers. We're right now we're averaging six to 7000.

Leads per week. So we spent a lot of dollars advertising directly to consumer six to 7000 individuals or families, calling us every week wanting to get into or inquire about a new L. Gi homes. So the demand is Rob is robots.

No cold, calling there theres no soliciting and customers, we only engage with customers after they engage with us. So a lot of follow up a lot more digital follow up than there used to be.

The more than 50% of our leads coming in now come through email or a digital channel rather than phone calls that's really the only thing has changed in our business same desire for home ownership. It has been over the last 20 years, certainly affordability is a little bit more constrained right now with interest rates and pricing being elevated.

But the desire for owner homeownership and get out of that rental situation into a home on your own and is as.

As strong as it's ever been.

Thank you.

Youre welcome.

Thank you one moment as a fair and the next question.

Our question comes from the line of Michael runoff from J P. Morgan. Please proceed.

Hi, everyone. Thanks for taking my question. This is Andrew <unk> on for Mike.

I just wanted to ask about I believe in the prepared remarks, you mentioned that you increased your able to positively increase your prices in most communities I kind of wanted to zero in on maybe the magnitude of that price increase.

And where.

Regionally you saw that.

Yeah, Andrew This is Eric I can start.

I think generally prices are increasing I would say in the vast majority of our communities. One is because demand has been strong we don't have a lot of finished inventory available for sale.

Also we're selling selling houses that we haven't started yet so we need to be increasing the price to make sure. We're taking out any any risk on cost increasing and we're also seeing over the last month or two our house cost starting to increase which will affect our starts over the next couple of months and closings by the end of the year. So we need.

To increase our prices just to maintain margins as well as increasing prices to increase our margins in the communities that are selling above average paces.

Thanks for that Eric and I guess my next question is what are the current level of incentives in our anything about adjusting these and how do they compare maybe sequentially.

Yes permanent incentive standpoint, most builders that are in our peers are really doing incentives around closing costs and mortgage financing getting rates down as low as possible for the consumer.

And the same thing we have not engaged in.

Buying forward commitments on the mortgage side and really driving the rate down into the fours or fives, but we've been consistently paying a discount point or two on behalf of the borrower to get the lowest fixed rate possible.

Every weekend for sales and that's been consistent for us.

Really since interest rates started to rise about a year ago, and we plan on that being consistent at these levels probably through at least the end of the year.

Thanks for that I'll pass it on good luck next quarter.

Thank you.

Thank you one moment as I prepare the next question.

Okay.

The next question comes from the line of Truman Patterson of Wolfe Research. Please proceed.

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

We're wondering if artificial intelligence might have taken over your phone.

No.

Your second quarter backlog, you had about 1600 40 units and if I'm looking at the back half closings guide I think.

It implies a little over 1800 closings in both the third quarter and fourth quarter. So some pretty healthy back half order metrics versus normal seasonality could.

Could you just help us understand whats driving that guide and where you intentionally curbing some orders, perhaps during the second quarter to kind of buildup of spec pipeline.

Yes, a couple of things.

One is that where we're selling them further out lower cautious not to get too further out just to maintain and limit the RASK on construction costs increasing.

And really our guidance through the end of the year is around six closings a month and we're comfortable with that number we have the advertising spend that we increase and decrease as necessary to drive leads which drives sales and closings we're comfortable in our guidance and one day increased guidance one because of the positive.

We were seeing in sales and really taking the low end of our previous guide range off the table. The other thing that's going to help overall closings as we're bringing on a number of communities here before the end of the year and that will increase the net sales overall for the company and be additive to closings, especially in Q4.

Gotcha and.

You know.

Kind of following up on one of Ken's questions. You know very healthy community account growth through the end of the year and into 'twenty. Four I understand there is always risks associated with selling out faster than expected due to absorptions, but.

Just trying to understand where you will see kind of the potential risks for new community openings.

You know we've heard of tight transformer supply if you will local muni municipality approvals, but.

Trying to understand where some of the big hang ups might be there or if you all have.

Everything kind of in the pipeline right now where they're where they're.

There arent too many issues that can pop up.

Yes, it's a great great question German we've been dealing with development challenges in what we call you know getting the developments opened for sales get them across the finish line electrical Transformers are still an issue.

This year's community Gal.

Those communities are all across the finish line as far as Platts recorded development complete houses are either under construction or are going to be under construction here very soon so I don't think theres any risk on development timing.

Or the end of the year community count that's more of a sales and construction risks, which we think we've.

Built into our guidance and then next year all of the communities that are can be added to the community count next year. Those are already owned the vast majority of those are all of them are under some form of development a lot of them are nearing completion. So there is some timing risk quarter to quarter, but I won't say, there's there's annual timing risk.

To that <unk>, that's positive about community count growth next year is we are starting to see some finished lot opportunities we have approved multiple.

Finished lot deals through our acquisitions committee that.

That will have closings in 2020 for that that we didn't know about 90 days ago. So.

So we are starting to see more opportunities to drive community count.

Through a bulk finished lots and what I'll say is shovel ready development opportunities, which will be additive to community count at 25 and 26.

Perfect all right well thanks for your time.

Thank you.

Thank you one moment as I prepare the queue.

Okay.

Our next question comes from the line of Karl Reinhardt.

And PT IGD. Please proceed.

Our next question comes from the line of Carl Wockhardt.

P T IGD. Please proceed.

Okay.

Carl can you hear us.

Okay.

Likely take next question, Yeah, why don't we move on to the next web Europe .

One moment please.

Our next question comes from the line of James Mccanless from Wedbush.

Please proceed.

Hey, guys can you hear me.

Yes, Jay go ahead.

Okay perfect.

Alright. So if you stayed at 102 communities and you stated the six pace for the rest of the year.

You guys are pretty much going to be either at or just below the top end of the guidance.

Why the conservatism America I mean, I understand you guys are always conservative because homebuilding.

<unk>.

Timing business, but this seems vision, even more conservative I would say than what we have come to expect from you guys.

Yeah, Jay we're going a couple of things one is we're going to report for a July obviously, we're sitting here on August 1st So our July closings were going to report $5 85 to 590 that have come out over the next few days with 103 active communities. So that's about $5 seven per community.

<unk> per month for the month of July and the math, we did that keeps US 5.7 through the rest of the year is the mid point.

To do the high end is above six is more six three to six five at the high end, depending on what you're using for community count.

So that means sales would have to be as good as they are now or even improve them. So coming out five seven in July we thought that was good midpoint to high end of the range that means we expect sales and closings to be at least as strong through through the end of the year.

And I think the question.

Or the factor that the play is really what is interest rates can do from here, it's very clear to us.

We're in the business offering an affordable payment to our customers and we believe that that.

30 year fixed rate rises above salmon and get the seven a quarter or seven half then that would be a headwind in and anything below seven specialty six and a half of them below.

Be a tailwind to community count, but <unk>.

<unk> was kind of how we're thinking about for the for the rest of the year not the full year as well and the math that you're doing.

Okay.

That makes more sense. Thank you.

And then.

Just if you could talk for a minute about the homes that you are selling ahead and.

When those homes he started and today when you think they'd be delivered wood type afford risk are you taking on those sales.

Yes, we have limited limited markets across United States that we're selling houses that we haven't started yet and certainly in some communities.

That sales are very strong we are getting to the point, where we're selling houses and permits in hand or permits pending stage.

Most markets the cross country, we can sell start houses in August that would close this year.

So not that I don't I don't believe we have a single health under contract.

Across the nation that is scheduled for a 2024 closing its rich really focused on 2023.

Okay.

And then.

If you could just touch a little more I know you I think you talked to your prepared comments about lumber prices starting to move up.

Just maybe.

Which we should expect the margin impact from that.

And I guess, how much of lumber prices for you guys come off the bottom.

Yeah. This is Charles J, we're seeing just slight movement in lumber.

<unk>.

We don't expect it to have a.

Overall impact to gross margins because to Eric's comments about pricing. We think we're doing a good job of factoring that in it really kind of gets back to our normal mode of operations, where we expect costs to increase.

So I think that's really factored into our gross margin guidance and we would expect.

Nominal increases we're seeing anywhere from a 1000 to 2000 dollar increases in lumber prices right now kind of in that half a percent 2% range over the last couple of months.

We don't expect that to ramp up heavily.

But if we will continue to monitor it and then adjust sales prices.

Accordingly to make sure that we can maintain our margins.

Okay. It sounds great. That's all I had thanks guys.

Thanks, Chad.

Thank you one moment as I prepare the queue.

Sure.

Okay.

Sure.

Our next question comes from the line of Alex Barron.

House Research Center. Please proceed.

Yeah, Hey, guys. Thanks for taking my question.

I believe you know when I first met you your primary.

Form of marketing as I understood. It was sending up mailers to rental communities and stuff like that.

I imagine those those buyers are a bit more challenged at current interest rates I'm wondering.

To what extent you guys are still doing that versus have you have to shift your marketing strategies tomorrow finding clients.

Digital means and stuff like that if you could talk about that.

Yeah. Alex This is Eric Great question, certainly the the marketing strategy hasn't changed but the the form of marketing to reach that consumer has changed obviously, we live in a more digital world than we when we did 20 years ago. When we when we started we are still doing some direct mail.

But not not as a percentage of overall marketing spend that percentage is a lot lower than used to be but the consumer hasn't changed the customer that we used to drive market or the customer we're hitting more of a digital marketing today, whether it be social media or search or zillow or whatever the digital means is that customer hasn't changed that customer is someone that is currently pay.

Rents, probably looking to buy their first home and want to get out of that situation change your address and get into a home of their own and that's still the customer that we're marketing to and still selling and closing homes too.

Got it and.

In terms of your I guess incentives.

Are you guys finding rate buy downs to be the main incentive or what what is driving.

What's helping you get customer go over the edge.

Yes, it's the qualifying for the mortgages, what the challenge Ed So that monthly payment is obviously very important and customers have to have the income to qualify for the mortgage in and qualifying for our mortgages is more challenging than it used to be I think some of that's offset by lack of supply in the market.

Some of that is offset by really strong job growth and good solid wage growth by the end of the day the yes.

Most affordable payment and all our neighborhoods compared to a few years ago is vastly elevate and the customer has to make more might qualify today. So we can spend more money out advertising to drive more leads.

One of the things, we havent talked about in the Q&A, but it's in the script and big part of what we're doing is really focusing on more affordable plans.

Got the fit and finish of the homes, that's primarily driven by square footage, so and a lot of our communities we've been able to introduce smaller square footage plans as a way to bring down the average sales price, which brings down the monthly payment even at the elevated interest rates and that is working.

And in terms of that which I thought was interesting are you.

In turn having too.

By law for developed lots at our smaller like 35 quarter, some something south of 40 feet wide.

Bob.

And really navigate the Alex I think nothing's really changed on the development side in our in our history of developing lots, which we sell to develop a lot of our communities.

We are always taken they can desiderate than the lot size and making it as dense as possible or as affordable as possible, but these communities that we're closing and selling <unk> developed over the last 12 months to 24 months and planned a year or two before that.

But we're always taken that in consideration on the development side, but.

But the square footage of the homes is predominantly on the same lot size, we're just building a smaller footprint.

Got it and if I could ask one more on the salespeople that you guys were training. Besides the <unk>, which is a new market is there any one concentration with where these people are going or is it just pretty evenly spread throughout all your markets.

Well, we looked at that before the call and preparing without maybe a question on Where's all these new communities coming in the markets and I would generalize it by saying, they're coming in Texas, Florida, The Carolinas and California is where the bigger percentages are that they're really coming across United States as we focus on going deeper in our existing.

Markets.

Yeah.

So most of these new salespeople.

Not replacing others are or joining existing communities theyre more months to sell new communities.

Yes, the predominant number of salespeople, we hire we're not having a lot of turnover in our sales salesforce.

Everyone's doing really well and making good commissioned and laser coming in so primarily the people we're hiring us to open up these new communities.

Okay, well best of luck for the year. Thank you.

Alright, Thanks, Alex.

Okay.

Thank you at this time I am not showing any further questions.

Alright, thanks, everyone for participating on today's call and your continued interest in <unk> homes have a great afternoon.

Okay.

This concludes today's conference call. Thank you for participating you may now disconnect.

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Yes.

Okay.

Thanks.

Okay.

Yes.

Okay.

Thank you.

Okay.

[music].

Yes.

Okay.

[music].

Okay.

Thank you.

Okay.

Yes.

Thanks.

Okay.

[music].

Yes.

Okay.

Thank you.

Okay.

[music].

Okay.

[music].

Yes.

Okay.

[music].

Okay.

Yes.

Okay.

[music].

Okay.

[music].

Okay.

Yes.

Okay.

Right.

Okay.

[music].

Okay.

Got it.

Thanks.

[music].

Thank you.

[music].

Okay.

Thanks.

Okay.

[music].

Okay.

Yeah.

Okay.

Right.

Okay.

Yes.

Thanks.

[music].

Okay.

[music].

Okay.

[music].

Okay.

[music].

Okay.

[music].

Yes.

[music].

Yes.

Yeah.

[music].

Sure.

Thanks.

Yes.

[music].

Hum.

Yes.

[music].

Thank you.

Yes.

[music].

Okay.

[music].

Okay.

[music].

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