Q4 2023 LGI Homes Inc Earnings Call

February 20, 2024

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Yeah.

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Operator: Welcome to the LGI Homes fourth quarter 2023 conference call. Today's call is being recorded, and a replay will be available on the company's website at www.lgihomes.com.

Speaker Change: Welcome to the L. G I homes fourth quarter 2023 conference call.

Speaker Change: Today's call is being recorded and a replay will be available on the company's website at www Dot L. G. I homes Dot com after management's prepared remark comments, there will be an opportunity to ask questions. I'll now turn the call over to Josh batter Vice President of Investor Relations. Please go ahead.

Operator: After management's prepared comments, there will be an opportunity to ask questions. I'll now turn the call over to Josh Fatter, Vice President of Investor Relations. Please go ahead.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: Okay.

Josh Fatter: Thanks and good afternoon. I'll remind listeners that this call contains forward-looking statements, including management's views on LGI Homes' business strategy, outlook, plans, objectives, and guidance for future periods. Such statements reflect management's current expectations and involve assumptions and estimates that are subject to risks and uncertainties that could cause those 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 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'll 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.

Josh Batter: Thanks, and good afternoon.

Josh Batter: I'll remind listeners that this call contains forward looking statements, including managements views on the <unk> business strategy outlook plans objectives and guidance for future periods.

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

Josh Batter: 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.

Josh Batter: All forward looking statements must be considered in light of 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.

Josh Batter: On this call, we'll 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.

Josh Fatter: Reconciliations of non-GAAP financial measures to the most comparable measures paired in accordance with GAAP can be found in the press release we issued this morning and in our annual report on Form 10-K for the period ended December 31st, 2023, that we expect to file with the SEC later today. This filing will be accessible on the SEC's website and in the Investor Relations section of our website.

Josh Batter: 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 annual report on Form 10-K for the period ended December 31, 2023 that we expect to file with the SEC later today.

Josh Batter: This filing will be accessible on the Sec's website and in the Investor Relations section of our website.

Josh Fatter: I'm joined today by Eric Lipar, LGI Homes' chief executive officer and chairman of the board, and Charles Merdian, chief financial officer and treasurer. I'll now turn the call over to Eric. Thanks, Josh.

Josh Batter: I'm joined today by Eric <unk>, <unk>, Chief Executive Officer, and Chairman of the Board Charles Murnian, Chief Financial Officer, and Treasurer, I'll now turn the call over to Eric.

Eric Thomas Lipar: Good afternoon, and welcome to our earnings call. We are pleased to report that we delivered a strong fourth quarter that successfully achieved all of our operational and financial guidance targets for the full year. We also laid the foundation for considerable community count growth and continued profitability for many years to come. As we prepared for today's call, we reflected on our original full-year guidance from February of last year. Looking back, it's worth highlighting how well our teams across the country navigated the headwinds, executed our strategy, and outperformed our initial expectations. At the beginning of last year, we expected to close between 6,000 and 7,000 homes. We delivered 6,729 homes, the high end of our original guidance and an increase of 1.6% year-over-year.

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

Eric: We are pleased to report that we delivered a strong fourth quarter successfully achieved all of our operational and financial guidance targets for the full year.

Eric: Also laid the foundation for a considerable community count growth and continued profitability for many years to come.

Eric: As we prepared for today's call we reflected on our original full year guidance from February of last year.

Eric: Looking back it's worth highlighting how well our teams across the country navigate the headwinds executed our strategy and outperformed our initial expectations.

Eric: At the beginning of last year, we expect to close between six.

Eric: And 7000 homes.

Eric: We delivered 6729 homes the high end of our original guidance and an increase of one 6% year over year.

Eric Thomas Lipar: We expected ASPs between $335,000 and $350,000, and we exceeded that range. We generated revenue of $2.4 billion, an increase of over 2% compared to last year, making us one of the few public homebuilders who delivered year-over-year growth in both closings and revenue in 2023. The trend of outperformance continued when it came to our profitability target. At this time last year, we expected gross margin to range between 21 and 23 percent, and our actual result was at the top end of that range. We expect an adjusted growth margin between 22.5% and 24.5%. Through a continued focus on improving profitability throughout the year, we exceeded the high end of that range, delivering 24.7%. We averaged 5.4 closings per community per month last year, an industry-leading pace that demonstrates the effectiveness of our systems, processes, and people in a challenging and uncertain market.

Eric: We expect that AFP between 335, and $350000 and we exceeded that range.

Eric: We generated revenue of $2 4 billion, an increase of over 2% compared to last year, making us one of the few public homebuilders, who delivered year over year growth in both closings and revenue in 2023.

Eric: The trend of outperformance continued when it came to our profitability targets at this time last year, we expected gross margin to range between 21, and 23% and our actual result was at the top end of that range.

Eric: We expected adjusted gross margin between 20, 252 24, 5%.

Eric: Through our continued focus on improving profitability throughout the year, we exceeded the high end of that range delivering 24, 7%.

Eric: We averaged five four closings per community per month last year and industry, leading pace that demonstrates the effectiveness of our systems processes and people in a challenging and uncertain market.

Eric Thomas Lipar: Our top five markets this year were Dallas-Fort Worth with 9.1 closings per community per month, Charlotte with 8.6, Northern California with 8.3, Fort Pierce with 8.1, and Las Vegas with 7.3. Congratulations to the teams in these markets on your outstanding results. In 2023, our geographic footprint continued to grow. We added a new market and a new state to our map with our first closings in Salt Lake City, Utah. At the time of our initial public offering in 2013, we were operating just 8 markets across 4 states.

Eric: Our top five markets this year, where Dallas Fort worth with $9, one closings per community per month, Charlotte with eight six northern California with 834 peers with eight one in Las Vegas was $7 three <unk>.

Speaker Change: Congratulations to the teams in these markets on your outstanding results.

Speaker Change: In 2023, our geographic footprint continue to grow.

Speaker Change: We added a new market and a new state to our map with our first closings in Salt Lake City, Utah.

Speaker Change: At the time of our initial public offering in 2013, we were operating just eight markets across four states.

Eric Thomas Lipar: Since then, we've successfully replicated our systems and culture across the country and are now active in 36 markets across 21 states. Salt Lake City marks another significant milestone in the growth of our company, and we look forward to providing more updates on future calls. Throughout 2023, we made considerable progress growing our community count and ended the year with 117 active communities, an increase of 18.2% year over year. And we're not slowing down.

Speaker Change: Since then we successfully upgraded our systems and culture across the country and are now active in 36 markets across 21 states.

So I'll Lake City marks another significant milestone in the growth of our company and we look forward to providing more updates on future calls.

Speaker Change: Throughout 2023, we made considerable progress growing our community count and ended the year with 117 active communities an increase of 18, 2% year over year.

Speaker Change: And we're not slowing now expanding community count remains at the forefront of our objectives, while the land required to drive our growth for the next several years is already owned and under development. There is more work to do we.

Eric Thomas Lipar: Expanding the community count remains at the forefront of our objective. While the land required to drive our growth for the next several years is already owned and under development, there's more work to do. We continue to invest in our long-term growth and are taking advantage of opportunities as they arise. Before handing the call over to Charles, I'll share one additional highlight.

Speaker Change: We continue to invest in our long term growth and are taking advantage of opportunities as they arise.

Speaker Change: Before handing the call over to Charles I'll share one additional highlight the success of our business model has been clearly demonstrated by a number of impressive metrics, but I'll draw your attention to one in particular despite.

Eric Thomas Lipar: The success of our business model has been clearly demonstrated by a number of impressive metrics, but I'll draw your attention to one in particular. Despite expanding our operational footprint significantly, quadrupling our closings, and increasing our community count by a factor of nearly seven times, we have never taken an inventory impairment, not as a public company and not as a private company before that, even with the challenges and uncertainty of the last 18 months. The conservative and disciplined framework of our acquisition strategy has proven extremely dependable at selecting and delivering lots that meet or exceed our profitability and return metrics, and we expect that to remain the case in the future. With that, I'll turn the call over to Charles for additional color on our financial results. Thanks, Eric.

Speaker Change: Expanding our operational footprint significantly quadrupling, our closings and increasing our community count by a factor of nearly seven times, we have never taken an inventory impairment.

Charles Michael Merdian: Not as a public company and that is a private company before that.

Charles Michael Merdian: Even with the challenges and uncertainty over the last 18 months.

Charles Michael Merdian: Our conservative and disciplined framework of our acquisition strategy has proven extremely dependable at selecting and delivering lots that meet or exceed our profitability and return metrics and we expect that to remain the case in the future.

Charles Michael Merdian: With that I'll turn the call over to Charles for additional color on our financial results.

Charles Michael Merdian: Thanks, Eric.

Charles Michael Merdian: Here are more details on our fourth quarter results. Revenue was $608.4 million, an increase of 24.6% year over year, reflecting a 21.4% increase in closings to 1,758 homes and a 2.6% increase in our average selling price of $346,083.

Charles Michael Merdian: Here are more details on our fourth quarter results.

Charles Michael Merdian: Revenue was $608 4 million.

Charles Michael Merdian: An increase of 24, 6% year over year, reflecting a 21, 4% increase in closings to 1758 homes and.

Charles Michael Merdian: And a two 6% increase in our average selling price to 346000 in.

Charles Michael Merdian: And $83.

Charles Michael Merdian: Our ASP was one 9% lower sequentially, reflecting a higher level of incentives offered in the fourth quarter as mortgage rates climbed into the mid Sevens in October and November.

Charles Michael Merdian: Our ASP was 1.9% lower sequentially, reflecting a higher level of incentives offered in the fourth quarter as mortgage rates climbed into the mid-7s in October and November. We closed 298 homes through our wholesale business in the fourth quarter, representing 17% of our total closings, compared to 431 homes, or 29.8% of our total closings in the fourth quarter of last year. Gross margin as a percentage of sales in the fourth quarter was 23.4%, compared to 20.7% in the same period last year.

Charles Michael Merdian: We closed 298 homes through our wholesale business in the fourth quarter, representing 17% of our total closings compared to 431 homes or 29, 8% of our total closings in the fourth quarter of last year.

Charles Michael Merdian: Gross margin as a percentage of sales in the fourth quarter was 23, 4% compared to 27% in the same period last year.

I'll remind listeners that during the fourth quarter of 2022, we decided to move older higher cost inventory, resulting in lower overall margins.

Charles Michael Merdian: The 270 basis point improvement was also driven by our continued focus this year on improving the incremental profitability on every home sold and fewer wholesale closings.

Charles Michael Merdian: I'll remind listeners that during the fourth quarter of 2022, we decided to move older, higher-cost inventory, resulting in lower overall margins. The 270-basis point improvement was also driven by our continued focus this year on improving the incremental profitability on every home sold and fewer wholesale transactions. Gross margins were 230 basis points lower sequentially, primarily due to higher financing incentives offered to buyers in the fourth quarter. Adjusted gross margin in the fourth quarter was 25.1 percent. The adjusted gross margin excludes $8.9 million of capitalized interest charged to the cost of sales and $981,000 related to purchase accounting, together representing 170 basis points.

Charles Michael Merdian: Gross margins were 230 basis points lower sequentially, primarily due to higher financing incentives offered to buyers in the fourth quarter.

Charles Michael Merdian: Adjusted gross margin in the fourth quarter was 25, 1% adjust.

Charles Michael Merdian: Adjusted gross margin excludes $8 $9 million of capitalized interest charged to cost of sales and $981000 related to purchase accounting.

Charles Michael Merdian: Gather representing 170 basis points.

Charles Michael Merdian: Combined selling general and administrative expenses were 13, 6% of revenue.

Charles Michael Merdian: Selling expenses were $49 8 million or eight 2% of revenue compared to six 8% of revenue in the fourth quarter of 2022.

Charles Michael Merdian: The increase as a percentage of revenue was driven by increased spending on advertising and higher outside commissions.

Charles Michael Merdian: General and administrative expenses totaled $33 million or five 4% of revenue in the fourth quarter compared to five 5% of revenue in the same period last year.

Charles Michael Merdian: Pre tax net income for the fourth quarter was $68 5 million.

Charles Michael Merdian: Combined selling, general, and administrative expenses were 13.6% of revenue. Selling expenses were $49.8 million, or 8.2% of revenue, compared to 6.8% of revenue in the fourth quarter of 2022. The increase as a percentage of revenue was driven by increased spending on advertising and higher outside commissions. General and administrative expenses totaled $33 million, or 5.4% of revenue in the fourth quarter, compared to 5.5% of revenue in the same period last year. Pre-tax net income for the fourth quarter was $68.5 million, or 11.3% of revenue.

Charles Michael Merdian: Or 11, 3% of revenue.

Charles Michael Merdian: Fourth quarter net income was $52 1 million.

Charles Michael Merdian: Our $2 21 per basic share and $2 19 per diluted share.

Charles Michael Merdian: Highlighting a few full year results.

Charles Michael Merdian: Revenue was $2 4 billion in.

Charles Michael Merdian: An increase of two 3% driven by a one 6% increase in home closings and a 7% increase in our full year average sales price to $350510.

Charles Michael Merdian: During the year, we closed 679 homes through our wholesale business, representing 10, 1% of our total closings and generating $202 $3 million in revenue with.

Charles Michael Merdian: We currently expect our wholesale business will represent approximately 5% of our total closings in 2024.

Charles Michael Merdian: Fourth quarter net income was $52.1 million, or $2.21 per basic share and $2.19 per diluted share. Highlighting a few full year results, revenue was $2.4 billion, an increase of 2.3%, driven by a 1.6% increase in home closings and a 0.7% increase in our full year average sales price of $350,510.

Charles Michael Merdian: Our full year gross margin was 23% and adjusted gross margin was 24, 7% both in line with the guidance we provided on our last call.

Charles Michael Merdian: Combined selling general and administrative expenses were also in line with our guidance at 13, 1%.

Charles Michael Merdian: Our pre tax net income for the year was $261 8 million or 11, 1% of revenue.

Charles Michael Merdian: Our effective tax rate last year was 23, 9% in line with the guidance we provided on our last call.

Charles Michael Merdian: During the year, we closed 679 homes through our wholesale business, representing 10.1% of our total closings and generating $202.3 million in revenue. We currently expect our wholesale business will represent approximately 5% of our total closings in 2024. Our full-year gross margin was 23% and adjusted gross margin was 24.7%, both in line with the guidance we provided on our last call. Combined selling, general, and administrative expenses were also in line with our guidance at 13.1%. Our pre-tax net income for the year was $261.8 million, or 11.1% of revenue.

Charles Michael Merdian: And finally, our 2023 net income was $199 2 million or $8 48 per basic share and $8 42 per diluted share.

Charles Michael Merdian: Fourth quarter gross orders were 1561 net orders were 971 and the cancellation rate during the quarter was 37, 8% compared to 37, 5% during the same period last year.

Charles Michael Merdian: Full year cancellation rate was 25, 4% generally in line with our historical average.

Charles Michael Merdian: We ended the year with 590 homes in backlog valued at $224 $9 million decrease in homes was primarily due to fewer wholesale contracts included in our backlog at the end of this year compared to last.

Charles Michael Merdian: Turning to our land position at December 31.

Charles Michael Merdian: Our effective tax rate last year was 23.9%, in line with the guidance we provided on our last call. And finally, our 2023 net income was $199.2 million, or $8.48 per basic share and $8.42 per diluted share. Fourth quarter gross orders were 1,561, net orders were 971, and the cancellation rate during the quarter was 37.8% compared to 37.5% during the same period last year. The full year cancellation rate was 25.4%, generally in line with our historical average. We ended the year with 590 homes in backlog valued at $224.9 million. The decrease in homes was primarily due to fewer wholesale contracts included in our backlog at the end of this year compared to last.

Charles Michael Merdian: We owned and controlled the total of 71081 locks a decrease of one 1% year over year and one 4% sequentially.

Charles Michael Merdian: We ended the quarter with 55331 owned lots a decrease of five 8% year over year and one 7% sequentially.

Charles Michael Merdian: Of our owned lots 41155 were raw land Orlando under development and approximately 25% of those lots were actively being developed and about 46% were in engineering at year end.

Charles Michael Merdian: Of the remaining 14176 owned lots 10749 were finished vacant blocks.

Charles Michael Merdian: During the quarter, we started 705 homes and finished the year with 3427 completed homes information centers or homes in progress.

Charles Michael Merdian: Finally at December 31, we controlled 15750 lots an increase of 19, 5% year over year.

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

Charles Michael Merdian: Turning to our land position, at December 31st, we owned and controlled a total of 71,081 lots, a decrease of 1.1% year-over-year and 1.4% sequentially. We ended the quarter with 55,331 owned lots, a decrease of 5.8% year-over-year and 1.7% sequentially. Of our own lots, 41,155 were raw land or land under development, and approximately 25% of those lots were actively being developed, and about 46% were in engineering at year end. Of the remaining 14,176 owned lots, 10,749 were finished vacant lots.

Josh Batter: Thanks Charles.

Josh Batter: We ended the year with over $3 1 billion of real estate inventory and total assets of over $3 4 billion.

Josh Batter: In November we issued $400 million of eight and three quarter percent senior notes and used the net proceeds to pay down borrowings on our revolver. The new notes mature in 2028 are callable beginning late next year.

Josh Batter: Concurrent with the new issuance, we successfully amended our credit agreement returning a previously not extending lender back into our bank group and increasing total commitments on the facility from one one to $1 $2 billion through 2025, and extending the maturity for $960 million of those commitments through 2028.

Taken together these two transactions create additional depth and flexibility within our capital structure and provide significant additional liquidity to support our long term profitability focused growth.

Josh Fatter: During the quarter, we started 705 homes and finished the year with 3,427 completed homes, information centers, or homes in progress. Finally, at December 31st, we controlled 15,750 lots, an increase of 19.5% year over year. With that, I'll turn the call over to Josh for a discussion of our capital position. Hey, Charles.

Josh Batter: As of December 31, our total debt was $1 $25 billion.

Josh Batter: <unk> and a debt to capital ratio of 42% and our net debt to capital ratio of 39, 3% in.

Josh Batter: Total liquidity was $403 $8 million, including $49 million of cash on hand, and $354 8 million available to borrow under our revolving credit facility.

Josh Batter: We ended the quarter with nearly $1 $9 billion in total book equity and our book value per share of <unk> $78 71.

Josh Fatter: We ended the year with over $3.1 billion of real estate inventory and total assets of over $3.4 billion. In November, we issued $400 million of eight and three quarter percent senior notes and used the net proceeds to pay down borrowings on our revolver. The new notes mature in 2028 and are callable beginning late next year. Concurrent with the new issuance, we successfully amended our credit agreement, returning a previously non-extending lender back into our bank group and increasing total commitments on the facility from $1.1 to $1.2 billion through 2025 and extending the maturity for $960 million of those commitments through 2028. Taken together, these two transactions create additional depth and flexibility within our capital structure and provide significant additional liquidity to support our long-term profitability-focused growth. As of December 31st, our total debt was $1.25 billion, resulting in a debt-to-capital ratio of 40.2% and a net debt-to-capital ratio of 39.3%.

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

Eric: Thanks, Josh we're pleased with the strong results we delivered in 2023, it was a challenging year, but our success in meeting or exceeding all of our operational and financial targets reflect the effectiveness of our systems and people and gives us confidence as we head into 2024.

Eric: Before sharing our outlook I'll provide some color on what we're currently seeing in the market.

Eric: As shown by our January closings to the first quarter got off to a slower start there were several contributing factors, including pronounced seasonality in December leads fewer wholesale closings the closeout of some higher performing communities and new openings that are still in the early stages.

Eric: However, I'm pleased to say that at the beginning of February we have seen a significant increase in leads and traffic.

Eric: We remain focused on keeping homeownership affordable utilizing our expertise in reaching at serving the first time homebuyers.

Eric: Through the first three week as of February our leads are up an average of over 73% compared to the prior two months and last weekend was the best sales week of the year driven by our investment in targeted advertising and introduction of new solutions to combat affordability headwinds for our customers.

Eric: But those points in mind I'll share our outlook for 2024.

Eric: Our plan remains anchored in our strategy of driving affordability, increasing profitability and building on the significant groundwork related 2023, where community count growth over the next several years.

Eric Thomas Lipar: Total liquidity was $403.8 million, including $49 million of cash on hand and $354.8 million available to borrow under our revolving credit facility. Finally, we ended the quarter with nearly $1.9 billion in total book equity and a book value per share of $78.71. With that, I'll turn the call back over to Eric. Thanks, Josh.

Eric: For the full year, we expect closings to be up by digit double digits and plan to deliver between 7000 and.

Eric: <unk> 8000 homes.

Eric: Once again community count will be up significantly this year, we expect to grow community count by 25% to 30% and end 2024 with approximately 150 active selling communities.

Eric Thomas Lipar: We're pleased with the strong results we delivered in 2020. It was a challenging year, but our success in meeting or exceeding all of our operational and financial targets reflects the effectiveness of our systems and people and gives us confidence as we head into 2024. Before sharing our outlook, I'll provide some color on what we're currently seeing in the market. As shown by our January closings, the first quarter got off to a slower start. There were several contributing factors, including pronounced seasonality in late December, Fewer wholesale closings, the close out of some higher performing communities, and new openings that are still in the early stages. However, I'm pleased to say since the beginning of February, we've seen a significant increase in leads and traffic. We remain focused on keeping homeownership affordable, utilizing our expertise in reaching and serving first-time homebuyers.

Eric: Selling prices will be higher this year, as we balance affordability and focus on increasing margins and offsetting expected cost inflation.

Eric: Based on our backlog planned product mix and expected community openings, we are guiding to a full year average sales price between 350 and $360000.

Eric: While few builders I set out our full year gross margin target. We once again plan to increase margins. We currently expect full year gross margins between 23, 1% and 24, 1% and adjusted gross margins between 25 and 26%.

Eric: SG&A expense is expected to range between 12, five and 13, 5% as we invest in personnel training and advertising to support our growing number of communities.

Eric: Finally, we expect our full year tax rate will range between 24 and 25%.

Eric: Similar to this time last year, our guidance targets reflect our current view of the market and what we believe is attainable if conditions remain the same for the rest of the year.

Eric Thomas Lipar: Through the first three weekends of February, our leads are up an average of over 73% compared to the prior two months. And last weekend was the best sales week of the year, driven by our investment in targeted advertising and the introduction of new solutions to combat affordability headwinds for our customers. With those points in mind, I'll share our outlook for 2024. Our plan remains anchored in our strategy of driving affordability, increasing profitability, and building on the significant groundwork we laid in 2023 for community count growth over the next several years. For the full year, we expect closings to be up by double digits and plan to deliver between 7,000 and 8,000 homes.

Eric: As a result, we have complete confidence in our ability to meet or exceed all the metrics we've presented.

I'll close by thanking our employees for their commitment and enthusiasm this past year at the end of the day. Our achievements are the results of our people and their dedication to our company.

Eric: We thank them for their excellent performance last year and look forward to all that we will accomplish together in 2024.

Speaker Change: Operator, please open the call for questions.

Speaker Change: Certainly as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.

Speaker Change: Please standby, while we compile the Q&A roster.

And one moment for our first question.

Speaker Change: Our first question will be coming from Paul <unk> of Wolfe. Your line is open.

Paul: Thank you.

Paul: First of all your guide for this year on closings implies about four.

Paul: For two absorptions at the midpoint.

Typically I think your goal has been around six is that it is.

Paul: Changing your strategic thinking.

Paul: Demand environment focus so.

Speaker Change: Price over pace any color you can add there.

Speaker Change: Yes, Paul this is Eric it's a great question I think our numbers are a little bit different from yours, and I'll talk through that our pace in 2023 was five four.

Eric: We're pretty excited about because theyre ASC being the highest its ever been and opening a lot of new communities and then when we looked at guidance for 2024.

Eric: Starting the year a good comparison, we think we're going to be in an affordability challenge market similar to what we were in 2023 and if we did five four in 2023.

Eric Thomas Lipar: While few builders have set out a full-year gross margin target, we once again plan to increase margins. We currently expect full-year gross margins between 23.1% and 24.1% and adjusted gross margins between 25 and 26%. SG&A expenses are expected to range between 12.5% and 13.5% as we invest in personnel, training, and advertising to support our growing number of communities. Finally, we expect the full-year tax rate to range between 24 and 25 percent.

Confident in our community count growth to 150 active communities. We do believe it's going be backend loaded. So the average community count was probably a little bit.

Eric: Higher there or excuse me lower than what Youre thinking and we think a range of four five to $5. Three is actually where our guidance is based on where how we think the community count is going to flow also another factor in that as <unk> living our wholesale business, our expectation thats about half of it the volume it was in 2023.

Operator: Similar to this time last year, our guidance targets reflect our current view of the market and what we believe is attainable if conditions remain the same for the rest of the year. As a result, we have complete confidence in our ability to meet or exceed all the metrics we've presented. I will close by thanking our employees for their commitment and enthusiasm this past year. At the end of the day, our achievements are the results of our people and their dedication to our company. We thank them for their excellent performance last year and look forward to all that we'll accomplish together in 2024. Operator, please open the call for questions. Certainly. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.

Eric: And then with all the new communities opening our expectations are these all of these new communities. The absorption pace was slower so five four last year a range of four five to $5. Three this year, we think it's a very.

Good way to start start the year with guidance.

Speaker Change: Okay fair enough.

Speaker Change: Yes.

Speaker Change: And then going to your gross margin guide, obviously, it's flat to up year over year.

Some of your peers are talking down those.

Speaker Change: Our expectations given higher land costs flowing through I guess, what's different about your current setup.

Speaker Change: Would allow you to book those trends.

Speaker Change: Yes, I think a couple of things Paul first of all we do a lot of development work, we think it's important to capture that development profits.

Speaker Change: We need to incentivize the customers.

Speaker Change: Through incentives to get that mortgage rate buy downs is lowest possible, but we don't think that needs to be more than we have been doing in 2023, and I think we need to take a cautious approach to that these.

Operator: Please stand by while we compile the Q&A and one moment for our first question. Our first question will be coming from Paul Probilsky of Wolf. Your line is open. Thank you.

Eric Thomas Lipar: I guess, first of all, your guide for this year on closings implies about, you know, 4.2 absorptions at the midpoint. You know, typically, I think your goal has been around six. Is that a, you know, change in your strategic thinking, you know, demand, environment, focus, so, you know, price over pace, any color you can add there. Yeah, Paul, this is Eric.

Speaker Change: These finished lots in the inventory that we have around the country. Those are very valuable assets. So I think we're going to be cautious about discounting them too much and certainly if we did a lot of discounting and through even more incentives at the customer that at that pace per community would probably increase product we need to be protective of our gross margin and thats one of the pilots.

Speaker Change: If things about at LTI right now as we're anticipating gross margin midpoint of our range being higher in 2024, and 2023, plus all the community count growth.

Eric Thomas Lipar: It's a great question. I think our numbers are a little bit different from yours. And I'll talk through that, you know, our pace in 2023 was 5.4, which we're pretty excited about because our ASB is the highest it's ever been and we opened a lot of new communities. When we looked at guidance for 2024, starting the year, a good comparison, we think we're going to be in an affordability challenge market similar to what we were in 2023. And if we did 5.4 in 2023, confident in our community count growth to 150 active communities, we do believe it's going to be back-end loaded. So the average community count was probably a little bit higher or, excuse me, lower than what you're thinking.

Speaker Change: Okay.

Speaker Change: One last one on your <unk>.

Speaker Change: You've got nice community count growth. This year, how does that set the stage going into 'twenty five will you be able to maintain community count growth or are you kind of pull in some stuff forward.

Speaker Change: Any color guys.

Speaker Change: Yes, no no pulling it forward from our standpoint, it was still expect community count growth in 2025 to 150 <unk> are somewhat baked in.

Speaker Change: Almost all of those are completely developed a lot of those construction has begun on the site. So we expect those 150 communities to have closings.

Speaker Change: By the end of the year and then we expect community count growth again.

Speaker Change: Next year as well.

Alright, Thank you I appreciate it.

Speaker Change: And one moment our next question.

Speaker Change: And our next question will be coming from Ken Zenner Seaport Research. Your line is open.

Ken Zenner: Hello, everybody.

Ken Zenner: Good morning, good morning.

Ken Zenner: Your comment about not having impairments.

Ken Zenner: It's worthwhile, making.

Eric Thomas Lipar: And we think a range of 4.5 to 5.3 is actually where our guidance is, based on how we think the community count's gonna flow. Also, another factor in that is LGI Living, our wholesale business, our expectations, that's about half of the volume it was in 2023. And then with all the new communities opening, our expectations are that all of these new communities, the absorption pace is slower.

Ken Zenner: I have to think about it but it is an impressive statement I'm not sure I was aware of that so good for you guys.

Ken Zenner: Why are we seeing perhaps better SG&A leverage.

Ken Zenner: Because it looks like it's kind of flat year over year and with your.

Ken Zenner: I believe you are selling three year absorbing kind of lot of the increase it does seem like you're really expecting that to go down much or are you in your SG&A guidance.

Ken Zenner: Because youre getting more leverage on your communities that <unk> been investing for ICL talk to that dynamic if you would.

Eric Thomas Lipar: So 5.4 last year, a range of 4.5 to 5.3 this year, we think it's a very good way to start the year with guidance. And then going to your gross margin guide, obviously it's flat to up year over year. I think some of your peers are talking down those expectations given higher land costs flowing through. I guess what's different about your current setup that would allow you to bust those targets?

Ken Zenner: Yes, Great question, Ken This is Charles.

So a couple of things one is we're spending more on advertising this year or expect to this year than we did in 2023, so that trend started to increase mid year.

Last year as we started in the second and third quarters and increased into the fourth quarter. We also are increasing community count as.

Ken Zenner: As well so we're investing in growth and people that the community count comes faster to Eric's point the absorption than the revenue does so we're a little ahead, we will be investing ahead.

Ken Zenner: The closings as well.

Ken Zenner: So those are really the two biggest pieces.

Ken Zenner: G&A advertising.

Ken Zenner: Is the average rate increase is.

Ken Zenner: Is the advertising increase expected to offset your.

Eric Thomas Lipar: You know, these finished lots and the inventory that we have around the country are very valuable assets. So I think we're going to be cautious about discounting them too much. And certainly, if we did a lot of discounting and offered even more incentives to the customer, that pace per community would probably increase. But I think we need to be protective of our gross margin. And that's one of the positive things about LGI right now is we're anticipating the gross margin midpoint of a range being higher in 2024 than in 2023, plus all the community count growth. And one last one, on your, you know, you've got nice community count growth this year. How does that set the stage going into 25? Will you be able to maintain community count growth, or are you kind of pulling some stuff forward? Any color or guidance?

Ken Zenner: Absorption from the people that you've already invested in and where does that leave your incentive assumption I guess, that's where I'm kind of thinking about those three pieces working together.

Speaker Change: Sure, yes, so so in terms of the incentives assumptions the incentives are flowing into net revenues so not not in the SG&A line.

Speaker Change: So that affects the average sales price to the assumptions on ASP got increasing.

Speaker Change: Incentives and we would expect overall incentives to generally be similar in 2024 as they were to the average for 2023.

Speaker Change: And then in terms of.

Speaker Change: Personnel growth advertising spend.

Speaker Change: Investing in driving leads so our marketing team is actively monitoring what we're spending and where we're spending it to drive leads to our communities. So we're just budgeting and that we're expecting to use our our full budget. This year in some years in the past we haven't had to use it.

Eric Thomas Lipar: Yeah, no pulling it forward from a standpoint of we still expect community count growth in 2025. The 150 communities are somewhat banked in. Almost all of those are completely developed.

Speaker Change: For example, during the Covid years, we saw a lot of.

Speaker Change: Favorable <unk>.

Speaker Change: <unk> in that spend because we didn't need to spend it but for 2024, we're expecting that we're going to spend our full budget.

Eric Thomas Lipar: A lot of construction has begun on the site. So we expect those 150 communities to have openings by the end of the year. And then we expect community count growth again next year as well. Thank you. You're welcome.

Speaker Change: Great and if I could ask I guess Morris another.

Speaker Change: Question.

Morris: And it goes to the balance sheet and you guys.

Morris: Self developed land I think your statement around impairments.

Morris: Beth.

Operator: And one moment for our next question. And our next question will be coming from Ken Zinner of Seaport Research. Your line is open. Hello, everybody. Good morning. Um, your comments about not having impairments, that's uh...

Morris: Why do you do that up a lot.

Morris: And I'm just trying to put your balance sheet. So one of the ways I think about that as your units in inventory at about 30.

Morris: 500.

Morris: <unk> thousand 427.

Speaker Change: Where do you think.

Speaker Change: If you can help us understand youre kind of thinking process like where do you think that would be I mean that was.

Operator: It's worth making. I have to think about it, but it is an impressive statement. I'm not sure I was aware of that.

Speaker Change: As high as 4800, and <unk> 22, and I am asking relative to your own life.

Operator: So good for you guys. Why aren't we seeing perhaps better SG&A leverage? Because it looks like it's kind of flat year over year. And with your help.

Speaker Change: Count, which has like eight year supply right now, but you ran out of land you're paid came down.

Operator: I believe you're selling, right? That's where you're absorbing kind of a lot of the increase. It doesn't seem like you're really expecting that to go down much, or are you in your SG&A guide? You're getting more leverage on your communities than you've been investing in, I assume. So talk about that dynamic, if you would. Yeah, great question, Ken. This is Charles.

Speaker Change: Do you think your owned lots.

Speaker Change: Going to be basically the same and Youre just picking up your closing peso loans owned lot supply will go down.

Speaker Change: Asked about the units under construction because that's obviously another part in your balance sheet. If you could address that in terms of where you think that might be at the end of the year. Thank you very much guys.

Speaker Change: Yes, sure Ken I can take this one as well to start with so we are out of our $3 1 billion in inventory about two one of it is invested in raw land land under development and finished lots.

Charles Michael Merdian: So a couple things. One is we're spending more on advertising this year, or expect to this year, than we did in 2023. So that trend started to increase mid-year last year, as we started in the second and kind of third quarters and increased into the fourth quarter. We also are increasing our community count as well. So we're investing in growth in people so that the community count comes closer to Eric's point about the absorption than the revenue does. So we'll be investing ahead of the closures as well. And so those are really the two biggest pieces. GNA Adler.

So really when you breakdown the owned lots, we do that in the in the prepared remarks, breaking the 55000 lots down 41155 of them are in either a raw raw stage or under development. So that would include either truly raw still that's still the corn field.

Speaker Change: Future sections that type of status.

Speaker Change: Or in engineering, which is a low cost investment way to be ready.

Charles Michael Merdian: Is the advertising increase expected to offset your absorption from the people that you've already invested in? And where does that leave your incentive assumption? I guess that's where I'm kind of thinking about those three pieces working together.

Speaker Change: For future active development, so only 25% to roughly about 10000 of our owned lots are under development. So we think.

We are in good shape in terms of managing the delivery of those lots to be able to satisfy the expected demand in terms of what we think for not just 2024, but going into 2025 and and bring the engineered lots into active development. So that we can pace that accordingly, with what we think are key.

Charles Michael Merdian: Sure, yeah, so in terms of the incentive assumptions, the incentives are flowing into net revenues, so not in the SG&A line. So that affects the average sales price, so the assumptions on ASP increase the incentives. And we would expect overall incentives to generally be similar in 2024 as they were in 2023. And then, in terms of, you know, personnel growth, advertising spend, we're investing in driving leads, so our marketing team is actively monitoring what we're spending and where we're spending it to drive leads to our communities. So we're just budgeting in that we're expecting to use our full budget this year. In some years in the past, we haven't had to use it.

Speaker Change: <unk> results are going to be for the next couple of years.

Speaker Change: And then shifting over to vertical we managed to about six months worth of inventory. So just over 3400 units.

Speaker Change: On our from an implied midpoint or low point of our guidance would be just shy of six months. So a slower start to the year that Eric mentioned that pace is expected to increase in terms of the start pace as we introduce new communities later on throughout the year, but the way we think about it is the $800 million we have.

Charles Michael Merdian: For example, during the COVID years, we saw a lot of favorable results in that spending because we didn't need to spend it. But for 2024, we're expecting that we're going to spend our full budget. Good.

Speaker Change: <unk> and vertical.

Speaker Change: Represents a six months supply of where we think closings are going.

Speaker Change: Thank you.

Speaker Change: You bet.

Speaker Change: One moment for our next question.

Speaker Change: Okay.

Speaker Change: And our next question will be coming from Michael Rehaut.

Michael Jason Rehaut: J P. Morgan your line is open Michael.

Charles Michael Merdian: And if I could ask, I guess, more of another question. Um, it goes to the balance sheet and you guys, you know, self-developed land. I think your statement around impairments, uh, back, why you do that a lot. And I'm just trying to think about your balance sheet. So one of the ways I think about that is, you know, your units and inventory at about 30. 500 or 3427.

Michael Jason Rehaut: Thanks, Good afternoon, everyone.

Michael Jason Rehaut: Good afternoon first I wanted to.

Wanted to.

Michael Jason Rehaut: Kind of just.

Michael Jason Rehaut: Dial in a little bit on the closings and the pace of community openings in 2004.

Michael Jason Rehaut: Eric.

Michael Jason Rehaut: You have the guidance out there of growth.

Michael Jason Rehaut: Growth rate range of.

Michael Jason Rehaut: 4% to 19% and Eric I don't know if it was intentional or not or Youre, just referring to the mid point, but you kind of describe your outlook for community I'm, sorry closings growth. This year is double digit.

Charles Michael Merdian: Um, where do you think? If you can help us understand your kind of thinking process, like, where do you think that would be? Because I mean, that was, you know, as high as 4,802 Q 22.

Michael Jason Rehaut: So I don't know if that was just referring to the mid point or.

Michael Jason Rehaut: Your maybe higher conviction of kind of hitting the upper half of that range I don't know if thats.

Charles Michael Merdian: And I'm asking relative to your own lot, which is like eight years' supply right now, but you ran out of land. So, you know, your pace came down. Do you think your own lot... is going to be basically the same, and you're just picking up your closing pace? So your own lot supply will go down. And I asked about the unit center construction because that's obviously another part of your balance sheet, if you could address that in terms of where you think that might be at the end of the year. Thank you very much. Yeah, sure. Again, I can take this one as well, to start with.

Michael Jason Rehaut: Kind of one way to look into that.

Speaker Change: But wanted to get a sense for you.

Speaker Change: Your level of conviction, let's say of hitting the upper half if indeed, you really do expect.

Speaker Change: Kind of to hit that let's say seven 5% to 8000 range, let's say.

Speaker Change: And.

Speaker Change: How does the community count openings, you said it was back half weighted.

Speaker Change: How should we think about that getting to 150.

Speaker Change: We be lets say mid year.

Speaker Change: Yes, Great question, Michael I appreciate you asking it a couple of comments first of all.

Charles Michael Merdian: So out of our 3.1 billion in inventory, about 2.1 of it is invested in raw land, land under development, and finished lots. So really, when you break down the owned lots, we do that in the prepared remarks, breaking the 55,000 lots down, 41,155 of them are in either a raw stage or under development, so that would include either truly raw, you know, still the cornfield, future sections, that type of status, or in engineering, which is a low-cost investment way to be ready for future active development. So only 25%, or roughly about 10,000 of our owned lots, are under development, so we think we are in good shape in terms of managing the delivery of those lots to be able to satisfy the expected demand in terms of what we think for not just 2024 but going into 2025 and bring the engineered lots into active development so that we can pace that accordingly with what we think our closing results are gonna be for the next couple of years.

Speaker Change: We agree with you we hope closings, our closing guidance is conservative and Thats. The way we believe it always should be so yes, when you're talking about double digit growth that was referring to the mid point.

Speaker Change: Community Count growth, we do expect to be backend loaded as an example, one of the exciting things that the teams gearing up for here is we've got 18.

Speaker Change: New community sales openings in the month of March and we would expect all 18 of those to be active communities in Q2 of this year and then adding in Q3 and Q4. So February community counts, probably going to be similar to January community count So really ramping up throughout the rest of the year primarily in the back.

Speaker Change: So those are a couple of exciting things and yes. We're if we performed the way. We're supposed to leads are up sales last week, we're really positive midpoint to high end of the guidance range is certainly hospital and Thats the goal.

Speaker Change: Great Great and then.

Speaker Change: On the community Count I think previously you had talked about getting to above 180 by the end of 'twenty five.

Charles Michael Merdian: And then shifting over to vertical, you know, we managed to have about six months worth of inventory. So just over 3400 units, on our implied midpoint or low point of our guidance would be just shy of six months, so a slower start to the year that Eric mentioned, that pace is expected to increase in terms of the initial pace. Please see the complete disclaimer at https://sites.google.com. This represents a six month supply of where we think closings are going. Thank you.

Speaker Change: Is that still kind of a goal there or I know that in an earlier question, you said growth, but I think <unk> been more explicit in other calls and kind of looking at getting to that 180, mark or better.

Speaker Change: Yes, another great question, Michael we chose not to say 180, specifically for community count growth.

Speaker Change: The following year.

Speaker Change: Part of the reason is we are very opportunistic very selective on new acquisitions, we talked about never taken an inventory impairment in our life of LTI, which is hats off the acquisitions and development teams across the nation for for pulling that feed off and we're very proud of that so we're cautious in our buying right now.

Operator: One moment for our next question. And our next question will be coming from Michael Rehaut, of J.P. Morgan. Your line is open, Michael. Thanks. Good afternoon, everyone.

Speaker Change: And that being said it really depends on what new acquisitions look like for the next six to 12 months. So 180 is possible, but we would have to buy some new deals and keep adding community count to hit that number the year after.

Operator: Good afternoon. First, I wanted to... kind of just say. Dial in a little bit on the closings and the pace of community openings in 24. Eric, you know, you have the guidance out there of a growth rate range of four to 19%. And you know, Eric, I don't know if it was intentional or not, or you're just referring to the midpoint, but you kind of described your outlook for community, I'm sorry, closings growth this year is double digits. So I don't know if that was just referring to the midpoint or, you know, your maybe higher conviction of kind of hitting the upper half of that range. I don't know if that's kind of one way to look into that. But wanted to get a sense for, you know, your level of conviction, let's say, hitting the upper half, if indeed you really do expect kind of to hit that, you know, let's say, let's say, 7,500 to 8,000 range, let's say, and, you know, how does the community count openings, you said it That's a great question, Michael.

Speaker Change: Okay I appreciate that a couple of other quick ones. If I can squeeze in wanted to know number one.

Speaker Change: If you could give us any sense of how February is tracking in terms of closings for the month.

Speaker Change: About another 10 days or so or eight days, perhaps eight nine days to close out.

Speaker Change: And also the interest amortization.

Speaker Change: Usually it's in the low ones.

Speaker Change: And it looks like based on guidance Youre looking more like 2%.

Speaker Change: Ish and just wanted to make sure I had that right as well.

Speaker Change: Yes, I can take the first part of the question I closings for February.

Speaker Change: January sales were not as robust as we'd like Mike. So January closings were lighter in February we expect to close probably around 350, which is up from January down from last year's February and then sales last couple of weeks been very strong.

In the month of February and that will lead to March and we believe we can increase the closings year over year in the month of March.

Eric Thomas Lipar: Appreciate you asking me a couple of comments. You know, first of all, I think we agree with you, we hope closings, our closing guidance is conservative, you know, and that's the way we believe it always should be. So yes, we're talking about double digit growth; that was referring to the midpoint, community cow growth; we do expect to be back unloaded. As an example, one of the exciting things that the team's gearing up for here is we've got 18 new community sales openings in the month of March. And we would expect all 18 of those to be active communities in Q2 of this year, and then adding in Q3 and Q4. So February's community count is probably going to be similar to January's community count, so really ramping up throughout the rest of the year, primarily in the back half. So those are a couple of exciting things.

Speaker Change: Yes, I can take the interest question for you Mike as we expect a lot of these new communities were projects that we developed.

Mike: So as interest rates increased over the last last year or so that interest has been capitalized against these development projects and.

Speaker Change: And we expect them to start coming through the income statement. So we do expect intra.

Speaker Change: Interest to tick up both just from the sheer volume of development communities, plus a higher cost of debt capital.

Speaker Change: And then <unk>.

Speaker Change: Purchase accounting is a small factor into that delta in the guidance as well and we would be.

Speaker Change: Expect that absolute number to generally be about the same year over year. So it will be a smaller portion so little bit higher on the interest.

Speaker Change: Coming through in aluminum smaller on purchase accounting.

Speaker Change: Great. Thanks, so much.

Eric Thomas Lipar: And yeah, if we perform the way we're supposed to, leads are up, and sales last week were really positive. You know, midpoint to the high end of the guidance range is certainly possible, and that's the goal. Great, great. And then, you know, on the community count, you know, I think previously you had talked about getting to above 180 by the end of 25. Is that still kind of the goal there? Or, you know, I know that in an earlier question, you just said growth, but, you know, I think you've been more explicit in other calls and kind of looking at getting to, you know, that 180 mark or better. Yeah, another great question, Michael. We chose not to say 180 specifically for community count growth the following year.

Speaker Change: You bet.

Speaker Change: And one moment for our next question.

Speaker Change: And our next question will be coming from Jay Mccanless of Wedbush J. Your line is open.

Jay Mccanless: Hey, good afternoon, everyone.

Jay Mccanless: My first question, Eric when you were talking about the.

Jay Mccanless: The sales decline in January you said December leads were pretty soft, which which I was surprised to hear because most of your competitors talked about volume and interest levels really picking up in December. So maybe if you could give us some more depth on that please.

Eric: Yes, I think we just didn't see that Jay I think part of those were really focused on ending the year strong and getting to that over 6700 closings last year.

Eric Thomas Lipar: Part of the reason is, you know, we are very opportunistic and very selective in new acquisitions. We talked about never taking inventory impairment in our life of LGI, which is a hats off to the acquisitions and development teams across the nation for pulling that off, and we're very proud of that. So we're cautious in our buying right now. And that being said, it really depends on what new acquisitions look like for the next six to 12 months. So 180 is possible, but we would have to buy some new deals and keep adding community count to hit that number the year after. Okay, I appreciate that. A couple of other quick ones if I can squeeze them in.

Eric: We have products. That's what we said we're going to do it allowed us to increase closings year over year and we just didn't see the strong sales pace in December.

Eric: Typical for us certainly around the holidays in the first year for sales and orders to slowdown.

Eric: But that's just what we saw spending a lot better than February.

Eric: Alright.

And then.

Eric: I think part of what you talked about also maybe some new incentives <unk>.

Eric: Affordability.

Eric: Place that you guys could have with the customers maybe talk more about that and then.

Eric: <unk> taken a step further from that there is a significant amount of multifamily supply that's going to be hitting the market. This year.

Eric: What is the strategy or strategies to defend against that and continue to pull in.

Eric Thomas Lipar: Wanted to know, number one, if you could give us any sense of how February's tracking in terms of closings for the month, you know, about another 10 days or so, or eight days, perhaps eight, nine days to close out. And also, you know, the interest amortization, usually it's in the low ones, and it looks like, based on guidance, you're looking more like 2%-ish. And I just wanted to make sure, you know, I had that right as well.

Eric: I still believe as your core customer into the LG neighborhoods.

Eric: Yes, I think a couple of things there is J, we're always going to be talking to our customers about the advantage of homeownership versus renting I mean, there's more supply of rental houses out there or rental units apartments.

Eric: We're still going to continue to talk about the value of homeownership.

Eric: Right now affordability has strained the gap between the monthly payments that get into homeownership compared to renting an apartment, it's probably the widest it's ever been or certainly the widest over the last 12 months or so and that's the challenge for us and that goes back to ally of the previous discussions that we've had how do you can map that challenge well you spend more money on advertising.

Eric Thomas Lipar: Yeah, I can take the first part of the question on closings for February. January sales were not as robust as we'd like, Mike. So January, closings were lighter.

Eric Thomas Lipar: In February, we expect to close probably around 350, which is up from January but down from last year's February. And then sales for the last couple weeks have been very strong in the month of February, and that will lead to March. And we believe we can increase closings year over year in the month of March. And I can take the interest question for you, Mike, is, you know, we expect a lot of these new communities will be projects that we developed. So, as interest rates have increased over the last year or so, that interest has been capitalized against these development projects.

Eric: You drive leads more leads to our communities because this year, we're probably going after you talk to more people in order to get customers that are qualified we're also working on smaller square foot square footage houses we've talked about that on a couple of previous calls our percentage of of houses under 500 square.

Eric: Our foot that we sold in 2021 that was 21% of our houses were under 500 square feet and 2023 that was 29% and that trend is likely to continue into 2024. So that's some of the tools that we have.

Charles Michael Merdian: And we expect them to start coming through the income statement, so we do expect interest to tick up both just from the sheer volume of development communities plus a higher cost of debt capital, and then purchase accounting is a small factor into that delta in the guidance as well. And we would expect that absolute number to generally be about the same year over year, so it will be a smaller portion, so a little bit higher on the interest, coming through a little bit smaller. Great. Thanks so much.

Eric: The increased spending on marketing doing more training looking at smaller square footage in order to keep that absorption pace up.

Eric: Okay.

Speaker Change: Okay. That's all I had thank you.

Speaker Change: Thanks Jay.

Speaker Change: And one moment our next question.

Speaker Change: And our next question will be coming from Alex Barron of housing Research Center. Your line is open.

Alex Barron: Yes. Thank you.

Alex Barron: Yes, I was hoping you guys could share.

Alex Barron: How many homes you guys have under <unk>.

Operator: And one moment for our next question, and our next question will be coming from Jay McCanless of Wedbush. Jay, your line is, Hey, good afternoon, everyone. So my first question, Eric, when you were talking about the sales decline in January, you said that December leads were pretty soft, which I was surprised to hear because most of your competitors talked about volume and interest levels really picking up in December, so maybe you could give us some more depth on that. Yeah, I think we just didn't see that, Jay.

Alex Barron: Production and how many of those are completed specs.

Alex Barron: Yes, sure we've got about 1400 that our homes in progress and 850 completed homes.

Alex Barron: Okay. So a total of $32 50.

Alex Barron: And then the rest the rest would be information centers.

Alex Barron: To get to a $34 20.

Speaker Change: Okay, Great and then I guess just philosophically speaking.

Speaker Change: Given everything Thats going on right now are you guys more inclined to try to preserve margins or try to.

Speaker Change: Preserved.

Speaker Change: Our sales pace.

Eric Thomas Lipar: I think part of it is we were really focused on ending the year strong and getting to that, you know, over 6,700 closings last year, which we were proud of. That's what we said we were going to do, and it allowed us to increase closings year over year. And we just didn't see the strong sales pace in December. It's very typical for us, certainly around the holidays and the first year, for sales and orders to slow down. But that's just what we saw.

Speaker Change: To maintain volume, even if that affected margins.

Speaker Change: Yes, Alex that's a great question I think that's what margin you are talking about an award for tactical gross margin, we want to maintain our sales pace and for us that means.

Speaker Change: Looking at mortgage incentives that also mean spending more money on advertising, so because we'd like to maintain the pace.

Speaker Change: And also keep our adjusted gross margin high as well, but probably more towards the margin right now.

Speaker Change: We're starting to see some appraisal challenges across the United States, but its still a very minimal amount. So we're comfortable that our sales prices that we're getting good value to our customers, but we're watching that and we'll have to adjust accordingly.

Eric Thomas Lipar: It's been a lot better in February. And then as... Part of what you talked about also is maybe some new incentives and or affordability. www.larryweaver.com. To take it a step further from that, there is a significant amount of multifamily supply that's going to be hitting the market this year. What is the strategy or strategies to defend against that and continue to pull in what I still believe is your core customer into the LGI neighborhood? Yeah, I think a couple things there. Jay, we're always gonna be talking to our customers about the advantage of home ownership versus renting. I mean, if there's more supply of rental houses out there or rental units, or apartments.

Speaker Change: Market dictates that we do so.

Speaker Change: And in terms of.

Speaker Change: Kind of roughly how much are they as a percentage of your sales price.

Yes, I think Theres a couple of different factors there.

Speaker Change: We've done big forward commitments before our typical incentive I'd say on average is 2% to 3% of the sales price and is it really just focused on getting that monthly payment as low as possible, but that would be a good average.

Speaker Change: Got it alright, well best of luck. Thanks.

Speaker Change: Thanks, Alex.

Speaker Change: Sure.

Eric Thomas Lipar: We're still going to continue to talk about the value of homeownership. Right now, affordability is strained. The gap between the monthly payments that get you into homeownership compared to renting an apartment is probably the widest it's ever been, or certainly the widest over the last 12 months or so. And that's a challenge for us, and that goes back to a lot of the previous discussions that we've had. How do you combat that challenge?

Speaker Change: Thank you.

Speaker Change: And at this time im not showing any further questions I would like to hand, the call back to Eric for closing remarks.

Eric: Thank you to everyone for participating on the call today and for your interest in LTI homes have a great day. Thank you.

Speaker Change: Ladies and gentlemen, thank you for participating in today's conference.

Speaker Change: [music].

Speaker Change: Okay.

Eric Thomas Lipar: Well, you spend more money on advertising. You drive leads, more leads to our communities, because we're probably going to have to talk to more people in order to get customers that are qualified. We're also working on smaller square-footage houses. We've talked about that on a couple previous calls.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Eric Thomas Lipar: The percentage of houses under 1,500 square feet that we sold in 2021, that was 21% of our houses were under 1,500 square feet. And in 2023, that was 29%. And that trend is likely to continue into 2024. So those are some of the tools that we have, increased spending on marketing, doing more training, looking at smaller square footage in order to keep that absorption pace. Okay, that's all I had. Thank you.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Sure.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: [music].

Operator: Thanks, Jay, for our next question. And our next question will be coming from Alex Barron of the Housing Research Center. Your line is open.

Operator: Yes, thank you. Um, yeah, I was hoping you guys could share how many homes you guys have under production and how many of those are completed specifications. Yeah, sure. We've got about 1400 that are homes in progress and 1850 completed. Okay, so a total of $32.50. And then the rest would be information centers, to get to $34.20. Okay, great.

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Charles Michael Merdian: And then I guess, you know, just philosophically speaking, Given everything that's going on right now, are you guys more inclined to, you know, try to preserve margins or try to, you know, preserve the sales page, you know, to maintain volume, even if that affects? Yeah, Alex, it's a great question. I think it's the margin you're talking about.

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Eric Thomas Lipar: I mean, we're protective of gross margin, you know; we want to maintain our sales pace. And for us, that means, you know, looking at mortgage incentives. It also means spending more money on advertising. So because we'd like to maintain the pace and also keep our adjusted gross margin high as well, but probably more towards the margin right now. We're starting to see some appraisal challenges across the United States, but it's still a very minimal amount. So we're comfortable that our sales prices are getting good value for our customers, but we're watching that, and we'll have to adjust accordingly. The market dictates that we do. And in terms of incentives, roughly how much, you know, are they as a percentage of your sales? Yeah, I think there's a couple different factors there. You know, we've done big forward commitments before. Our typical incentive, I'd say on average, is two to 3% of the sales price, and you're really just focused on getting that monthly payment as low as possible. But that would be a good average.

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Operator: You got it. All right. Well, best of luck. Thanks, Alex.

Speaker Change: Okay.

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Operator: Thank you. Thank you. Thank you. Thank you. And at this time, I'm not asking any further questions.

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Eric Thomas Lipar: I would like to hand the call back to Eric for closing remarks. Thank you to everyone for participating on the call today and for their interest in LGI Homes. Have a great day.

Speaker Change: Okay.

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Operator: Thank you. Ladies and gentlemen, thank you for participating in today's conference. ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? www.globalonenessproject.org, Thanks for watching!

Speaker Change: Sure.

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Josh Fatter: Music Welcome to the LGI Homes fourth quarter 2023 conference call. Today's call is being recorded, and a replay will be available on the company's website at www.lgihomes.com. After management's prepared comments, there will be an opportunity to ask questions. I'll now turn the call over to Josh Fatter, Vice President of Investor Relations. Please go ahead.

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Josh Fatter: Thanks, and good afternoon. I'll remind listeners that this call contains forward-looking statements, including management's views on LGI Homes' business strategy, outlook, plans, objectives, and guidance for future periods. Such statements reflect management's current expectations and involve assumptions and estimates that are subject to risks and uncertainties that could cause those 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 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'll 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.

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Josh Fatter: Reconciliations of non-GAAP financial measures to the most comparable measures paired in accordance with GAAP can be found in the press release we issued this morning and in our annual report on Form 10-K for the period ended December 31, 2023, that we expect to file with the SEC later today. This filing will be accessible on the SEC's website and in the Investor Relations section of our website.

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Eric Thomas Lipar: I'm joined today by Eric Lipar, LGI Homes' chief executive officer and chairman of the board, and Charles Merdian, chief financial officer and treasurer. I'll now turn the call over to Eric. Thanks, Josh.

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Eric Thomas Lipar: We expected ASPs between $335,000 and $350,000, and we exceeded that range. We generated revenue of $2.4 billion, an increase of over 2% compared to last year, making us one of the few public homebuilders who delivered year-over-year growth in both closings and revenue in 2023. The trend of outperformance continued when it came to our profitability target. At this time last year, we expected gross margin to range between 21 and 23 percent, and our actual result was at the top end of that range. We expect an adjusted gross margin between 22.5% and 24.5%. Through a continued focus on improving profitability throughout the year, we exceeded the high end of that range, delivering 24.7%. We averaged 5.4 closings per community per month last year, an industry-leading pace that demonstrates the effectiveness of our systems, processes, and people in a challenging and uncertain market.

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Speaker Change: Welcome to the LTI homes fourth quarter 2023 conference call.

Speaker Change: Today's call is being recorded and a replay will be available on the Companys website at www Dot LTI homes Dot com. After management's prepared remark comments, there will be an opportunity to ask questions. I'll now turn the call over to Josh <unk> Vice President of Investor Relations. Please go ahead.

Speaker Change: Okay.

Josh Batter: Thanks, and good afternoon.

Josh Batter: 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.

Josh Batter: This filing will be accessible on the Sec's website and in the Investor Relations section of our website.

I'm joined today by Eric Lieber L. J Homes', Chief Executive Officer, and Chairman of the Board Charles Murnian, Chief Financial Officer, and Treasurer, I will now turn the call over to Eric.

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

Eric Lieber: We are pleased to report that we delivered a strong fourth quarter successfully achieved all of our operational and financial guidance targets for the full year.

Eric Lieber: We also laid the foundation for considerable community count growth and continued profitability for many years to come.

As we prepared for today's call we reflected on our original full year guidance from February of last year.

Eric Thomas Lipar: The success of our business model has been clearly demonstrated by a number of impressive metrics, but I'll draw your attention to one in particular. Despite expanding our operational footprint significantly, quadrupling our closings, and increasing our community count by a factor of nearly seven times, we have never taken an inventory impairment, not as a public company and not as a private company before that. Even with the challenges and uncertainty of the last 18 months, the conservative and disciplined framework of our acquisition strategy has proven extremely dependable at selecting and delivering lots that meet or exceed our profitability and return metrics, and we expect that to remain the case in the future. With that, I'll turn the call over to Charles for additional color on our financial results. Thanks, Eric.

Eric Lieber: Looking back it's worth highlighting how well our teams across the country navigate the headwinds executed our strategy and outperformed our initial expectations.

Eric Lieber: At the beginning of last year, we expect to close between 6000.

Eric Lieber: And 7000 homes.

Eric Lieber: We delivered 6729 homes the high end of our original guidance and an increase of one 6% year over year.

Eric Lieber: We expect that AFP between 335, and $350000 and we exceeded that range.

Eric Lieber: We generated revenue of $2 4 billion, an increase of over 2% compared to last year, making us one of the few public homebuilders, who delivered year over year growth in both closings and revenue in 2023.

Charles Michael Merdian: Here are more details on our fourth quarter results. Revenue was $608.4 million, an increase of 24.6% year-over-year, reflecting a 21.4% increase in closings to 1,758 homes and a 2.6% increase in our average selling price of $346,083.

Eric Lieber: The trend of outperformance continued when it came to our profitability targets at this time last year, we expect gross margin to range between 21, and 23% and our actual result was at the top end of that range.

Eric Lieber: We expected adjusted gross margin between 20, 252 24, 5%.

Through our continued focus on improving profitability throughout the year, we exceeded the high end of that range delivering 24, 7%.

We averaged five four closings per community per month last year and industry, leading pace that demonstrates the effectiveness of our systems processes and people in a challenging and uncertain market.

Eric Lieber: Our top five markets this year, where Dallas Fort worth with $9, one closings per community per month, Charlotte with eight six northern California with 834 peers with eight one in Las Vegas was seven three <unk>.

Speaker Change: Congratulations to the teams in these markets on your outstanding results.

Speaker Change: In 2023, our geographic footprint continue to grow.

Speaker Change: We added a new market and a new state to our map with our first closings in Salt Lake City, Utah at.

Charles Michael Merdian: I'll remind listeners that during the fourth quarter of 2022, we decided to move older, higher cost inventory, resulting in lower overall margin. The 270-basis point improvement was also driven by our continued focus this year on improving the incremental profitability on every home sold and fewer wholesale transactions. Growth margins were 230 basis points lower sequentially, primarily due to higher financing incentives offered to buyers in the fourth quarter. Adjusted gross margin in the fourth quarter was 25.1 percent. The Jussie Gross Margin excludes $8.9 million of capitalized interest charged to the cost of sales and $981,000 related to purchase accounting, together representing 170 basis points.

Speaker Change: At the time of our initial public offering in 2013, we were operating just eight markets across four states.

Speaker Change: Since then we successfully upgraded our systems and culture across the country and are now active in 36 markets across 21 states.

Speaker Change: Salt Lake City marks another significant milestone in the growth of our company and we look forward to providing more updates on future calls.

Speaker Change: Throughout 2023, we made considerable progress growing our community count and ended the year with 117 active communities an increase of 18, 2% year over year.

Speaker Change: And we're not slowing down expanding community count remains at the forefront of our objectives, while the land required to drive our growth for the next several years is already owned and under development. There is more work to do we.

Speaker Change: We continue to invest in our long term growth and are taking advantage of opportunities as they arise.

Not as a public company and that is a private company before that.

Charles Michael Merdian: Even with the challenges and uncertainty over the last 18 months, the conservative and disciplined framework of our acquisition strategy has proven extremely dependable selecting in delivering lots that meet or exceed our profitability and return metrics and we expect that to remain the case for the future.

With that I'll turn the call over to Charles for additional color on our financial results.

Charles Michael Merdian: Thanks, Eric.

Charles Michael Merdian: There are more details on our fourth quarter results.

Charles Michael Merdian: Revenue was $608 4 million, an increase of 24, 6% year over year, reflecting a 21, 4% increase in closings to 1758 homes.

Charles Michael Merdian: Highlighting a few full-year results, revenue was $2.4 billion, an increase of 2.3%, driven by a 1.6% increase in home closings and a 0.7% increase in our full-year average sales price of $350,510.

And a two 6% increase in our average selling price to $346083.

Charles Michael Merdian: During the year, we closed 679 homes through our wholesale business, representing 10.1% of our total closings and generating $202.3 million in revenue. We currently expect our wholesale business will represent approximately 5% of our total closings in 2024. Our full-year gross margin was 23%, and adjusted gross margin was 24.7%, both in line with the guidance we provided on our last call. Combined selling, general, and administrative expenses were also in line with our guidance, at 13.1%. Our pre-tax net income for the year was $261.8 million, or 11.1% of revenue.

Charles Michael Merdian: Gross margin as a percentage of sales in the fourth quarter was 23, 4% compared to 27% in the same period last year.

Charles Michael Merdian: I'll remind listeners that during the fourth quarter of 2022, we decided to move older higher cost inventory, resulting in lower overall margins.

Charles Michael Merdian: Gross margins were 230 basis points lower sequentially, primarily due to higher financing incentives offered to buyers in the fourth quarter.

Charles Michael Merdian: Net orders were 971, and the cancellation rate during the quarter was 37.8% compared to 37.5% during the same period last year. The full year cancellation rate was 25.4%, generally in line with our historical average. We ended the year with 590 homes in backlog valued at $224.9 million. The decrease in homes was primarily due to fewer wholesale contracts included in our backlog at the end of this year compared to last.

Charles Michael Merdian: Adjusted gross margin in the fourth quarter was 25, 1%.

Charles Michael Merdian: Adjusted gross margin excludes $8 $9 million of capitalized interest charged to cost of sales and $981000 related to purchase accounting together, representing 170 basis points.

Charles Michael Merdian: Combined selling general and administrative expenses were 13, 6% of revenue.

Charles Michael Merdian: Selling expenses were $49 8 million or eight 2% of revenue compared to six 8% of revenue in the fourth quarter of 2022.

Charles Michael Merdian: The increase as a percentage of revenue was driven by increased spending on advertising and higher outside commissions.

Charles Michael Merdian: General and administrative expenses totaled $33 million or five 4% of revenue in the fourth quarter compared to five 5% of revenue in the same period last year.

Charles Michael Merdian: Pre tax net income for the fourth quarter was $68 5 million or 11, 3% of revenue.

Charles Michael Merdian: Fourth quarter net income was $52 1 million.

Charles Michael Merdian: Our $2 21 per basic share and $2 19 per diluted share.

Charles Michael Merdian: Highlighting a few full year results.

Charles Michael Merdian: Revenue was $2 4 billion in.

Charles Michael Merdian: An increase of two 3% driven by a one 6% increase in home closings and a 7% increase in our full year average sales price to $350510.

Charles Michael Merdian: During the year, we closed 679 homes through our wholesale business, representing 10, 1% of our total closings and generating $202 $3 million in revenue with.

Charles Michael Merdian: During the quarter, we started 705 homes and finished the year with 3,427 completed homes, information centers, or homes in progress. Finally, on December 31st, we controlled 15,750 lots, an increase of 19.5% year over year. With that, I'll turn the call over to Josh for a discussion of our capital position. Thank you, Charles. We ended the year with over $3.1 billion of real estate inventory and total assets of over $3.4 billion. In November, we issued $400 million of eight and three quarter percent senior notes and used the net proceeds to pay down borrowings on our revolver.

Charles Michael Merdian: We currently expect our wholesale business will represent approximately 5% of our total closings in 2024.

Charles Michael Merdian: Our full year gross margin was 23% and adjusted gross margin was 24, 7% both in line with the guidance we provided on our last call.

Charles Michael Merdian: Combined selling general and administrative expenses were also in line with our guidance at 13, 1%.

Charles Michael Merdian: Our pretax net income for the year was $261 8 million or 11, 1% of revenue.

Charles Michael Merdian: Our effective tax rate last year was 23, 9% in line with the guidance we provided on our last call.

Charles Michael Merdian: And finally, our 2023 net income was $199 2 million or $8 48 per basic share and $8 42 per diluted share.

Charles Michael Merdian: Fourth quarter gross orders were 1561 net orders were 971 and the cancellation rate during the quarter was 37, 8% compared to 37, 5% during the same period last year.

Josh Fatter: The new notes mature in 2028 and are callable beginning late May. Concurrent with the new issuance, we successfully amended our credit agreement, returning a previously non-extending lender back into our bank group and increasing total commitments on the facility from $1.1 to $1.2 billion through 2025 and extending the maturity for $960 million of those commitments through 2028. Taken together, these two transactions create additional depth and flexibility within our capital structure and provide significant additional liquidity to support our long-term profitability-focused growth. As of December 31st, our total debt was $1.25 billion, resulting in a debt-to-capital ratio of 40.2% and a net debt-to-capital ratio of 39.3%.

Charles Michael Merdian: Full year cancellation rate was 25, 4% generally in line with our historical average.

Charles Michael Merdian: Turning to our land position at December 31.

Charles Michael Merdian: We owned and controlled the total of 71081 locks a decrease of one 1% year over year and one 4% sequentially.

Charles Michael Merdian: We ended the quarter with 55 331 owned lots a decrease of five 8% year over year and one 7% sequentially.

Charles Michael Merdian: Of the remaining 14176 owned lots 10749 were finished vacant lots.

Josh Fatter: The total liquidity was $403.8 million, including $49 million of cash on hand and $354.8 million available to borrow under our revolving credit facility. Finally, we ended the quarter with nearly $1.9 billion in total book equity and a book value per share of $78.71. With that, I'll turn the call back over to Eric. Thanks, Josh. We're pleased with the strong results we delivered in 2020. It was a challenging year, but our success in meeting or exceeding all of our operational and financial targets reflects the effectiveness of our systems and people and gives us confidence as we head into 2024. Before sharing our outlook, I'll provide some color on what we're currently seeing in the market. As shown by our January closings, the first quarter got off to a slower start. There were several contributing factors, including pronounced seasonality in December lead.

Charles Michael Merdian: During the quarter, we started 705 homes and finished the year with 3427 completed homes information centers or homes in progress.

Finally at December 31, we controlled 15750 lots an increase of 19, 5% year over year.

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

Thanks Charles.

Josh Batter: We ended the year with over $3 1 billion of real estate inventory and total assets of over $3 4 billion.

Josh Batter: Concurrent with the new issuance, we successfully amended our credit agreement returning our previously not extending lender back into our bank group and increasing total commitments on the facility from one one to $1 $2 billion through 2025, and extending the maturity for $960 million of those commitments through 2028.

Josh Batter: Taken together these two transactions create additional depth and flexibility within our capital structure and provide significant additional liquidity to support our long term profitability focused growth.

Eric Thomas Lipar: Fewer wholesale closings, the closing out of some higher performing communities, and new openings that are still in the early stages. However, I'm pleased to say since the beginning of February, we've seen a significant increase in leads and traffic. We remain focused on keeping homeownership affordable, utilizing our expertise in reaching and serving first-time homebuyers.

Josh Batter: As of December 31, our total debt was $1 25 billion.

Josh Batter: Resulting in a debt to capital ratio of 42% and our net debt to capital ratio of 39, 3%.

Josh Batter: Liquidity was $403 8 million, including $49 million of cash on hand, and $354 8 million available to borrow under our revolving credit facility.

Josh Batter: Finally, we ended the quarter with nearly $1 9 billion and total book equity and our book value per share of <unk> $78 71.

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

Eric Lieber: Thanks, Josh we're pleased with the strong results we delivered in 2023.

Eric Lieber: Was a challenging year, but our success in meeting or exceeding all of our operational and financial targets reflect the effectiveness of our systems and people and gives us confidence as we head into 2024.

Eric Lieber: Before sharing our outlook I'll provide some color on what we're currently seeing in the market.

Eric Lieber: As shown by our January closings to the first quarter got off to a slower start there were several contributing factors, including pronounced seasonality in December leads your wholesale closings the closeout of some higher performing candies and new openings that are still in the early stages.

Eric Thomas Lipar: Once again, community count will be up significantly this year. We expect to grow community count by 25 to 30% and end 2024 with approximately 150 active selling communities. Selling prices will be higher this year as we balance affordability and focus on increasing margins and offsetting expected cost inflation. Based on our backlog, planned product mix, and expected community openings, we are guiding to a full-year average sales price between $350,000 and $360,000. While few builders have set out a full-year gross margin target, we once again plan to increase margins. We currently expect full-year gross margins between 23.1% and 24.1% and adjusted gross margins between 25 and 26%. SG&A expense is expected to range between 12.5% and 13.5% as we invest in personnel, training, and advertising to support our growing number of communities. Finally, we expect the full-year tax rate to range between 24 and 25 percent.

Eric Lieber: However, I'm pleased to say that at the beginning of February we have seen a significant increase in leads and traffic.

Eric Lieber: We remain focused on keeping homeownership affordable utilizing our expertise in reaching at serving the first time homebuyers.

Eric Lieber: Through the first three week as of February our leads are up an average of over 73% compared to the prior two months and last weekend was the best sales week of the year driven by our investment in targeted advertising and introduction of new solutions to combat affordability headwinds for our customers.

Eric Lieber: But those points in mind I'll share our outlook for 2024.

Eric Lieber: Our plan remains anchored in our strategy of driving affordability, increasing profitability and building on the significant groundwork related 2023, where community count growth over the next several years.

Eric Lieber: For the full year, we expect closings to be up by digit double digits and plan to deliver between 7000 and.

Eric Lieber: <unk> 8000 homes.

Eric Lieber: Once again community count will be up significantly this year, we expect to grow community count by 25% to 30% and end 2024 with approximately 150 active selling communities.

Eric Lieber: Selling prices will be higher this year as we balance of affordability and focus on increasing margins and offsetting expected cost inflation.

Eric Lieber: Based on our backlog planned product mix and expected community openings, we are guiding to a full year average sales price between 350 at $360000.

Eric Thomas Lipar: Similar to this time last year, our guidance targets reflect our current view of the market and what we believe is attainable if conditions remain the same for the rest of the year. As a result, we have complete confidence in our ability to meet or exceed all the metrics we've presented. I will pull it by thanking our employees for their commitment and enthusiasm this past year. At the end of the day, our achievements are the results of our people and their dedication to our company. We thank them for their excellent performance last year and look forward to all that we'll accomplish together in 2024. Operator, please open the call for questions. Certainly. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.

Eric Lieber: While few builders I set out our full year gross margin target. We once again plan to increase margins. We currently expect full year gross margins between 23, 1% and 24, 1% and adjusted gross margins between 25 and 26%.

Eric Lieber: SG&A expense is expected to range between 12, five and 13, 5% as we invest in personnel training and advertising to support our growing number of communities.

Eric Lieber: Finally, we expect our full year tax rate will range between 24 and 25%.

Eric Lieber: Similar to this time last year, our guidance targets reflect our current view of the market and what we believe is attainable if conditions remain the same for the rest of the year.

Eric Lieber: As a result, we have complete confidence in our ability to meet or exceed all of the metrics we presented.

Operator: Please stand by while we compile the Q&A and one moment for our first question. Our first question will be coming from Paul Probilsky of Wolf. Your line is open. Thank you.

Eric Lieber: I'll close by thanking our employees for their commitment and enthusiasm this past year at the end of the day. Our achievements are the results of our people and their dedication to our company.

Eric Thomas Lipar: I guess, first of all, your guide for this year on closings implies about, you know, 4.2 absorptions at the midpoint. You know, typically, I think your goal has been around six. That is, you know, changing your strategic thinking, you know, demand environment focus. So, you know, price over pace, any color you can add there. Yeah, Paul, this is Eric.

Eric Lieber: We thank them for their excellent performance last year and look forward to all that will accomplish together in 2024.

Speaker Change: Operator, please open the call for questions.

Speaker Change: Certainly as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.

Speaker Change: Please standby, while we compile the Q&A roster.

And one moment for our first question.

Speaker Change: Our first question will be coming from Paul <unk> of Wolfe. Your line is open.

Eric Thomas Lipar: It's a great question. I think our numbers are a little bit different from yours. And I'll talk through that, you know, our pace in 2023 was 5.4, which we're pretty excited about because of ASB being the highest it's ever been and opening a lot of new communities. When we looked at guidance for 2024, starting the year, a good comparison, we think we're going to be in an affordability challenge market similar to what we were in 2023. And if we did 5.4 in 2023, confident in our community count growth to 150 active communities, we do believe it's going to be back-end loaded. So the average community count was probably a little bit higher or, excuse me, lower than what you're thinking.

Paul: Thank you I guess first of all your guide for this year on closings implies about a four.

Paul: For two absorptions at the mid point.

Paul: Typically I think your goal has been around six is better.

Paul: Changing your strategic thinking.

Demand environment focus so.

Price over pace any color you can either.

Paul: Yes, Paul this is Eric it's a great question I think our numbers are a little bit different from yours, and I'll talk through that our pace in 2023 was five four.

We're pretty excited about because <unk> the highest its ever been and opening a lot of new communities and then when we looked at guidance for 2024.

Paul: Starting the year a good comparison, we think we're going to be in an affordability challenge market similar to what we were in 2023 and if we did five four in 2023.

Confident in our community count growth to 150 active communities. We do believe it's going to be backend loaded. So the average community count was probably a little bit.

Eric Thomas Lipar: And we think a range of 4.5 to 5.3 is actually where our guidance is based on where and how we think the community count's going to flow. Also, another factor in that is LGI Living, our wholesale business. Our expectations are that that's about half of it, the volume it was in 2023. And then with all the new communities opening, our expectations are that all of these new communities will have a slower absorption pace. So 5.4 last year, a range of 4.5 to 5.3 this year, we think it's a very good way to start the year with guidance.

Paul: Higher there or excuse me lower than what Youre thinking and we think a range of four five to $5. Three is actually where our guidance is based on where how we think the community count is going to flow also another factor in that as <unk> living our wholesale business our expectations Thats about half of the volume it was in 2023.

Paul: Then with all the new communities opening our expectations are these all of these new communities. The absorption pace was slower so five four last year a range of four five to $5. Three this year, we think it's a very.

Eric Thomas Lipar: And then going to your gross margin guide, obviously, it's flat to up year over year. I think some of your peers are talking down those expectations given higher land costs flowing through. I guess what's different about your current setup that would allow you to buck those trends?

Paul: Good way to start start the year with guidance.

Speaker Change: Okay fair enough.

Speaker Change: Yes.

Speaker Change: And then go into your gross margin guide, obviously, it's flat to up.

Speaker Change: Year over year.

Speaker Change: Some of your peers are talking down those.

Speaker Change: Expectations, given you a higher land costs flowing through I guess, what's different about your current setup.

Eric Thomas Lipar: Yeah, I think a couple of things, Paul. First of all, we do a lot of development work. We think it's important to capture that development profit. We think we need to incentivize customers through incentives to get that mortgage rate and buy-downs as low as possible, but we don't think that needs to be more than we have been doing in 2023. And I think we need to take a cautious approach to that. You know, these finished lots and the inventory that we have around the country are very valuable assets. So I think we're going to be cautious about discounting them too much. And certainly, if we did a lot of discounting and offered even more incentives as a customer, that pace per community would probably increase.

Speaker Change: It would allow you to book those trends.

Speaker Change: Yes, I think a couple of things Paul first of all we do a lot of development work, we think it's important to capture that development profit.

Speaker Change: We need to incentivize the customers through incentives to get that mortgage rate buy downs as low as possible, but we don't think that needs to be more than we have been doing in 2023, and I think we need to take a cautious approach to that these these finished lots in the inventory that we have around the country those are very valuable.

Speaker Change: So I think we're going to be cautious about discounting them too much and certainly if we did a lot of discounting and through even more incentives up customer that at that pace per community would probably increase product we need to be protective of our gross margin and thats one of the positive things about it <unk> right. Now is we're anticipating gross margin midpoint of our range being <unk>.

Eric Thomas Lipar: But I think we need to be protective of our gross margin, and that's one of the positive things about LGI right now is that we're anticipating the gross margin midpoint of a range being higher in 2024 than in 2023, plus all the community count growth. And one last one, on your, you know, you've got nice community count growth this year. How does that set the stage going into 25? Will you be able to maintain community count growth, or are you kind of pulling some stuff forward? Any color or guidance?

Speaker Change: Higher in 2024, and 2023, plus all the community count growth.

Speaker Change: Okay, and one last one on your <unk>.

Speaker Change: Yes, no no pulling it forward from our standpoint, it was still expect community count growth in 2025 to 150 <unk> are somewhat baked in.

Speaker Change: Almost all of those are completely developed a lot of those construction has begun on the site. So we expect those 150 communities to have closings.

Speaker Change: By the end of the year and then we expect community count growth again.

Speaker Change: Next year as well.

Speaker Change: Alright, Thank you I appreciate it youre.

Charles Michael Merdian: And one moment for our next question. And our next question will be coming from Ken Zinner of Seaport Research. Your line is open. Hello, everybody. Good morning.

Speaker Change: Youre welcome.

Speaker Change: One moment for our next question.

Speaker Change: And our next question will be coming from Ken Zenner of Seaport Research. Your line is open.

Ken Zenner: Hello, everybody.

Charles Michael Merdian: Um, your comments about not having impairments, that's uh... It's worth biomaking, I think. I have to think about it, but it is an impressive statement. I'm not sure I was aware of that. So, good for you guys. But why aren't we seeing perhaps better SG&A leverage? because it looks like it's kind of flat year over year, and with your, I believe you're selling, right? That's where you're absorbing kind of a lot of the increase. It doesn't seem like you're really expecting that to go down much, or are you in your SG&A guide? You're getting more leverage on your communities that you've been investing in, I assume, so talk about that dynamic, if you would. Yeah, great question, Ken. This is Charles.

Ken Zenner: Good morning, good morning.

Ken Zenner: Your comment about not having impairments that Scott.

Ken Zenner: It's worthwhile, making.

Ken Zenner: I have to think about it but it is an impressive statement I'm not sure I was aware of that so good for you guys.

Ken Zenner: Why are we seeing perhaps better SG&A leverage.

Ken Zenner: Because it looks like it's kind of flat year over year and with your.

I believe you are selling three year absorbing kind of lot of the increase it doesn't seem like you're really expecting that to go down much or are you in your SG&A guidance.

Ken Zenner: Because youre getting more leverage on your communities that you've been investing for ICL.

Ken Zenner: That dynamic if you would.

Ken Zenner: Yes, Great question, Ken This is Charles.

Charles Michael Merdian: So a couple things. One is we're spending more on advertising this year, or expect to this year, than we did in 2023. So that trend started to increase mid-year last year, as we started in the second and kind of third quarters and increased into the fourth quarter. We also are increasing our community count as well. So we're investing in growth in people so that the community count comes closer to Eric's point about the absorption than the revenue does. So we're a little, you know; we'll be investing ahead of the closures as well. So those are really the two biggest pieces.

Charles Michael Merdian: So a couple of things one is we're spending more on advertising. This year are expect to this year than we did in 2023, so that trend started to increase mid year.

Charles Michael Merdian: Last year.

Charles Michael Merdian: We started in the second and third quarters and increased into the fourth quarter. We also are increasing community count as.

Charles Michael Merdian: As well so we're investing in growth and people that the community count comes faster to Eric's point the absorption than the revenue does so we're a little ahead, we'll be investing ahead.

Charles Michael Merdian: Of the closings as well.

Charles Michael Merdian: So those are really the two biggest pieces.

Charles Michael Merdian: G&A AdWords. Yep. Is the advertising increase expected to offset your absorption from the people that you've already invested in? And where does that leave your incentive assumption? I guess that's where I'm kind of thinking about those three pieces working together.

Charles Michael Merdian: G&A advertising.

Charles Michael Merdian: Is the average rate increase is.

Charles Michael Merdian: Is the advertising increase expected to offset your.

Charles Michael Merdian: Absorption from the people that you've already invested in and where does that leave your incentive assumption I guess, that's where I'm kind of thinking about those three pieces working together.

Charles Michael Merdian: Sure, yeah, so in terms of the incentive assumptions, the incentives are flowing into net revenues, so not in the SG&A line. So that affects the average sales price, so the assumptions on ASP increase the incentives. And we would expect overall incentives to generally be similar in 2024 as they were in 2023. And then, in terms of, you know, personnel growth, advertising spend, we're investing in driving leads, so our marketing team is actively monitoring what we're spending and where we're spending it to drive leads to our communities. So we're just budgeting in that we're expecting to use our full budget this year, and some years in the past, we haven't had to use it. For example, during the COVID years, we saw a lot of favorable results in that spending because we didn't need to spend it.

Speaker Change: Sure, yes, so so in terms of the incentive assumptions.

Speaker Change: Incentives are are flowing into net revenues so not in <unk> not in the SG&A line.

Speaker Change: So that affects the average sales price to the assumptions on ASP got increasing.

Speaker Change: Incentives and we would expect overall incentives to generally be similar in 2024 as they were to the average for 2023.

Speaker Change: And then in terms of <unk>.

Speaker Change: Personnel growth advertising spend.

Speaker Change: We're investing in driving leads so our marketing team is actively monitoring.

Speaker Change: What we're spending and where we're spending it to drive leads to our communities. So we're just budgeting and that we're expecting to use our our full budget. This year in some years in the past we haven't had to use it.

Speaker Change: For example, during the Covid years, we saw a lot of.

Speaker Change: Favorable results in that spend because we didn't need to spend it but for 2024, we're expecting that we're going to spend our full budget.

Charles Michael Merdian: But for 2024, we're expecting that we're going to spend our full budget. Good. And if I could ask, I guess, another question. Um, it goes to the balance sheet and you guys, you know, self-developed land. I think your statement around impairments, uh, back, why you do that a lot, and I'm just trying to balance your balance sheet, so one of the ways I think about that is you know your units and inventory at about 30, 500 or 3427. Um, where do you think? You know, as high as 4800 and 2Q22.

Speaker Change: Great and if I could ask I guess Morris and others.

Speaker Change: Question.

Speaker Change: And it goes to the balance sheet and you guys.

Speaker Change: Self developed land I think your statement around impairments.

Speaker Change: Beth.

Speaker Change: Why you do that up a lot.

Speaker Change: And I'm just trying to put your balance sheet. So one of the ways I think about that as your units in inventory at about 30.

Speaker Change: 500.

Speaker Change: <unk> thousand 427.

Speaker Change: Where do you think.

Speaker Change: If you can help us understand youre kind of thinking process like where do you think that would be I mean that was.

Speaker Change: As high as 4800, and <unk> 22, and I'm asking relative to your own life.

Charles Michael Merdian: And I'm asking relative to your own lot and account, which is like eight years' supply right now, but you ran out of land. So, you know, your pace came down. Do you think your own lot... is going to be basically the same, and you're just picking up your closing pace? So your own lot supply will go down. And I asked about the unit center construction because that's obviously another part of your balance sheet, if you could address that in terms of where you think that might be at the end of the year. Thank you very much. Yeah, sure. Ken, I can take this one as well, to start with.

Speaker Change: Count, which has like eight year supply right now, but you ran out of land you are paid came down.

Speaker Change: Do you think your owned lots.

Speaker Change: We're going to be basically the same and youre just picking up your closing peso grown lines loans owned lot supply will go down and asked about the units under construction because that's obviously another part in your balance sheet. If you could address that in terms of where you think that might be at the end of the year. Thank you very much guys.

Speaker Change: So really when you break down the owned lots, we do that in the in the prepared remarks, breaking the 55000 lots down 41155 of them are in either a raw raw stage or under development. So that would include either truly raw still the still the cornfield.

Speaker Change: Future sections that type of status.

Speaker Change: Or in engineering, which is a low cost investment way to be ready.

Speaker Change: For future active development, so only 25% to roughly about 10000 of our owned lots are under development. So we think.

Charles Michael Merdian: So only 25%, or roughly about 10,000 of our owned lots, are under development, so we think we are in good shape in terms of managing the delivery of those lots to be able to satisfy the expected demand in terms of what we think for not just 2024 but going into 2025 and bring the engineered lots into active development so that we can pace that accordingly with what we think our closing results are gonna be for the next couple of years. And then shifting over to vertical, you know, we managed to get about six months worth of inventory. So just over 3400 units, on our implied midpoint or low point of our guidance would be just shy of six months, so a slower start to the year that Eric mentioned, but that pace is expected to increase in terms of the initial pace. , represents a six month supply of where we think closings are going. Thank you.

Speaker Change: We are in good shape in terms of managing the delivery of those lots to be able to satisfy the expected demand in terms of what we think for not just 2024, but going into 2025 and and bring the engineered lots into active development. So that we can pace that accordingly, with what we think are.

Speaker Change: <unk>.

Speaker Change: Our results are going to be for the next couple of years.

Speaker Change: And then shifting over to vertical we managed to about six months worth of inventory. So just over 3400 units.

<unk> and vertical.

Speaker Change: Represents a six month supply of where we think closings are going.

Speaker Change: Thank you.

Speaker Change: You bet.

Charles Michael Merdian: One moment for our next question. And our next question will be coming from Michael Rehaut, of JP Morgan. Your line is open, Michael. Thanks. Good afternoon, everyone.

Speaker Change: One moment for our next question.

Speaker Change: Okay.

Speaker Change: And our next question will be coming from Michael Rehaut.

Michael Jason Rehaut: J P. Morgan your line is open Michael.

Michael Jason Rehaut: Thanks, Good afternoon, everyone.

Eric Thomas Lipar: Good afternoon. First, I wanted to kind of just dial in a little bit on the closings and the pace of community openings in 24. Eric, you know, and you're giving the guidance out there of a growth rate range of four to 19%. And you know, Eric, I don't know if it was intentional or not, or you're just referring to the midpoint, but you kind of described your outlook for community, I'm sorry, closings growth this year is double digits. So I don't know if that was just referring to the midpoint or, you know, your maybe higher conviction of kind of hitting the upper half of that range. I don't know if that's just one way to look into that.

Michael Jason Rehaut: Good afternoon first I wanted to I wanted to.

Michael Jason Rehaut: Kind of just.

Michael Jason Rehaut: Dial in a little bit on the closings and the pace of community openings in 2004.

Michael Jason Rehaut: Eric.

Michael Jason Rehaut: You have the guidance out there of.

Michael Jason Rehaut: Growth rate range of.

Michael Jason Rehaut: So I don't know if that was just referring to the midpoint or.

Michael Jason Rehaut: Your maybe higher conviction of kind of hitting the upper half of that range I don't know if thats.

Michael Jason Rehaut: One way to look into that.

Eric Thomas Lipar: But wanted to get a sense for, you know, your level of conviction, let's say, hitting the upper half, if indeed you really do expect to hit that, you know, let's say, 7,500 to 8,000 range, let's say, and, you know, how does the community count openings, you said it was back half-weighted, how should we think about that, you know, getting to 150, you know, like That's a great question, Michael.

Speaker Change: Wanted to get a sense for.

Speaker Change: Your level of conviction, let's say of hitting the upper half.

Speaker Change: Indeed, you really do expect.

Speaker Change: Kind of to hit that let's say seven 5% to 8000 range, let's say.

Speaker Change: And.

Speaker Change: How does the community count openings, you said it was back half weighted.

Speaker Change: How should we think about that getting to 150, where.

Speaker Change: Where would we be lets say mid year.

Speaker Change: Yes, great question Michael.

Eric Thomas Lipar: Appreciate you asking. I have a couple comments. You know, first of all, I think we agree with you. We hope closings, our closing guidance is conservative, you know, and that's the way we believe it always should be. So yes, we're talking about double digit growth; that was referring to the midpoint. Community count growth, we do expect to be back offloaded. You know, as an example, one of the exciting things that the team's gearing up for here is we've got 18 new community sales openings in the month of March. And we would expect all 18 of those to be active communities in Q2 of this year, and then more in Q3 and Q4. So February's community count is probably going to be similar to January's community count, so really ramping up throughout the rest of the year, primarily in the back half. So those are a couple of exciting things.

Speaker Change: I appreciate you asking a couple of comments first of all I.

Speaker Change: I think we agree with you we hope closings, our closing guidance is conservative and Thats. The way we believe it always should be so yes, when you're talking about double digit growth that was referring to the midpoint.

Speaker Change: Community Count growth, we do expect to be backend loaded as an example, one of the exciting things that the teams gearing up for here is we've got 18.

Speaker Change: Half. So those are a couple of exciting things and yes. We're if we performed the way we are supposed to leads or op sales last week, we're really positive midpoint to high end of the guidance range is certainly hospital and Thats the goal.

Eric Thomas Lipar: And yeah, if we perform the way we're supposed to, leads are up, sales last week were really positive. You know, midpoint to the high end of the guidance range is certainly possible, and that's the goal. Great, great. And then, you know, on the community count, I think previously you had talked about getting to above 180 by the end of 25. Is that still kind of the goal there?

Speaker Change: Great Great and then.

Speaker Change: On the community Count I think previously you had talked about getting to above.

Speaker Change: <unk> hundred 80 by the end of 'twenty five.

Speaker Change: Is that still kind of the goal there or I know that in an earlier question you said growth but.

Eric Thomas Lipar: Or, you know, I know that in an earlier question, you just said growth, but, you know, I think you've been more explicit in other calls and kind of looking at getting to, you know, that 180 mark or better. Yeah, another great question, Michael. We chose not to say 180 specifically for community count growth the following year.

Speaker Change: <unk> been more explicit in other calls and kind of looking at getting to that 180, mark or better.

Speaker Change: Yes, another great question, Michael we chose not to say 180 Pacifically for community count growth.

Speaker Change: Following year.

Speaker Change: Okay.

Speaker Change: Great that a couple of other quick ones, if I can squeeze in.

Eric Thomas Lipar: I wanted to know, number one, if you could give us any sense of how February's tracking in terms of closings for the month. You know, about another 10 days or so, or eight days, perhaps eight, nine days to close out. And also, you know, the interest amortization, usually it's in the low ones. And it looks like, based on guidance, you're looking more like 2%-ish. And I just wanted to make sure, you know, I had that right as well.

Speaker Change: Wanted to know number one.

Speaker Change: If you can give us any sense of how February is tracking in terms of closings for the month.

Speaker Change: About another 10 days or so or eight days, perhaps eight nine days to close out.

And also the interest amortization.

Speaker Change: Usually it's in the low ones.

Speaker Change: And it looks like based on guidance Youre looking more like 2%.

Speaker Change: Ish and just wanted to make sure I had that right as well.

Eric Thomas Lipar: Yeah, I can take the first part of the question on closings for February. January sales were not as robust as we'd like, Mike. So January, closings were lighter in February; we expect to close probably around 350, which is up from January down from last year's February, and then sales have been very strong in the last couple weeks in the month of February, and that will lead to March, and we believe we can increase closings year over year in the month of March. And I can take the interest question for you, Mike, is, you know, we expect a lot of these new communities were So, as interest rates have increased over the last year or so, that interest has been capitalized against these development projects.

Yes, I can take the first part of the question I closings for February.

Speaker Change: In the month of February and that will lead to March and we believe we can increase the closings year over year in the month of March.

Speaker Change: Yes, I can take the interest question for you Mike as we expect a lot of these new communities were projects that we developed so as interest rates increased over the last last year or so that interest has been capitalized against these development projects and.

Charles Michael Merdian: And we expect them to start coming through the income statement. So we do expect interest to tick up, both just from the sheer volume of development communities plus a higher cost of debt capital. And then purchase accounting is a small factor into that delta in the guidance as well.

Speaker Change: And we expect them to start coming through the income statement. So we do expect interest to tick up both just from the sheer volume of development communities, plus a higher cost of debt capital.

Speaker Change: And then <unk>.

Speaker Change: <unk> accounting is a small factor into that delta in the guidance as well and we would.

Charles Michael Merdian: We expect that absolute number to generally be about the same year over year, so it will be a smaller portion, so a little bit higher on the interest, coming through in a little bit smaller. Great. Thanks so much.

Speaker Change: Spect that absolute number to generally be about the same year over year. So it will be a smaller portion so a little bit higher on the interest.

Coming through in aluminum smaller on purchase accounting.

Speaker Change: Great. Thanks, so much.

Speaker Change: You bet.

Speaker Change: And one moment for our next question.

Speaker Change: And our next question will be coming from Jay Mccanless of Wedbush J. Your line is open.

Jay Mccanless: Hey, good afternoon, everyone.

Jay Mccanless: My first question, Eric when you were talking about the.

Eric Lieber: Yes, I think we just didn't see that Jay I think part of that is we're really focused on ending the year strong and getting to that over 6700 closings last year.

Eric Lieber: We are proud of what we said we're going to do it allowed us to increase closings year over year and we just NFC. The strong sales pace in December it's very typical for us for certainly around the holidays in the first year for sales and orders to slow down.

But that's just what we saw spending a lot better than February.

Alright.

Eric Lieber: And then.

Eric Thomas Lipar: And then as part of what you talked about also, maybe some new incentives and or affordability. www.larryweaver.com. To take it a step further from that, you know, there is a significant amount of multifamily supply that's going to be hitting the market this year. What is the strategy or strategies to defend against that and continue to pull in what I still believe is your core customer into the LGI neighborhood? Yeah, I think a couple things there Jay, we're always gonna be talking to our customers about the advantage of home ownership versus renting. I mean, if there's more supply of rental houses out there or rental units, or apartments.

Eric Lieber: I think part of what you talked about also maybe some new incentives <unk>.

Eric Lieber: Affordability.

Eric Lieber: Place that you guys can have with the customers maybe talk more about that and then to <unk>.

Eric Lieber: Take it a step further from that there is a significant amount of multifamily supply that's going to be hitting the market. This year.

Eric Lieber: What is the strategy your strategies to defend against that and continue to pull in.

Eric Lieber: I still believe as your core customer and to the LG neighborhoods.

Eric Lieber: Yes, I think a couple of things there is we're always going to be talking to our customers about the advantage of a homeownership versus renting I mean, there's more supply of rental houses out there or rental units apartments.

Eric Lieber: We're still going to continue to talk about the value of homeownership.

Eric Lieber: Right now affordability has strained the gap between the monthly payments that get into homeownership compared to renting an apartment, it's probably the widest it's ever been or certainly the widest over the last 12 months or so and that's the challenge for us and that goes back to ally of the previous discussions that we've had how do you combat that challenge well you spend more money on advertising.

Eric Thomas Lipar: Well, you spend more money on advertising. How do you drive more leads to our communities? Because we're probably going to have to talk to more people in order to get customers that are qualified. We're also working on smaller square-foot houses. We've talked about that on a couple previous calls. The percentage of houses under 1,500 square feet that we sold in 2021, that was 21% of our houses were under 1,500 square feet. In 2023, that was 29%, and that trend is likely to continue into 2024.

Eric Lieber: <unk> you drive leads more leads to our communities because this year, we're probably going after you talk to more people in order to get customers that are qualified we're also working on smaller square foot square footage houses we've talked about that on a couple of previous calls our percentage of of houses under 500 square.

Eric Lieber: Foot that we sold in 2021 that was 21% of our houses were under 500 square feet and in 2023 that was 29% and that trend is likely to continue into 2024. So that's some of the tools that we have the.

Eric Thomas Lipar: So, those are some of the tools that we have, increased spending on marketing, doing more training, looking at smaller square footage in order to keep that absorption pace up. Okay, that's all I had. Thanks, Jay, for our next question. And our next question will be coming from Alex Barron of the Housing Research Center. Your line is open.

Eric Lieber: The increased spending on marketing doing more training looking at smaller square footage in order to keep that absorption pace up.

Eric Lieber: Okay.

Speaker Change: Okay. That's all I had thank you.

Speaker Change: Thanks Jay.

Speaker Change: And one moment our next question.

Speaker Change: And our next question will be coming from Alex Barron of housing Research Center. Your line is open.

Operator: Yes, thank you. Um, yeah, I was hoping you guys could share how many homes you guys have under production and how many of those are completed specifications. Yeah, sure. We've got about 1400 that are homes in progress and 1850 completed. Okay, so a total of $3,250. And then the rest would be information centers, to get to $34.20.

Alex Barron: Yes. Thank you.

Alex Barron: I was hoping you guys could share.

Alex Barron: How many homes you guys have under <unk>.

Alex Barron: Production and how many of those are completed specs.

Alex Barron: Yes, sure we've got about 1400 that our homes in progress and 850 completed homes.

Alex Barron: Okay. So a total of $32 50.

Alex Barron: And then the rest the rest would be information centers.

Alex Barron: To get to a $34 20.

Eric Thomas Lipar: Okay, great. And then, I guess, you know, just philosophically speaking, Given everything that's going on right now, are you guys more inclined to, you know, try to preserve margins or try to, you know, preserve the sales page, you know, to maintain volume, even if that affects? Yeah, Alex, it's a great question. I think it's the margin you're talking about.

Speaker Change: Okay, Great and then I guess just philosophically speaking.

Speaker Change: Given everything that's going on right now are you guys more inclined to try to preserve margins or try to preserve.

Speaker Change: Our sales pace.

Speaker Change: To maintain volume, even if that affects margins.

Speaker Change #100: Yes, Alex it's a great question I think that's what margin you are talking about and we're protective of gross margin, we want to maintain our sales pace and for us that means.

Speaker Change #100: Looking at mortgage incentives that also mean spending more money on advertising, so because we'd like to maintain the pace.

Speaker Change #100: And also keep our adjusted gross margin high as well, but probably more towards the margin right now.

Speaker Change #100: We're starting to see some appraisal challenges across the United States, but its still a very minimal amount. So we're comfortable that our sales prices that we're getting good value to our customers, but we're watching that and we'll have to adjust accordingly.

Speaker Change #100: Market dictates that we do so.

Speaker Change #100: And in terms of <unk>.

Speaker Change #100: Kind of roughly how much are they as a percentage of your sales price.

Eric Thomas Lipar: You know, we've done big forward commitments before. Our typical incentive, I'd say on average, is two to 3% of the sales price, and you're really just focused on getting that monthly payment as low as possible, but that would be a good average. Got it. All right. Well, best of luck, Sam.

Speaker Change #101: Yes, I think Theres a couple of different factors there.

Speaker Change #101: Done big forward commitments before our typical incentive I'd say on average is 2% to 3% of the sales price and generally just focused on getting that monthly payment as low as possible, but that would be a good average.

Speaker Change #102: Got it alright, well best of luck. Thanks.

Speaker Change #103: Thanks, Alex.

Eric Thomas Lipar: Thanks, Alex. Thank you. And at this time, I'm not showing any further questions. I would like to hand the call back to Eric for closing remarks. Thank you to everyone for participating on the call today and for their interest in LGI Homes. Have a great day. Thank you. Ladies and gentlemen, thank you for participating in today's conference.

Speaker Change #104: Thank you.

Speaker Change #104: And at this time im not showing any further questions I would now like to hand, the call back to Eric for closing remarks.

Eric Lieber: Thank you to everyone for participating on the call today and for your interest in <unk> homes have a great day. Thank you.

Eric Lieber: Ladies and gentlemen, thank you for participating in today's conference.

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