Q1 2024 LGI Homes Inc Earnings Call
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Operator: Hello, and welcome to LGI Homes' first quarter 2024 conference call. Today's call is being recorded, and a replay will be available on the company's website at www.lgihomesinc.com, dot com. After management's prepared comments, there will be an opportunity to ask questions. To ask a question during this session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising that your hand has been raised.
Speaker Change: Hello, and welcome to L. G I homes first quarter 'twenty 'twenty four conference call.
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 comments, there will be an opportunity to ask questions.
Speaker Change: To ask a question. During this session you will need to press star one one on your telephone you will then hear an automated message advising that your hand has been raised to withdraw your question. Please press star one one again.
Operator: To ask your question, please press star 1 1 again. I would now like to hand the conference... over to the Executive Vice President of Investor Relations in Capital Markets. Joshua Fatt, Thanks and good afternoon. I'll remind listeners that this call contains forward-looking statements, including management's views on the company's 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.
I would now like to hand the conference.
Speaker Change: Over to executive Vice President of Investor Relations and capital markets Joshua Fatter.
Joshua D. Fattor: And good afternoon.
Joshua D. Fattor: I'll remind listeners that this call contains forward looking statements, including managements views on the company's business strategy outlook plans objectives and guidance for future periods.
Joshua D. Fattor: 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.
Joshua D. Fattor: Forward looking statements must be considered in light of those related risks and you should not place undue reliance on such statements, which reflect management's current view points and are not guarantees of future performance.
Joshua D. Fattor: On this call we will discuss non-GAAP financial measures that are not intended to be considered in isolation or as substitutes for financial information presented in accordance with GAAP.
Joshua D. Fattor: Reconciliations of non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP can be found in the press release, we issued this morning and in our quarterly report on Form 10-Q for the quarter ended March 31, 2024, and we expect to file with the SEC later today.
Joshua D. Fattor: This filing will be accessible on the Sec's website and in the Investor Relations section of our website.
With me today are Eric <unk>, LTI, Homes', Chief Executive Officer, and Chairman of the Board Charles Murnian, Chief Financial Officer, and Treasurer, I'll now turn the call over to Eric Thanks, Josh Good afternoon, and welcome to our first quarter earnings call. We.
Operator: 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 should be considered in light of those related risks, and you should not place undue reliance on such statements, which reflect management's current viewpoints and are not guarantees of future performance.
Eric: We delivered 1083 homes in the first quarter at an average sales price of over $360000, resulting in total revenue of $391 million.
Eric: During the first quarter, our top markets on a closings per community basis, where rally with seven seven closings per month.
Eric: Followed by Southern California, with five five closings in Washington D C with five.
Speaker Change: Congratulations to the teams in these markets, where the results last quarter.
Despite the slower start in closings improved lead in sales trends, we saw in February accelerated further in March.
Eric: The resulting increase in net orders allowed us to finish the quarter with 1335 homes in backlog compared to 590 homes in backlog. When we ended the fourth quarter, putting us in a much stronger position entering the second quarter.
Joshua D. Fattor: 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. Reconciliations of non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP can be found in the press release we issued this morning and in our quarterly report on Form 10-Q for the quarter ended March 31st, 2024, which we expect to file with the SEC later today.
Eric: Also worth noting that these improvements were accomplished solely through marketing and training not through price discounting or increasing incentives.
These recent sales trends give us confidence that demand remains healthy.
Eric: Ported by positive long term fundamentals, including strong demographic trends and a limited supply of affordable homes.
Eric: Along with increasing leads and sales another positive highlight was our success controlling costs and protecting our margins.
Eric: We delivered our first quarter gross margin of 23, 4% up 310 basis points compared to last year and in line with our performance in the fourth quarter.
Eric: Adjusted gross margin was 25, 3% up 320 basis points over last year, and 20 basis points sequentially.
Eric: Much of the land we acquired over the last few years, that's been working through development and slowly accumulating on our balance sheet is now beginning to deliver closings at margins in line with our historical results.
Eric: As more of these land deals come online, we expect revenue to grow at a faster pace than inventory, resulting in increasingly positive impacts to our overall performance and return metrics.
Joshua D. Fattor: This filing will be accessible on the SEC's website and in the Investor Relations section of our website. With me today are Eric Lipar, LGI Homes' Chief Executive Officer and Chairman of the Board, and Charles Merdian, Chief Financial Officer and Treasurer. Now I'll turn the call over to Eric. Thanks, Josh. Good afternoon, and welcome to our first quarter earnings. We delivered 1,083 homes in the first quarter at an average sales price of over $360,000, resulting in total revenue of $391 million. During the first quarter, our top markets on a closings per community basis were Raleigh with 7.7 closings per month, followed by Southern California with 5.5 closings, and Washington, D.C., with five.
Eric: Finally, we ended the quarter with 120 active communities an increase of 21% over the prior year. This.
Eric: This is the highest community count and our history. In addition, we opened 13 new communities in March there'll be added to community count as they deliver closings.
Eric: I'll now turn the call over to Charles for more details on our financial results.
Charles Michael Merdian: Thanks, Eric.
Charles Michael Merdian: As mentioned earlier revenue in the first quarter was $399 million.
Charles Michael Merdian: Just on 1083 homes closed and an average sales price of $360897.
Charles Michael Merdian: The 19, 8% decline year over year was driven by a 27% decline in closings, partially offset by a one 2% increase in asps.
Charles Michael Merdian: Of our total closings 102 were through our wholesale channel representing nine 4% of total closings compared to seven 5% last year.
Charles Murnian: Our first quarter gross margin was 23, 4% and adjusted gross margin was 25, 3%.
Charles Murnian: Gross margins improved 310 basis points and adjusted gross margins improved 320 basis points compared to the same period last year.
Charles Murnian: Adjusted gross margin excluded $6 $6 million of capitalized interest charged to cost of sales and $803000 related to purchase accounting together, representing 190 basis points compared to 180 basis points last year.
Charles Murnian: The increase was primarily the result of elevated borrowing costs coming through our cost of goods sold partially offset by lower purchase accounting adjustments.
Charles Murnian: Combined selling general and administrative expenses for the first quarter were $72 7 million or 18, 6% of revenue.
Charles Murnian: Selling expenses were $41 1 million or 10, 5% of revenue compared to eight 8% in the same period last year.
Charles Murnian: General and administrative expenses totaled $31 5 million or eight 1% of revenue compared to six 1% in the same period last year.
Speaker Change: While SG&A expenses as a percentage of revenue are always higher in the first quarter. This was amplified this year due to lower volumes as well as increased advertising spend to drive leads and other investments made to support the opening of new communities.
Speaker Change: First quarter SG&A performance was in line with the expectations. We held when we provided our original guidance for the full year.
Speaker Change: Therefore, we still expect our full year SG&A expense as a percentage of revenue to range between 12, 5% and 13, 5%.
Speaker Change: Pre tax net income for the quarter was $23 1 million or five 9% of revenue.
Speaker Change: Our effective tax rate was 26, 2% compared to 16, 7% last year and the higher rate was related to the timing of compensation costs for share based payments and slightly higher state taxes.
Speaker Change: We continue to expect our full year tax rate will be in the range between 24% and 25%.
Speaker Change: Overall, we generated net income of $17 1 million.
Speaker Change: Or <unk> 72 per basic and diluted share.
Speaker Change: First quarter gross orders were 2198 net orders were 1828, and our cancellation rate was 16, 8%.
Speaker Change: We ended the quarter with 1335 homes in our backlog valued at $519 $5 million and.
Speaker Change: And of those homes are 178, or 13, 3% of our total backlog were related to wholesale contracts with single family rental partners.
Speaker Change: Turning to our land position.
Eric Thomas Lipar: Congratulations to the teams in these markets for the results last quarter. Despite the slower start in closings, the improved lead in sales trends we saw in February accelerated further in March. The resulting increase in net orders allowed us to finish the quarter with 1,335 homes in backlog compared to 590 homes in backlog when we ended the fourth quarter, putting us in a much stronger position entering the second quarter. It's also worth noting that these improvements were accomplished solely through marketing and training, not through price discounting or increasing incentives.
Speaker Change: At March 31, our portfolio consisted of 70145 owned and controlled lots.
Speaker Change: Of those lots 54763 or 78, 1% were owned.
Speaker Change: And 15382 lots where control.
Speaker Change: Of our owned lots 39601, where either raw land Orlando to development.
Speaker Change: Of the remaining 15162 owned lots 11008 were finished vacant lots and 4154 were completed homes information centers in homes and progress.
Speaker Change: During the quarter, we started 1810 homes to meet current demand and ensure completed inventory is available for new community openings.
Speaker Change: With that I'll turn the call over to Josh for a discussion of our capital position.
Speaker Change: Charles.
Josh: We ended the quarter with just under $1 4 billion of debt outstanding, including $703 $1 million drawn on our credit facility, resulting in a debt to capital ratio of 42, 5% net debt to capital ratio of 41, 6%.
Josh: Total liquidity at the end of the quarter was $491 5 million, including $49 million of cash and $442 5 million available to borrow on our credit facility.
Josh: We repurchased 89227 shares for $10 million during the quarter and we expect to allocate additional capital to share repurchases in the coming quarters.
Eric Thomas Lipar: These recent sales trends give us confidence that demand remains healthy, supported by positive long-term fundamentals, including strong demographic trends and a limited supply of affordable homes. Along with increasing leads and sales, another positive highlight was our success in controlling costs and protecting our margins. We delivered a first quarter gross margin of 23.4 percent, up 310 basis points compared to last year and in line with our performance in the fourth quarter. Adjusted gross margin was 25.3%, up 320 basis points over last year and 20 basis points sequentially.
Josh: Finally at March 31, our stockholders' equity was $187 billion and our book value.
Josh: Value per share was $79 31 and.
Speaker Change: An increase of 11, 5% over the same period last year.
Speaker Change: With that I'll turn the call back over to Eric Thanks, Josh The second quarter is off to a positive start despite the uptick in interest rates I am pleased to say the positive momentum experienced in March continued in April and.
Eric: On Friday, we expect to report that we closed approximately 500 homes in the month of April and added seven net new communities, bringing us to 127 active communities nationwide a new company record.
Speaker Change: The slower start to the year, but is understood and factored into the full year guidance, we shared on our last call.
Speaker Change: Spike the recent uptick in interest rates the positive trends, we witnessed in March continued into April resulting in over 35000 leads each month.
Speaker Change: As a result, we generate over 800 net sales per month for the last two months, reflecting a pace of approximately six homes per community per month.
Speaker Change: With clear visibility into our backlog and the strong demand. We continue to see we are confident in our original closing target of between 7% and 8000 homes at an average selling price between $350 and $360000.
Speaker Change: Our full year gross margin guidance remains between $23, one and 24, 1% and adjusted gross margin between 25 and 26%.
Eric Thomas Lipar: Much of the land we acquired over the last few years that's been working through development and slowly accumulating on our balance sheet is now beginning to deliver closings at margins in line with our historical results. As more of these land deals come online, we expect revenue to grow at a faster pace than inventory, resulting in increasingly positive impacts on our overall performance and return metrics. Finally, we ended the quarter with 120 active communities, an increase of 21% over the prior year.
Speaker Change: Our teams around the country are doing an outstanding job getting new communities online and ready for sales.
Speaker Change: We recently welcomed 65, new sales reps and sales managers to support 13 communities opened in March as well as additional openings in the coming months and continue to expect to be active in approximately 150 communities at year end.
Speaker Change: I'll close with one final thought.
Speaker Change: For the fourth consecutive year LTI homes has received the top workplace USA Award.
Speaker Change: It makes us recognition, especially meaningful is that the results are entirely based on the views of those best positioned to judge our success our employees.
Speaker Change: We value our people immensely and a satisfying to know that they value LTI homes, just as much. Thank you to all of our teams around the country for your continued commitment to our company and to our customers. We'll now open the call for questions.
Speaker Change: Thank you.
Speaker Change: As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced.
Speaker Change: So withdraw your question. Please press star one again.
Eric Thomas Lipar: This is the highest number of communities in our history. In addition, we opened 13 new communities in March. They'll be added to the community count as they deliver closer. I'll now turn the call over to Charles for more details on our financial results. Thanks, Eric. As mentioned earlier, revenue in the first quarter was $390.9 million based on 1,083 homes closed and an average sales price of $360,897. The 19.8% decline year-over-year was driven by a 20.7% decline in closings, partially offset by a 1.2% increase in ASPs.
Speaker Change: One moment please.
Speaker Change: And our first question comes from the line of Michael Rehaut with JP Morgan.
Speaker Change: Hi, guys. This is actually Andrew on for Mike I. Appreciate you taking my question.
Speaker Change: Good afternoon.
Andrew: Maybe to start.
Andrew: Thank you good afternoon.
Andrew: Maybe you could just wanted to start with trying to get a sense for.
Andrew: You know how the land pipeline is looking right now in terms of inflation for land the contracted today and maybe help us understand the difference between the development path and the volume part.
Andrew: Sure. Thanks, Andrew This is Eric I can start and Charles can add if he cares too.
Charles Michael Merdian: Yes, I think the land market has continued to increase in price strong demand, it's competitive we're being selective to make sure we're being.
Andrew: Diligent in the land, we are buying across the United States.
Andrew: A lot of projects underway right now a lot of projects in development development costs are continuing to rise. We think we're in good shape and our land market and our land basis.
Andrew: What we have bought over the years and we as we said in the scripted remarks, we do believe.
Andrew: <unk> loss will come through and we're going to be able to maintain our historical gross margins on all of the lots we have under development.
Andrew: Okay.
Speaker Change: Thank you for that and.
Speaker Change: See that you guys kept your guide.
Speaker Change: I was just hoping maybe to get more granularity.
Speaker Change: And an update on how youre thinking.
Speaker Change: Retail growth as we go through the year and maybe any initial thoughts.
Speaker Change: That have been updated as we move into next year.
Speaker Change: Sure, Yes community count in all of these new communities is one of the most exciting things happening at <unk> right now and it involves hiring a lot of new salespeople on new managers slide new promotions, we ended the quarter at 120 active communities.
Charles Michael Merdian: Of our total closings, 102 were through our wholesale channel, representing 9.4% of total closings compared to 7.5% last year. Our first quarter gross margin was 23.4%, and adjusted gross margin was 25.3%. Gross margins improved 310 basis points and adjusted gross margins improved 320 basis points compared to the same period last year. Adjusted gross margin excluded $6.6 million of capitalized interest charged on cost of sales and $803,000 related to purchase, together representing 190 basis points, compared to 180 basis points last year.
Speaker Change: As a new company record, we added seven which will release on Friday and make it official but wanted to talk about on this call. So April we'll end with 127 active communities, which obviously will be in another company record and puts US right on track for that 150 by the end of the year I think from $1.
Speaker Change: 27 to $1 50, probably equally spaced out throughout the rest of the year and right on track and pretty exciting to hit that milestone.
Speaker Change: Okay. Thank you that's all for me thus far.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Please for our next question.
Speaker Change: And our next question comes from the line of Carl Reichardt with <unk>.
Carl Edwin Reichardt: Hey, guys nice to talk to you. Thanks, Thanks for taking my question.
Carl Edwin Reichardt: Charles go ahead, just on the on the SG&A side so dollars.
Carl Edwin Reichardt: At least on the selling expense side down a little bit can you just sort of give me a sense as the communities ramp advertising costs are going to come out and what gives you some confidence that youre not going to have selling expenses related to turning these last these last sort of units that you need to get to your guide this year.
Speaker Change: Yes, great question Carl So so yes, we spent about $9 $5 million in the first quarter.
Carl: In total advertising spend so we expect that to.
Carl: The tick up in terms of absolute dollars, but on a per community basis as we go into the remainder of the year, we expect that to be relatively similar I think everything we're seeing for.
Speaker Change: For the rest of the year is more of the same so I think we're pretty confident with what where we're spending the money and how we're monitoring it to make sure we're spending our money in the right places and making sure that we're being the most effective on our advertising and then most of our community count.
Speaker Change: From a information center standpoint from a people standpoint, we still have new people that will be coming in new salespeople and sales managers throughout the rest of the year, but the impact of that should be relatively nominal to the overall absolute dollars and selling as we move through the rest of the year okay.
Speaker Change: <unk> been typical leverage on the selling expense side as you go through the year and deliveries okay.
Speaker Change: And then Rex if I backed into the number right. The average order price I think was was relatively high I think it was up over 10% sequentially can you talk a little bit about the mix of orders incoming orders that you saw during the quarter and whether or not were some geographic shifts or or even maybe even some price.
Speaker Change: Shifts up to Toronto.
Charles Michael Merdian: The increase was primarily the result of elevated borrowing costs coming through our cost of goods sold, partially offset by lower purchase accounts. Combined selling, general, and administrative expenses for the first quarter were $72.7 million, or 18.6% of revenue. Selling expenses were $41.1 million, or 10.5% of revenue compared to 8.8% in the same period.
Rex: Yes, yeah, Carl it's a great question, yes, our pipeline AFP is certainly higher than our reported we're already at the top end of the range.
Rex: First we do see apples to apples comparison, we think prices are going to continue to go up because our costs are continuing to go up whether it's materials labor development. All costs continue to go up so we believe that's going to flow through through our pricing.
Rex: We lost the guide alone at $3 50 to 360, because there is a mix component to that we are still seeing individuals and our customers' fixed smaller square footage houses. So example, first quarter of 2023, 23% of our homes were under 500 square feet that close.
Rex: In the first quarter of 2024 that went from 23% to 33%.
Rex: That pipeline also is skewed towards the more expensive west coast markets that generally have a longer build time and a longer lead time. So that's been pretty consistent that the backlog ASP is higher than the current closing AFC b. The other reason, we're keeping guidance where it is.
Charles Michael Merdian: General and administrative expenses totaled $31.5 million, or 8.1% of revenue, compared to 6.1% in the same period last year. While SG&A expenses as a percentage of revenue are always higher in the first quarter, this was amplified this year due to lower volumes, as well as increased advertising spend to drive leads and other investments made to support the opening of new communities. First quarter SG&A performance was in line with the expectations we held when we provided our original guidance for the full year. Therefore, we still expect our full-year SG&A expense as a percentage of revenue to range between 12.5% and 13.5%. Pre-tax net income for the quarter was $23.1 million, or 5.9% of revenue.
Speaker Change: Okay that makes sense. Thank you so much I appreciate it thank you Charles.
Speaker Change: Youre welcome.
Speaker Change: Thank you and once again to ask a question. Please press star one on your telephone.
Speaker Change: One moment please.
Speaker Change: Okay.
Speaker Change: And our next question comes from the line of Alex Barron with housing Research Center.
Alex Barron: Yes, Thanks, gentlemen, and sorry, I joined a little late so I don't know if you already covered this but I was trying to.
Alex Barron: I guess I understand.
Alex Barron: What changed in the last couple of months, where you say you sold at least 800 sales versus the closing your reporting earlier in the year, where you just start of inventory or did you step up incentives or what caused the dramatic share.
Alex Barron: Yes, Alex this is Eric it's a great question, yes, the fourth quarter sales, just where we want them to be going through the holidays and into January and then really ramping up on our advertising spend no additional incentives opening of new communities still help the leadership team's doing a great job of training in the field.
Alex Barron: But yeah pretty pretty excited about March and April orders, averaging over 800, and each month and getting us back above that six absorption pace for for order. So it's really just the leadership team is doing a great job of training and our marketing team doing a great job of driving leads with over 35000 people.
Alex Barron: Enquiring about homeownership in both the months of March and April.
Alex Barron: Really showing how strong the demand is out there.
Alex Barron: It's still it's still affordability constrained and we have to work through that but our team is doing a great job.
Speaker Change: Okay great.
Speaker Change: Roughly the lag.
Speaker Change: I mean, a sale in the clothing business.
Alex Barron: Three months in other words is it going to start showing up in Maine.
Speaker Change: Yes. It is start showing out 60 90 days later after the orders on average.
Speaker Change: Okay perfect.
Speaker Change: And in terms of incentives.
Speaker Change: <unk>.
Speaker Change: Lots of other builders in our advertising low interest rates I imagine you guys are doing the same or what types of incentives are you guys finding thats.
Speaker Change: Helping you out at the moment.
Speaker Change: Yes, similar Alex I think we're all playing from the same playbook that lower monthly payment incentives around the rate is certainly gives you more value than incentives around pricing.
Charles Michael Merdian: Our effective tax rate was 26.2% compared to 16.7% last year, and the higher rate was related to the timing of compensation costs for share-based payments and slightly higher state taxes. We continue to expect our full year tax rate will be in the range between 24% and 25%. Overall, we generated net income of $17.1 million, or $0.72 per basic and diluted share. First quarter gross orders were 2,198, net orders were 1,828, and our cancellation rate was 16.8%.
Speaker Change: So rate buy downs lower fixed rates on a weekly basis those type of incentives just like the other builders are doing.
Speaker Change: Okay, Great I'll get back in the queue and best of luck. Thank you.
Speaker Change: Alright, thank you thanks.
Speaker Change: Thank you.
Speaker Change: Please for our next question.
Speaker Change: And our next question comes from the line of Jay Mccanless with Wedbush.
Jay McCanless: Hey, good afternoon, everyone.
Jay McCanless: Looking at the numbers you guys gave out for April it looks like there was a small deceleration to roughly $3 nine closings per month in April versus four in March.
Jay McCanless: Is there anything to say there about when the when those communities opened or anything along those lines.
Jay McCanless: Is that type of pace Im assuming youre thinking it will accelerate but maybe talk a little bit about what type of pace you want to see during the second quarter.
Speaker Change: Yes, no no Janus, Eric we're definitely expecting our closings to match orders is just going to be a two or three month lag to that.
Speaker Change: Yes, I think the only caveat on our R&R April closings of those seven new communities.
Eric: They probably averaged two closings of feeds because theyre just really starting in the first month of closing some Amin had one closing so it's going to take.
Eric: Month or two for those communities to ramp up but if we keep selling 800 net orders a month that is going to result in 800 closings a month.
Speaker Change: Okay got it.
Eric: And then when you were talking in the prepared comments about Rev.
Eric: Revenue dollars, starting to accelerate faster than inventory dollars when when should we expect that to kick in.
Eric: Yes, Jay this is Charles I mean, I think youre going to see it throughout the remainder of the year I think it's we're still focused on spending dollars too.
Charles Michael Merdian: To deliver our new community counts to get to 150 communities by the end of the year, but.
Charles Michael Merdian: I think youll see it spread out through throughout the year, but heavier weighted to the back half of the year.
Eric: Okay.
Eric: And then Eric you were talking about pushing price to offset cost I mean.
Eric: What type of percentage are we talking here like low single digit percentage pricing.
Eric: Offset or what are you having to do there.
Charles Michael Merdian: We ended the quarter with 1,335 homes in our backlog, valued at $519.5 million. And of those homes, 178, or 13.3% of our total backlog, were related to wholesale contracts with single-family rental partners. Now, turning to our land position. At March 31st, our portfolio consisted of 70,145 owned and controlled lots. Of those lots, 54,763, or 78.1%, were owned, and 15,382 lots were controlled. Of our owned lots, 39,601 were either raw land or land owned and developed; of the remaining 15,162 owned lots.
Eric: Yes, I think thats that Jay we've seen pretty nominal increase in our costs. So far this year and we expect that to increase so I think.
Eric: Low single digits would be would be right on our expectations apples to apples price increases across United States.
Speaker Change: Okay. That's all I had thanks guys.
Speaker Change: Alright, Thank you I appreciate it.
Speaker Change: Thank you one moment please.
Speaker Change: And we have a follow up question from the line of Carl Reichardt with BTG.
Carl Edwin Reichardt: Thanks, Justin.
Carl Edwin Reichardt: Pragmatic question for you, Eric, but when Youre doing a grand opening like one of the seven new stores. How many finished homes do you typically have available at that Grand opening.
Carl Edwin Reichardt: Usually between four and six that could close in the next 30 days and then another 4% to six behind that in 94% to six behind that unusually four to six months of supply of that current closing pace, which most of these started we're in that 4% to six range.
Speaker Change: Okay, great. Thank you and then.
Speaker Change: You've talked about the importance of training new sales folks coming on and can you and this is sort of a softer question, but are you doing anything sort of differently given today's environment versus three or four years ago in terms of the training process or who you hire or what you're focused on when your when youre working with new sales folks.
Speaker Change: Generally no Carl we're looking for the same same type of salespeople salespeople that have a proven track record of success I think the.
Speaker Change: Environment.
Speaker Change: And right now it takes some resolve in some patients the 100 day training program to get the individuals up to speed, but it really takes a year for our salespeople really to get up to speed and be comfortable on our process and going through a lot of leads right now working our backlog working with.
Speaker Change: What we call credit challenged people do to work with them on their credit work with our payment more KOL centers are normal, but our teams are doing a great job no challenge hiring people.
Speaker Change: But as big a challenge is it always been getting these new individuals trained and comfortable in our position, but nothing has changed in our overall training training program.
Speaker Change: Thanks, so much for the color.
Speaker Change: All right Youre welcome.
Speaker Change: Thank you.
Charles Michael Merdian: 11,008 were finished vacant lots, and 4,154 were completed homes, information centers, and homes in progress. During the quarter, we started 1,810 homes to meet current demand and ensure completed inventory is available for new community open homes. With that, I'll turn the call over to Josh for a discussion of our capital position. Thank you, Charles. We ended the quarter with just under $1.4 billion of debt outstanding, including $703.1 million drawn on our credit facility, resulting in a debt-to-capital ratio of 42.5% and a net debt-to-capital ratio of 41.5%.
Speaker Change: And we have another follow up question from.
Speaker Change: The line of Alex Barron with housing Research Center.
Alex Barron: Yes, Thank you I.
Alex Barron: I was hoping you could comment again I apologize if you already mentioned it.
Alex Barron: What.
Alex Barron: Or is your build time these days.
Alex Barron: Yes.
Alex Barron: What improvement was there quarter over quarter and is there any room to keep lowering the bill kind of going forward.
Speaker Change: Yes, Great question now build times are relatively the same across the country I mean, we have a range.
Speaker Change: Going into where from 75 to 180 days, and particularly Toronto is a little bit longer but.
Alex Barron: Some of the markets we've been in the longest can can be on the low end of the side like Texas, but generally build times are the same we factor it into our inventory flow in terms of how many starts each month, we're doing based on what we're seeing.
Alex Barron: For orders, so ending the quarter at 40 150 units roughly we would describe as being right on track.
Speaker Change: Okay and did I hear you correct in saying that you expect to be at a 160 <unk> by year end.
Speaker Change: Correct, Yes, the same same guidance from last quarter and reiterated.
Speaker Change: We reiterated our guidance as well and we're confident in that number.
Speaker Change: And do you believe your sales pace will remain similar to.
Speaker Change: Historical or recent experience.
Alex Barron: Community Count.
Alex Barron: Goes up that could compress a bit.
Alex Barron: Well.
Speaker Change: Our guidance has all of that built in Alex we believe that if leads keeps coming into our company and salespeople follow our process that we are going to add a lot of success on the sales side similar to what we have seen over the last couple of months and the plan is to continue doing that and when that happens we're going to be right on track for all of our guidance is can be an.
Speaker Change: <unk>.
Speaker Change: Awesome Alright, thank you bye bye.
Joshua D. Fattor: Total liquidity at the end of the quarter was $491.5 million, including $49 million of cash and $442.5 million available to borrow on our credit. We repurchased 89,227 shares for $10 million during the quarter, and we expect to allocate additional capital to share repurchases in the coming quarter. Finally, at March 31, our stockholders equity was $1.87 billion, and our book value per share was $79.31, an increase of 11.5% over the same period last year. With that, I'll turn the call back over to Eric. Thanks, Josh. The second quarter is off to a positive start.
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Speaker Change: Thank you at this time I am not showing any further questions.
Speaker Change: Thank you everybody for participating on today's call and for your continued interest in <unk> homes have a great afternoon.
Speaker Change: This concludes LTI homes first quarter 2024 conference call have a great day.
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Eric Thomas Lipar: Despite the uptick in interest rates, I'm pleased to say the positive momentum experienced in March continued in April. On Friday, we expect to report that we closed approximately 500 homes in the month of April and added seven net new communities, bringing us to 127 active communities nationwide, a new company record. The slower start to the year was understood and factored into the full-year guidance we shared on our last call.
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Eric Thomas Lipar: Despite the recent uptick in interest rates, the positive trends we witnessed in March continued into April, resulting in over 35,000 leads each month. As a result, we've generated over 800 net sales per month for the last two months, reflecting a pace of approximately six homes per community per month. With clear visibility into our backlog and the strong demand we continue to see, we are confident in our original closing target of between 7,000 and 8,000 homes at an average selling price between $350,000 and $360,000. Our full year gross margin guidance remains between 23.1% and 24.1%, and adjusted gross margin between 25% and 26%.
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Eric Thomas Lipar: Our teams around the country are doing an outstanding job getting new communities online and ready for. We recently welcomed 65 new sales reps and sales managers to support 13 communities opened in March, as well as additional openings in the coming months, and continue to expect to be active in approximately 150 communities at year-end. For the fourth consecutive year, LGI Homes has received the Top Workplace USA Award. What makes this recognition especially meaningful is that the results are entirely based on the views of those best positioned to judge our success, our employees.
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Operator: We value our people immensely, and it's satisfying to know that they value LGI Homes just as much. Thank you to all of our teams around the country for your continued commitment to our company and to our customers. We'll now open the call for questions. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again.
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Operator: And our first question comes from the line of Michael Rehaut. This is J.P. Morris. Hi guys, this is actually Andrew Azzi on for Mike.
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Andrew Azzi: I appreciate you taking my question and, good afternoon. I just wanted, maybe, to start – thank you. Good afternoon.
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Andrew Azzi: Maybe I just wanted to start with trying to get a sense for, you know, how the land pipeline is looking right now in terms of inflation for land that's contracted today and maybe help us understand the difference between the development part and the raw land part. Sure. Thanks, Andrew. This is Eric. I can start, and Charles can add if he cares to.
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Eric Thomas Lipar: Yeah, I think the land market is continuing to increase in price. You know, there's a lot of demand. It's competitive. We're being selective.
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Eric Thomas Lipar: Make sure we're being diligent in the land we are buying across the United States. We have a lot of projects underway right now, and a lot of projects in development. Development costs are continuing to rise.
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Eric Thomas Lipar: We think we're in good shape in our land market and our land basis, what we have bought over the years. And as we said in the scripted remarks, we do believe, you know, the lots will come through, and we're going to be able to maintain our historical gross margins on all the lots we have under development. Thank you for that. And it's nice to see that you guys kept your guide. I was just hoping maybe to get more granularity and an update on how you're thinking about community cow growth as we go through the year and maybe any initial thoughts, you know, that have been updated as we move into next year.
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Eric Thomas Lipar: Sure, yeah. Community count in all these new communities is one of the most exciting things happening at LGI right now. It involves hiring a lot of new salespeople, a lot of new managers, and a lot of new promotions.
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Eric Thomas Lipar: You know, we ended the quarter at 120 active communities, which is a new company record. We added seven, which we'll release on Friday and make it official, but we wanted to talk about on this call. So April will end with 127 active communities, which obviously will be another company record and puts us right on track for that 150 by the end of the year.
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Eric Thomas Lipar: I think, you know, from 127 to 150, probably equally spaced out throughout the rest of the year and right on track and pretty exciting to hit that milestone. Thank you. That's all for me.
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Operator: Best of luck. Thank you. Thank you. One moment, please, for our next question. And our next question comes from the line of Carl Reichardt with BTIG. Hey, guys, nice to talk to you.
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Carl Edwin Reichardt: Thanks. Thanks for taking my question. Um, Charles, just on the SG&A side, so dollars, at least on the selling expense side down a little bit, can you just sort of give me a sense of how advertising costs are going to come out, and what gives you some confidence that you are not going to have selling expenses related to turning these last these last sort of units that you need to get to your guide this year? Yeah, a great question, Carl.
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Charles Michael Merdian: So yeah, we spent about nine and a half million dollars in the first quarter on total advertising spend. So we expect that to tick up in terms of absolute dollars, but on a per community basis as we go into the remainder of the year, we expect that to be relatively similar. I think everything we're seeing for the rest of the year is more of the same. So I think we're pretty confident with where we're spending the money and how we're monitoring it to make sure we're spending our money in the right places and making sure that we're being the most effective in our advertising.
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Charles Michael Merdian: And then most of our community count, from an information center standpoint, from a people standpoint, we still have new people that will be coming in, new salespeople, and sales managers throughout the rest of the year. But the impact of that should be relatively negligible to the overall absolute dollars in selling as we move through the year. Okay, so better than typical leverage on the selling expense side as you go through the year and deliveries ramp up. Okay. Thank you. And then if I backed into the number right, the average order price was relatively high.
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Charles Michael Merdian: I think it was up over 10% sequentially. Can you talk a little bit about the mix of orders, incoming orders, that you saw during the quarter and whether or not there were some geographic shifts or even maybe some price point shifts up to Toronto? Yeah, yeah, Carl. It's a great question.
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Charles Michael Merdian: Yeah, our pipeline AFP is certainly higher than the reported ones, and we're already at the top end of the range. First, we do see an apples to apples comparison. We think prices are going to continue to go up because our costs are continuing to go up, whether it's materials, labor, development, you know, all costs continue to go up. So we believe that's going to flow through to our pricing. We left the guide alone at 350 to 360 because there is a mixed component to that.
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Charles Michael Merdian: We are still seeing individuals and our customers pick smaller square footage houses. For example, in the first quarter of 2023, 23% of our homes were under 1500 square feet that closed in the first quarter of 2024. That went from 23% to 33%. That pipeline also is skewed towards the more expensive West Coast markets that generally have a longer build time and a longer lead time, so that's been pretty consistent that the backlog ASV is higher than the current closing, be the other reason we're keeping Guy. Okay, that makes sense. Thank you so much, Eric. I appreciate it. Thank you, Charles.
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Carl Edwin Reichardt: You're welcome. Thank you. And once again, to ask a question, please press star 1-1 on your telephone. And our next question comes from the line of Alex Barron.
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Alex Barron: Yeah, thanks, gentlemen. And sorry, I joined a little late. So I don't know if you already covered this, but I was trying to, I guess, understand. What changed in the last couple of months where you say you've sold at least 800 units versus the closings you were reporting earlier in the year? Were you just out of inventory, or did you step up incentives, or, you know, what caused the dramatic shift? Yeah, Alex. This is Eric.
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Eric Thomas Lipar: It's a great question. You know, the fourth quarter sales just weren't where we wanted them to be, you know, going through the holidays and into January, and then really ramping up on our advertising spend without additional incentives.
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Eric Thomas Lipar: Opening up new communities still helps, and the leadership team's doing a great job of training in the field. But yeah, pretty excited about March and April orders, averaging over 800 in each month, and getting us back above that six absorption pace for orders. So it's really just the leadership team doing a great job of training, and our marketing team doing a great job of driving leads, with over 35,000 people inquiring about homeownership in both the months of March and April, really showing how strong the demand is out there. Just affordability is still constrained, and we have to work through that, but our team's doing a great job.
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Eric Thomas Lipar: Okay, great. And what's the roughly the lag between a sale and a closing these days? Is it like three months? In other words, is it going to start showing up in May?
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Eric Thomas Lipar: Yeah, it starts showing up 60, 90 days later after the orders, on average. Okay, perfect. And in terms of incentives, lots of other builders, you know, are advertising low interest rates.
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Alex Barron: I imagine you guys are doing the same, or what type of incentives are you guys finding that are helping you out at the Yeah, similar Alex. I think we're all playing from the same playbook, you know, that lower monthly payment incentives around the rate certainly give you more value than incentives around pricing. So rate buy-downs, lower fixed rates on a weekly basis, those type of incentives, just like the other builders. Okay, great. I'll get back in the queue and best of luck.
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Alex Barron: Thank you. All right, thank you. One moment, please. And our next question comes from the line of Jay McCanless with Wedwood. Hey, good afternoon, everyone.
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Jay McCanless: So, looking at the numbers you guys gave out for April, looks like there was a small deceleration to roughly 3.9 closings per month in April versus 4 in March. Is there anything to say about when those communities opened or anything along those lines? And is that type of pace, I'm assuming you're thinking it will accelerate, but maybe talk a little bit about what type of pace you want to see during the second quarter. Yeah, no, no, Jay, this is Eric.
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Eric Thomas Lipar: We're definitely expecting our closings to match orders. It's just going to be a two or three month lag. Yeah, I think the only caveat on our April closings of those seven new communities is that they probably average two closings apiece because they're just really starting the first month of closing. Some of them even had one closing.
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Eric Thomas Lipar: So it's going to take a month or two for those communities to ramp up. But if we keep selling, you know, 800 net orders a month, that is going to result in 800 close. Got it. And then when you were talking in the prepared comments about revenue dollars starting to accelerate faster than inventory dollars, when should we expect that to kick in? Yeah, Jay. This is Charles.
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Charles Michael Merdian: I mean, I think you're going to see it throughout the remainder of the year. I think it's, you know, we're still focused on spending dollars to deliver our new community counts to get to 150 communities by the end of the year. But I think you'll see it spread out throughout the year, but heavier weighted towards the back.
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Eric Thomas Lipar: And then Eric, you were talking about pushing prices to offset costs. I mean, what type of percentage are we talking about here, like a low single-digit percentage pricing to offset costs, or what are you having to do there? Yeah, no, I think that's Jay, we've seen pretty nominal increases in our costs so far this year, and we expect that to increase. So I think low single digits would be right on for expectations, you know, apples to apples, price increases across. That's all I had.
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Eric Thomas Lipar: Thanks, guys. All right. Thank you. I appreciate it. Thank you. One moment. And we have a follow-up question from the line of Carl Reichardt with BTIG. Thanks. Just a pragmatic question for you, Eric. When you're doing a grand opening, like one of these seven new stores, how many finished homes do you typically have available at that grand opening? Usually between 4 and 6, that could close in the next 30 days, and then another 4 to 6 behind that, and another 4 to 6 behind that, and usually 4 to 6 months of supply at that current closing pace, which most of these started were in that 4 to 6 range.
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Carl Edwin Reichardt: Okay, great. Thank you. And then you've talked about the importance of training the new sales folks coming on board. And this is sort of a softer question, but are you doing anything sort of differently given today's environment versus three or four years ago in terms of the training process or who you hire or what you're focused on when you're working with new sales people? Thanks. Generally, no, Carl, we're looking for the same type of salespeople, salespeople that have a proven track record of success. You know, I think the environment we are in right now takes some resolve and some patience.
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Eric Thomas Lipar: You know, it's a 100-day training program to get the individuals up to speed, but it really takes a year for our salespeople to really get up to speed and be comfortable in our process. And we're going through a lot of leads right now, working our backlog, working with what we call credit-challenged people to work with them on their credit, work with them on their payments, more co-signers than normal, but our teams are doing a great job, you know; no challenge hiring people, but as big a challenge as it's always been getting these new individuals trained and comfortable in our position, but nothing's changed Thanks so much for the color.
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Eric Thomas Lipar: Okay.
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Carl Edwin Reichardt: Alright, you're welcome. We have another follow-up question. Alex Barron with the Housing Research Center.
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Alex Barron: Yes, thank you. I was hoping you could comment. Again, I apologize if you have already mentioned it.
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Alex Barron: What, where is your bill time these days? And what improvement was there quarter over quarter? And is there any room to keep lowering the bill time going forward? Yeah, great question.
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Alex Barron: Yes.
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Eric Thomas Lipar: Now, build times are relatively the same across the country. I mean, we have a range going anywhere from 75 to 180 days, and particularly Toronto is a little bit longer, but some of the markets we've been in the longest can be on the low end of the side, like Texas. But generally, bill times are the same. We factor it into our inventory flow in terms of how many starts each month we do based on what we're seeing for orders.
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Eric Thomas Lipar: So ending the quarter at 4,150 units, roughly, we would describe that as being right on. Okay, and did I hear you correctly saying that you expect to be at 150 communities by your, correct? Yeah, same guidance from last quarter, and we reiterated our guidance as well, and we're confident in that. And do you believe your sales pace will remain similar to, you know, historical or recent experience or as the community counts? goes up, that could compress a bit.
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Eric Thomas Lipar: Well, you know, our guidance has all that built in Alex. We believe that if leads keep coming into our company and salespeople follow our process, we are going to have a lot of success on the sales side, similar to what we have seen over the last couple months. And the plan is to continue doing that. And when that happens, we're going to be right on track for all of our guidance. It's gonna be an unbelievable year.
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Eric Thomas Lipar: Awesome. All right. Thank you. Bye. Bye. You're welcome. Thank you. At this time, I am not asking any further questions.
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Operator: Thank you, everybody, for participating on today's call and for your continued interest in LGI Homes. Have a great afternoon. This concludes LGI Homes first quarter 2024 conference call. Have a great day. ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ??
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