Q2 2024 LGI Homes Inc Earnings Call

July 30, 2024

Thank you for watching!

Operator: Welcome to LGI Homes' second quarter 2024 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, " At this time, I would like to turn the call over to Joshua Fattor, Executive Vice President of Investor Relations and Capital Markets. Please go ahead.

Speaker Change: Welcome to LGI Homes second quarter 2024 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.

Joshua D. Fattor: 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. 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.

Speaker Change: 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: All forward-looking statements must be considered in light of those related risks, and you shouldn't place undue reliance on such statements, which reflect management's current viewpoints and are not intended to guarantee you 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. Reconciliations of non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP can be found in the press release we issued this morning and in our quarterly report on Form 10-Q for the quarter ended June 30, 2024, which we expect to file with the FCC later today. This filing will be accessible on the SEC's website and on the Investor Relations section of our website.

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

Speaker Change: 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.

Speaker Change: Reconciliations of non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP can be found in the press release, we issued this morning and in our quarterly report on Form 10-Q for the quarter ended June 32024 that we expect to file with the SEC later today.

Speaker Change: This filing will be accessible on the Sec's website and on the Investor Relations section of our website.

Joshua D. Fattor: With me today are 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.

Speaker Change: With me today are Eric Lieber, LCI, Home's, Chief Executive Officer, and Chairman of the Board and Charles <unk>, 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're pleased to report the strong operating results we delivered in the second quarter and to provide more details on the significant progress we've made increasing profitability and growing our community. As highlighted in our press release this morning, we delivered 1,655 homes at a record-breaking average sales price of $364,000, resulting in revenue of over $602 million. During the quarter, we opened more self-developed communities underwritten at higher margins and successfully offset the impact of mortgage buydown incentives and cost inflation by raising prices in our higher performing communities.

Eric Lieber: Thanks, Josh Good afternoon, and welcome to our earnings call. We're pleased to report the strong operating results, we delivered in the second quarter and to provide more details on the significant progress we've made increasing profitability and growing community count.

Speaker Change: As highlighted in our press release. This morning, we delivered 1655 homes at a record breaking average sales price of $364000, resulting in revenue of over $602 million.

Speaker Change: During the quarter, we opened more self develop communities underwritten at higher margins and successfully offset the impact of mortgage buy down incentives and cost inflation by raising prices in our higher performing communities.

Eric Thomas Lipar: Doing so allowed us to deliver a gross margin of 25%, up 300 basis points from last year, and an adjusted gross margin of 27%, up 320 basis points from last year. These are noteworthy increases in our profitability that bring today's margins in line with pre-pandemic levels. Pre-tax net income for the quarter was approximately $77 million, representing a pre-tax profit margin of 12.8 percent.

Speaker Change: Doing so allowed us to deliver a gross margin of 25% up 300 basis points from last year and adjusted gross margin of 27% up 320 basis points from last year.

Speaker Change: These are noteworthy increases in our profitability that brings it brings today's margins in line with pre pandemic levels.

Speaker Change: Pre tax net income for the quarter was approximately $77 million, representing a pre tax profit margin of 12, 8%. This.

Eric Thomas Lipar: This was a 170 basis point improvement over last year and, like gross margins, in line with our performance prior to the pandemic. These and other achievements contributed to earnings per share of $2.48, an increase of 10.2% compared to the same period last year. In May, we hit a new record of 130 communities and ended June with 128 communities, up an industry-leading 26% in the past year, and more communities are coming. We just completed our July training class here in The Woodlands, which included 60 new salespeople who will be instrumental in helping us achieve our goal of 150 communities by year-end. During the quarter, we averaged 4.3 closings per community per month.

Speaker Change: This was a 170 basis point improvement over last year and gross margins in line with our performance prior to the pandemic.

Speaker Change: These and other achievements contributed to earnings per share of $2 48, an increase of 10, 2% compared.

Speaker Change: Compared to the same period last year.

Speaker Change: In May we hit a new record of 130 communities and ended June with 128 communities up an industry, leading 26% in the past year and more communities are coming.

Speaker Change: We just completed our July training class here in the woodlands, which included 60, new salespeople, who will be instrumental in helping us achieve our goal of 150 communities by year end.

Speaker Change: During the quarter, we averaged $4 three closings per community per month.

Eric Thomas Lipar: Our top markets on a closings per community basis were Charlotte with 8.6 closings per month, Las Vegas with 7.8, Mid-Atlantic with 6.9, Dallas-Fort Worth with 6.7, and Fort Pierce with 6.3 closings per month. Congratulations to the teams in these markets on their outstanding results last quarter. On May 9th, we held our annual Service Impact Day. Nationwide, our teams volunteered more than 9,000 hours, working with 73 local charities that support the most critical needs of our community.

Speaker Change: Top markets on a closings per community basis were Charlotte with eight six closings per month Las Vegas was seven 8% mid Atlantic was $6 nine Dallas Fort worth was six 7% and Fort Pierce was six three closings per month.

Speaker Change: Congratulations to the teams in these markets on their outstanding results last quarter.

On May 9th we held our annual service impact day nationwide. Our teams volunteered more than 9000 hours working with 73 local charities that support the most critical needs of our communities.

Eric Thomas Lipar: We're grateful to our non-profit partners for allowing us to support the transformative work they do, and we thank our employees for making this year's Service Impact Day a success. At a high level, the housing market remains healthy, with demand supported by strong fundamentals including household formations and migration trends, years of underproduction, and a lock-in effect limiting the supply of resale homes. Additionally, we're witnessing a resilient labor market with historically low unemployment.

We're grateful to our nonprofit partners for allowing us to support the transformative work they do and we thank our employees for making this year's service impact eight a success.

Speaker Change: At a high level the housing market remains healthy with demand supported by strong fundamentals, including household formations and migration trends years' of underproduction and a lock in effect limiting the supply of resale homes.

Speaker Change: Additionally, we are witnessing a resilient labor market with historically low unemployment.

Eric Thomas Lipar: On the other side of this equation, it's constrained affordability, which remains the number one challenge for customers and the key limitation on higher sales and closing rates. With rising land and input costs compounded by higher interest rates and increased costs of insurance and property taxes, today's entry-level customer faces harder choices and has fewer options. At LGI Homes, we're making those choices easier and creating meaningful value for our customers by providing affordable-sized but feature-rich homes and offering the mix of incentives that results in the most attainable monthly payment for our buyers. Finding the effective mix of each of these levers, product type, size, amenities, ASP, and incentive levels presents a unique set of operational challenges in every market.

Speaker Change: On the other side of this equation is constrained affordability, which remains the number one challenge for customers and the key limitation on higher sales and closings.

With rising land and input costs compounded by higher interest rates and increased cost of insurance and property taxes today's entry level customer base is harder choices and has fewer options.

<unk>: At <unk>, we're making those choices easier and creating meaningful value for our customers by providing affordable sized but feature rich homes and offering a mix of incentives that results in the most attainable monthly payment for our buyers.

<unk>: Finding the effective mix of each of these levers product type size amenities ASB and incentive levels presents a unique set of operational challenges in every market.

Eric Thomas Lipar: Our performance in the second quarter demonstrates our success at balancing these variables while still delivering outstanding margins that reflect our commitment to increasing profitability and driving higher returns. Now, I'll invite Charles to provide additional details on our financial results. Thanks, Eric.

<unk>: Our performance in the second quarter demonstrates our success at balancing these variables, while still delivering outstanding margins that reflect our commitment to increasing profitability and driving higher returns.

Charles Michael Merdian: As noted earlier, revenue in the second quarter was $602.5 million based on 1,655 homes closed at an average sales price of $364,047, an increase of 4.6% compared to last year. Of our total closings, 117 were through our Wholesale Channel, representing 7.1% of total closings, compared to 7.5% last year. Our second quarter gross margin was 25%, and adjusted gross margin was 27%. As Eric mentioned, gross margin improved significantly, up 300 basis points year-over-year and 160 basis points sequentially, while adjusted gross margins improved 320 basis points year-over-year and 170 basis points sequentially.

<unk>: Now I'll invite Charles to provide additional details on our financial results.

Charles: Thanks, Eric.

Charles: As noted earlier revenue in the second quarter was $602 5 million based on 1655 homes closed at an average sales price of $364047, an increase of four 6% compared to last year.

Charles: Of our total closings 117, where through our wholesale channel representing seven 1% of total closings compared to seven 5% last year.

Charles: Our second quarter gross margin was 25% and adjusted gross margin was 27%.

Charles: As Eric mentioned gross margin improved significantly up 300 basis points year over year, and 160 basis points sequentially, while adjusted gross margins improved 320 basis points year over year, and 170 basis points sequentially.

Charles Michael Merdian: Adjusted growth margin excluded $10.6 million of capitalized interest charged on cost of sales and $1.2 million related to purchase accounting, together representing 200 basis points, compared to 180 basis points last year. The increase was the result of higher borrowing costs coming through cost of goods sold, partially offset by lower purchase accounting adjustments. Combined selling general and administrative expenses for the second quarter were $83.4 million, or 13.8% of revenue. Selling expenses were $52.9 million, or 8.8% of revenue, compared to 7.6% in the same period last year.

Charles: Adjusted gross margin excluded $10 6 million of capitalized interest charged to cost of sales and $1 $2 million related to purchase accounting together, representing 200 basis points compared to 180 basis points last year.

Charles: The increase was the result of higher borrowing costs coming through cost of goods sold partially offset by lower purchase accounting adjustments.

Charles: Combined selling general and administrative expenses for the second quarter were $83 4 million or 13, 8% of revenue.

Charles: Selling expenses were $52 9 million or eight 8% of revenue compared to seven 6% in the same period last year.

Charles Michael Merdian: The increase as a percentage of revenue was primarily related to higher advertising spend this year as compared to last. General and administrative expenses totaled $30.5 million, or 5.1% of revenue, compared to 4.3% in the same period last year.

Charles: The increase as a percentage of revenue was primarily related to higher advertising spend this year as compared to last.

Charles: General and administrative expenses totaled $30 5 million or five 1% of revenue compared to four 3% in the same period last year.

Charles Michael Merdian: The increase as a percentage of revenue was primarily related to higher indirect overhead expenses related to community account expansion that were allocated across lower overall closing costs. We continue to expect our full-year SG&A expense as a percentage of revenue to range between 13 and 14%. Pre-tax net income was $76.9 million, or 12.8% of revenue, compared to 11.1% last year and 5.9% in the first quarter.

Charles: The increase as a percentage of revenue was primarily related to higher indirect overhead expenses related to community count expansion that were allocated across lower overall closings.

Charles: We continue to expect our full year SG&A expense as a percentage of revenue to range between 13 and 14%.

Charles: Pre tax net income was $76 9 million or 12, 8% of revenue compared to 11, 1% last year and five 9% in the first quarter.

Charles Michael Merdian: The increase was the result of driving higher profitability in every home sold, as well as $2.7 million related to the sale of lots and commercial land. Our effective tax rate was 23.8% compared to 25.6% last year, and we expect our full year tax rate will be in the range between 24 and 25%. Second quarter growth orders were 2,201, and net orders were 1,713.

Charles: <unk> was the result of driving higher profitability in every home sold as well as $2 $7 million related to the sale of lots and commercial land.

Charles: Our effective tax rate was 23, 8% compared to 25, 6% last year and we expect our full year tax rate will be in the range between 24 and 25%.

Charles: Second quarter gross orders were 2201 net orders were 1713, and our cancellation rate was 22, 2%.

Charles: We ended the quarter with 1393 homes in our backlog valued at $553 $6 million.

Charles: Of those homes 181.

Charles: Or 13% of our total backlog were related to wholesale contracts with institutional buyers.

Charles Michael Merdian: And our cancellation rate was 22.2%. We ended the quarter with 1,393 homes in our backlog, valued at $553.6 million. Of those homes, 181, or 13% of our total backlog, were related to wholesale contracts with institutional buyers. Turning to our land position, On June 30th, our portfolio consisted of 69,904 owned and controlled lots. Of those lots, 54,362, or 77.8%, were owned, and 15,542 lots, or 22.2%, were controlled. Of our owned lots, 39,284 were either raw land or land under development, with approximately 31% of those lots in active development. Of the remaining 15,078 owned lots, 10,407 were finished vacant lots, and 2,032 were completed homes, including our information center.

Charles: Turning to our land position.

Charles: On June 30, our portfolio consisted of 69904 owned and controlled lots.

Charles: Of those lots 54362, or <unk> 77, 8% were owned.

Charles: And 15542 lots for 22, 2% were controlled.

Charles: Our own blocks 39284 were either raw land or land under development with approximately 31% of those lots inactive development.

Charles: Of the remaining 15078 owned lots 10407 were finished vacant lots and 2032 were completed homes, including our information centers.

Joshua D. Fattor: During the quarter, we started 2,172 homes, and we ended the quarter with 2,639 homes in progress. 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 $1.5 billion of debt outstanding, including $819.7 million drawn on our credit facility, resulting in a debt-to-capital ratio of 43.8 percent and a net debt-to-capital ratio of 43 percent.

Charles: During the quarter, we started 2172 homes and we ended the quarter with 2639 homes and progress.

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

Josh: Thank you Charles we ended the quarter with $1 5 billion of debt outstanding, including $819 $7 million drawn on our credit facility, resulting in a debt to capital ratio of 43, 8% and net debt to capital ratio of 43%.

Eric Thomas Lipar: The sequential increase in the amount drawn on our revolver was commensurate with the increase in our inventory as we started more homes in the second quarter. Total liquidity at the end of the quarter was $405.9 million, including $51 million of cash and $354.8 million available to borrow on our credit facility. We repurchased 83,763 shares for $8 million during the quarter and have $193.5 million remaining on our current authorization. Finally, on June 30th, our stockholders' equity was $1.9 billion, and our book value per share was $81.86, an increase of 11.3% over the same period last year. At this point, I'll turn the call back over to Eric. Thanks, Josh.

Josh: The sequential increase in the amount drawn on our revolver was commensurate with the increase in our inventory as we started more homes in the second quarter.

Josh: Total liquidity at the end of the quarter was $405 $9 million, including $51 million of cash and $354 8 million available to borrow on our credit facility.

Josh: We repurchased 83763 shares for $8 million during the quarter and have 100 to $93 $5 million remaining on our current authorization.

Josh: Finally at June 30, our stockholders equity was $1 9 billion and our book value per share was $81 86 and.

An increase of 11, 3% over the same period last year at.

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

Eric Thomas Lipar: While we still have two days left for closings in July, we expect to report approximately 550 homes closed this month and a similar number. Based on our performance to date, current backlog, and a view of the inventory available to sell and close this year, we are updating our guidance. We now expect to close between 6,400 and 7,200 homes this year. This new range reflects our current view of the market and applies a pace in the second half of the year that is similar to the sales pace we saw in the second quarter.

Eric Lieber: Thanks, Josh while we still have two days left for closings in July we expect to report approximately 550 homes closed this month and a similar number of communities.

Eric Lieber: Just on our performance to date current backlog and our view of the inventory available to sell and close this year. We are updating our guidance. We now expect to close between 6400 7200 homes. This year.

Eric Lieber: This new range reflects our current view of the market and applies a pace in the second half of the year that is similar to the sales pace, we saw in the second quarter.

Eric Thomas Lipar: As we mentioned earlier, we've been pleased with our ability to raise sales prices in most of our communities, and especially in our highest performing communities. Based on the contract value of homes in our backlog and continued outperformance compared to our original expectations, we're increasing our ASP guide to a range between $360,000 and $370,000, a $10,000 increase at both the low and high end of the range. We expect to continue to raise prices as needed while remaining disciplined around the level of incentives required to achieve our margin target.

As we mentioned earlier, we've been pleased with our ability to raise sales prices and most of our communities and especially in our highest performing candidates.

Eric Lieber: Based on the contract value of homes in our backlog and continued outperformance compared to our original expectations, we're increasing our ASP guide to a range between $360000 to $370000 a $10000 increase at both the low and high end of the range.

Eric Lieber: We expect to continue to raise prices as needed while remaining disciplined around the level of incentives required to achieve our margin targets.

Eric Thomas Lipar: Based on our outperformance in the first half of the year, we are raising our gross margin guidance to a range between 23.5% and 24.5%, and adjusted gross margin to between 25.5% and 26.5%. I'll conclude by saying once more how pleased we are with our strong second quarter performance. These achievements are thanks to our teams around the country and their tireless execution of our strategy. On the topic of our people, I'll share a final highlight. For the second year in a row, U.S. News & World Report recognized LGI Homes as one of the best companies to work for in multiple categories.

Eric Lieber: And our outperformance in the first half of the year, we are raising our gross margin guidance to a range between 23, and a half and 24, 5% and adjusted gross margin to between 25, five and 26, 5%.

Eric Lieber: I'll conclude by saying once more how pleased we are with our strong second quarter performance. These achievements, our thanks to our teams around the country and their tireless execution of our strategy.

Speaker Change: On the topic of our people I will share our final to highlight for.

For the second year in a row U S News and World report recognized LTI homes is one of the best companies to work for in multiple categories.

Operator: This achievement is clear evidence that we've created an exciting workplace where our people feel valued, inspired, and positioned for long-term success. To all of our employees, I say thank you for your dedication and the loyalty you continue to show to our company. I will 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.

Speaker Change: This achievement is clear evidence that we are creating an exciting workplace, where our people feel valued and spire and positioned for long term success to all of our employees I'd say. Thank you for your dedication and loyalty you continued to show to our company I will now open the call for questions.

Speaker Change: 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.

Operator: Please wait while we compile the Q&A roster, and our first question will come from Michael Rehaut of J.P. Morgan. Your line is open.

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

Speaker Change: And our first question will come from Michael Rehaut of Jpmorgan. Your line is open.

Andrew Azzi: Hi everyone, this is Andrew Azzi. I'm from Mike. I appreciate you taking the questions. Congratulations on the quarter. Thank you.

Speaker Change: Hi, everyone Zandra, obviously on for Mike I. Appreciate you taking my questions congrats on the quarter.

Andrew Azzi: I just wanted to get a sense of, you know, that growth margin improvement sequentially. You know, if maybe you could bucket out the drivers of that and how that translates over to next quarter, that would be excellent. Andrew, this is Eric.

Speaker Change: Thank you.

Speaker Change: I just wanted to get a sense of that.

Speaker Change: Gross margin improvement sequentially.

Speaker Change: If maybe you can bucket out the drivers of that and how that translates over to next quarter that would be excellent.

Eric Thomas Lipar: I could start. Yeah, a big improvement in gross margin. You know, I think the main point is, and we're pretty excited about it, all the development that we do, there's a lot of value in the lots that we own, there's a lot of value in doing our own development, the team is doing a great job, and we're pricing our communities to market, which we need to make sure we're capturing the developer profit.

Speaker Change: Andrew This is Eric I can start yes, big improvement in gross margin.

Speaker Change: I think the main point is and we're pretty excited about it all the development that we do there is a lot of value in the lots that we own there is lot of value in doing the owned development and the team is doing a great job and we're pricing our communities to market, which we need to make sure we're capturing the develop of our profit.

Eric Thomas Lipar: And that's where I think that elevated gross margin comes from, and that's where we've been historically pre-pandemic. And that's where we need to be. We're a company that does a lot of development, we take on that development risk, requires a lot of capital, and we need to pay for that or get paid for that and capture that development profit and have that adjusted gross margin up in that 27-28% range.

Speaker Change: And that's where I think that elevated gross margin comes from and that's where we've been historically pre pandemic and that's where we need to be we're a company that that does a lot of development. We take on that development risk requires a lot of capital and we need to pay for that or get paid for that and capture that development profit and have that.

Speaker Change: The gross margin up in that 27% to 28% range and the team is doing a fantastic. So I think thats, the leading driver of it.

Eric Thomas Lipar: And the team's doing a fantastic job. I think that's the leading driver. Got it. I just wanted to ask also, maybe on capital allocation, as you continue to grow, how you expect to manage your leverage metrics too, and what we can expect there in the near to medium term. Hey, this is Josh.

Speaker Change: Got it.

Speaker Change: I just wanted to ask also maybe on capital allocation as we continue to grow how you manage your leverage metrics to and what we could expect there.

Speaker Change: Near to medium term.

Joshua D. Fattor: We typically said 35% to 45%. That'll be the standard going forward for our gross debt leverage. You know, when we look at all the opportunities, I think for us right now, it's continued land development. It's bringing these new communities online. We continue to get M&A packages. Nothing's especially compelling that we've seen recently.

Speaker Change: Yes.

Josh: Hi, This is Josh.

Speaker Change: <unk> typically said, 35% to 45% so that'll be the the <unk>.

Speaker Change: Standard going forward for our gross debt leverage.

Speaker Change: When we look at all the opportunities I think for US right now it's continued land development. It is bringing these new communities online.

Speaker Change: We continue to get M&A packages.

Speaker Change: Nothing is especially compelling that we've seen recently.

Joshua D. Fattor: We're a little bit more of a nuanced buyer, so that always makes that a little bit tricky for us. And then on the other side is the share repurchases. And as you saw, we did about $8 million during the quarter. We got great value on those shares, so we continue to monitor that as well. Thanks so much; I'll pass it on.

Speaker Change: We're a little bit more of a nuanced fire so that always makes it a little bit tricky for us.

Speaker Change: And then on the other side is the share repurchases and so you saw we did about $8 million during the quarter, we got a great value on those shares. So we continue to monitor that as well.

Speaker Change: Thanks, so much.

Thank you.

Carl Edwin Reichardt: Thank you. One moment for our next question, which will be coming from Carl Reichardt of VTIG. Your line is open. Thanks, everybody. Nice to talk to you.

Call Ryker: One moment for our next question, which will be coming from call ryker.

Eric Thomas Lipar: So, Eric, now that you've got your gross margin sort of at a pre-pandemic level, and you've sort of talked about that long-term average that you'd like to be at, under the assumption that your current backlog or your homes under construction you haven't sold are going to run at a similar margin per your guidance, where do you start beginning to try to push absorption levels up a little bit? Like, do we need another 100 basis points of margin where you say now we want to focus a little more on pace?

Speaker Change: <unk> Your line is now open.

Speaker Change: Everybody likes to talk to you.

Eric Lieber: So Eric.

Speaker Change: Now that you've got your gross margin sort of at a pre pandemic level and you've sort of talked about.

Speaker Change: That long term average that you'd like to be at under.

Speaker Change: Under the assumption that your current backlog or homes under construction you haven't sold are going to run at a similar margin per your guidance.

Speaker Change: Where do you start beginning to try to push absorption levels up a little bit like do we need another 100 basis points of margin, where you say we want to now we want to focus a little more on pace Im trying to get a sense of where that balances.

Eric Thomas Lipar: I'm trying to get a sense of where that balance is, where you would start to focus a little more on pace and be willing to give up a little margin to run the inventory turns faster. Yeah, it's a great question, Carl, and I thought we'd get a question of price versus pace. And really, we spent a lot of time analyzing the data or working with our leadership teams. And, you know, we wish it was as simple as reducing the price and getting more absorption. And it really doesn't look like that.

Speaker Change: You would start to focus a little more on pace and be willing to give up a little margin to <unk>.

Speaker Change: Run the inventory turns faster.

Eric Thomas Lipar: I mean, our strongest communities, you know, we looked at our top 10 communities that are driving the highest absorption rates, and they also have the highest gross margin. So a couple things we would point out are one, we're doing mortgage buydowns, just like every other builder. And I mean, that's the big incentive that we offer.

Speaker Change: Yes, it's a great question, Carl and figured we'd get a question of price versus pace and really we've spent a lot of time analyzing the data we're working with our leadership teams and we wish you as simple as reducing the price and getting more absorption and it really doesn't look like that I mean, our strongest communities, we looked at our top 10 communities.

That are driving the highest absorption rates. They also have the highest gross margin. So a couple of things. We would point to is one we're doing mortgage buy downs just like every other builder and I think thats the big incentives that we offer I think the cost of those incentives.

Eric Thomas Lipar: I think the cost of those incentives has come down a little bit or been able to offer a better rate over the last couple months because the rates, mortgage rates, have moved in our favor. So we'll continuously look at the mortgage incentive program. But we're price to market; there's a lot of value in our finished lot. So decreasing the price is likely not the answer to increasing the pace, because we just don't see that that's evident.

It has come down a little bit or been able to offer a better rate over the last couple of months because the rates mortgage rates have moved in our favor. So we'll continuously look at the mortgage incentive program.

Speaker Change: But we're priced to market theres a lot of value in our finished lot. So decreasing the prices is likely not the answer to increasing the pace because we just don't see that thats evident or our communities tend to be larger in size.

Eric Thomas Lipar: Our communities tend to be larger in size, and we tend to gradually raise prices over time. And I think we'll stay with that theory.

Speaker Change: We tend to gradually raise prices over time, I think we'll stay on that theory.

Eric Thomas Lipar: The other thing we're seeing is house costs. We're starting to see some relief in house costs. It was fairly flat for cost in the last quarter. And certainly, if house costs provide some relief, we could lower ASPs, especially in newer communities, and keep our gross margins similar. Let me ask something different. So I think as I calculated it, you're a little over 11 years of land on a trailing basis, and that's high, even relative to you.

Speaker Change: The other thing we're seeing is on the on the house cost.

Speaker Change: We're starting to see some relief on house cost it was fairly flat for for cost in the last quarter and certainly if house costs provide some relief, we could lower asp's, especially in newer communities and keep our gross margin similar but potentially help with the pace.

Speaker Change: Okay. That's very comprehensive thank you Eric I actually I was going to ask about build costs will let me, let me ask something different.

Speaker Change: So.

Speaker Change: As I calculated it youre little over 11 years of land on it on a trailing basis, that's high even relative to you and you've got big store count opening coming this year and I think you talked a little bit about next year or so so really two questions. One can you talk a little bit about next years plans for store opening store openings and when do you expect your.

Carl Edwin Reichardt: And you've got a big store count opening coming this year, and I think you've talked a little bit about next year. So really, two questions.

Eric Thomas Lipar: One, can you talk a little bit about next year's plans for store openings? And when do you expect your planned land and lot spend to kind of flatten out trajectory-wise relative to what it has been to get this new store base open this year and into next? Thanks.

Speaker Change: Planned land and lot spend to kind of flatten out trajectory wise relative to what it has been to get this new store base open this year and into next.

Eric Thomas Lipar: Yeah, yeah, I could take the community count. I'll let Charles talk about the land. But community count, I think it's a little early for 2025 Community Count Guide and Shed. We plan on growing community count in 2025. You know, we're focused on the 24 community count getting to 150. We're still comfortable with that metric. We were at 128 last month. So, a lot of new communities coming online in the back half of the year, and a lot of training going on. We just hired 60 new sales reps to fill these communities, so we still feel comfortable about the 150.

Speaker Change: Yes, yes, I can take that community count I'll, let Charles talk about the land spend but candy Cowen AG still early for 2025 community count guidance, yet we plan on growing community count in 2025, we're focused on the 24 community count getting the 150, we're still comfortable with that metric. We are at 128 last months. So.

Speaker Change: A lot of new communities coming online in the back half of the year a lot of training going on we just hired 60, new sales reps to fill these community. So we still feel comfortable about the $1 50.

Charles Michael Merdian: And then we'll see if any M&A opportunities arise, any finished lot opportunities arise, because those can still be part of the community count for next year. We haven't seen as many opportunities over the last six months as we thought we might in a more challenging, affordable market, but those may or may not come in the next couple of quarters.

Charles: And then we'll see if any M&A opportunities rise any finished lot opportunities arise because those can still be part of the community count for next year, we haven't seen as many opportunities over the last six months as we thought we might in a more challenging affordable market.

Charles: But those may or may not come over the next couple of quarters, but confident the 150 for this year and Charles can talk about land spend.

Charles Michael Merdian: But I'm confident in the 150 for this year, and Charles can talk about land spend. Yeah, this, you know, our owned lots are 54,000, just over 54,000 total owned lots, 10,400 of them are finished. So we've done a good job over the last 12 to 18 months on working through some of the pandemic-related delays and getting communities online. Certainly, they had taken longer over that period of time than we originally had expected or planned.

Charles: Yes.

Our owned lots at 54000.

Charles: Just over 54000 total loan lots 10400 of them are finished so we've done a good job over the last 12 months to 18 months.

Charles: Working through some of the pandemic related delays in getting communities online certainly.

Charles Michael Merdian: So we feel very good about what the teams have been doing in terms of scheduling out our developments and getting those through the process. We still have 12,000 additional lots that are in development. So that's about a third of the remaining owned lots that are in some sort of land stage. So we constantly monitor the timing and delivery of those.

Charles: They had taken longer over that period of time than we originally had expected or planned. So we feel very good about what the teams have been doing in terms of scheduling out our developments getting those through the process.

Charles: We still have 12000 additional lots that are that are in development. So that's about a third.

Charles: Of the remaining owned lots that are in some sort of land stage. So.

Charles: Constantly monitoring the timing and delivery of those so I think in some markets in some cases, we're a little ahead in terms of what we have in terms of finished inventory, which will decrease the pace of development in <unk>.

Carl Edwin Reichardt: So I think in some markets, in some cases, we're a little ahead in terms of what we have in terms of finished inventory, which will decrease the pace of development in some of those markets. And in some markets, we are still working hard to get communities delivered. So I think beginning in the back half of this year, the development pace and then also the acquisition pace will certainly start to taper to where we see the replacement dollars that are coming in from the increased closings and community count increase start to exceed what we're spending on development. But I think we'll see that in the fourth quarter and into the first quarter of next year. Thank you so much, Charles. I really appreciate the answer. Thank you, Eric. Thank you, Beth.

Charles: Some of those markets and in some markets we are.

Charles: Still working hard to get communities to lever delivered so I think beginning at the back half of this year.

The development pace and then also the acquisition pace.

Charles: We will certainly start to taper.

Charles: Where we see the replacement dollars that are coming in from from the increased closings and community count increase.

Charles: Start to start to exceed what we're spending on the development spend but I think we will see that in the first in the fourth quarter and into the first quarter of next year.

Trials: Alright. Thank you so much trials I really appreciate the answer and thank you Eric.

Beth: Thank you Beth.

Speaker Change: One moment for our next question.

Kenneth Robinson Zener: Thank you for your time. Our next question will be coming from Kenneth. Zener of Seaport, your line is open.

Speaker Change: Our next question will be coming from Kenneth.

Speaker Change: Center of Seaport Your line is open.

Kenneth Robinson Zener: Hello, everybody. Hello. [inaudible] A couple different questions here. Given the rate outlook, could you just level set us for where incentives are today, either percent of ASP or kind of the impact on margins specifically? and talk about, you know, how many of the buyers you're using it for and, you know, if rates go down 50 bps, you know, what you're buying it to basically. So if rates, if you were to buy it at six or five and a half, rates go down 50 bps, how much of a margin benefit would that be?

Kenneth: Hello, everybody.

Speaker Change: Hello.

Speaker Change: A couple of different questions here.

Kenneth: Given the rate outlook could you just level set us for what where incentives are today either.

Percent of AD.

Kenneth: ASP here kind of the impact on margin specifically.

Kenneth: And talk about how many of the buyers who are using it and.

Speaker Change: If rates go down 50 bps, what youre buying it to basically so if rates. If you were to buy it to six or five to have rates go down 50 bps, how much of a margin benefit would that be.

Kenneth Robinson Zener: Yeah, it's a great question, Ken, and I'll have to give you a broad answer because, you know, incentives are really on a case-by-case, community-by-community, market-by-market, nationwide, certainly incentivizing the houses that are finished and closing in the next 30 days more so than something that isn't requiring permits that's not going to deliver for six months. A lot of that flows through our gross margin dollars, but some of the closing cost incentives also flow through SG&A. It's certainly an expense, and it's an elevated expense over where it was, you know, pre-pandemic.

Kevin: Yes, it's a great question, Kevin and I will have to give you a broad answer because incentives are really on a case by case community by community market by market nationwide certainly incentivizing. The houses that are finished.

Kevin: In closing in the next 30 days more so than something that is in permitting and that it's not going to deliver for six months.

Kevin: A lot of that throws flows through our gross margin dollars, but some of the closing costs incentives also flow through <unk>.

Kevin: SG&A.

Kevin: It's certainly an expense and it's an elevated expense over where it was pre pandemic.

Eric Thomas Lipar: The positive thing is that we've been able to, you know, raise prices, reduce our costs, capture development profit, and all of those savings have made up for the incentives at the current rate. In general, you know, it costs about 1% to get a quarter-point buy-down in the rate. Good, I appreciate it.

Kevin: The positive thing is we've been able to raise prices.

Speaker Change: <unk>, our cost capture development profit and all of those savings has made up for the incentives at the current rate current rate.

Speaker Change: In general.

Speaker Change: Cost about 1% to get a quarter point buy down in the rate.

Kenneth Robinson Zener: Now, this quarter, with the rising gross margin and historically, you know, your DNA of doing all this self-development, could you kind of frame out, you know, the spread that you historically associate with that? It seems to me the industry kind of talks about a 300 basis point. Swing, Develop, Verspine, Finish Lodge. Would you agree with that?

Speaker Change: Good appreciate it now this quarter with the ryzen gross margin historically.

Speaker Change: Your DNA a do it yourself development.

Speaker Change: Could you kind of frame out.

Speaker Change: That spread.

Alright that you historically associate with that seems to be the industry kind of talking about a 300 basis points.

Speaker Change: Swing developed versus buying finished lots.

Eric Thomas Lipar: Yeah, that's exactly, you know, the LGI way of pricing communities: it's 300 basis points as a minimum. So I'd say three to 500 basis points is the typical spread. If we are going to price a community where we're buying a finished lot or pricing a community where we did the development, it should result in the same retail pricing; we're just creating greater margins because we're capturing that developer profit. Good, and if I could, just given your SG&A rising community as you're pulling these online, could you help us think about what a more normalized SG&A level would be since you highlighted that with gross margins?

Speaker Change: Would you agree with that that will give us yes, thats exactly the <unk> pricing communities, it's 300 basis points as a minimum.

Speaker Change: I'd say three to 500 basis points as the typical spread if we are going to price a community, where we're buying a finished lot or pricing a community where we did the development.

Speaker Change: It should result in the same retail pricing, we're just creating greater margins because we're capturing that developer profit.

Speaker Change: Great and if I could.

Speaker Change: Given your SG&A rising community as you're putting these online could you help us think about what a more normalized SG&A level would be since you highlighted that with gross margins. Once these communities are.

Eric Thomas Lipar: Once these communities are up, you've absorbed the cost of these new hires. You just talked about 60 new hires. I'm assuming that's for the 128 to 150. You know, community count by year end, but talk to them about what a more normalized SG&A level will be, because it seems like you've been a little top-heavy there. Thank you so much. Yeah, great question, Ken.

Speaker Change: You've absorbed it cost them.

These new hires you just talked about 60 new hires.

Speaker Change: I'm, assuming that's for that one.

Speaker Change: 128 to $1 50.

Community count by year end, but talk to me like what did more normalized SG&A level will be 'cause it seems like you've been a little top heavy there.

Speaker Change: Thank you so much.

Kenneth Robinson Zener: So, so yes, I mean, certainly in the beginning part of the year as well, it becomes top heavy when closings per community are typically lower in the first quarter. So I think year to date, obviously, our guidance implies that SG&A will continue to see some leverage as communities come online and the top line starts to increase. I think, you know, historically, we've been around that 12 to 13% range.

Speaker Change: Yes, Great question, Ken This is Charles so so yes, I mean, its certainly in the in the beginning part of the year as well.

Speaker Change: It becomes top heavy win win closings per community are typically lower in the first quarter. So I think year to date.

Speaker Change: Obviously, our guidance implies that SG&A will continue to see some some leverage as communities come online and.

Speaker Change: And the top line starts to increase I think.

Historically, we've been around that 12% to 13% range, we've been spending more on advertising recently, we've been talking about that over the last several quarters.

Charles Michael Merdian: We've been spending more on advertising recently; we've been talking about that for the last several quarters, spending the money to generate leads and driving leads to our communities. So I think that's been a little bit more elevated than what we might consider normal, if you will. It depends, I think, in conjunction with where rates go and what we see in the future, but I think... You know, we break it down into selling and then G&A, and I think selling is predominantly variable.

Speaker Change: Spending the money to generate the leads and driving leads to our communities. So I think thats been a little bit more elevated than what we.

Speaker Change: We might consider normal if you will so a little bit depends I think in conjunction with where where rates go and what we see in the future, but I think.

We break it down into selling and then G&A and I think selling is predominantly variable thats, where our commissions.

Charles Michael Merdian: That's where our commissions are recorded, so that is the major driver for selling expense along with advertising. So I think that one will stay relatively similar to lower than where we were in the second quarter on a long-term rate that's kind of 8 to 9 percent. And then on the G&A side, that's where we'll see the most offering leverage as we continue to grow, covering things like corporate-related costs. So that should trend down from five down into the fourth. Thank you very much.

Speaker Change: Our recorded two so that is the.

Speaker Change: The major driver for for selling expense along with advertising.

So I think that one will stay relatively similar to lower than where we are.

Speaker Change: We're in the second quarter on a long term rate, that's going to 8% to 9% and then in the G&A side Thats, where we will see the most operating leverage as we continue to grow.

Speaker Change: Covering things like the corporate related costs.

Speaker Change: So that should trend down from 5% down into the 4% range.

Speaker Change: Thank you very much.

Speaker Change: You bet.

Speaker Change: And our next question.

Kenneth Robinson Zener: You bet. And one moment for our next question. Our next question is going to come from Jay McCanless of Wedbush. Your line is open. Hey, good afternoon, everyone.

Speaker Change: Our next question is going to come from Jay Mccanless Wedbush. Your line is open.

Jay McCanless: So, Eric, I was surprised to hear you say that if you did cut prices, that probably wouldn't drive more volume. That's essentially antithetical to what all of your competitors have been saying. So, maybe could you talk about why a price cut won't work with the typical LGI customer? Yeah, no. I think cutting prices, in general, Jay, does just give you the monthly payment bang for the buck as it does putting money into mortgage incentives, right?

Great Good afternoon, everyone.

Speaker Change: So Eric I was surprised to hear you say that.

Eric Lieber: You did cut prices that probably wouldn't drive more volume.

Speaker Change: Essentially any vertical to what all of your competitors have been saying so maybe could you talk about why a price cut.

Speaker Change: We'll work with the typical LTI customer.

Eric Thomas Lipar: Because right now, the challenge in the market is affordability. We're seeing strong demand from our customers that are currently living in an apartment, somebody that's currently paying rent; they want to get into homeownership, but affordability, the combination of rates and combination of pricing, is as challenging as it ever has been. And the team's doing a great job working with the customers. You have a choice as a builder, and all the builders are.

Eric Lieber: Yes, no I think cutting price in general J does just give you the monthly payment Bang for the Buck is it does putting money into mortgage incentives because right now the challenge in the market is affordability, we're seeing strong demand from our customer.

Eric Lieber: Currently living in an apartment somebody is currently paying rent they want to get into homeownership, but affordability combination of rates the combination of pricing.

Eric Lieber: Affordability is challenges as it ever has been and the team is doing a great job working with customers.

Eric Lieber: And.

Eric Lieber: You have a choice as a builder in all of the builders are you can cut the price or you can work on mortgage incentives and the mortgage incentives leads to a lower monthly payment.

Eric Thomas Lipar: You know, you can cut the price, or you can work on mortgage incentives, which lead to a lower monthly payment. And also, cutting prices in general, unless we're having appraisal challenges, but the vast majority of our houses, almost all of our houses are appraising, you know, based on the comp scenario, so that tells you your price to market. So, no reason to sell houses below market. It's still a low supply of homes, generally speaking, across the United States. And the houses we have and the lots we have are valuable, and discounting them to move them is generally not a great idea, in our opinion. And so it goes.

Speaker Change: It also cutting price in general and less we're having appraisal challenges, but the vast majority of our houses almost all of our houses are appraising based on the comps scenarios that tells you to your price to market. So no reason to sell houses below market is still a still a low supply environment generally speaking.

Speaker Change: <unk> across the United States and the houses we have in the lots we have are valuable and discounting.

Move them.

Is generally not a great idea in our opinion.

Speaker Change: Okay.

Jay McCanless: Looking at the new gross margin guidance, I guess what, if you're raising prices, if you're getting a little bit more on the developer side, what's the downside risk, and what can make gross margins go down sequentially in the back half of the year? Well, I think it's the mortgage incentive dollars, what it's going to take to make our houses affordable and get customers qualified. So that's, you know, that's rate dependent on the cost of that. You know, we're not seeing a lot of relief on that cost.

Speaker Change: And so.

Speaker Change: Looking at the new gross margin guidance I guess what.

Speaker Change: If you're if you're raising prices, if youre getting a little bit more on the developer side I guess, what's the downside risk and what could make gross margins go down sequentially in the back half of the year.

Speaker Change: Well I think it's the mortgage incentive dollars, what it's going to take to make our houses affordable and get customers qualified so that's that's right depending on the cost of that.

Eric Thomas Lipar: Even though house costs are fairly flat, to some relief, doing business with cities, whether it's permits and fees, development costs as new communities are coming online, even though we're capturing that developer profit, new communities coming online generally have a higher cost than the older communities that are selling out. So it is still a fairly high-cost environment where we need to raise prices just to maintain the market, really. And I guess what percentage of communities were able to raise prices this quarter?

Speaker Change: We're not seeing a lot of relief on the cost even though house costs are fairly flat to some relief.

Speaker Change: Doing business with cities, whether its permits and fees.

Speaker Change: <unk> costs as new communities are coming online, even though we're capturing that developer profit new communities coming online generally have a higher cost than the older older communities that are are selling out. So it is still a fairly high cost environment, where we need to raise prices just to just to maintain margins.

Speaker Change: Okay.

Speaker Change: And I guess, what percentage of communities, where you're able to raise prices this quarter.

Speaker Change: I would say.

Speaker Change: More of that more than half.

Speaker Change: For sure just because of strong demand.

Speaker Change: To offset the cost increases that we're seeing.

Speaker Change: Okay.

Speaker Change: And then just one more real quickly.

Speaker Change: I think I can't remember Charles or Eric If you said it about not seeing the opportunities that you expected to see on the land side is that a function of just deals not being brought to market or is that more aggressively in buying from some of your competitors.

Speaker Change: Yes, I think it's a little of both I think Jay where what we've seen in that comment really stems for it wasn't too long ago that we were talking about SBB bank and maybe bank lending really tightening up for the private builders the private developers, maybe you'd see some deals getting.

Speaker Change: Dropped or having trouble getting financed.

We think it's a little bit more challenging market from an affordability standpoint, and those type of markets, where financing goes away, it's a little bit more challenging those are the type of markets that you see more finished lot opportunities in more deals and we're seeing deals out there or buying deals.

Nielsen: Nielsen, we're approving deals through our acquisitions Committee.

Nielsen: I think the comment as we just probably haven't seen as many as we thought.

Nielsen: That may be coming.

Speaker Change: Okay, great. Thanks, guys I appreciate it.

Speaker Change: Youre welcome.

Speaker Change: I would now like to turn the conference back to Eric for closing remarks.

Eric Lieber: Yes, thanks, everybody for participating on today's call and for your continued interest in <unk> homes and go Astros.

Speaker Change: And this concludes today's conference. Thank you for participating you may now all disconnect.

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Eric Thomas Lipar: I would say more than half, for sure, just because of strong demand and to offset the cost increases that And then just one more real quickly. I think, I can't remember if Charles or Eric said it about not seeing the opportunities that you expected to see on the land side. Is that a function of just deals not being brought to market, or is that more aggressive land buying from some of your competitors? You know, I think it's a little of both.

Speaker Change: Welcome to LTI homes second quarter 2024 conference call today's call is being recorded and a replay will be available on the company's website at www Dot LTI homes Dot com. After management's prepared comments, there will be an opportunity to ask questions. At this time I would like to turn the call over to Joshua Fatter exactly.

Jay McCanless: I think, Jay, what we've seen in that comment really stems from, you know, was it too long ago that we were talking about SVB Bank and maybe bank lending really tightening up for the private builders, the private developers? Maybe you'd see some deals getting dropped or having trouble getting financed. We think it's a little bit more challenging of a market from an affordability standpoint, and those type of markets where financing goes away. It's a little bit more challenging. Those are the type of markets that you see more finish lot opportunities and more deals, and we're seeing deals out there, and we're buying, [inaudible] Great. Thanks, guys. I appreciate it. You're welcome.

Eric Thomas Lipar: I would now like to turn the conference back to Eric for closing remarks. Yeah, thanks everybody for participating on today's call and for your continued interest in LGI Homes. And this concludes today's conference. Thank you for participating. You may now all disconnect.

Operator: Welcome to LGI Homes' second quarter 2024 conference. 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 comment, there will be an opportunity to ask, "At this time, I would like to turn the call over to Joshua Fattor, Executive Vice President of Investor Relations and Capital Markets." Please go ahead.

Speaker Change: <unk>, Vice President of Investor Relations and capital markets. Please go ahead.

Thanks, and good afternoon.

Speaker Change: 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.

Speaker Change: 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.

Speaker Change: 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: All forward-looking statements must be considered in light of those related risks, and you shouldn't place undue reliance on such statements, which reflect management's current viewpoints and are not intended to guarantee you 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. Reconciliations of non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP can be found in the press release we issued this morning and in our quarterly report on Form 10-Q for the quarter ended June 30, 2024, which we expect to file with the SEC later today. This filing will be accessible on the SEC's website and on the Investor Relations section of our website.

Speaker Change: This filing will be accessible on the Sec's website and on the Investor Relations section of our website.

Speaker Change: With me today are Eric Lieber, LCI, Homes', Chief Executive Officer, and Chairman of the Board and Charles <unk>, Chief Financial Officer, and Treasurer, I'll now turn the call over to Eric.

Josh Good afternoon, and welcome to our earnings call. We're pleased to report the strong operating results, we delivered in the second quarter and to provide more details on the significant progress we've made increasing profitability and growing community count.

Speaker Change: As highlighted in our press release. This morning, we delivered 1655 homes at a record breaking average sales price of $364000, resulting in revenue of over $602 million.

During the quarter, we opened more self develop communities underwritten at higher margins and successfully offset the impact of mortgage buy down incentives and cost inflation by raising prices in our higher performing communities.

Eric Thomas Lipar: Doing so allowed us to deliver a gross margin of 25% of 300 basis points from last year and an adjusted gross margin of 27% of 320 basis points from last year. These are noteworthy increases in our profitability that bring today's margins in line with pre-pandemic levels. Pre-tax net income for the quarter was approximately $77 million, representing a pre-tax profit margin of 12.8%.

Speaker Change: So allowed us to deliver a gross margin of 25% up 300 basis points from last year and adjusted gross margin of 27% up 320 basis points from last year. These are noteworthy increases in our profitability that brings that it brings today's margins in line with pre pandemic levels.

Speaker Change: Pre tax net income for the quarter was approximately $77 million, representing a pre tax profit margin of 12, 8%.

Eric Thomas Lipar: This was a 170 basis point improvement over last year and light gross margins in line with our performance prior to the pandemic. These and other achievements contributed to earnings per share of $2.48, an increase of 10.2% compared to the same period last year. In May, we hit a new record of 130 communities and ended June with 128 communities, up an industry-leading 26% in the past year, and more communities are coming. We just completed our July training class here in The Woodlands, which included 60 new salespeople who will be instrumental in helping us achieve our goal of 150 communities by year-end. During the quarter, we averaged 4.3 closings per community per month.

Speaker Change: This was a 170 basis point improvement over last year and like gross margins in line with our performance prior to the pandemic.

Speaker Change: These and other achievements contributed to earnings per share of $2 48, an increase of 10, 2% compared to the same period last year.

Speaker Change: In May we hit a new record of 130 communities and ended June with 128 communities up an industry, leading 26% in the past year and more communities are coming.

During the quarter, we averaged $4 three closings per community per month.

Speaker Change: Top markets on a closings per community basis were Charlotte was eight six closings per month Las Vegas was seven eight mid Atlantic was $6 nine Dallas Fort worth was six 7% and Fort Pierce was six three closings per month.

Speaker Change: Congratulations to the teams in these markets on their outstanding results last quarter.

Eric Thomas Lipar: Nationally, our teams volunteered more than 9,000 hours, working with 73 local charities that support the most critical needs of our community. We're grateful to our non-profit partners for allowing us to support the transformative work they do, and we thank our employees for making this year's Service Impact Day a success. At a high level, the housing market remains healthy, with demand supported by strong fundamentals including household formations and migration trends, years of underproduction, and a lock-in effect limiting the supply of resale homes.

Speaker Change: On May 9th we held our annual service impact data nationwide. Our teams volunteered more than 9000 hours working with 73 local charities that support the most critical needs of our communities.

Speaker Change: We're grateful to our nonprofit partners for allowing us to support the transformative work they do and we thank our employees for making this year service impact date a success.

Eric Thomas Lipar: Additionally, we're witnessing a resilient labor market with historically low unemployment. On the other side of this equation is constrained affordability, which remains the number one challenge for customers and the key limitation on higher sales and closing rates. With rising land and input costs compounded by higher interest rates and increased costs of insurance and property taxes, today's entry-level customer faces harder choices and has fewer options. At LGI Homes, we're making those choices easier and creating meaningful value for our customers by providing affordable-sized but feature-rich homes and offering the mix of incentives that results in the most attainable monthly payment for our buyers. Finding the effective mix of each of these levers, product type, size, amenities, ASP, and incentive levels presents a unique set of operational challenges in every market.

Speaker Change: Additionally, we are witnessing a resilient labor market with historically low unemployment.

Speaker Change: On the other side of this equation is constrained affordability, which remains the number one challenge for customers and the key limitation on higher sales and closings.

Speaker Change: With rising land and input costs compounded by higher interest rates and increased cost of insurance and property taxes today's entry level customer base is harder choices and has fewer options.

<unk>: Finding the effective mix of each of these levers product type size amenities ASB and incentive levels presents a unique set of operational challenges in every market.

Charles: <unk> by Charles to provide additional details on our financial results.

Charles Michael Merdian: As noted earlier, revenue in the second quarter was $602.5 million based on 1,655 homes closed at an average sales price of $364,047, an increase of 4.6% compared to last year. Of our total closings, 117 were through our wholesale channel, representing 7.1% of total closings, compared to 7.5% last year. Our second quarter gross margin was 25%, and adjusted gross margin was 27%. As Eric mentioned, gross margin improved significantly, up 300 basis points year over year and 160 basis points sequentially.

Thanks, Eric.

Charles: As noted earlier revenue in the second quarter was $602 $5 million based on 1655 homes closed at an average sales price of $364047, an increase of four 6% compared to last year.

Charles: Of our total closings 117, where through our wholesale channel representing seven 1% of total closings compared to seven 5% last year.

Charles: Our second quarter gross margin was 25% and adjusted gross margin was 27%.

Charles Michael Merdian: While adjusted gross margins improved 320 basis points year over year and 170 basis points sequentially, adjusted growth margin excluded $10.6 million of capitalized interest charged on cost of sales and $1.2 million related to purchase accounting, together representing 200 basis points, compared to 180 basis points last year. The increase was the result of higher borrowing costs coming through the cost of goods sold, partially offset by lower purchase accounting adjustments. Combined selling, general, and administrative expenses for the second quarter were $83.4 million, or 13.8% of revenue.

Charles: The increase was the result of higher borrowing costs coming through cost of goods sold partially offset by lower purchase accounting adjustments.

Charles: Combined selling general and administrative expenses for the second quarter were $83 4 million or 13, 8% of revenue.

Charles Michael Merdian: Selling expenses were $52.9 million, or 8.8% of revenue, compared to 7.6% in the same period last year. The increase as a percentage of revenue was primarily related to higher advertising spend this year as compared to last. General and administrative expenses totaled $30.5 million, or 5.1% of revenue, compared to 4.3% in the same period last year.

Charles: Selling expenses were $52 9 million or eight 8% of revenue compared to seven 6% in the same period last year.

Charles: The increase as a percentage of revenue was primarily related to higher advertising spend this year as compared to last.

Charles: General and administrative expenses totaled $30 5 million or five 1% of revenue compared to four 3% in the same period last year.

Charles: The increase as a percentage of revenue was primarily related to higher indirect overhead expenses related to community count expansion that were allocated across lower overall closings.

Charles: We continue to expect our full year SG&A expense as a percentage of revenue to range between 13 and 14%.

Charles: Pre tax net income was $76 9 million or 12, 8% of revenue compared to 11, 1% last year and five 9% in the first quarter.

Speaker Change: What's the result of driving higher profitability in every home sold as well as $2 $7 million related to the sale of lots and commercial land.

Speaker Change: Our effective tax rate was 23, 8% compared to 25, 6% last year and we expect our full year tax rate will be in the range between 24 and 25%.

Charles Michael Merdian: The net orders were 1,713, and our cancellation rate was 22.2%. We ended the quarter with 1,393 homes in our backlog, valued at $553.6 million. Of those homes, 181, or 13% of our total backlog, were related to wholesale contracts with institutional buyers. Turning to our land position, on June 30th, our portfolio consisted of 69,904 owned and controlled lots. Of those lots, 54,362, or 77.8%, were owned, and 15,542 lots, for 22.2%, were controlled. Of our owned lots, 39,284 were either raw land or land under development, with approximately 31% of those lots in active development. Of the remaining 15,078 owned lots, 10,407 were finished vacant lots, and 2,032 were completed homes, including our information center.

Speaker Change: Second quarter gross orders were 2201 net orders were 1713, and our cancellation rate was 22, 2%.

Speaker Change: We ended the quarter with 1393 homes in our backlog valued at $553 $6 million.

Of those homes 181 or.

Speaker Change: 13% of our total backlog were related to wholesale contracts with institutional buyers.

Speaker Change: Turning to our land position.

Speaker Change: On June 30, our portfolio consisted of 69904 owned and controlled lots.

Speaker Change: Of those lots 54362, or <unk> 77, 8% were owned and 15542 lots for 22, 2% were controlled.

Speaker Change: Of our owned lots 39284 were either raw land or land under development with approximately 31% of those lots inactive development.

Speaker Change: Of the remaining 15078 owned lots 10407 were finished vacant lots and 2032 were completed homes, including our information centers.

Charles Michael Merdian: During the quarter, we started 2,172 homes, and we ended the quarter with 2,639 homes in progress. 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 $1.5 billion of debt outstanding, including $819.7 million drawn on our credit facility, resulting in a debt-to-capital ratio of 43.8% and a net debt-to-capital ratio of 43.9%.

Speaker Change: During the quarter, we started 2172 homes and we ended the quarter with 2639 homes and progress.

Joshua D. Fattor: The sequential increase in the amount drawn on our revolver was commensurate with the increase in our inventory as we started more homes in the second quarter. Total liquidity at the end of the quarter was $405.9 million, including $51 million of cash and $354.8 million available to borrow on our credit facility. We repurchased 83,763 shares for $8 million during the quarter and have $193.5 million remaining on our current authorization. Finally, on June 30th, our stockholders' equity was $1.9 billion, and our book value per share was $81.86, an increase of 11.3% over the same period last year. At this point, I'll turn the call back over to Eric. Thanks, Josh.

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

Josh: The sequential increase in the amount drawn on our revolver was commensurate with the increase in our inventory as we started more homes in the second quarter.

Josh: Total liquidity at the end of the quarter was $405 9 million.

Josh: Including $51 million of cash and $354 $8 million available to borrow on our credit facility.

Josh: We repurchased 83763 shares for $8 million during the quarter and have 100 to $93 $5 million remaining on our current authorization.

Finally at June 30, our stockholders equity was $1 9 billion and our book value per share was $81 86.

Josh: An increase of 11, 3% over the same period last year.

Eric Thomas Lipar: While we still have two days left for closings in July, we expect to report approximately 550 homes closed this month in a similar number of communities. Based on our performance to date, our current backlog, and a view of the inventory available to sell and close this year, we are updating our guidance. We now expect to close between 6,400 and 7,200 homes this year. This new range reflects our current view of the market and applies a pace in the second half of the year that is similar to the sales pace we saw in the second quarter.

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

Eric Lieber: Thanks, Josh while we still have two days left for closings in July we expect to report approximately 550 homes closed this month and a similar number of communities.

Eric Lieber: Just on our performance to date current backlog and our view of the inventory available to sell a close this year. We are updating our guidance. We now expect to close between 6400 7200 homes. This year. This new range reflects our current view of the market and apply the pace in the second half of the year that is similar to the sales pace, we saw in the second quarter.

Eric Thomas Lipar: As we mentioned earlier, we've been pleased with our ability to raise sales prices in most of our communities, and especially in our highest-performing communities. Based on the contract value of homes in our backlog and continued outperformance compared to our original expectations, we're increasing our ASP guide to a range between $360,000 and $370,000, a $10,000 increase at both the low and high end of the range. We expect to continue to raise prices as needed while remaining disciplined around the level of incentives required to achieve our margin target.

Eric Lieber: As we mentioned earlier, we've been pleased with our ability to raise sales prices and most of our communities and especially at our highest performing communities.

Based on the contract value of homes in our backlog and continued outperformance compared to our original expectations, we're increasing our ASP guide to a range between $360000 to $370000 a $10 increase at both the low and high end of the range.

Eric Lieber: We expect to continue to raise prices as needed while remaining disciplined around the level of incentives required to achieve our margin targets base.

Eric Thomas Lipar: Based on our outperformance in the first half of the year, we are raising our gross margin guidance to a range between 23.5% and 24.5% and adjusted gross margin to between 25.5% and 26.5%. I'll conclude by saying once more how pleased we are with our strong second quarter performance. These achievements are thanks to our teams around the country and their tireless execution of our strategy. On the topic of our people, I'll share a final highlight. For the second year in a row, U.S. News & World Report recognized LGI Homes as one of the best companies to work for in multiple categories.

Eric Lieber: Based on our outperformance in the first half of the year, we are raising our gross margin guidance to a range between 23, and a half and 24, 5% and adjusted gross margin to between 25, five and 26, 5%.

Eric Lieber: Ill conclude by saying once more how pleased we are with our strong second quarter performance. These achievements, our thanks to our teams around the country and their tireless execution of our strategy.

Speaker Change: On the topic of our people I will share a final to highlight for.

Speaker Change: For the second year in a row U S News and World report recognized LTI homes is one of the best companies to work for in multiple categories.

Eric Thomas Lipar: This achievement is clear evidence that we've created an exciting workplace where our people feel valued, inspired, and positioned for long-term success. To all of our employees, I say thank you for your dedication and the loyalty you continue to show to our company. I will 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.

Speaker Change: This achievement is clear evidence that we have creating an exciting workplace, where our people feel valued and spire and positioned for long term success.

Speaker Change: To all of our employees I'd say, thank you for your dedication and loyalty you continued to show to our company I will now open the call for questions.

Speaker Change: 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.

Operator: Please wait while we compile the Q&A roster, and our first question will come from Michael Rehaut of J.P. Morgan. Your line is open. Hi everyone, this is Andrew Azzi. I'm from Mike. I appreciate you taking the questions. Keep asking them forward.

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

Speaker Change: And our first question will come from Michael Rehaut of Jpmorgan. Your line is open.

Speaker Change: Hi, everyone. This is Andrew <unk> on for Mike I. Appreciate you taking my questions Congrats on the quarter.

Michael Jason Rehaut: Thank you. I just wanted to get a sense of, you know, that growth margin improvement sequentially. You know, if maybe you could bucket out the drivers of that and how that translates over to next quarter, that would be excellent. Andrew, this is Eric.

Speaker Change: Thank you.

Speaker Change: I just wanted to get a sense of.

Speaker Change: That growth margin improvement sequentially.

Speaker Change: If maybe you can bucket out the drivers of that and how that translates to over the next quarter.

Speaker Change: Excellent.

Speaker Change: Andrew This is Eric I can start yes, big improvement in gross margin.

Speaker Change: I think the main point is and we're pretty excited about it all of the development that we do there is a lot of value in the lots that we own there is lot of value in doing the owned development and the team is doing a great job and we're pricing our communities to market, which we need to make sure we're capturing the developer prop.

Eric Thomas Lipar: And that's where I think that elevated gross margin comes from. And that's where we've been historically pre-pandemic. And that's where we need to be. We're a company that does a lot of development, we take on that development risk, requires a lot of capital, and we need to pay for that or get paid for that and capture that development profit and have that adjusted gross margin up in that 27-28% range. And the team's doing a fantastic job. I think he's the leading driver. I Got it.

And that's where I think that elevated gross margin comes from and that's where we've been historically pre pandemic and that's where we need to be we're a company that that does a lot of development. We take on that development risk requires a lot of capital and we need to pay for that or get paid for that and capture that development profit and have that.

Speaker Change: Adjusted gross margin.

Speaker Change: And that 27% to 28% range and the team is doing a fantastic. So I think thats, the leading driver of it.

Joshua D. Fattor: I just wanted to ask also, maybe on capital allocation, as you continue to grow, how do you expect to manage your leverage metrics too? And what can we expect there in the near to medium term? Hey, this is Josh.

Speaker Change: Got it.

Speaker Change #100: I just wanted to ask also maybe on capital allocation as we can.

Speaker Change #100: Continue to grow.

Speaker Change #101: Do you expect to manage your leverage metrics to and what we could expect there.

Joshua D. Fattor: We've typically said 35% to 45%. That'll be the standard going forward for our gross debt leverage. You know, when we look at all the opportunities, I think for us right now, it's continued land development. It's bringing these new communities online. We continue to get M&A packages. Nothing's especially compelling that we've seen recently.

Speaker Change #101: Near to medium term.

Speaker Change #101: <unk>.

Josh: Hi, This is Josh.

Speaker Change #102: <unk> typically said, 35% to 45% so that'll be the <unk>.

Speaker Change #102: Standard going forward for our gross debt leverage.

Speaker Change #102: When we look at all the opportunities I think for US right now it's continued land development. It is bringing these new communities online.

Speaker Change #102: We continue to get M&A packages.

Speaker Change #102: It is especially compelling that we've seen recently.

Speaker Change #102: We're a little bit of more of a nuanced buyers. So that always makes that a little bit tricky for us.

Speaker Change #102: And then on the other side is the share repurchases and so you saw we did about $8 million during the quarter, we got a great value on those shares. So we continue to monitor that as well.

Speaker Change #102: Okay.

Speaker Change #103: Thanks, so much for that.

Carl Edwin Reichardt: I'll pass it on. Thank you. One moment for our next question, which will be coming from Carl Reichardt of VTIG. Your line is open. Thanks, everybody. Nice to talk to you.

Speaker Change #104: Thank you.

Call Ryker: One moment for our next question, which will be coming from call ryker.

Carl Edwin Reichardt: So, Eric, now that you've got your gross margin sort of at a pre-pandemic level, and you've sort of talked about that long-term average that you'd like to be at, under the assumption that your current backlog or your homes under construction you haven't sold are going to run at a similar margin per your guidance, where do you start beginning to try to push absorption levels up a little bit? Like, do we need another 100 basis points of margin where you say now we want to focus a little more on pace?

Speaker Change #105: <unk> Your line is now open.

Thanks, Hey, everybody likes to talk to you.

Eric Lieber: So Eric.

Speaker Change #106: Now that you've got your gross margin sort of at a pre pandemic level and you've sort of talked about.

Speaker Change #106: That long term average that you'd like to be at under.

Speaker Change #107: Under the assumption that your current backlog or your homes under construction you haven't sold are going to run at a similar margin per your guidance.

Speaker Change #108: Where do you start beginning to try to push absorption levels up a little bit like do we need another 100 basis points of margin, where you say we want to now we want to focus a little more on pace I'm trying to get a sense of where that balances.

Carl Edwin Reichardt: I'm trying to get a sense of where that balance is, where you would start to focus a little more on pace and be willing to give up a little margin to run the inventory turns faster. Yeah, it's a great question, Carl, and I thought we'd get a question of price versus pace. And really, we spent a lot of time analyzing the data or working with our leadership teams. And, you know, we wish it was as simple as reducing the price and getting more absorption. And it really doesn't look like that.

Speaker Change #108: Where you would start to focus a little more on pace and be willing to give up a little margin.

Speaker Change #108: To run the inventory turns faster.

Speaker Change #109: Yes, it's a great question, Carl and figured with you had a question of price versus pace and really we spent a lot of time analyzing the data we're working with our leadership teams and we wish you as simple as reducing the price and get more absorption and it really doesn't look like that.

Eric Thomas Lipar: I mean, our strongest communities, you know, we looked at our top 10 communities that are driving the highest absorption rates, and they also have the highest gross margin. So a couple things we would point out are one, we're doing mortgage buy-downs, just like every other builder. And I mean, that's the big incentive that we offer.

Our strongest communities, we looked at our top 10 communities that are driving the highest absorption rates. They also have the highest gross margin. So a couple of things. We would point to is one we're doing mortgage buy downs just like every other builder and I think thats the big incentives that we offer I think the cost of those incentives.

Speaker Change #109: <unk>.

Speaker Change #109: It has come down a little bit or been able to offer a better rate over the last couple of months because the rates mortgage rates have moved in our favor. So we'll continuously look at the mortgage incentive program.

Eric Thomas Lipar: The other thing we're seeing is house costs. We're starting to see some relief in house costs. It was fairly flat for cost in the last quarter. And certainly, if house costs provide some relief, we could lower ASPs, especially in newer communities, and keep our gross margins similar. Let me ask something different. So I think, as I calculated it, you're a little over 11 years of land on a trailing basis, and that's high, even relative to you.

Carl Edwin Reichardt: And you've got a big store count opening coming this year, and I think you've talked a little bit about next year. So really, two questions.

Carl Edwin Reichardt: One, can you talk a little bit about next year's plans for store openings? And when do you expect your planned land and lot spend to kind of flatten out trajectory-wise relative to what it has been to get this new store base open this year and into next? Thanks.

Eric Thomas Lipar: And then we'll see if any M&A opportunities arise, any finished lot opportunities arise, because those can still be part of the community count for next year. We haven't seen as many opportunities over the last six months as we thought we might in a more challenging, affordable market, but those may or may not come in the next couple of quarters.

Charles Michael Merdian: So I think in some markets, in some cases, we're a little ahead in terms of what we have in terms of finished inventory, which will decrease the pace of development in some of those markets. And in some markets, we are still working hard to get communities delivered. So I think beginning in the back half of this year, the development pace and then also the acquisition pace will certainly start to taper to where we see the replacement dollars that are coming in from the increased closings and community count increase start to exceed what we're spending on development. But I think we'll see that in the fourth quarter and into the first quarter of next year. Thank you so much, Charles.

Kenneth Robinson Zener: Thank you, Matt, for our next question. Our next question will be coming from Kenneth. Zener of Seaport, your line is open.

Kenneth Robinson Zener: Hello, everybody. Hello. A couple different questions here. Given the rate outlook, could you just level set us for where incentives are today, either percent of ASP or kind of the impact on margins specifically? and talk about, you know, how many of the buyers you're using it for and, you know, if rates go down 50 bps, you know, what you're buying it to basically. So if rates, if you were to buy it at six or five and a half, rates go down 50 bps, how much of a margin benefit would that be?

Kenneth Robinson Zener: Yeah, it's a great question, Ken, and I'll have to give you a broad answer because, you know, incentives are really on a case-by-case, community-by-community, market-by-market, nationwide, certainly incentivizing the houses that are finished and closing in the next 30 days more so than something that isn't requiring permits and that's not going to deliver for six months. A lot of that flows through our gross margin dollars, but some of the closing cost incentives also flow through SG&A. It's certainly an expense, and it's an elevated expense over where it was, you know, pre-pandemic.

Eric Thomas Lipar: The positive thing is that we've been able to, you know, raise prices, reduce our costs, capture development profit, and all of those savings have made up for the incentives at the current rate. In general, you know, it costs about 1% to get a quarter point buy-down in the rate. Good, I appreciate it.

Kenneth Robinson Zener: Now, this quarter with the rising gross margin and historically, you know, your DNA of doing all this self-development, could you kind of frame out, you know, the spread that you historically associate with that? Seems to me the industry kind of talks about a 300 basis point. Swing, Develop vs. Buying, Finish Lodge. Would you agree with that?

Eric Thomas Lipar: Yeah, that's exactly, you know, the LGI way of pricing communities, it's 300 basis points as a minimum. So I'd say 300 to 500 basis points is the typical spread if we are going to price a community where we're buying a finished lot or pricing a community where we did the development. It should result in the same retail pricing; we're just creating greater margins because we're capturing that developer product.

Kenneth Robinson Zener: Good, and if I could, just given your SG&A rising community as you're pulling these online, could you help us think about what a more normalized SG&A level would be, since you highlighted that with gross margins? Once these communities are up, you've absorbed the cost of these new hires; you just talked about 60 new hires. I'm assuming that's for the 128 to 150. You know, community count by year end, but talk to me about what a more normalized SG&A level will be, because it seems like you've been a little top-heavy there. Thank you so much. Yeah, a great question, Ken. This is Charles.

Charles Michael Merdian: So, so yes, I mean, certainly in the beginning part of the year as well, it becomes top heavy when closings per community are typically lower in the first quarter. So I think year to date, obviously, our guidance implies that SG&A will continue to see some leverage as communities come online and the top line starts to increase. I think, you know, historically, we've been around that 12 to 13% range.

Charles Michael Merdian: We've been spending more on advertising recently; we've been talking about that for the last several quarters, spending the money to generate leads and driving leads to our communities. So I think that's been a little bit more elevated than what we might consider normal, if you will. It really depends, I think, in conjunction with where rates go and what we see in the future. You know, we break it down into selling and then G&A, and I think selling is predominantly variable.

Jay McCanless: You bet. And one moment for our next question. Our next question is going to come from Jay McCanless of Wedbush. Your line is open. Hey, good afternoon, everyone.

Jay McCanless: So, Eric, I was surprised to hear you say that if you did cut prices, that probably wouldn't drive more volume because that's essentially antithetical to what all of your competitors have been saying. So, maybe you could talk about why a price cut won't work with the typical LGI customer? Yeah, no, I think cutting prices in general, Jay, does just give you the monthly payment bang for the buck as it does putting money into mortgage incentives, right?

Jay McCanless: Because right now, the challenge in the market is affordability. We're seeing strong demand from our customers that are currently living in an apartment, somebody's currently paying rent; they want to get into homeownership. But affordability, the combination of rates and combination of pricing, is as challenging as it ever has been. And the team's doing a great job working with customers. And you have a choice as a builder, and all the builders are.

Eric Thomas Lipar: You can cut the price, or you can work on mortgage incentives, and the mortgage incentives lead to a lower monthly payment. And also, cutting prices in general, unless we're having appraisal challenges, but the vast majority of our houses, almost all of our houses are appraising based on the comps scenarios. That tells you your price to market. So no reason to sell houses below market. Still a low supply of homes, generally speaking, across the United States.

Jay McCanless: And the houses we have, and the lots we have, are valuable. And discounting them to move them is generally not a great idea, in our opinion.

Eric Thomas Lipar: Looking at the new gross margin guidance, I guess what, if you're raising prices, if you're getting a little bit more on the developer side, what's the downside risk, and what could make gross margins go down sequentially in the back half of the year? Well, I think it's the mortgage incentive dollars, what it's going to take to make our houses affordable and get customers qualified. So that's, you know, that's a rate dependent on the cost of that.

Eric Thomas Lipar: You know, we're not seeing a lot of relief in the cost. Even though house costs are fairly flat, with some relief, doing business with cities, whether it's permits and fees, development costs as new communities are coming online, even though we're capturing that developer profit, new communities coming online generally have a higher cost than the older communities that are selling out. So it is still a fairly high cost environment where we need to raise prices just to maintain the market.

Eric Thomas Lipar: OK. And I guess what percentage of communities were able to raise prices this quarter? I would say More than half, for sure, just because of strong demand and to offset the cost increases that And then just one more real quickly. I think I can't remember if Charles or Eric said it about not seeing the opportunities that you expected to see on the land side. Is that a function of just deals not being brought to market, or is it more aggressive land buying from some of your competitors?

Eric Thomas Lipar: You know, I think it's a little of both. I think, Jay, what we've seen in that comment really stems from, you know, was it too long ago that we were talking about SVB Bank and maybe bank lending really tightening up for the private builders, the private developers? Maybe you'd see some deals getting dropped or having trouble getting financed. We think it's a little bit more challenging of a market from an affordability standpoint, and those type of markets where financing goes away. It's a little bit more challenging. Those are the type of markets that you see more finish lot opportunities and more deals, and we're seeing deals out there, and we're buying. I think the comment is we just probably haven't seen as many as we thought may be coming.

Jay McCanless: Great. Thanks, guys. I appreciate it.

Eric Thomas Lipar: You're welcome. I would now like to turn the conference back to Eric for closing remarks. Yeah, thanks, everybody, for participating in today's call and for your continued interest in LGI Homes. And go Astros! And this concludes today's conference. Thank you for participating. You may now all disconnect.

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