LGIH - Earnings call transcript Q3 2019

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Operator

Welcome to the LGI Homes Third Quarter 2019 Conference Call. Today’s call is being recorded and a replay will be available on the company’s website later today at www.lgihomes.com.

We have allocated an hour for prepared remarks and Q&A. [Operator Instructions] At this time, I will turn the call over to Rachel Eaton, Chief Marketing Officer at LGI Homes. Ms. begin. may you Eaton,

Rachel Eaton

will to strategy, the Homes current and third September for statements such conference months Welcome include, All statements our other XXXX. plans, among the call objectives results expectations. ended things, call Today’s XXXX. for quarter LGI’s XX, reflect certain the you. forward-looking conference that business LGI regarding discussing X contain outlook, Thank statements of guidance XXXX and

could other they expectations cause involve that estimates and However, incorrect. our and prove risks be do to to uncertainties assumptions,

from You performance. including uncertainties should statements. forward-looking for cautionary forward-looking the to that future review statements those a forward-looking our guarantees filings These of materially our other section and our statement not anticipated with SEC, cause in statements risks, and risk results could factors these the are factors discussion of actual about differ

statements consider of call. and place should not these should related which the only You on statements risks forward-looking this light conference you date forward-looking of speak reliance in undue of these the as

the in This adjusted measure, prepared of in be morning expect discussed The to quarter as at financial SEC with adjusted included section on release quarterly gross filing call. substitute today. or this information in in ended most this financial we will XXXX, of the we and margin presented and in on measure SEC’s considered our XX, comparable website accessible with to website that is GAAP. margin, Form accordance GAAP, the will information with the in A the gross press for reconciliation for this September Investors be on earnings report not presentation later a www.lgihomes.com. is our issued a be isolation file XX-Q the accordance gross that intended Additionally, to non-GAAP of margin, the

now turn Lipar, Financial LGI Eric. to With the Executive will are Homes’ Homes’ Chief call Officer today Officer. Merdian, that, Charles Joining LGI over I Chief me Eric and

Eric Lipar

in you, call. everyone welcome interest on Homes. LGI Rachel continued your and this Thank to We appreciate

I quarter of XXXX. in highlights we financial call, results After discuss the today’s follow call from comments our will open and results conclude and During will summarize done, is with Then he will to up more for Charles the questions. detail. third

get and dozen we size want the this our since started, tremendous week At In the the a to that in our country. share company. X a of have LGI quadrupled I markets, anniversary replicate we marks Homes model Before per business of IPO, than organization recognize past to our across the was and our our the our public $XX growth of IPO into at fuel time stock objective new years, seen our sixth more price expanded XXXX. in appreciation becoming

and this and all culture our accomplished We all of that have while our model more demonstrating unique operating preserving sustainable. is

past breaking have different. we and these strong maintained focus records third no our years intense delivering X way the many Over LGI the was along quarter on results,

community count For record-setting we income record-setting sales record-setting record-setting and revenue, home produced third record-setting the average XXXX, price, net of dollars. closings, quarter

$X.X of This of quarter million X,XXX billion the over a closed total XXXX. revenue sales Bringing months generating revenue to quarter, a home year, closed revenue. of in the the increase in generating represented homes, in $XXX through sales X,XXX which third X approximately first we us XX% home homes over

Central month X.X quarter community for increase month last month. markets. closings was an the per closings highlighted X.X averaged in year increase our for third performance an from from community per the to for which X.X the quarter, per X.X third due in West our primarily Houston the and closings of San This was in the division and closings companywide. For per quarter to X.X per This from Antonio, Worth we was X.X increase per an month Dallas/Fort increased our of by community to division, per quarter. in quarter Absorption increase

closing over the on month our followed per we X.X. with basis community than per ended a had quarter, performing closings last at XX% we active community a Worth at QX per communities, averaging XX X.X communities end was the XX For Antonio, the active Companywide, that third by San at Houston top market Dallas/Fort more XXX of and quarter year. increase the

our Central XXX at Worth, third generated operations. Antonio, which look San of of first XX% highlight our Dallas/Fort the Comprised in Central Minneapolis let’s Central from down, markets, highlights the increase remaining our took approximately our Southeast the Austin, an was third Division. City closings results place in which and closings, of Division quarter closings XX% the of in it Division, quarter Breaking a the operations Houston, from represented total Of closings. Oklahoma outside

in last This of quarter quarter, during XX% XXX this we closed closed the third XXX increase homes, year. to the Southeast homes an in division compared of

Our markets community the X our Homes Raleigh instrumental Southeast Division count the acquisition. year acquisition in This community was count footprint Homes. resulting southeast. expanding our one of growth X X communities the communities, acquisition top XXXX, in of anniversary Wynn located in an in our primarily housing August also in of for of from Wynn marked X had new increase with our

This to was new the X compared includes the Our markets. the quarter active communities increase XXX by XX% Vegas Sacramento increase third closed driven homes primarily last year. of addition of XXX homes which West Las closed in and the division year-over-year in

addition, we wholesale continued side In develop business. the to our of

community response demand investment million rates. homes we homes XXX with coupled from expansion and This the a saw Overall, continuous quarter, third $XX count for quarter, generating a positive groups, lower to we affordable different revenue. interest in throughout closed buyers three with

turn call our With financial Chief a that, results. review Charles in-depth I more of would Merdian, Officer, like to over Financial the for to our

Charles Merdian

Eric. Thanks,

closed Sales third $XXX,XXX increase cost. in points quarter approximate in quarter third a $XXX,XXX last of the X.X% the quarter XX.X% range the In percentage the $XXX,XXX mentioned closed, the XXXX. Gross quarter As home averaged over was a quarter and decrease and the to result on land, sales during and $XXX,XXX were in homes third prices as $XXX,XXXs the XX.X% by the XXX XX% earlier, year, over construction $XXX,XXX in of were from segment, West. revenue sales $XXX,XXX, compared a Northwest, $XXX,XXX a the a quarter of based this year-over-year X,XXX higher the capitalized from Florida in basis realized to margin Central, same sales for million average homes increase. for $XXX.X interest as of primarily Southeast, prices

consistent of quarter this year. compared Sequentially, gross the second margins were to

XX.X% gross the for capitalized XX.X% with We interest the quarter of Adjusted our third to currently margin million with XXXX quarter expect quarter. consistent gross Our be approximately previous $X.X cost and was charged quarter fourth of this margin margin for sales points of basis the during adjusted quarter of quarter. to the similar compared gross excludes third to and year. gross second this the consistent adjusted quarter, the representing margin XXX in and

quarter prices. home administrative homes $XX.X XX% compared were Combined quarter and to selling, revenue closed operating prior of third Selling from general reflecting or the million for average and sales more XX.X% of in as XX home for sales in $XX.X third percentage the higher compared X.X% expenses basis the were which for leverage sales is leverage year, to expenses The revenue. realized a of decrease decrease. expenses revenues sales quarter or revenue of home sales in home selling home point million revenue sales X.X% reflects XXXX, a from the operating of increase the

the administrative home leverage third and or XX General home of expenses revenue in expenses increase revenues. $XX.X operational basis of X.X% quarter XXXX, a of and sales administrative were revenues The point reflects in from home decrease. to sales sales percentage million realized a for decrease X% as compared the general

third quarter $XX.X share $XX.X to revenue, basic to quarter. per SG&A a income expect We income the revenue. of of of in home generated similar of revenue or XX.X% earnings $X.XX and million percentage share sales home of fourth quarter quarter $X.XX represents as per per million be diluted Pre-tax XX.X% share. which net was or for the We expenses sales the

Third third the backlog the quarter quarter. increase X,XXX ended quarter XX,XXX cancellation gross homes the to the compared X,XXX XX.X% portfolio were third over XX%. a XXXX of third the X,XXX lots. year with third and Ending net quarter rate for controlled of orders was orders year X,XXX, were quarter We last for a and and prior was owned

XX, raw or homes September XX,XXX XX,XXX X,XXX in and XX% of X,XXX development information this completed were under As or process. owned. homes, were either of either vacant And finished amount, centers were or lots, were

the notes, we diluted calculation EPS cash convertible in resulting weighted for With quarter average respect our of Weighted have settle using principal to for impacted diluted quarter. outstanding per our increase stock to the notes shares earnings for outstanding an amount the the to elected the the to share and month. outstanding of a conversion combination convertible approximate are pay In share of our shares common XXXX, third the was by price X.X stock. million notes $XX.XX, maturing of this shares average the calculating

We X.X increasing million expect shares. quarter than method shares We issue the approximately November, average stock expect higher million approximately calculation. treasury that to our XX.X third shares could would basic conversion stock through be price outstanding then our slightly to in

billion. real under $X.X estate million the at outstanding total credit inventory As end million had September, had Also approximately senior notes convertible of in billion revolving of and and we $XX September roughly our assets debt XX, total $X.X in we $XXX facility, approximately notes. of of cash,

million. capacity borrowing approximately available $XXX was Our

gross capitalization Our and to debt was capitalization XX.X%. XX.X% debt to was net

like back would call I turn point, to this At Eric. to the over

Eric Lipar

Charles. Thanks,

are year. me in and quarter into thoughts far remainder and Let fourth some the what of ahead looking we guidance the thus on the provide seeing

So response their idea far interest consumers the to experiencing for year. And to of the to now up now to promoting and lower communities October demand our quarter, as results sales is result, positive We in expect are remainder the we are are in carry we our move. we we and to wrapped make able positive just time fourth seeing sales. rates. that drive throughout national increased the resulting event, leads momentum were more a the sustained the

monthly and to our is closes closings year. We publish XXX the more in closings of our for review a October month closings and verification October. than strong will result of closings final This October had last report year-over-year XXX XXX fundings. increase month expect normal number a the XX% market today. to subject of would later after of in from the We

first track all on The our of months put metrics. XX have key us to hit

we expect between X,XXX close our of to guidance communities active-selling year. between to For to the XXX updating the are homes expectation community count X,XXX and remainder to full and our the year XXX our XXXX, end reflect for

between be will we to addition, year $XXX,XXX In our for average sales price $XXX,XXX. believe the

for results We expect our through margin and similar and XX.X%. end September the year-to-date to to our XX.X% gross be the between year year

accounting, We the expect gross interest year purchase XX%. adjusted and of XX% margin, excludes effects the between end to which and

Given closings, between be full $X our $X.XX sales guidance for gross per earnings community home and margins count, will active year we share. basic believe share our and per price, average

be Now happy we your to questions. take will

Operator

Instructions] Wells first Thank Fargo. And from you. from our Patterson comes Truman [Operator question

open. line Your is

Paul Przybylski

Thanks. Actually, itself – this your Did when in then notice your kind half impact any or traffic spike of have repeat did have either again on rates in rate Paul. those were of is the interest we any elevated? I September orders and the seen that that was first October. you wondering

Eric Lipar

we Eric is had don’t I This Yes, Paul. speaking. a like real It positive so, seems October. think

we about really I rates. are talking think interest low historically, still

about how haven’t are leads to a we talked historically environment payment. of talking sales interest scripted how It’s speaking, in. a affordable and your October, they the event rates spiking. really presentation, lot and move talked about, more October are great great in and rates how more like about been was are make our So how we an we low national that

So solid, the strong was good, quarter. October and a third similar to month

Paul Przybylski

should national in before higher the December of closings event, seasonal Speaking expect closed may end? as those we even than bump sales year be an

Eric Lipar

the had get out Yes, move year at we positive. I and to great – very get was We we also well. of information because It’s interest time event rates the consumer. our that national a as look out last It event of to the did as think ground. on the because the the really to inventory

the as far and full guidance closings, as gave for our think quarter I year. fourth So we December

everybody So that inside guidance. we be will expect I should think that

Paul Przybylski

your you newer lot land towards decline, land option that And to of Okay. in some then that due cost. the margin or gross part Is on geographies? really and mix mentioned pricing your due just more core to that’s in markets higher is increased

Charles Merdian

Yes, our about this sales averaged price. our Paul. finished This is Charles. average Yes, of lot quarter so cost XX.X% past

and up year-over-year up slightly XXX So over that was just sequentially. basis just points

that comparable But the script and continue the in the price think cost. both more the in based land on and year-over-year comp. houses I increasing is So construction earnings referenced and we call our just account do for really to we cost

expect in land there rise We the to over costs now. that see continue time and level, in is the will construction we competition which right certainly, entry market and

Paul Przybylski

appreciate very you it. much. I Thank Okay,

Eric Lipar

are You welcome.

Operator

Our comes from next Wedbush. question McCanless Jay from

Your line is open.

Jay McCanless

to move expecting be type competitors that have running Hey, are thanks incentives if you volume? statement. the some to competition taking elevated incentives start and/or up level my up as for to your questions. guys to level wanted could guys you of an of entry pick to the seeing I from Charles, are of you find some I out going on drive are rates

Eric Lipar

Eric. this this take shot Jay, a is question. I’ll at

still incentives we the some from is because houses very that all and us as year. other are still a the that’s program are incentives still a incentives, is demand in But out of really there think to the think with low. and older rates it’s part and big on positive seeing haven’t of really incentives finish seen lot we well. environment builders good, competition out I good, supply that inventory our isn’t a Maybe are

out other and it there with builders. pretty So feels us good the

Jay McCanless

the is home then net compare year? homes sell the the still wholesale line it. operating from homes guys a And wholesale that guess do in those how with does on you or last believe still Got you customer? I XXX – this that quarter, to margin And to the that retail

Eric Lipar

know for are reduce we we that Yes, and that a but Gross less, overall to margins customer. selling etcetera. it the Yes, margins fact that correct. commissions, that retail a makeup is advertising, are to similar

so are last this in the and percentage, homes very very And year to X.X% last third last compared very similar. operating So, year that was to quarter, margins wholesale XXX year. year, about percentage similar similar

Jay McCanless

Okay.

wholesale – cost? in land just just cost didn’t about big So probably more the talked a margin? increase which you gross land was that guys you have impact talked It the on about

Eric Lipar

state getting compared of and also gross Correct closings coming more lower Texas. to the which from margin Texas a to to outside lead tends

Jay McCanless

count was the or it the community And is a then number, I the for XXX wanted count October? October great on for closings, the ending month what average community

Eric Lipar

fall the still are is that through and October all may going through is and the going tying normal complete. closings for we X processes numbers sure out process, our this Yes, make is later and XXX into closing likely or everything paperwork funded X XXX. and numbers we release are X, our But Normally to on community confident all a at point, the going number of and the we next very between be XXX when count very month. today,

Jay McCanless

my Okay, for taking great. questions. Thanks

Eric Lipar

welcome. are You

Operator

Michael from from comes question next Our Rehaut JPMorgan.

open. line Your is

Michael Rehaut

questions. Hi, you thanks. everyone. my appreciate afternoon, Good morning good I taking or

get obviously a on quarters to guidance the bit three for given some of drilling the just down little of First, year wanted I in. of kind

particular post adjusted you XQ. – on XQ post the the side, on gross That the full and With reported you or interest – on gross put adjusted – right be even the XX to the interest. year on around your margin said expect to similar margin, would XX ASP

movement end lower for towards o make full to different of to get are a on there you Those towards about Just more a to something you relative have right So bit be range middle? the know more numbers, thinking the and you have kind – And a year sure because year, bit to the XQ. obviously I you to pretty the I’m that specific curious. be just would want could was on full adjusted little the would XQ.

numbers I’m So that I right the just right? sure want and thinking about to make I’m doing

Charles Merdian

Yes, Charles. this is

towards You towards year is to the are that the full factors we weight have down communities, of come is That was really is into and for the in communities, take range number trend go of on. certainly every the the may margin the really, accurate. the quarter margins year outlook right to adjusted midpoint the gross to the as every there to margin. results quarter a end get quarter that come transitioning fourth that you the bottom for gross of similar, and margin actual done would margin would in it into all on more and the gross If top evaluating and the range. range our into have variability an push play between exceptional go Certainly, geographic past to new introducing wholesale top mix end between adjusting of

Michael Rehaut

And then assume the less range, you low would XXX three I you’ve Right, ASP okay. the get XQ on something on or side, for trending to ASP you’d haven’t end even side, to have and plug consistently to number the pretty in upwards. been Charles, is little that similarly, done around quarters the a of in a which

I’m to again would high else would that thinking the the range? So make just equal, that that it right about of want ASP end sure like be towards it seem all

Charles Merdian

Yes. the to I in in is, on an Texas, are ASP. we the mean, in the of lower this end lower on which a script, year the of of we tends have strongest done Carolinas which mean, year-to-date, of markets I generally mentioned terms our companywide, lot here be we be average to tend ASP expanding ASP. the XXX at also end

at that the we are right, up little tightening republished, would the that just or definitely take would geographic kind that to we be, comfortable range into you range feel are bit. with stay if a seems we likely it mix So where we certainly but that just account that we of within range

Michael Rehaut

that XXXX out thinking XX%. end up giving about obviously community about are you – then of by you know year, not the appreciate year-over-year, when that. are guidance, in think And I was I Okay, but directionally about XXXX, count, just you the

count of review directionally? are kind When the you around at and that years, so look hit year going think your as areas directionally could by there. you markets, new better California, maybe of about part numbers you perhaps the those you And that midpoint a have think XX%, we like you thinking extent your this If we strategy expansion of How expansion you’re some the big can penetration difference of new of year, opportunities very such about that as be there two the guidance should around plans XXXX? in comments communities, over community a you last, where how like you of to that possibly be well? of this types your maybe so last up question, end kind as how geographic feel overlay should couple could to geographic into

Eric Lipar

year. Thanks, year community great is Yes, Michael. this count This Eric. growth for

a made A the have We by year. of aided acquisition that growth lot Wynn invested community last year last at lot year this time. Homes this count we

a we and getting open growth the think and for from dividends year all and community really and year in next been year closings these going experiencing openings count strong see community the very are the I full to it’s the the off pay XXXX. closings year So this is

Certainly, end haven’t the given how we You of be for are XXXX should we community count year. growth. it also But year on correct depends really guidance another yet.

new XXX year, next to by really if XXX the in the there difference lot of the don’t end quarter of the the will same is open year. communities open the Our a the certainly of of end year. guidance our And first they open at by they and remains getting

more range, will and end the positive for So it’s end to place and going high growth of community if at the next up next result it same really or that. range about the we are in be more at year year. growth of in probably could count positive muted that’s end low the we But the

next talked the tend to the new is calls on and sales previously, anything open to we markets of go, the the about and quarters The getting we have be are markets, As focused far think for of smaller markets I closings as that’s couple new don’t out add. on in the markets run our getting hubs. new there

Southern next have the are Some Daytona, examples Greenville, Florida, our the area over we Sarasota, should of couple into Florida, first Riverside going California, months. closings in are

to or next getting quarter community ready two. in here First the is open Virginia Richmond, over

sellers. lot market also but So it new the seeing and what there we lot continuing, a of depends out growth prices from a of are land markets, on for

be diligent our acquisitions. will gross margin diligent We protecting in in and

We are going to just grow. to not grow

on a sellers the are pretty land of it’s now, And to asking parcels. We our positive underwriting high. decisions and going good make prices environment are right for

Michael Rehaut

Charles, quick rate on Great. And how modeling the then question think about I should tax fourth side. one quarter? last for

Charles Merdian

third. it Yes, to should similar be

Michael Rehaut

Great. Thank you.

Charles Merdian

You bet.

Operator

from Reichardt Our comes next question BTIG. from Carl

open. is line Your

Carl Reichardt

surprised and Hi, Thanks. point? you and that during if this may be transition? may about could little chat what you what Eric, guys. positively And have a just about had, rollout then you talk any the to has CompleteHome challenges

Eric Lipar

the rollout been Yes. CompleteHome, has positive. very

we when those was really to ceiling hard door of nationwide, expect XXXs. going customers to to at price our starting garage into sales response and buyers think results it, with one average from quarter, that that’s of Because this I all has this upgrading is that are up and employees of operations. XX% than openers, October consistency the year, what positive the personnel response closings seeing are from the past getting field think from those the on that fans, very our from everyone really our growth, seen their appliances the order our sales mid very at that being surface team in And done countertops field. consistency support offer people marketing response provide positive lot positive certainly to product from including us initiatives. corporate are field, in the We the it more LGI, our of the XXXX our the a

more of put but can So, that. the increase consumer elevated appealing to and keep done exactly overall, and very sales it’s positive, product necessarily proud I it everybody selling, a think on to margins, our be ground the nicer and wasn’t meant

Carl Reichardt

the And appreciate again is And I got if Thanks. Okay. it’s I what’s out and perspective just that there for competition year-on-year on X% there down I your lots that. peers lot year-over-year then knowing you are next kind of the some count, it your or think would of expectation flatten looking, is it right. the we increase get course two or in the of lot spend over to expect quarters see three type growing say, that an count again? will there

Eric Lipar

it even Yes, be that down because possibly think the acquisition year-over-year I think the temporarily flattish on we to market last year or it will side. comps, so are the higher artificially in. also the Wynn And had we inflated I

just So some on And we comp high fall an the out are period. I during quarter, down think. during projects artificially this then feasibility larger but had

But do not has new projects and now are being much be new do market getting contract. generally come think under committee to or projects right aggressive would period the or So under as we through with putting and the contracts it this not getting contract what what’s lot of in cautious all know. under many speaking, as ends new again I we a deals as being going our us the up because and not patient with deals acquisitions as will to lead due pipeline to through diligence

Carl Reichardt

Eric. Thanks, it. Great. I appreciate

Eric Lipar

You are welcome.

Operator

from [Operator our Instructions] Center. Barron from Housing comes Research next And Alex question

Your is open. line

Alex Barron

X and gave out closings implies you number next about I right XXX market for October. just would scenario, Yes, thanks. I interest so of demand your on guidance, low hit what under forth, the for us entry-level, you trying rates, the for positive now, low am end guess the months. to given the in figure going closings the that all because things

to end? be low So what you the could possibly guys cause on

Eric Lipar

we are because think, have scenario really is we bit going market Alex, sales biggest about We going a very the no have be normally X Yes, October think and reported and be. of and I October in always to weeks to want worst the you’re It’s to our we are think to out know don’t think to That already next putting the positive closings. what little consciousness to when guidance. what we they end otherwise. that. of the closings think low obviously like of But unknown I a the reason guidance kind case looking

be we the that would next sales not good that expect. scenario X weeks is what are which under So very over not

Alex Barron

Okay, got it.

just So conservative? being

Eric Lipar

Correct.

Alex Barron

dollar number at the the quarter? the end of Charles, then And you have backlog

Charles Merdian

have I see. still me. handy with it Let’s

give second, second. Just one one apologize, just me I

Alex Barron

while Southern guess XX that, you Is months? Riverside submarkets it think Southern in next finding targeting California. within that you I there you heard guys are in the cities other I are I California was mentioned any

Eric Lipar

pipeline. a We area the in have do California quarters know for Southern on I California, have the some in in that’s we next is the couple expansion us. big that. for horizon an Not project but necessarily a of Stockton as example of

Alex Barron

it. Got

Charles Merdian

value backlog is And ending million. Alex, the $XXX.X

Alex Barron

Thanks. it. Appreciate Alright.

Charles Merdian

bet. You

Operator

questions from I no our Thank phone And additional lines. am you. showing

Rachel Eaton

on everyone today’s your afternoon. Homes. in participating continued great LGI Have and interest for Thanks a call for Okay.

Operator

gentlemen, This and in program. Ladies conference. thank participating does today’s for conclude you the

a wonderful disconnect. day. You have all may Everyone

LGI Homes (LGIH) 6 Nov 192019 Q3 Earnings call transcript