LGIH - Earnings call transcript Q2 2022

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Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the LGI Homes 2022 Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation there will be a question-and-answer session. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Fattor. Josh begin. please Sir,

Josh Fattor

good and afternoon. you Thank

plans, I Before that cause management’s call LGI current prove listeners for are outlook, this to expectations could and and to remind contain we Homes’ Such forward-looking estimates reflect strategy, on subject begin, that will views statements that management risks management’s incorrect. guidance uncertainties assumptions will expectations that statements and be objectives involve to business XXXX. includes and

the place viewpoints must and our which Risk in forward-looking be performance. forward-looking undue actual review with not that those of related filings as light on All from statements discussion SEC including considered presented could differ risks future of such are and should date call about Factors reflect and those conference You statements statements, of the cautionary the other of should guarantees cause this for sections to management’s today. risks, statements results of uncertainties reliance the not and you factors

Additionally, financial comparable file financial Investor the website. we accordance intended accessible and in SEC press the be found for measures Reconciliations XX, substitute GAAP accordance of non-GAAP on GAAP. SEC’s financial report Relations ended website quarter quarterly isolation the filing in to expect the information in with section our XX-Q release This that discuss issued in Form June to that as that for this the morning our or and with non-GAAP will the later on be in on considered will XXXX, today. we not presented to of are measures in be call, prepared measures most we today’s with a can

Chief Eric. and Lipar, I of will the turn Our LGI and Officer Charles to and now Executive today Chairman hosts call Treasurer. Merdian, Chief Financial Eric Officer are Board; over the Homes’

Eric Lipar

Charles, and our afternoon, to open Good will Thanks, our everyone, from quarter, I highlights call. results. our on Josh. second financial provide with then, will welcome details and earnings

quarter results Finally, outlook am LGI delivered pleased our Worth in quarter the record provide systems, closed also record XXXX XX.X the continuing operating of net ever quarter, income. Dallas pretax State Fort pricing track in of with on compared excellence rest third across our we announce and second an We the I in now San am profitability states. us EBITDA, to income with out with performance and XX the Congratulations last to our outstanding and closing June Tucson quarter. Maryland top in XX.X, I these Antonio had we teams with five their to are by routed that first XX.X. set to second most records our power company including closings markets Despite deliver allowed to and margins, gross every combined our fewer year, commitment our and and operational to I continued for profitable the will industry-leading track last we year. new XX share metric average in our update an by the of homes pleased per to in over quarter Charlotte team the performance profitability. resulting to-date at the revenue. Houston was million followed market came for closings month. quarter price second X.X. of of top in per second X.X community at selling month per over per in $XXX,XXX, was Absorptions community our our closings with XX.X $XXX XX, historical average with above in the

the the industry. near-term, and to does in land well solid in and balance in is our We are uncertain, outlook positioning confident with market a Regardless on proven forward. expertise of marketing, sales development attractive is positioned trained force well the and LGI of our path solid we market sheet housing going experienced, the pipeline, footing succeed. land most and the year what the remainder the While enter in and

over Now details our turn Charles financial I more the to results. will call on for

Charles Merdian

Thanks, Eric.

the the quarter record. the points. $X XXX-basis-point expenses General interest gross purchase or by administrative representing lower our increased success last together X% the the to were XXXX same X.X% was in compared selling totaled a also million, million cost expenses last The million record quarter was gross offset capitalized primarily in Of by representing increase inputs our in quarter decline all prior revenue, a accounting of as over contracts to closing. $XXX.X our XX.X% During was prioritization during through from improvement this the quarter increases, other last by improvement EBITDA we over driven personnel charged record last capitalized or period the XXX-basis-point revenue, a points. that by and and or last million XX.X% year Combined year. was a $XXX.X and million record XX.X% improvement second a was increase X.X% increases. $XXX home last approximately excludes XXX sales XX.X%, XX% million expense million when record. revenue, year decrease the period $X and us $XXX.X same a from reportable record our also million second during XXX-basis-point X.X% setting of total XXX last over period driven costs. $XX.X costs was the same homes XXX-basis-point setting closings of quarter of improvement in Selling new retail to to year wholesale decision Gross our prices EBITDA compared The this percentage at in for of sales XXXX the were of X.X% in was for approximately interest the prior their and sales lot price. $XX.X the company XXX segments, passing were increased of X% resulted and a wholesale of Revenue wholesale XXX-basis-point general a was XXX-basis-point Adjusted were our a our record. year-over-year was of overall to XX.X% improvement demand half overhead homes strong of average only total basis period revenue new million, most in pass-through first to the XX.X% net second income the record. of administrative closings, of also lower quarter our related in closings quarter record. revenue, fewer quarter sold year, and related of accounting, or the Adjusted homes. Adjusted year, total margin our driven at selling, XX X.X% and and costs revenue, to of Pretax The at lower through and cost XX.X% improvement of $X our of as the $XXX,XXX. income a year, revenue, quarter $X.X to basis margin last volatile, previous EBITDA year. XXX-basis-point closings, million which a year. company margin year over same same continued a purchase other from for cost to expenses the XXX-basis-point record was Adjusted period Selling period the our closed this over or write business, compared enabled XX%, quarter, of compared of to together previous was a excludes last a increase and same XXXX. closings also prices same average our at which representing and for increase decline quarter second timing a over new

second was XX.X% was benefits the the tax XX.X%, year. last to to quarter Tax to Credits. XXL effective expiration of rate in primarily The due compared increase Our the related

net XX.X% also of million record. company or Our $XXX.X second income revenue, a quarter was new reported

XX.X%. Finally, earnings quarter second representing per in year-over-year share, per and increases were $X.XX basic diluted both the share $X.XX of

were XX.X% process. gross orders divert orders last as as decrease quarter were net in XXX. orders X,XXX decision construction due to The later our comp, the in year sales to to well net and strong primarily was Second

moderation primarily X,XXX with due of to representing was homes, $XXX demand as to finished in million the the increased XX.X% in Our value. backlog experienced cancellation We the compared their to XX.X%, quarter mortgage quarter chose rate buyers some over last second contracts. for in and a cancel year, second rates June,

of which sequentially. X.X%, of of remaining our XX,XXX finished inactive lots, either or land our lots. and Of were XXXX lots XX.X% portfolio June a at third sequentially. vacant X,XXX and X.X% development a and raw XX,XXX were inventory added development. XXth, The of and only and were lots, with year-over-year an under increase consisted of XX.X% land of X,XXX our increase decrease an As new ended quarter owned XX,XXX over our controlled lots, We owned were owned lots, lots those owned the to owned year-over-year lots land

homes at started During over XXth, process. X,XXX homes, June we centers and the had quarter, or completed in we homes, X,XXX information

Excluding information a And centers, XX,XXX XX.X%, we XXX the decrease controlled year-over-year just lots, of completed quarter, finally, at XX.X% sequentially. the had end we homes. and of

$XX the billion, of estate at and cash, over ended with the was a debt debt ratio to ratio Turning in resulting end we a quarter debt-to-capitalization million billion. nearly in inventory quarter net of billion XX.X% in to assets $X.X XX.X%. real sheet, $X.X balance total $X.X of and Total capitalization

leverage the XX% and XX%. We range in between will expect our remain ratio

available of by on of the had a under borrow increased return to to $XXX.X million our our hand facility. the of of we billion $X.X XX.X%. million liquidity As million June and cash In XXth, total last $XXX we of is $XXX.X equity on shareholders million, year, equity over and delivered consisting credit $XX

of shares we turn our and I have stock over XX% quarter we $XXX.X shares approximately quarter, had second Since our we to of repurchased remaining we our XXXX, with the on $XX.X repurchased During point, repurchase back At ended will million this XX.X million common for stock, Eric. and program. common XXX,XXX as the call the of stock XXth, outstanding. June million

Eric Lipar

Charles. Thanks,

to As close expect expect fundings, XXX report X,XXX homes to and press are adjusting close guidance the release, highlighted our of our we verifications Pending X,XXX We full reflect that year. rest year current our outlook between July. in XXXX. the we for we for to homes full of in now

back community our half for pace communities. of during our and rest had X closings of year, the lower this is range with guidance, in closing new original we the performance While than per number strong a assumes similar XXXX X.X of of per month the which line the to

now XXX active to end. the development continue to on experience XXX year at side We headwinds and communities expect

growth Based of still count selling for the we to-date we average an results year. and full $XXX,XXX price backlog, XX% expect community and next year. between Additionally, $XXX,XXX XX% expect to our current on

XX.X%. in a two-year boom and will other crossroads. range market gross margins and a expect a and for move home maintain guidance XX% expensive, gross now we margins the between consumer short-term the between From our XX.X% are range XX%, expense and inflation in perspective, market unlike our doubled XX% Additionally, After SG&A is We XX%. and any between more at the history, nearly curb mortgage up rates. prices are new homes adjusted

remain However, reasons. optimistic remains Trends outlook markets strong foundation taking rental for the are term growth, supportive solid view inventory is reveals fueling homes about the LGI, Demographic rents of sale At multiyear wage the business tight demand, and longer several and supply for pushing historically for growth. low. our a remain we are of long-term up available labor

the first on year, homes backlog. mainly in the the we our focused were For of half closing

our Now are turned closings, and sales and is on back focusing marketing we on. to faucet

advertising expenses, we XX,XXX increase spend alone, homeownership, cutting have about been renting be year. may with moving to our from favorable inquired July nearly over results. increasing XX% a last others people In While

These of our to pool months. still consecutive connect we as orders been of for give our up is we a qualified results four confidence with homes target these have buyers. those numbers there and more large that buyers us expect for grow Additionally,

our from governor the removed have We process. sales

months, few have time are of right last that given disruptions. decision the the sold was at only within closing. homes the XX we For chain the days That supply

be will of will our adjusting a within experience we we start can costs are times, of have homes a However, These construction, days a and with now normalizing, are provide This in that homebuyers. weekend, of confidence accordingly. supply for are our great at closing. selling can XX normalizing. Prices where clearer certainty that we view delivery phase homes chains we

that’s adjusted delivered we moving proud forward. of expectation XX% is While margin we and not target gross sustainable are just a not our the

will that we in offering new As online, range. deliver prices communities are bring at we the to XX% margins normalized them XX%

affordable communities, are Additionally, cost more we homes in seeing almost for are us of that payments enable to input decrease at all monthly which buyers. our our offer will

and differentiate was continue to spec our customers, as company culture our meet congratulate us. to unwavering on of matters flow an to we the best current shifts What our compelling commitment The with migration right-size connecting capitalize to quarter a on their directly position premises, educating opportunities we setting experience. low retail built homes success. want employees markets of focus customer them to in LGI believe systems, our building generate of as behind to our in benefits will accelerate and this conclude, for homes to now on and we days ownership, people, sales levels work-from-home housing filling focus period. interest continued demand, dynamic is rates XXX% will our that the on cash record I thrive to inventory and challenging to delivering additional Finally, our growth. thank To and renting we offices us expect industry’s model that buyers navigate investor value compared demand, offer are

call questions. We will now open the for

Operator

Instructions] question Allinson [Operator of from from comes first the comment Our line Research. or Trevor Wolfe

Your line is open.

Trevor Allinson

Thank Good for Hi. morning. taking questions. my you

First increased like factors be the that, Are you margins. outlooks are higher drivers that maybe margin level? gross in strong going on or what lower the flowing sequential any it’s to the QX the driver wholesale year. coming year, drag through there that back of to at in want, on from of sounds other ended there with question of decrease there online closings half main still costs just you major the is your It touch would back going new communities I

Eric Lipar

start. midpoint great be talking best guidance caveat the the about Yeah. Eric. margin It’s point also to company and our I our question. a can This three in year I is things will gross guidance margin with that history.

very It house, really we off, for results. So just our year. XX.X% dynamics shows a XX.X% on the how year-to-date came the strong in QX how the priced phenomenal margin margin were and adjusted But gross phenomenal. margin still strong we our market that and is

I think online. is, point communities to going I’d coming forward the things three new one,

pricing at XX% have I’d more sales starts and positive. our is are the and closings pace, seen with wholesale fast last the get margins, which normalized Wholesale X% We communities off point those normalized quarter. of we is orders business. very to also only to XX%

out back our down. we as XX% half the We of our expect in that then the XX% to year. pipeline, probably, costs going closings get And to normal, of also, the are have closed

in and even pricing adjust in our affordable coming existing with are So a payment we more the offer going be down to community, able to to our to customers. addition to normalize costs margins, our

Trevor Allinson

your landmark negotiate price then, demand was lots That’s to you with then, helpful. sequentially, option your seen at deals? update sequentially, they willing actually option and to looking took are down those second, an slower walked And as on more then you any with step Great. the terms Okay. environment, have what Thanks. option actual become given your of a And seeing agreements, I seen general pricing? lower sellers any hoping very from a have or away in lots, option get declines? Have you you moving with

Eric Lipar

Yeah.

great a question. it’s think I

per and at. of opportunities some we our was last a in I spent Board we I in se. think land, is seeing raw whatever land couple team. Colorado But And for are the consistent paper had land on what week say we time, field decreases were a else first of I probably been finished a when market, for meeting or price in lot saying, I land it haven’t acquisitions lot lots with in yet, seen has the mean, couple looking early. a it’s time with years,

lot and a United the of States across we market. pretty there’s come going potential opportunities developments are that on may about normal more the about excited a So with

of financed lot a and expensive see. come more and an the mark has that’s to lot But the unbelievable banking, on online, last success, more of having those expensive of taking builders everybody where going phenomenal couple For land debt, a years is been is orders, margins. we coming just land will it’s all phenomenal the everybody with market developments been are communities having

We are those some see starting it’s opportunities, but to of early.

focusing think we see rather lots. some I raw finished than on land, may So for opportunities

Trevor Allinson

my Good quarters. Okay. Great. in couple questions. taking of the for luck Thanks next

Eric Lipar

you. Thank

Operator

you. Thank

Mr. line comment Allinson the open. Our Research, from your or of next is question open. comes from Trevor Allinson line is Allinson, from Wolfe Wolfe line Research. Mr. your

Eric Lipar

I think question. we got Trevor’s first

Trevor Allinson

move could hoping Yeah. demand on. with I you then I in quick one guess just we I can guys will discuss geography by here. hop am one

Your I West growth account got some really region was there. community strong and

hop one out. just will one will there back and I ask So quick I

Eric Lipar

Yeah. Yeah.

Charles, again, to he this, general, wants I to can take think demand the if in see add it that. I question can

March is is, the first year a think close. was days mean the across missing because consistent really half with focused good that customer. on what supply to which and our houses sell I we decision experiences the dates, really our great of for XX chain that I having were good only demand weren’t us, the the closing by country. challenge, not backlog is made we on closing, in of focus for And customers, not within getting because We

started on QX So within we through out a did finished lot to sell not period. of and we backlog XX-day really did not inventory focused sales, to focus a have because our change. That closing has

that starting and are months we that period to months, In four are consecutive houses XX-day fact, increase. consecutive start to selling to orders with increase that’s and will And construction going houses August about be weekend, that’s we our add remarks, within and confident, are in inventory things us to because the easing four talked that in decided XX sell order more produce in really will good like closing. a one about, we the also months we of talked on we make scripted over as within five gave orders orders solid and bringing well. and our supply our pipeline days up remarks are of and July chain we are more this consecutive of an going we to think of Also, month

pretty Trevor, now more So and we consistent started are entirely start -- focus to what our houses. that’s shifted selling seeing nationwide, is

going are available have more We inventory. to

margins. new spend are up going more we salespeople on to be to at communities going normalize marketing. a hiring these lot and are We of And opening money

So we are real optimistic year. about half the second of the

Charles Merdian

specifically Charles. West. is to just this Trevor, I the add

community California was correct. Phoenix You our count, specifically are increasing It in and Northern markets.

Trevor Allinson

guys. right. Thanks, All

Operator

Thank you.

the Our from next JPMorgan. comment Michael from question comes or line of Rehaut

Just Mr. your open. Rehaut, a is second. line

Michael Rehaut

Thanks. Good Thank you. my afternoon. for questions. Thanks taking

Eric Lipar

Good afternoon.

Michael Rehaut

I back and margin gross understanding the just circle relates comments am want sure the it well, as to make half. to I back

talking in is clear, a pre just be opening are and want to about or range new up post-interest? communities XX% to that You XX%

Eric Lipar

that’s Pre, adjusted gross margin.

Michael Rehaut

Okay.

to the guidance off coming that’s like, to the less, it currently, to with get or have So, have the you of pre-interest around you that would closer like looks XX% XX%.

high the at of that still end range. So,

the make So in down flow math because number correct. roughly count of below If all might certain that community is see if we sure, XX% XX% one, to average through, quarter go range even obviously, I it’s there’s how step to XX% us turnover? quarter the or a wanted going third be and in my quickly of to just could fourth the element it

Eric Lipar

Yeah.

community are what is, also the gross saying, Mike, we our community. only added community margin, it’s new, count, communities, think, only the make I’d clarification, it’s replacement a that I not new adjusted

online, at community in, the are So are I that personally quote Charles our we in a percentage impact discussion. in the closing replacement that third we we of on because that still factor gross but have and communities higher margin of margins gradually an does backlog out go gross gross the range back probably, then and that’s this and in think can an but weigh did. to nationwide which count, additive got fourth bringing quarter, is lot have than margin the going that year-end process is think when to normalization we really to we strong the provide quarter, we

Charles Merdian

agree, the than fourth higher I the -- third comment just quarter I Eric’s be likely that Yeah. would will that, with Mike, quarter. would it’s

step fourth So quarter. likely the we in are thinking the would down happen

Michael Rehaut

Right. Right.

towards even Okay. stepped absorption months, run over the of kind Also, a and to the even on back if X.X gradually the range. several sale around the of getting lower the end X X.X count of closings pace of of you for X that some a half absorption closings of midpoint and year, or at end get with that, next the comments math the between to up your kind actually the your community of higher keeping you

count the XXX X.X end. that, So like, are just seem curious anything the by we a towards community seems based the missing middle coming X does of again, the there’s of if because any higher move like gradual year thoughts end up here, XXX on are and to on, to the you at it to getting

So thoughts? just any

Eric Lipar

Yeah.

I month in think depends, we X.X why lot the it’s to a at to depend us we community that’s, these happens the put low really my what are X range. comment on end economy months, lot guidance new get that four the high depend months is half to that open, of getting versus in in range is of in where a it the to really, three going anywhere And end. second communities our range going ranges, that’s or on a of count, next it’s on, in going

I us. the if know supply still So for that’s don’t So looks any range. have we What we challenge houses more chain many why than, comments the that’s like? give How a I other deliver? can

we but confident confident our that to where that we guidance in range. development being we had are on range. what construction, seeing adjust in on based and are down new are We were and of We closing sales,

Michael Rehaut

bit one, XXXX else for something see a going I the that gross of year. we the further on little into equal, all see kind that that XX% or margin adjustments for getting would you want, come should the remained are that last Is the side? more One we could, gave XX% to would SG&A forward soft, you if we if Okay. not or results the expect can market up the you

Charles Merdian

Yeah. specific This in I we on Charles. XXXX. is generally to been our it refers as Not to marketing But have guidance Mike. It’s question, SG&A return what is back think normal. we think talking going about and that advertising great to necessarily giving increase that is

year seen bunch have benefits the over we just as last and half of so to a So or the having of money. a spend not

I portion. So I’d break selling think the it into

We revenue in more statement get are expecting to increase fixed. percentage it And over normal income time ranges. a to to back as generally of portion then the our G&A is

say, offset of I So on kind depending there pace in our increase trending XXXX back there XX% But how range community think, some in for to closings selling the of are up leverage for this I the near-term. to opportunity I overall, think, the goes, would we to that and where expenses. XX% count end some is

Michael Rehaut

Right.

selling So a expenses that from good XXXX were point? X.X% reference XXXX is X% to to

Charles Merdian

would necessarily would that end but don’t probably the I range say. what the lower I that of quite go high, is I know

Michael Rehaut

Appreciate much. so Thanks Great. it.

Charles Merdian

bet. You

Operator

you. Thank

Our or comment Jay next McCanless, line Wedbush. question Mr. open. comes the is line your from of McCanless from

Jay McCanless

you the Good of Can for Hey. up? expecting you XXXX, remind us communities on coming when bulk those growth is fiscal guys. afternoon community the that are

Eric Lipar

will grow But - we grow am XX%, Yeah. count is we the XX% delayed, next those are just last confident year. a there, I going mean, sure. so community after years Jay. And they be to confident not correct couple is question, is getting are answer that I the That are great number, the probably communities

amount For the would yeah, appropriate. coming modeling think, purposes, probably I year be equal an through

Jay McCanless

next And Okay. was that going be to question. my actually

on issues any of business? If you about and side of supply delays development the for are chain better that have talk could type gotten what the horizontal seeing you

Eric Lipar

getting to be doesn’t any better yet. It seem

are approvals getting the still of the some are the We getting all recorded, the transformers, getting development other the engineers city, supply from plants chain, still busy. challenges having necessary process, electrical the start

chain is side, the development on I supply challenged. would So similarly say,

probably normalizing as said, much for get have probably market. believe the as near-term, we us, sections do sizes expect builders Now and because adjusting that well as better, not development other doing to of today’s developments we

So side. the seen on do development have just we improving see but construction side, yet not we like the that that

Jay McCanless

on line not I bring range, back thinking percentage, -- correct steep historical margin then communities? of going it or And had imply, communities have to for think marked prices think, thinking this would some in Okay. a pretty it and out. base what to these what towards talking you much of but much maybe gross your on to price about new how how is new are originally we these more are going cuts initial that you Is down intended be that you

Eric Lipar

and is last by Yeah. lot have standing had It’s of are at need community-by-community basis price question. But the tell pricing. of all of rapidly se. great lot our -- because of the can cuts to pricing builders our a lot changing be cuts And as of to so days looking of as lot on in normalize and backlog, years so normal. a that’s only we and we a to couple it nationwide to and we about per not cuts a fact, describe we we I reaction everybody and advance, you prices a think been it our we XX probably have inventory. our we over a going a back are we price discussion, a at price lot having don’t There’s inventory are think we lot have I because not looking on finished focused been Jay, haven’t increase just selling do similar going

increase are pricing unbelievable like a Some lot able gross to Austin. margins, in of like we our communities had markets

going selling, XX% pricing. plus type not to like gross and have some are seen we of pushback Austin, While we markets don’t that able keep on those believe margins we be to

probably outlier We for back a similar gross selling as XX%, have less adjusted And such and going money future the to are months. years outlier to are going will gross unlikely thrive margin, were in three they very was two to the Yes, goes. over tremendous margin. opportunities excited there’s that, in are it. same going we ago, than we normalize pricing the just, be the last post in couple far I believe for be plans mean, be and normal again, market, about because we will it’s LGI an our to pretty we great a XX our normal we going history. what to just just we pricing. It’s an it to years floor and be never last and years we to as in are are But going

Jay McCanless

then And more those quick of to relative finished the pace enough of potentially you communities this one some seeing that buy for that you to it. interesting your expecting with the again, year? starting for could make are are shortfall are you to previous one, up it’s you think do Got deals of lot what you guidance see that

Eric Lipar

whether Not think opportunities. opportunities this more closings them, about headwinds year, wouldn’t ever XXXX. have our it have XXXX, community in this see industry. count on talked remember years. just of recession, necessarily XXXX, XXXX. really year, I is, thrill. the seen gave create never even more happens whether and and challenging closing are downturn rates an it industry, it’s of of chain, about The couple a it’s what growth create couple lost and the growth in mean home talking attitude it I any may any our opportunities I We because last as with to examples, Yeah. Yeah, face depends the we greatest potentially are pricing, And relate starting in industry company what they more for becomes, the just haven’t mean, challenging XXXX. the any it the close a certainly you including going environment we money in But we supply to internally, that in anyone’s we but to

We have taken history. never in the inventory company an impairment

market will be, good So opportunities normalized going whatever environment, things that’s If if may a it’s or really going the to it’s lots. it’s in market. as for a fine finish or challenging and tailwinds and rates thrive then more more well down create LGI more forward, stay that get

Jay McCanless

Okay.

you. Thank great. Sounds

Eric Lipar

welcome. are You

Operator

you. Thank

question of or comes comment the BTIG. from Reichardt next Carl Our Standby. line from

Carl Reichardt

One had for Eric cancellations. I just questions. taking Thanks on is the question

up although, and cancelling you say counts up, over of quarter? was the or your affordability the how and of I future? just it’s much. rate changed the and kind course that’s why your see Is fear Did it’s sort still like related changed? more were if alteration on an it you psychological of folks take unit would Your of weren’t more

Eric Lipar

Yeah.

I think it’s related. affordability primarily for still us,

very got year. of in pipeline large last Our QX

the rate within closed been We XX that were XX days rate out, customers closing. are higher. Not locks, on working all rates of our to blocking certainly days have to getting have usually

for qualify either. If some don’t didn’t relevant we as have of So, didn’t appreciate rate orders, and asking orders we more have normal. enough the I as but anymore. had spec about been see question builder, cancellations. you Carl, had would have We the cancellation that our and maybe Certainly did customers calls it’s think on us before we companies the cancellation a rate we talked being other

closed be a the the been affordable Rents going investors we lot We our market think last are that predominantly renting. they across offer to to paying that mean also back country going off to year, are catering to LGI those a I we quarters where are an we of customers cancel. alternative couple But we -- retail to as has back have customer. going very, and customers have rent. are homes seen and our just are we some good first are currently part of which for us very over the and of company a normalized

to and was we we market. We normal the will back think get activity a investors as to years more right in normal well. believe houses We the have but that decision, last couple that lot over sold a of

Carl Reichardt

Charles… Okay. Thanks, Eric. then, And

Eric Lipar

are You welcome.

Carl Reichardt

… of this are point. your the line this at I are sort more is right, got credit And this and quarter, I year, I if about peak you typically, did utilization at of XX% quarter capacity utilization. third fourth a back you right think

as planning operating you cash expect utilization positive quarters? couple the into are So see a on I flow the of next of curious, to we we can fourth being am capacity move quarter, diminished

Charles Merdian

Yeah. question, Great Carl.

had So, right-size inventory. script yeah, as the mentioned we we in

inventory, work would down with way inventory we to focused expect units the our So one are the things X,XXX throughout of its vertical we on year. in

of general management then and for development. available what are in acquisitions also on we as just terms and what share also keeping focused eye well. And inventory on from need We in we an evaluate we have repurchases

goes a that’s that of So function kind keeping target mind our XX% ratio. into that, in all to leverage XX%

generate our right-sizing we inventory, the within flow cash stay targeted should ranges. based yes, So, on some and positive

Carl Reichardt

stuck stuff. then to in taken have divert spend? in dollars because down, inventory that the longer a to forcing as to doing Charles, inventory, field, because bit it’s the that things Is to little opposed with slowed just finish build dollars you development

Charles Merdian

No. think No. I so. don’t

development think and balanced between I acquisitions, vertical all it’s construction. between categories

heavily it versus So between whether shifts play. I complete have into we comes towards WIP weighted think

will where the to down the expect And selling come spec. would to combined is really only the getting to Eric June, make WIP completed end We look we expect those having see we kind as accordingly. completed more a homes. number homes shift we inventory managing out. supply of that would as but normal chain continued homes mentioned, increase, XXX back we year that kind see number are We just would sure At selling throughout all cycle completed targeted of of to itself what works our then at to increase, are

Carl Reichardt

help. Okay. All Thanks appreciate I right. much, the guys. so

Operator

you. Thank

from comment Our Wells the Fargo. line next of question comes Raghavan or from Deepa

open. Your line is

Deepa Raghavan

trends question. deterioration accepting are talk are done traffic we a you at performance? many through selectively? taking might Eric, you demand for your away you how end everyone. your as you well? afternoon, as Thanks with can my only on to new mean, versus demand at have through this, talk have if Good communities how out I audit color assessing provide about fall you can talked orders Anywhere

Eric Lipar

are Yeah. I We with affordable diminish and question. don’t think -- Deepa, rates XX% do could a And ASP good to housing would have measure many matter up the higher. year-over-year, matter. interest I that, probably and in business we it’s we we rates want how sold, does our affordability

because of sales experience, now kind getting right you the focus on is are I do off believe has our great if closed our think majority focus on we turn our to we backlog of decision more -- have customer the on sure calling will, make in we and did we backlog, homes of that believe experience the closed folks’ the business, orders.

So we are not months. four missed, sure out for orders went we how have but many straight

our kinds July. appointment, about spend got XX,XXX We in in data our it. know going that confident behind over we to marketing, confident are sales are and leads inquired make are their of know an we we spend marketing all facts those know on -- since doing homeownership we and ability We up people We that’s of on what going for in percentage of dollars and teams be qualified, result and close, those top in to team, if mathematical are to that’s XXXX that have been show contracts leads just and it. appointment our

in and through of works confidence salespeople before. on have our guidance But to our and our be to systems. on this math execute we have we always and our that’s to Our went our all their trained, game, be because have experience numbers, that

force we ramping higher we expenses, cutting yes, will dealing employees, going off that lot are be are dealing higher with of There on our works. on unlike companies rates, to with So, laying up. back And sales marketing spending no with prices. may trained be a are we

are our marketing. communities our numbers and of and call spend for, and to staff new online. all mix we hit XX class. we staff levels ramping time and ramp Because we got hiring for up also hiring an that sales add coming with office current to normal hiring, getting impact. including we are on to department more our staffing I open And salespeople recruiting October training before have up our make existing to and to to are our Now’s the to the new are the money positions, sure got that LGI have our hiring XX we up we for XX and communities hiring positions that will capacity

Deepa Raghavan

Okay.

did Okay. do starts How last quarter? many you

Eric Lipar

Around over -- just X,XXX.

Deepa Raghavan

how is now? And days site construction your many though

Eric Lipar

on in there. still in pushing Still pushing fact XXX to us the depends ahead, it markets, XX

ways construction cycle. we think relief, some I but get to seen have still to have some to go a We normal back

Charles Merdian

Yeah.

Deepa Raghavan

Okay.

X,XXX the of near-term? roughly So order kind in we pace can starts that experience

Eric Lipar

think, the months is, targeting. to think what I way months Well, about we four are Deepa six inventory is it we

like. year what short months three the next back run based to expect be, on six to fewer the us future in will think start So, I in and than for outlook then are would close what the months look starts of we we the to going half

say third X,XXX what right-sizing quarter we at of from, that the year fewer units, So as an we than would start to down part will something in be, close getting X,XXX which likely months like pace. X,XXX six inventory a

we it. how that’s thinking So about are

Deepa Raghavan

That’s very Thanks very helpful. and much luck. good

Eric Lipar

Thank you.

Charles Merdian

you. Thank

Operator

you. Thank

comment or question next Michael from follow-up Rehaut from Mr. from Our comes the JPMorgan.

Your line is open.

Michael Rehaut

the roughly difference accounting purchase accounting, bps. a guidance just -- difference gross XXX I been amortization Thanks. XX actually know follow-up. adjusted purchase I has technical is But the of clarification. more a reported and between Appreciate that wanted and the little XX and bps a margin to between still their interest

To the from on about half been been first are far you and interest get -- doing and million bps be you talking it’s we $X have amortization bps half a more and year would that up a ago. only one on So would XX half about as nicely like on up that in $X bps, few XX so a much be X.X% X.X and bps range basis, year-over-year in year-over-year the back XXX as several the basis. by XX

if sure something? not not would else would are we it wanted but missing if correct, So I think all I just be to equal, that’s relatively sure, still be mean, just low,

Charles Merdian

XXX Yeah. saw in will and specifically up purchase interest we just in Mike. guidance I we we years tick it XXX as. our think XXX, be from are seeing doesn’t Great I slightly question, that as standpoint, I the range, will think, the mean, use necessarily accounting, range mean that between

deals, a Over the those interest years, of on lot capitalizing have last coming of been we online. communities couple are now development

there’s a tick it that little up a So potential will bit.

in just the sales percentage credit fairly then will of kind minimize terms as our of in also which also revenue. price, average of facility rapid increase We rate percentage saw increase in debt price, is an floating And sales well. average

rates equal things rates floating higher are all related we increasing. slightly interest rising, expect So as see, to dollars to will

Michael Rehaut

but per bit, the I increasing Right. you million at fair? first in a in quarter, that mean, million, that back are million million, if shouldn’t $X half the be But $X so maybe doubling or Is $X we half. little $X

Charles Merdian

Yeah.

fair, between. think I somewhere that’s in

Michael Rehaut

right. very All Great. Thanks it. Appreciate much.

Eric Lipar

You bet.

Operator

you. Thank

the comes from Kenneth comment from Our line next question or Zener of Key.

Your open. line is

Kenneth Zener

gentlemen. afternoon, Good

Eric Lipar

Good afternoon.

Kenneth Zener

on tied to time seeing, One product mix or buyers the order obviously you relative that approach. second, still up sell you house, we the up existing the trade that your you to process really us first to are what that and contrast or you with anybody has are so experience given kind that more of your varies Could demand a on guys have? thoughts within choke the how their the your Can seeing spec have the just you side? dynamic for offer

Eric Lipar

think of is, have question This a are our And situation. of shot. focused our If I Eric. is payment. increasing -- their XX% homebuyer their about today, everybody’s the a XX% lease almost it are focusing and take will an I increasing, in and Ken, they is that and in their really, customers what time And of advantage rental them LGI currently understand Yeah. is most homes monthly I lease mail on we rents your our expiring plus pieces, first we it’s inquiry in coming or are amount. world marketing material exclusively, it’s get in whether or triggers up digital a the is now live pretty on

going are where to and existing lot listening homeownership, mortgages we pro probably homes. the very of low in a very, people have demand boat, we fixed our of the same existing, homeowners are are to the So because we we rate all are -- lot so there, scholar on customers we confident a have

builders, level as for for move have don’t we deal which to headwind up the with entry the think that’s I the a builder. much dealing with

is still think solving and does But are I we that monthly going. was for affordability where your payment. question matter

Kenneth Zener

your high -- where the considering with more And of the do how was face develop Right. then, you challenges I you direction you you gross developing, going. plus land, XX% look those right That renters? do was How have at Are grow a wedded come because to attract leeway your you of as margins, offer communities and on up price growth, margins. gross these lot to with new any gross how are the on in part you margins, units of I of think, metrics, the to that kind mean, the margins to about targeting be and other the like, that? bring year. be should you talked I going Are X,XXX terms of that or solution end your to there as think would you inventory at turnover, we the you products? are about of

Eric Lipar

what Yeah. talked earlier, bit Ken. little about A you

shifting house prices for the price wanting didn’t matter that’s kept a everyone’s the and to our And still a have we environment of last all We buy and of a sold people houses think, dynamic. went in a years wanting, I that few capturing talk that were never it time was and price. versus houses. on buy about living unbelievable had the it pace, about all in it’s our line changed. and lot waiting raising the lot but to to waitlist, about list, We every is price half kinds one year been certainly first a we

spending development industry, our are the gross time, that capital, think, about we you a taking that. we I we taking we risks timing the everybody risks at a certainly are it’s if development, though, has Now important to are was compared challenge. upfront If been the margins the done I And are normalized think doing if and pace. have over and it’s job of looks good margins

homes price profit. both to the we where development capture to have We the profits, accordingly homebuilder the and

have I we done. think

buy used rate. expense, doing But our when I are margin we we want and where we don’t your the the think significantly the we land from and that at pricing expense credit facilities, and an the advantage expensive very that. a doing using -- than in to land development less So forget are our gross debt certainly, do less banking have you interest -- the then lots significant bankers builders development are our because own

you going to margins have well LGI why compared to to that’s do see we are as I think industry. and continue the So elevated that from advantage

Kenneth Zener

you much. Thank very

Eric Lipar

You are welcome.

Operator

am I at back any you. to turn showing additional closing the over time. like remarks. queue questions to conference I’d Thank for no management in the this

Eric Lipar

on your Thank and thanks for LGI today’s And you. call and everyone interest continued great a day. for participating Have homes.

Operator

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

wonderful have Speakers day. You may now disconnect a and standby.

LGI Homes (LGIH) 2 Aug 222022 Q2 Earnings call transcript