Earnings call transcript Q1 2023

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Operator

Welcome to the LGI Homes First Quarter 2023 Conference Call. Today's call is being recorded, and a replay will be available on the company's website at www.lgihomes.com. After management's prepared comments, there will be an opportunity to ask questions. [Operator Instructions]

At this time, I'll turn the call over to Josh Fattor, Vice President of Investor Relations and Capital Markets.

Josh Fattor

afternoon. good and Thanks, that our contains objectives business for listeners management's and statements, views XXXX. on strategy, this remind forward-looking call including guidance I'll outlook, plans, that and reflect could that expectations be assumptions current statements to management's to expectations prove Such and and management's cause estimates incorrect. are to uncertainties subject risks involve

statements risks, results review factors forward-looking and that other on are our not SEC be to management's You today. reflect and from must with should presented for current of a undue statements, such light related cause actual in uncertainties the filings discussion differ those viewpoints which should reliance of of the and risks, considered could not All those performance. place guarantees you future

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

by Eric Treasurer. Charles call LGI today's and and Merdian, Chief on joined Officer Officer; Chairman Financial I'm Lipar, Homes and Chief Executive

Eric. turn the now over to I'll call

Eric Lipar

and Thanks, earnings our afternoon, call. Josh. Good welcome to

history. want talk to of details the to first take our moment a into I quarter, about get we Before the

our celebrated XXth and achieved recently we biggest, homebuilder. as a milestones a many one we've accomplishments, As our and anniversary company, of

a the that the XX years sell of a unaddressed who there LGI comfort in superior beyond way We desire market. an the identified and in were belief to and Throughout need safety but their ago, reach. home, believe founded build of housing thousands country, renters is the we is homes.

products, renters and transparent. market process idea straightforward, Our directly affordable making the buying and building to was simple

that was homes on states. community response immediately, April Based sales We XXXX, overwhelming. all the we idea, our our set under in summer XX, Almost of March contract. and And first the opened first closed were of we home. on for started

validated to by year Our sell first build, way results homes. a convictions found averaged closings better were year. XXX all XX and we our market closed a and the in We homes month second prove our and

homes. the has and markets scalability XX LGI we're us so states, For the to home. enabled chose next and in lives XX,XXX operate to families, model say honored become in recognized to and XX and the we've they business of Today, many proud We're one and part decades, of the a build to the over played most they communities, grateful success our we're XX two place have homebuilders. of closed nation's we call largest

is Looking time, your themselves employees our reality. help homeowners. people importance. work we lives dreams and and dedicated our for It communities. help most build talent to of back, you who energy here joined proud the families to our become improve have committed a do make organization I'm to offering to The Thank power has the better and customers'

complete. work home the through generated demand combination the and slowing moving team and spiked solid cash XXXX, costs. as second year. groundwork inventory starts delivered results to of for Homes price first our our focus half LGI now quarter is In increased a advertising, a incentives, The and of results. laid shifted discovery, Now successful slowed, That and reducing to rates

closings in X per over homes community closed our average averaged We X.X in inventory and despite first X.X slightly pre-pandemic which month. lowest Company-wide, homes generated community quarter closings million with per starting month, limited of below $XXX per per X,XXX was backlog only and we revenue our in years.

top with X.X%, Northern closings was Vegas our Dallas/Fort with impressive followed quarter. California Worth teams community per community per to second X.X, an markets performance was Las was Raleigh month. an for by X.X% outstanding per in performer was Congratulations the with Seattle in month. these this X.X X per closings

interest generation pivoted orders to smaller first offerings, demand our rate marketing. targeted the more incentives, rates to modest and increased quarter, In we buyers lower, from new as responded cash stable product in driving

is targeted marketing we're in. a them Our spending point

continues team marketing an new do to job outstanding customers. Our connecting with

the leads generated XXX,XXX connect is This and over interested a generated ever with our In leads. testament to to buyers. most the we we've quarter, is first ability

year result, orders a last we net sales to net increase XXX% and compared in in saw As a sequentially. a increase XX%

trends, homes. net X,XXX pace per in on quarter of was construction seen of quarter Our of XXXX. pace per first the orders In X.X the over we to month, homes started demand since community we've first the strength consistency the and these highest response

increasing communities margins We many of as the gross the of pivot increasing now also to began we year. our prices rest in throughout

call more now financial details over to our Charles turn for the on I'll results.

Charles Merdian

Thanks, Eric.

offset our fewer in last starts The and fourth beginning quarters in close closed During limited last homes year. homes, compared XX.X. X.X% the a a communities a the of average as of decline year, partially XX.X% was primarily drivers year absorptions. the decline of increase related and to backlog to at lower the to by March lower quarter, X,XXX available result included of Other completed the third to in we

or total Of XX year. our were last the XXX in of representing our quarter wholesale same total X.X% closings total through closings, closings of homes to channel, compared XX.X%

our higher prices up and and and to quarter cost incentives, to larger closings decision existing in during made reduced marketing. of through the due move of Northwest our markets increased selling segments proportion combination a revenue West Our those inventory a

a selling $XXX,XXX. to Southeast and partially increase segments increase first was quarter proportion higher a last to to closings $XXX.X by X.X% mix, in in driven the selling in the year. our fewer selling of impact sold home decrease of geographic compared of offset to West Florida average compared comp attributable year's in million, our fewer higher The XX.X% Revenue was the strong in segment, and by last and specifically, our wholesale price closings prices overall homes Central price

gross sales accounting, in million and quarter Our and gross interest at margin first XXX million charged $X.X $X margin XX.X%, together capitalized XX.X% basis adjusted excludes of of came gross to respectively. related to Adjusted cost margin representing points. purchase and

decision our of to in margins on you some lesser to and markets, in a prices maintain lower similar what guided were fourth our on higher we we selling interest. the extent, call, this quarter to to last quarter to prices due impact incentives capitalized the delivered As

gross benefits the We expect and XXX margin lower to our due increases, leverage. approximately the basis to operating expected points quarter costs overall price of increase in by second

Combined revenue XX.X% growth. of and expenses increased or compared increase count community training were expenses the quarter last revenue selling, to general revenue XX.X% percentage to to support X.X% administrative of The of higher last Selling year. $XX.X was $XX.X related million and compared headcount for as first a to or were million and advertising year. X.X% spend

revenue revenue to totaled year. of was The General $XX last in relative administrative revenue of as last the X.X% to decrease expenses percentage a primarily increase X.X% year. compared driven by or million and

$XX.X net income of revenue. was Pretax X.X% or million

excess rate higher last was compared our Our federal mix. compensation tax by home primarily year. share-based lower resulting taxes offset This deductions expected shifts in costs to effective our from credits, payments XX% slightly geographic annual energy-efficient tax due of rate was than XX.X% to and for in state

rate will effective expect tax to year our XX.X%. range full that continue We and XX.X% between

share basic first income $X.XX $X.XX share. Our diluted was reported quarter million per net and or per $XX

First buyers targeted net quarter quarter. and incentives, over stable responding rate The to environment was our X,XXX orders marketing, during orders lower increase last XX.X% prices by net orders strong lower, the gross year's were driven comp were the and more X,XXX. mortgage in

XX.X% backlog was cancellation to of of from related our time March the partners at rate year. with X,XXX $XXX.X X.X% this consisted those year. XXX XX.X% or Of rental last homes At total for backlog homes, backlog XX, Our XXX down contracts valued XX.X% at total or compared to were first last single-family homes of million. quarter

to owned in active year-over-year lots sequentially. XX,XXX year-over-year of controlled were of sequentially. of owned development. were Turning X.X% remaining land XX,XXX XX.X% of or At XX,XXX position. land lots, decrease and and raw of vacant X% lots, a Of our our decrease finished XX.X% or XX, our those Of X,XXX those our XXX with XX% a consisted portfolio Of were X.X% the lots, owned, development and March land lots, under owned lots.

monitor demand completed inventory to at balancing remain with We pace. sales each and closely current focused our on align and our vertical community

ramped we year-over-year, of up a and but demand X,XXX on X,XXX in homes during XXX% total levels. had result, as quarter. pace we of sequentially quarter including quickly we information of end, construction meet homes a decrease to This a increase progress. XXXX our At an XX.X% current As started our was completed homes, centers the

quarter and new pipeline and sequentially. at of continued controlled when XX,XXX patience resulted of and our decrease plots, we deals. Finally, X.X% XX.X% The decrease year-over-year ongoing a from end, assessments discipline evaluating primarily

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

Josh Fattor

of unsecured it's well credit to of under with of on sheet the revolving $XXX.X total We quarter the million million navigate Charles. diligently positioned flexibility required million, our $XXX.X We cash hand evolving and with ended including Thanks, manage balance capacity our $XX the believe liquidity facility. environment. and available

credit revolving to provide million increase our a maturity through Last extended of $XXX for Friday, successfully for the billion an agreement million facility, XXXX. and we XXXX amended $X.XX $XX through

will capacity amendment $XXX and pricing unchanged additional The our of accordion. of to includes rental up carve-out a includes million business $XXX that a borrowing single-family million leaves provide

billion at ratio just debt-to-capital with notes $X March of payable end XX.X% outstanding. of Our the was over

Our was cash net debt-to-capital of XX.X%. ratio

Since leverage September, revolver consecutive our and XXX paid second quarter reduced our by over our of marked on This total down million deleveraging. basis $XXX we've points.

and per was XX, of to value last March increase billion, XX.X% our was stockholders' $X.X at an book year. $XX.XX, compared our Finally, equity share

turn that, I'll Eric. call the over to With back

Eric Lipar

the be with encouraged pleased We're see first to returning to our appear levels. trends results demand Josh. normalized Thanks, to quarter that of and

a start. that we communities fundings, XXX closed to The in active off XXX is quarter to expect second April. verification of strong in Pending announce homes we

Based and selling at backlog to guidance. year results the $XXX,XXX. our We on ongoing now price X,XXX price closing and selling expect our average sales are and our $XXX,XXX increasing an visibility and full between into date, to homes X,XXX between close in activity, we momentum

We are XX% margins maintain margins between margins and adjusted and year full on XX.X%. and and our gross focused XX.X% XX% XXXX for prior increasing guidance gross between throughout

new continue leads to drive open We our increase invest advertising as we communities. to in spending to and expect

we a and SG&A ratio in As result, now expect range full to be XX.X%. between XX.X% a our year

coming closings in as delivered are New that communities net additional demonstrated April. four online communities by the

community that count us continued increase XX% Our and XXX between allows progress an to guidance additional at will XXXX. for in expectation XXX and year-end XX% maintain communities to our

of saying achievement, is and incredible close we of proud how make organization. and still forward XX are again for continued our a together. I'll up and homebuilding and look by to lie thank milestones achieving years business. great all each we goals you to our customers important the people of excellence our Many of your we to ahead, dedication who them

questions. the now We'll call open for

Operator

session. this Thank time, first we'll question-and-answer our JPMorgan. from Our [Operator Instructions] comes you. question a At conduct Rehaut of portion Michael of

Your open. line is

Michael Rehaut

Thanks. Good everyone. afternoon,

the over your has just market me, X.X First down if least community the reiterated. excuse And few demand years. goals over Obviously, significantly come a last in question, improved, count from wanted on has level lot at that months. count to I zero anything, you've last growth the

your So your over your high perhaps is quarters? year? the couple the end predicated hit end how of on of rebuilding the how next to the low next And or lot you this of either growth see of year much - count some do ability

Eric Lipar

is Yes. afternoon, Good take this community Mike, on Eric. that question can I counts.

QX came As really under four are happen opened said confident we end development. those of like prepared we we'll in if QX, have this of in it very closings the and the end top that far but communities year, the get in how top April, online in many hitting communities the at all in low doesn't those be our of as We're on already really additional communities and remarks, depends end, just QX. range

confident development, we're speak. all similar year, those to any day. already most under for getting that number If communities XX% for because And engineering are we the under already in XX% not starting as they're of own, development. XXXX, next growth through they're They're community count those we in

So our has lower impact overall XXXX. lot count no being on

the closings one even Why lot opportunities because seeing opportunities market XXXX some walked would is that's is on we and for larger And canceled 'XX, 'XX, finished closings. takedowns. of reduced, positions land have we're affected that smaller we're from also in what really positions, lot or seeing

overall coming lot a online reduction more communities strength in overall, sooner. count, but in So

Michael Rehaut

appreciate I XX.X SG&A when guidance, million. at When guess, I helpful. go that's XX% I it XXX the look the about SG&A revenues by to bps to and No, XXXX you you Okay. did secondly, Eric. time that, moving back mean, your had XX.X. history, of you raised I to $XXX was in last

you do any what's to run type return leverage normalized of kind sense your And So rate effort putting Obviously, the into over you're the thinking you're marketing X.X that, year for for where just a SG&A? lot see get current the have expect you how trying SG&A environment? more didn't last to a year sales than obviously last where in a growth? of years, would need and to to next extent about to we

Charles Merdian

this is I Mike, start. Hey, can Charles.

I drive tend And to first the the advertising historically, as that continue to when invest is our yes, shown definitely said we've driving I rates you're dollars theory we've - spending always we're reaction think think working dollars is basis per end. this to to And leads. rates right in and be that, on So invest is so to on quarter that more that to orders. be going a community interest what rise, think I additional higher interest

communities I term an to think years the back. seeing right we're we the is last in continue couple add other aggressively the now in That's is that count near fairly new head that we haven't community count. increase that in growing as seen piece of

I didn't many were people on pandemic We terms office. years, generating we efficient and each the basis back think need more headcount in orders look of just because during per we'll was in individual a as stronger. demand

Houston in costs, there bring we're in resulting than standpoint. training still a everybody expensive related past. training, from some costs, to inflationary additional it's we just certainly So in to so that been is That do to rebuilding our costs for that also some has headcount offices more travel here it the type

to thinking components that you're of kind rate. long-term, normalized in And higher and to selling to community look X, that that it's look range going a we're like of as be a you on of X.X I to as what long-term will we leverage, the as extent periods to would of of mentioned, we where of from X% G&A be think then in that SG&A some X, going at from terms I in see count to standpoint, X.X consider results see issue about come. timing in at range. we is a then the long-term it And the it the range, you standpoint, end And higher growth. going see X% do we kind We're percentage think two our it

as as re-evaluate quarter. year. that a percentage SG&A kind a will SG&A the then the some get implies through the So as revenue, in revenue, quarter we'll year, and highest see typically leverage we we'll first this think trend down of percentage we throughout the of Guidance rest for of of

Michael Rehaut

Great, thanks so much.

Charles Merdian

You bet.

Operator

of moment Jay comes One you. question question. our Thank from Wedbush. for next This McCanless

line Your open. is

Jay McCanless

Good afternoon. my Thanks taking questions. for

gross quarter? one where The looking balanced And have? this like, at had, XQ to $XXX guys that Maybe took of financing, was increased land of medium-term fourth first type the you bank margin in out 'XX, Is financing or the quarter. million had that type starting near-term I I think, in going what impacts?

Charles Merdian

Jay. Yes. Charles. Great This is question,

owned have our $XXX on that's category. inventory million in books We not about the

Q. You'll the see that in

term. then use quarter, to we've some not tool or really first re-evaluate. capital the sold a purchased And in that as we'll So meaningful short looking we're the but during

I we're communities a go more couple at. to think have we looking that

far would our As impact margins, and Those against progress to the as short our in it the really costs under land run. gross are be development. nominal capitalized in work being

then the obviously, takes those what So for P&L. pricing. it determine dollars ultimate with And those up a through show ultimately while to that happens would to

it nominal think a interest. capitalized be effect to will we overall So our

Jay McCanless

pretty second Okay. single-family coming what All Would hearing those what's - the it question like for And then right. buyers recently? same thing consumer been you from rental is back And Thanks. the have the partners? sounds strong. demand your had, you I say

Eric Lipar

Jay, bid-ask on most as Yes, rental it's Great Eric. to a that's higher say starting are wholesale investors I you in still to discovery the cases, rates, signs would there phase, side. or strong question. but price will, single-family meet back. this is having come the our We're willing if the of because aren't

has And a the we to that the to inventory wholesale of the strong component other have so is that sell of don't business retail lot that operators. been

wholesale closings closings our of this year. anticipate we X% So XX% to about being

Jay McCanless

had. seeing And costs the any then material down know that might the moving question savings versus on I LGI's just - are year. you of pretty have come We lumber, the What other favor? some dramatically besides last lumber last in prices be of building

Eric Lipar

costs certainly cost our than have of we're no, our last being acceleration. were meaningful, - over call terms I where we to pre-COVID flat we from they decelerated, the to the we XX% run last here year. as build current range on months. of from cost to XX% not this the flattish think to we I for houses that peak higher from in range but will describe see right? went several in They certainly, the on would XX% structure up think I No, XX% generally expectation that mean the is cost out remain that pre-COVID mentioned and

Jay McCanless

for questions. my Okay, taking great. Thanks

Eric Lipar

Thanks.

Operator

for next from question. of the Craig Richert Instructions] comes question One Our moment you. [Operator Thank BTIG. next

is Your line open.

Carl Reichardt

doing you or terms I'd increases, of able now? time. like during markets expand finding to are be those you're Thanks magnitude you right whether not about pricing price the Carl to price maybe Eric, Reichardt. for that guys. you bit and a And of breadth Thanks. some particular on in most talked quarter and power Hope accelerate well. strong Its increases. Hi, them where the the

Eric Lipar

Great to are normalized levels. relatively Yes. pretty markets Carl. question, absorptions increasing seeing Yes, strong prices All back consistently. nationwide speaking, getting we're

news Seattle California community, with X.X% country. about we're Charles prepared the the the Now spend. our talked expense. working, dollars for that. markets has that on and X.X% are marketing about talked at orders spend and SG&A those to that We been per We Northern the great comment X.X%. But on consistent our pay standout a we driving lot in across remarks is at

So West. certainly strong in the closings

But particular nearly contract the demand. guidance, our pretty our it's every consistently communities how to We simple. essentially we margin in XXX and prices annual look demand and raised mean, get raising prices our of of what gross because under at in a increase basis community, pretty guidance. across our are houses gross of it's all if that's is. most gradually And in margins to point sees to quarter everybody guiding I

Carl Reichardt

what terms magnitude, price this house? the you count that in dollar on so were Eric, raise of So be able How what's XQ? during average many would to - an

Eric Lipar

Yes.

per think X% through about in We're increase to going flow a gross to to through, prices. That's margins. are That's going quarter. relatively X% increasing flow I it's to stable. costs assuming X%

X% per So quarter. X% to

Carl Reichardt

community then on a shrinking mix. my Okay. percentage follow-up you. Super. has total. Thank Texas been as the of And is

You getting some moving higher-priced aggressive talked more units on markets. about through some

we can year think of the you ASPs? mix absorptions as and you do the shift to lower found ASP guide. rest you units you've Obviously, at and on expecting move your therefore, out today guide look in. you the Or where pricing? and a back Are sit Texas your closings look So

balance and the me sort from will come understand pricing between Thanks. will what help the of where Just the be? units

Eric Lipar

lot closings that. been question, Carl. Great of Yes, our certainly has a ASP to very West strong, help Yes.

the we the Our guidance. for ASP pretty put raised our the compared flat rest rest guide of will the of the in what for year QX, it, but range that as year, us of assuming we're to

a Florida States. what that ASP mix. right do, impact now the But We geographic strong. Southeast leading from a has is than and is is plans think are floor is on Two strong. do That ASP closings. also the in lower floor, the things sales that choosing. dependent rates United Texas Western what what strong, standpoint, consumers

the and lower floor seen have customers the that as smaller the communities, choosing in leads ASP well. plans same to a We

Carl Reichardt

much, Eric. Appreciate it. very Thanks

Eric Lipar

You're welcome.

Operator

Research. One for comes you. question Thank moment This question. from next Patterson our Truman Wolfe of

Your is open. line

Unidentified Analyst

your me actually Paul help It's closing the Can on the the you for in order have quarter Schubilske X.X% Truman. the versus X.X all the for Thanks, you absorption for of that year? guide bridge midpoint

Eric Lipar

is we timing XXX add the Eric. Charles start The is strong, next will very Paul, closings days, to orders through come think in can X.X that can certainly Yes, to this XX, I and that. there's and over the XX, it.

the in The really last the closings QX leading and into of of quarter the first quarter start second sales year. of pace is

annual the So that absorption through And I next over lead think starting you'll of couple the will see months. then guidance. our stronger come to

the I need part right of margins up. other think we it, get very sales now, strong are to but

where don't we know So to are rates going go.

sales So the very X our confident strong lead X strong per or closings We're will our over very community QX in confident next closings. to months. we're

you direction. it's the trending fourth unknown. then really the And get optimistic. Things once into We're right are in quarter,

very systems processes Our certainly place homes we QX. have working, sold in we have for and is few but and training

over the we because looks in where be. like build some we're look and like. market are the going rates what's to that not closing what not next sure days, XX into really, We're So sure QX conservatism

Unidentified Analyst

will a range? fair kind order incrementally will you you things pricing that the while? push to Or to where quarter down are maybe run it for Is absorptions assume that bring that closer X.X given of one let to X,

Eric Lipar

a I component two pricing is things. of think

and we with a QX to for you in play One inventory that and is quarter inventory. really do the come of closings standing what need fourth through reduction of absorption community the for pricing also have where pricing margins is into came

more I builders to build are spec XXX% builder. We're starting know other spec.

there. starts the Our prices inventory keep in is and long as are we'll really We're up good now. orders as right raising ramping shape

inventory community, to point finished where and when to some in to cash. some price have generate inventory moving a discovery really the that's you you get then But of have do start some sitting that you once

Unidentified Analyst

good And over the communities, those reduction. the Okay. forward much coming you looking how months to that communities with think to that WIP the up be you're job and into debt with get on community the inventory? this do growth of XX count reverse going those aggressive But putting lined year you'll the right

Josh Fattor

It's count going one Josh, is to in going being going be to then sorry, with continue our growth. - range. our community a be And leverage always going on to continue Paul. That's XX% is that this to It's priority to balance to that that number to objective. be second maintaining XX% our

So go, move then that an we're sales from deliveries flow but on during the little generating how quarter that there around obviously, side the could after of is depends and where go bit, much acquisition that. And anything the land expectation a business. on where it cash side

Unidentified Analyst

Okay. And final just one. a

[ph] new lower the FHFA's you from of pricing? any your level do loan kind ASP, benefit expect Given

Eric Lipar

not. do We

Unidentified Analyst

it. appreciate Okay. I

Operator

our Thank you. queue. in I'm At not time, this further any showing questions

will back remarks. over turn So closing for to I it Eric Lipar

Eric Lipar

for participating call continued have Thanks on today's Homes. interest Thank your everyone LGI and day in a great and you.

Operator

first you concludes may conference now great have day, quarter This call. LGI Homes disconnect. and XXXX a Do

LGI Homes (LGIH) 2 May 232023 Q1 Earnings call transcript