LGIH - Earnings call 3 2023

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Operator

Welcome to LGI Homes Third 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. At this time, I'll turn the call over to Joshua Fattor, Vice President of Investor Relations and Capital Markets.

Joshua Fattor

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

the Eric the accessible the LGI call of Chief Charles Lipar, and comparable XX, to most SEC Eric. by our will be Homes and XX-Q presented turn statements You should risks, the Chairman in results which statements and in with substitutes this today. be as factors GAAP issued SEC's financial we'll we other joined such in website guarantees non-GAAP our website.I'm with financial the differ Officer in uncertainties, Merdian, related be isolation of measures Treasurer. information viewpoints performance.On we light for that ended accordance cause to a of with to and actual forward-looking accordance presented the reflect found undue over today for should in release risks, press review quarter non-GAAP on on September to the Officer I'll SEC Board; and and report of discuss are are not morning on our the today. for from quarterly file can GAAP. in considered considered management's Form of Investor and filing current measures that those Reconciliations with XXXX, Relations expect reliance that Chief must not financial filings section or call, Executive the discussion All now be prepared could later this measures those in Financial of the place future you intended not to This and

Eric Lipar

the performance share XXXX. third pleased Thanks, afternoon quarterly earnings I'm call. exceptional our Good our Josh. to during to quarter and welcome of

positive decisions generated of built made of a of supported the trends align including impact low market. we healthy, demographic We to the we subside pandemic. will the the Our met of to strong Demand the have remains challenges believe and homes. first will supply stability, volatility of momentum targets with rate experienced upon and the half market positive the affordable years the fundamentals, we are strong once longer-term unique results, affordability-constrained clear landscape, Fed's more prior today's business in the the year by in that to likely a what interest and similar exhibit economic view and our

to working sequential XX.X%, towards. also But our in typical over is a may road. representing near-term the possible but However, have and there's A was of Therefore, than X, the closed gross a guidance we openings near-term per decisions great third and are was company's closings wasn't of a only are assistance, is context margins not that's Hitting we've expanding we beating this X improvement whether delivering goal. on last of consensus more community It XX years. strong closing the the basis buydown or our also what represented protecting down of around pre-pandemic we'd investments, X rate couple year per we XX.X% period X,XXX impact homes that success a and quarters offered ensuring that a on that if years while points This the of and significantly closings pace focus.And month. range points our pushed X.X higher. to XXX couple the same focused the weighed increase of no within XX, in of did, incentives, we back laser example guide their quarter. exactly the community the any takes and adjusted pricing, margins been of

margin of up outside points result pretax also the our pandemic. of Additionally, quarter XX.X% our XXX the was profit in basis history highest and third was

top with on third the was basis our per a per closings quarter, closings Fort Dallas XX.X community market During month. Worth

another Next Charlotte closings, to these X.X. with by and increase key to XXX followed Northern communities XXX the X% out shareholders.Along a of was community California and their markets X.X reported our communities, reiterate, teams XX% quarter. from a remains assessment potential currently create top our with being for to X.X and Houston Growing of a Fort being increase represents Pierce and to with end in the end within our our the community ago margin highlight. the every strong To continued X.X. the decision expansion, year a made XXX last careful from active be of is XXXX. systems-based of X value focus, count were prior long-term for with At quarter. we expect count Congratulations Rounding growth performance quarter, still we active its with in is a the considered philosophy sustainable the context by

they an quarter, the Finally, market. I'll virtually end By diminish. highlight in from began share nonexistent. the to lots land of Early my for finished the additional were thoughts XXXX, XXXX, on deals

to see that However, started we've shift.

contribute potential finished M&A approved X to majority grow longer-dated impact looking still operations. this their pipelines to Though which entirely the capital in of with a in the innings, returns.Along we of free lots, quarter, to of builders are leverage increase we're of and closings XX total by these recent continue to future projects, trend and private third of which small XXXX. were community land new seen early will land The opportunities, up also to its attractive back of in encouraged many we've composed count meaningful to half the opportunities. a During

X,XXX best-performing to in closed During substantially of enabled to over lots North a of of transaction we land all acquire assets our in Glenwood the acquire The the quarter, deal one Homes Carolina. us regions.

and this developer. success seller can backlog win-win The hold of parties. that deal a great the nature high-margin and of today's for of upside them of the inflow capital and continued homebuilder opposite Challenging their from real markets positive the received to credit the On has turbulent thoughtfully, support create potential an insulate side retained their structured a value as if opportunities both times that, uncertainty. illustrates deal,

for materialize the expect plan turn opportunities the to We future over our those on more within similar work strategy.I'll to and details to growth in profitability our long-term that financial now focused results. call Charles pursue

Charles Merdian

year in Eric. from with continued XX.X% the up the period were and our the we in year. million, was $XXX.X up Thanks, the closed. XX.X% was as Revenue benefited our quarter Revenue and closings the third wholesale same quarter during half last homes this X.X% on the total first line X,XXX through based XXX built demand were of of representing Of momentum total closings year. second closings, channel, over

year, $XXX,XXX selling was year over but lower slightly up average price sequentially. Our of X.X%

was Our gross and third margin quarter gross adjusted margin XX.X% was XX.X%.

cost in of representing and XXX profiles. interest the in and year. selling, million, were and points.Combined Adjusted well The capitalized and XXX to of possible, of leads as this related openings primarily with the to general, basis our compared revenue. improvement General this of sales second normalized openings. million, input due outperformance where to As the adjusted quarter quarter to administrative charged our point expenses to and, was on $X.X third and gross community or many guided new XX.X% in basis excluded X.X% was Selling new and costs was driven replacement revenue, increase margin to quarter prices as basis level XXX points on second of sequentially gross expenses the Eric or by of drive a X.X% we year. highlighted, maintaining expenses or $XX.X accounting for $XX.X communities, support improved $XXX,XXX X.X% raising that basis $XX.X totaled last together sequential compared XX in advertising success point to at margins were call. administrative spending of lower million margin The million, line revenue, community purchase

year G&A of resulting or XXX point and advertising of net for prior SG&A expect revenue will fourth quarter, the Pretax improvement around $XX.X percentage revenue, the a quarter. a of the as income was basis in million, We consistent quarter over XX%. in remain full XX.X% dollars

rate to increase rate tax energy year. quarter to efficient tax home the recognized last the year. compared primarily last the in XX.X% effective in The same XX.X% credits fewer quarter federal Our this was to compared was period same due

tax expect the in full $X.XX the million, We XX%.Third share. per rate quarter approximately diluted per $X.XX similar was share quarter of third, be rate in $XX to to reported and income resulting effective net year or basic the a fourth

of quarter were orders X,XXX, up last year. slight gross over compared decrease last were orders the period quarter the to third Third same X,XXX, a year. Net X%

our were at over same were of cancellation an At a flat land XX.X%, or lots, less Our $XXX single-family backlog over that, of year availability of those by was rental essentially call fairly completed controlled of XX.X% XXX, or progress, valued year to position. lots, those X% increase year end, finished lots were and of in were XX.X% than X,XXX controlled XX, owned our portfolio sequentially.With September Of driven centers, quarter deals including million. I'll our in year owned were increase during lots. or XX,XXX at under year, capital to X,XXX lots, contracts land X,XXX XX,XXX, the related At information period homes, owned an consisted of to for year. XX, wholesale remaining our valued in the an the lots, XX,XXX decrease were partners.Turning September Of decrease our over Josh rate our the XX,XXX Of development. year XX.X% the X.X% We of with and quarter. a increase XX,XXX of land and XX.X% raw during to owned, of homes, last over consisted X.X% compared discussion land sequentially. homes a vacant and position. turn but X.X% but our backlog, Of quarter total X,XXX sequentially, homes, the

Joshua Fattor

Thanks, Charles.

outstanding, of just million XX, drawn As facility. we of including on September had notes $X.X $XXX.X under credit our billion payable

cash value XX.X% the book our under million $XXX.X call net last time liquidity increase over year.At our of Our of of billion, debt-to-capital $XXX.X available point, million the end per At and capacity Eric. was ratio XX.X% $X.X the of and Total was was debt-to-capital hand turn share was back on stockholders' credit September at XX, ratio including and our our million, same I'll $XX XX.X%. over an facility. this to $XX.XX, was over the equity quarter

Eric Lipar

the expected our the in factors, between increase and an to XXX several at expect year on building. to in on delivered product, October quarter Make pace low than report Margins this, Friday, slightly quarter expect expected basis an Sales performance Based that by over margins on between and and average on selling our homes we've the margin variables year raising is those closings price in to year, October, versus Move XX% year. margins fourth end are points full depending for XX%. fourth we last steady. X% of between retail On the in top those the are Based are to what this Event. range last communities. our Community homes, active $XXX,XXX lower consistent the offered now We expect National tightening the October our quarter, closings was to related XXX Josh. similar in now We of in we gross closings sales as full in time year. expect in mix, to XX.X% third between the we XX.X% to incentive Based X,XXX and achieve fourth quarter. Thanks, up compared and year including the as be we levels for and XXX deliveries end the $XXX,XXX well and close count geographic, gross Your wholesale X,XXX adjusted third and guidance holding the while of quarter with

to earlier, active XXX to year XXX mentioned I at end. we expect communities As continue

views our over end at and the XXX closing back communities a strong that, results to of be am our and our now with pipeline over XXX operating add on pre-pandemic and based of we success levels. As again development saying communities profitability XXXX conclude existing third XXXX.I'll metrics expect by timing, on to how to returning quarter by in end I'll thought, land proud I

for continued customers. open the delivering to in We'll country. the call Our movements, outstanding dedicated questions. industry.Thank the while success timing to openings, result for homes is our Despite by to around our need continued the construct, and and of to between execution and commitment our a close employees occasional to move best continue teams the sell, projects market rate volatile due of now you our uncertainty, new service the company

Operator

[Operator Instructions] question And Michael of come from our Rehaut will JPMorgan. first

Andrew Azzi

on an gross Azzi on or if you a margin bucket ask Mike. to drove the just X Congrats out This other. I was can quantify is maybe lean maybe if to in beat, what the there Andrew for impressive maybe and quarter. more direction wanted succinctly

Eric Lipar

this Eric. Andrew Charles is can -- add he'd think, if can and I start I like.

comes the think I factors. there, from to and of raise communities. in very pricing able out supply we strong. One a margin and gross substantial still low prices pricing strong in couple held inventory beat a We're is different of demand environment, a number hold

or we closings didn't the the quarter gave to the I'd for didn't when a those happen. we during come XX.X% primary more through reasons. then guided of closings is wholesale beat room lot and to as point is happened wholesale that to have X which in quarter, that thing X other The

Andrew Azzi

And really How more. maybe That's just good are widespread guys price color. that were maybe seeing? you then increases X these

Eric Lipar

say prices X/X in in to we X/X when would probably pricing, QX I communities. our we did October raised our of Yes.

Andrew Azzi

if the Okay. or... could magnitude you And maybe quantify

Eric Lipar

slight. very They're Yes.

quantify, cost margins maintain raise Just did to communities the to well. we strong which need house demand we some and also to have prices as increases,

Operator

coming Truman of from question Our will next Wolfe. be Patterson

Truman Patterson

balancing which elevated are all quarter. with in back to constraints, continue at rates First, bit pace, hoping all to growth absorption Eric, community to spike have normalized were given the more how to balancing sake recent I'm the gross just understand pipeline? that favor able your you're historically going you levels By rebuild this margin, you all that affordability to of all a the price this in and the you

Eric Lipar

which showed We're pace. pace quarter, we're throwing no there's as a many cautious increasing constrained financials, sure as when rates, make gross to it's protective good forward but creating are a with that we making a getting pretax, prices Starting because with offset and because long-term rates, well should Truman. and a focused you that start margin dollars we're development it's question throwing can down or our costs is lot increasing raising the this really in the bucket Yes, certainly, into costs, improve also long-term dollars on. incentive discounting lot we too demand, very and your commitments a really the that absorption great generally the I at mention XX.X% But that strong strategic and want affordability again of be question, drive company decisions. a sales in what of the more incentives large whether additional term or to about we the buying with handle temporarily. X.X if just would incentives financials houses short mind not or absorption may that's to slower put customers are But the tremendously we're decision into may right pace, short-term for start absorption

Truman Patterson

rate then mentioned were portion Could I that financial understand all you your maintaining, I their a And buyers what any a this all? sort that forward on commitments you specific are mortgage use doing can basis Or consumer buydown? all with based the case-by-case needs? is incentives incentives. to believe of X getting think, X Okay, are perfect. of points help of you you at just And us

Eric Lipar

lot and another of incentives. talk Yes, And about question, it's there's great buydowns Truman. a rate

the X we've quarters that the what to has over lowest the really focused been couple is has recently, a For last rate lowest every involved on here week to paying over couple fixed been is rate or if possible week. paying clarification, what really giving basis. a consumer will, even points, that on the possible points. X% And week X get discount you And

to to and not forward We're best to for that get incentives our very commitments, XXX, rate points week We analyze continuing week X to instead continuing we're big that, expensive but to do, are XXX, purchased it. is customers. have to points, lower cost X,XXX and which any be to costing sales of going analyze a basis materially may X from what

Truman Patterson

just then And perfect. final Okay, one me. for X

there? for buydowns, guide, Just incentives out discussion affordability, due in buyers us buyers or not fourth around get to margin contemplate that any kicked might able be can needed quarter Does rate about your without help buyers any or buydown that think to gross any way today? any might incremental the of sensitivity you that a qualify

Eric Lipar

Yes.

Truman. contemplate does that, think I it

we from think I to point to forward, X%. And necessarily think X.X% got X%, here. expect it's to do go an them rates this I unknown. go When X.X% they from where to didn't or

our giving to gross similar said down. guide, when we're margin So we slightly

think XXX from for a points that. basis then costs incentives, the the we'll of to business investors, our geographic wholesale comes see we come in, mix what XXX room we got of mortgage where plays in So and either percentage see also role

Operator

question Research. Our Zener next of come will from Seaport Ken

Kenneth Zener

So it you you different angles what I actually finished Is XX the that saw couple you market. said lots was communities? in you And bought here. believe that said?

Eric Lipar

XX lots, said. we finished overall, of X Ken, were what is which

Kenneth Zener

into spread how it literally do go you're -- how development and when to land or find existing ahead it buy you your XXX Is for does attractive, opportunistically came trying you get something land have play think margin bias makes because from And business somebody? to -- keep you that relative this? up? and do buying you given What raw that to just self-development process? to about And the that bias, development point basis that your

Eric Lipar

there's past, but in development exciting that's smaller buy developers, timing is to market today size less Ken. lower risk. the margin market a on half probably less ability we're on a from deals most absorption larger we're these intensive, about meet bigger average take and these communities, grow being requirements a that's XX which positions, Instead or opportunities we're where of positive as private count. seeing a lots are more absorptions tremendous pace coming historical lot a one market, It's capital, more community. that private around affordability more What things buying these works the capital I new deals, challenging probably are more challenging these Yes. in the XXX of opportunistic, to testing seeing builders instead of the we really seeing the think community to hundred stress shared at than our risk, lots, lot communities. the most And And our land call few

earnings. by accretive create really on So led community that quicker. to track confident for which those XXXX. them matter count that is open. We developments going by of XXX get We're closings the communities confident there and the timing our can growth in end this year. have in are getting we're XXX of end already to It's XXXX, and growth, we're just that us And All play. communities a of being of substantial

Kenneth Zener

if is, finished depending range on structurally, open to, there's environment given Right, your lots. out about the margin you something And if you could the you want it is be more community reaffirm risk, broadly lots, spread, about with high how buy asking just how historically, if the do there's pace, land basis Because talk introduce that positions which you how plays a point I'm today. so differential the size margins wonder and develop. to you XXX that think achieve is But absorptions, believe, duration. reason I you might when you for can I finished

Eric Lipar

No, more it. to open Yes. we're

basis reasonable guide, a It's we've a you're think And history a in still all, I thing. XXX guide. as of used First and points big our correct. that's

cognizant is to the developments as the the capital. market about about building, sure well finished the talking call, that putting for when homebuilding make on lots buy capturing need as objective risk of profit is taking that a the lots on think just we're spending you I doing and component. for purposes to you're home ground the always upfront the you're biggest on profit development ability we're the this and What

and realistic that's it's open comfortable the could wasn't smaller at private lot just of finished for we margins competitive, finished out happening a in closings market balance more the thought won't today's prices buy we're that's the was XX pricing. but years, so closing really we good in the if think We get dynamic that we lots, start margin for had can quicker. where the I the last to finished say all higher and pricing developers, the developers sheet developing, and minded lot into or opportunities can distressed just very prices so and buy we they're And opportunity to we'd they're us. we make selling, down, and and a There that for be coming go there, that. those a finished them sell should we're on Most at are as builders That's available. can we For get lots, them, houses. seeing lots buy,

Kenneth Zener

that. appreciate I Good.

i.e., a your of some industry. confidence, give I is But XX%, and up, think recovered maybe popped then which opposed I'm sounds again. us the costs they level trying to XX%, backwards do give obviously keeps the but wholesale, fascinating your talking part like Could a quarter, rates. great. you input you've XX%, incentives obviously rates have as sense margins ran could was in about. you There's Last your function, going here, down, Gross this vacillation it's really Because of stability up, obviously, us question some get margins. from you're here about what us this to Chuck. price what it just clarity a gone is go

to like but I'm about that a pace, away trying the if of case. could but just you, get market to were the If go sense what it clarity. just pricing talked it's firm is that You've sounds

Eric Lipar

[indiscernible]. Yes.

Charles Merdian

philosophy I hasn't think take of input Ken. costs. that input costs, Yes. changed of think I can how terms in the the is we Really our

been pretty lot price costs our consistent. think I sales a percentage has as average of our

cost XX% in basis. So to running from range that a lot XX%

job to of that's budgeting our through contingency cost that appropriate getting the standard done through great lot a sure through or we're going development make flow overall, financials. estimates most the to So costs we've either

land So like where good feel visibility I there. timing can costs think side, sit to a we on piece as going certainly well. pretty fluctuate, that's we're The to house the and we a have

come second So in really quarter and into starts even in the and our between up the the or nominal and of through into house to first quarter from to our fourth most down slightly third markets. the going we've what's movement costs seen slightly quarter,

So have to lumber I been as about into the stable couple down, going quarter. the come costs we've as think closings of input months, going seen. at which We're the see starting last to impact under first least is

So a about it estimating. from and our at community-by-community margin. We're community, fantastic doing on I evaluating it so think a a basis expected looking job is every pricing more of

great high going making we a is us. really off sure across we're And doing a for to think into paying level purchasing job projects, future. is the hard country, bids, it's multiple that houses on have I Our bidders what our to very getting the confidence team fair our going cost working on on and build

us making our that maintain I range. can think we has helped sure that So margins historical in navigate,

Operator

And of BTIG. coming our will Reichardt Carl question from be next

Carl Reichardt

bit sales. to about wanted I talk Eric, a little

motivating between volume, manage more they're -- And when paid wise margin? holding margin, margin it you've that rewarding house do between direction commission of toggle model folks to unique that balance operating I the I'm month. comes less how a X team and curious assume you How selling Your since got the on in of toggle you when houses. a those individual terms and you salesperson volume an and sells and in look maybe versus

Eric Lipar

Carl. question, great Yes,

the and call I about thing, commission, we sometimes and need single Even additional we on on houses worth and possible really month, as many salespeople paid it to is term. it the every close that focusing hire not is longer on getting want earlier because first think term. closing when all as we to talked you're think but the long we

want really something to much can, as anyone, communities good you in we reducing For in avoid just we it's is employees. ourselves, when customers, as the for example, prices the start prices not the our reducing because communities, that

is are we are position. to balance when interest interest thing come going to that's down, there XX-year volatility settle good It's point. likely not one So saying, rate mortgage, And what the that to going believe the in in yet. rates be we some the because really we're experts

they Our may across qualify, for if a a more about salespeople short-term more a the have customers. the for to good down nationwide, down of the on those have of look a footage of We're sales the in some a States order in with really headwind cosigners, to it's to may to affordability job very challenging United XXX seeing future, payment, of all pay they even a they of create It's from working that the to at ability and doing a are teams more square with go them smaller house may have pool money save team closings now an have basis. of customer, debt the customers they're standpoint. customer up working

Carl Reichardt

about of mixed normalcy. We've from peers you not, Can start to can some And about we pre-pandemic a CFO are long your times? you? talk taken to return if away about how a vertical right now? Are how norms? you're far from you you And talk construction then commentary back heard it's to

Charles Merdian

is Carl, Charles. Yes, this

the in running our standpoint, days a in our But we're would much times. opportunities movement to still the describe haven't same. time timeframe, the schedule. find market. construction with working as XX spots We're from for looking really trades, to build constantly XXX that generally seen I on We them depending

consistent. very seen we've So it

Eric Lipar

to pre-pandemic similar levels. Yes,

Charles Merdian

Yes.

Carl Reichardt

more on took sneak process one the what orders of could I know you vertically? If percentage homes already great. Do in quarter that in. you Okay, were offhand were this

Eric Lipar

being builder. of Well, have the spec been a of almost I under at majority construction some them -- point, think them vast all would

Operator

McCanless our And Wedbush. come next of from will Jay question

James McCanless

to My other what there Was in a September. a their we make need to you've first pace I the slower And some do trying going on question, bit hiccup, larger now in want -- to about? seen don't little know that sales think there a competitor or were things you that call rebound October. year, it but

Eric Lipar

Jay, August. this I in similar it's July than I certainly think are September October we July what and rate We're is and about but doing. the really our about are more really and August. than those And a No, little our as September, rates slower don't It's is October rates, really are to were sales to Eric, higher and on say success X% and it's all want they about. doesn't not competitors which affordability really determined seeing rates, plus in matter, talked

are own doing mortgage price the doing lot where is that more a incentives, cost are rates cost on the view those seeing watching commitments discounts. probably rent Based continuously difference everybody's But on it's their is it's builders for equation, also those focused between equation. got X today, on. are them and of ever on as decisions, we're and high as mathematical been. focused the there the buy, own. of reason are pricing and country We Certainly of what teams lifestyle buy not our a not and customers we're all homes to spreadsheet that their still reasons and across it's the All that's versus a

James McCanless

something the way. for bunch maybe at to X.X buy sales next, question a or XX open lower XX than per to small sell communities company then year trying And by the get of Is the to the months XXX end force, it, different X a builders? rather normal of the brute bunch to asking month a to call pace goal at end to

Eric Lipar

maintaining our possible. I margins well, the focus think at No, historical absorption is the highest Yes. rate on

absolute because absolute about has it. pretax few absorption and the would over positive years, think way dollars up a excited coming And with price X.X describe I that way statements through the us. sales average creating pretty for XX.X a our increased the income be putting the last to pace we're dollars the very

pandemic, So our equates about increasing the closings closely we it's a because company. during for of community sales all the we and overall or be and of or many count X or that And irregardless the growth, also of a the a more protective right, sales growth good want that at. are look but to But pace, going and excited X X whether have you're make closings, month X margins closings we count is we month long-term and community that decisions we are really item the to. all per to revenue for community month X company how be

James McCanless

Got buydowns I 'XX? it. little seeing other you to flow contribute a that yet mortgage of then maybe through rate on savings question first going And or to is doing like are half bit lumber the had more to just enough

Charles Merdian

those more is relatively Yes, over month, time the $X,XXX but into more available Jay, of us little by X really in gives which We've more it a month and that looking completed first this nominal I the close. really It something last flexibility. would get months, point. describe is houses certainly at to 'XX bit as the it seen are quarter

Operator

I to would conference over the now like back closing remarks. for Eric to turn

Eric Lipar

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

Operator

you Thank conference. today's concludes this gentlemen, for and participating. Ladies

You may now disconnect.

LGI Homes (LGIH) 31 Oct 232023 Q3 Earnings call transcript