LGIH - Earnings call transcript Q2 2024

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Operator

Welcome to LGI Homes Second Quarter 2024 Conference Call. [Operator Instructions] At this time, I would like to turn the call over to Joshua Fattor, Executive Vice President of Investor Relations and Capital Markets. Please go ahead.

Joshua Fattor

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

with You should the uncertainties those results other and presented SEC actual a that cause differ discussion risks, could the factors to review of for today. filings our from

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

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

Eric are With me and Officer and Charles Executive Chief Merdian, Financial of Officer LGI today Lipar, the Homes' Chairman Chief and Board; Treasurer.

I'll now turn the Eric. call over to

Eric Lipar

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

of $XXX record-breaking average delivered we this million. resulting a our sales in at in $XXX,XXX, highlighted As release homes morning, press price over of revenue X,XXX

points raising higher successfully a XXX opened us with in of in communities prices of These from to allowed our gross that underwritten XX%, the margins margins by deliver our and up last year incentives the adjusted increases quarter, levels. and impact more cost in up from communities. of XX%, line higher-performing are margin noteworthy pre-pandemic so self-developed inflation points During Doing basis and we mortgage margin profitability last today's XXX basis buydown gross offset brings at year.

a Pretax was compared of with year. $X.XX, the basis net other like last line was pandemic. year margin to million, to This XX.X%. increase point to representing income share the gross XXX the profit of margins, a and improvement last approximately prior pretax per earnings of $XX our quarter over for period These XX.X% achievements contributed and performance an same in

of We the in June July in year. instrumental we May, communities completed up XXX achieve XXX record Woodlands ended XX of more be are a salespeople communities included by in which communities, who communities just with XX% will hit new and new us class our training our past In XXX industry-leading goal coming. helping an And the here year-end.

we per closings quarter, month. X.X community per the averaged During

to the Our and community were top these X.X, per with outstanding results month. markets with their last teams Fort with X.X Vegas and per in X.X, Pierce X.X with Congratulations Worth Dallas/Fort Mid-Atlantic on Las a month, per closings basis X.X with closings Charlotte quarter. markets closings

a allowing the to On our hours our and work the this X, X,XXX local partners transformative working than us we with year's they day Service held volunteered teams of support Impact employees that more making charities success. impact We're grateful May Day. do, communities. to Nationwide, our service our our we support XX critical thank Annual nonprofit for most for needs

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

a unemployment. witnessing low historically resilient labor we're Additionally, market with

higher on closings. for challenge this side of which key affordability, other customers equation, remains #X constrained limitation the and the sales and it's On the

those has With and customer faces costs, At Homes, property and choices higher and cost by results sized taxes, affordable and choices insurance offering feature-rich interest of in meaningful rates and mix options. rising incentives homes attainable that for hard today's making of payment easier providing our the entry-level value but compounded land our fewer the input creating by increased monthly customers and LGI most buyers. we're for

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

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

our Now I'll financial on invite details additional results. to Charles provide

Charles Merdian

Thanks, Eric.

quarter price of second our to in X,XXX closings of through of X.X% an total the an X.X% increase on homes based earlier, year. our last closed wholesale noted Of at As were year. X.X% $XXX,XXX, total representing was $XXX.X channel, closings, million to last sales compared revenue XXX average compared

margin second gross adjusted margin Our quarter gross XX%. XX% was and was

adjusted and As year-over-year points Eric improved basis points points gross mentioned, while gross year-over-year basis margin up improved XXX basis XXX and sequentially significantly, points sequentially. margins XXX XXX basis

offset margin representing points increase adjustments. accounting, lower sales last basis XXX excluded purchase year. to the result costs was million of capitalized coming by to sold, goods of million together XXX interest purchase compared of gross charged of Adjusted related The through accounting cost $X.X cost higher $XX.X points borrowing and basis partially

revenue were expenses million a higher spend as X.X% this Selling period same expenses for percentage of was last. and or $XX.X Combined The compared primarily or X.X% to quarter the to year $XX.X administrative second XX.X% increase, of in advertising were revenue, of compared last related million to revenue. the as year. selling, general

related in related to were allocated a compared as of General indirect the and increase revenue administrative was that percentage overall overhead expenses lower expenses same to community count last closings. totaled period X.X% revenue higher primarily $XX.X expansion X.X% million across or of The year. to

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

result net of to related lots and well home the revenue $X.X was driving to sale compared the X.X% or commercial every of in as last as The profitability of $XX.X was million quarter. and first in higher land. income million Pretax increase XX.X% the XX.X% sold year

the Our rate tax will XX.X% year, our last be full XX% rate compared was year XX%. effective to range in and and tax between expect XX.X% we

Second Of XX.X%. at quarter our was We were orders homes institutional with backlog related quarter with those valued million. backlog X,XXX gross to $XXX.X net were homes, XXX our ended the our X,XXX, and X,XXX, XX% wholesale were cancellation orders buyers. contracts in total rate or of

those XX, XX.X% were lots, Turning consisted position. lots or to and were XX,XXX in June development XX,XXX our vacant of XX.X% including portfolio our On Of XX% XX,XXX active lots, or were lots, centers. owned XX,XXX owned the finished land raw lots. approximately under and controlled Of or land XX,XXX with Of X,XXX owned XX,XXX were controlled. information lots, our either remaining completed were land and owned development. those of our lots homes,

During X,XXX started quarter, we the and ended homes, the we progress. in with quarter homes X,XXX

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

Joshua Fattor

you, repurchased million as the was Thank end in quarter We remaining of revolver our ended including more sequential in of billion million current debt-to-capital million million XX%. to XX.X% with the $XXX.X on and net of homes increase shares ratio on $XX for have increase $XXX.X on of with Charles. during credit of ratio including available $X.X our facility, debt-to-capital the at on amount the debt quarter inventory resulting the outstanding, commensurate drawn a our cash XX,XXX $X liquidity the in started drawn $XXX.X quarter our and borrow was facility. million and in quarter. Total we the $XXX.X second our We million, credit authorization. The

same and our $X.X XX, billion, June was increase stockholders' last period an $XX.XX, was book over equity the our at XX.X% year. Finally, share per value of

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

Eric Lipar

Thanks, Josh.

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

earlier, contract value the ability our outperformance sales especially and raise to the high in to both in and guide backlog most we increase Based prices homes and ASP increasing a communities. continued range. to been compared at low mentioned communities of our $XX,XXX $XXX,XXX, our on we've expectations, performing of of pleased with $XXX,XXX our in original As our we're our the end between range a highest to

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

gross raising are between in our and a margin outperformance margin XX.X% XX.X% first the and XX.X%. our XX.X% and the on of to guidance half we year, adjusted between to range gross Based

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

highlight. of final On the a people, I'll share topic our

row, For second a year in the U.S. the

as and to created Report positioned best achievement our for the inspired all in I you work long-term of to workplace feel dedication that News an evidence is show people and for where our To thank of World Homes loyalty continue say exciting recognize company. our one employees, for to your multiple we've you LGI and This companies clear categories. success. valued, the

questions. for call the open now We'll

Operator

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

Andrew Azzi

the is Azzi over would improvement bucket quarter, a maybe to out that how the This on wanted that I Andrew you gross to just get translates sense be excellent. sequentially. Congrats that If on of for quarter. and margin can of drivers Mike. next that

Eric Lipar

in Andrew, Eric. a this improvement could Yes, start. margin. gross I is big

that gross the communities main The and the we we're to which the make all where market, great owned I is I need we're historically need value that's from. excited a And we a that pricing value capturing in is, we where to lots in about own. comes it, and we've job, a be. doing been pretty development. developer elevated think there's our think we're There's prepandemic, the And to profit. the that point do, lot lot of doing that's of team where we that's margin and sure development

capture or the that development development in up have a of that and lot we capital, We take XX% requires is and that that that paid profit And of risk. fantastic. team pay for for that company doing XX%, on a adjusted and It to need a that margin gross range. We're does lot get development.

of that's it. driver I So think leading the

Andrew Azzi

Got it. on I maybe wanted ask just also to capital allocation.

continue metrics, and to how what there the your too, we expect you term. near to to grow, could in you medium expect leverage manage As

Joshua Fattor

now, right to When our development, gross the online. said at for for forward standard XX% it's I new is bringing That land think leverage. We've This continued all Josh. these debt communities be look going us XX%. the typically will we opportunities, it's

continue recently. to nothing M&A always packages. that for so of we've a little seen that more us. tricky a We're We a buyer, makes get bit that bit -- It's especially compelling nuanced little

on share the then repurchases. other And side the is

$X value on great And so you quarter. We those shares. we saw, the a about million did got during

So we well. continue to monitor that as

Operator

One moment coming Carl of for will Reichardt from be which question, our next BTIG.

Carl Reichardt

So little talked Eric, of sort that long-term margin your sold sort you know prepandemic run to you'd bit? homes your you've push that of a are margin try similar your gross at that backlog got to to absorption your or Under the guidance, under a beginning average you you've where about do going start be a assumption at. that like at level, current and been have levels construction, to up per

get little we more to run XXX little on and a faster. we another focus of of want you be on the turns we you'd pace? -- sense a margin where more where basis little start to pace inventory that up to to a a give want say I'm points need balance now where is, Like willing trying focus do to to margin

Eric Lipar

highest our look more Yes. And our the at versus XX Carl, look question absorption working wish and mean, gross getting a question, and of the communities, price analyzing absorption margin. It's you data. like great with we really teams and it they leadership also and reducing our as really, lot strongest of rates, highest it the had are as We're that price that. the doesn't I time a we have simple driving communities top we pace. figured a spent

big we're So one, a just point I we we every doing offer. things And couple the is, like builder. that's buydown mortgage of other to that would think incentives

favor. mortgage I has in down or over think rates because the little bit offer a last moved our have a able rates couple cost -- come been of those the better to of incentives months the rate

look our continuously the lots. mortgage There's priced we'll a incentive at of finished we're in to So market. lot program, value but

don't likely because not that's the we price to pace evident. increasing the that decreasing just the answer is So see

gradually think in Our theory. larger on prices And communities raise to we'll time. tend be to that stay over tend size. we And I

The is we cost seeing and cost, in other relief, could And margins costs especially on thing certainly, to the newer with help house was starting provide costs. potentially It on gross see house communities relief flat ASPs, we're but if quarter. similar, we're for keep house the lower the some last our some pace. fairly

Carl Reichardt

Actually, was different. so cost, build me to something going I ask about ask let

think next talked think about even big to I years calculated I you've count basis. That's coming a you're year. And little I trailing of got store land over a year, you've high it, bit little So a XX opening on and as this relative you.

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

Eric Lipar

spend. count, We're comfortable the focused in at guidance count the Yes, I'll last on growing Charles about metric. the little a early I We're land that think community still for XXXX count it's community let count, and count plan community on XXX. Community with I can community take We 'XX getting month. to We're XXX XXXX. yet. talk

lot of of on. going coming communities. new lot these a sales reps just the A training the half online So year. communities XX new We to fill hired in back of

So feel opportunities see M&A then we'll And we about any finished still comfortable XXX. opportunities the if any arise, arise. lot

be the still for part next So count year. of can community those

over and XXX seen for talk market, we as affordable spend. as thought might haven't next challenging, We about land But last in confident or over quarters. may opportunities come this could couple months those may a year, many the of the more we the but X not in Charles

Charles Merdian

of in Yes. good -- they pandemic-related had XX,XXX months or XX,XXX, over getting lots of over taken so lots. time planned. This them through the the XX,XXX our than we to expected XX delays owned on of are that Certainly, last communities some had just period XX a working done finished, at job longer total over owned we've originally online.

getting some about remaining good out additional scheduling teams lots have XX,XXX we process. We are that been in in those still doing of X/X of the that's land through what development, So are owned lots have feel the very stage. in terms about our sort developments, so the of that

delivery So constantly timing monitoring the and of those.

So in some pace the in which little have markets. are what those ahead delivered. a in we of of inventory, And markets, think hard finished in cases, some terms in of some still of we're some development markets, get decrease communities I we will in working terms to

count certainly acquisition at spending in beginning pace, think to pace first increased I think back the see the quarter into development increase coming So we're on start will in fourth to also development where that we then spend. from of the the year. community this in dollars of to we'll I the closings are see the next But and start replacement what year, and -- half the quarter exceed the a first that and taper

Operator

coming will Our next Kenneth Seaport. of be from Zener question

Kenneth Zener

here. questions different of couple A

are down buying are And outlook, of rate margins today, of the bps, rates what ASP for of the And if it set basically. where Given kind on level to either could the many talk what or using XX you're you percent how impact us go it. about -- just buyers specifically? incentives like

or it a how -- X to you down bps, go of rates benefit X.X, much XX So to were be? buy margin that if would rates if

Eric Lipar

something dollars, not lot that days, that's expense so positive on margin great through for for profit Yes, has more of was months. A by question, costs, finished up of In the closing prepandemic. going next houses to it's market, cost certainly rate. reduce incentives at but and raise X.XX rate. flows permitting capture I'll answer in X because nationwide, also development expense some our really all a down a made over It's about by the the savings buy X% incentives the of you an Ken. been give SG&A. to those an current to it's it that incentivizing costs case-by-case, thing broad a are that And able XX get The and certainly and general, point have in the community, it community to flow is than our market deliver that prices, are through elevated closing isn't the gross incentives we've where

Kenneth Zener

with with DNA Now gross XXX of rising self-development, of buying doing associate kind a quarter spread of you out developed your lots. Would seems that the the could historically about historically, kind to agree that? point margin It you basis with versus that the that? be you this finished and swing frame all industry talks

Eric Lipar

of pricing Yes, communities. that's minimum. LGI exactly basis as way It's XXX a the points

XXX say going we're where greater did community typical margins the we capturing development, I'd a where community should points in or pricing. retail a basis result So that price creating are spread just the is because the to a if We're finish we we're same developer lot to pricing profit. it buying XXX

Kenneth Zener

you hires. your the once given SG&A And normalized if -- you're more highlighted these would help with are rising margins, communities that us think these pulling a these new what I since you absorbed online, community cost of SG&A could, just gross level as about could be you've

SG&A to like little You year-end. been hires. XXX the because like you've what it about count assuming for a by just will be talk I'm XXX to a XX normalized heavy there. more that's level top seems new But talked community

Charles Merdian

Charles. Ken. question, Great This is Yes.

the beginning of as top-heavy typically the in I well, in becomes part yes, first when per closings the community are mean, So quarter. it year lower certainly

So will as see that top line some communities leverage I our think to come continue implies starts year-to-date, guidance obviously, and to increase. the SG&A online

I spending the talking and about that our think, around advertising more range. historically, over leads communities. last been XX% been to to leads XX% to driving the several we've on We've recently. We've generate money that spending the been quarters,

normal, think bit elevated little a consider we more I might So that's what than if you will. been

future. in in And little our a predominantly But break we think, selling are is what we and think G&A. I into bit go depends, then with rates That's the to. I I think selling So where variable. and conjunction it down recorded commissions see where

the is with that So major for advertising. expense along driver selling

I long-term think a in stay in the the the covering that's So one second relatively we will that than were And rate, of side, like to X% leverage the similar where we'll costs. see that's kind lower to G&A most operating continue as X%. On to where quarter. corporate-related things then we grow,

from down X% down So the into X% that trend should range.

Operator

question Our is come next going of McCanless from Wedbush. Jay to

James McCanless

was you Eric, hear surprised say essentially cut been wouldn't That's So I drive antithetical prices, all you saying. volume. have to more that competitors your of did to probably what if that

about a maybe price customer? you could could LGI why cut So the talk work -- typical won't with

Eric Lipar

rates that's doing currently combination into our as paying Yes. And with No, is give to want the affordability, incentives, into just putting general, mortgage team does of ever pricing, combination Jay, cutting is strong monthly the job challenge market apartment, demand get working for the and has the buck right payment customer an it seeing Because living We're But they as great affordability the as in now, in in bang of challenged customers. affordability. right? from that's a a somebody the does is price been. I it think rent, you money currently homeownership.

cut you to you all our and unless the we're based have lower a builder, incentives. our but on a And mortgage -- the or tells market. appraising monthly houses can challenges, you vast a also in to your are majority price general, of choice all scenarios, almost cutting leads builders having work appraisal you houses payment. can the the that price are, comp mortgage And the on of price as incentives And

our below discounting a to houses and And So no have houses generally them environment, market. reason across valuable, to and is the still low States. generally are a speaking, them move great not the supply United we opinion. idea, have in lots It's the sell we

James McCanless

margin And on at you're prices, I if if what's where in developer so -- sequentially bit could of getting risk? guidance. the what looking side, back more the year? raising a the margin downside And I down gross new go gross guess, the little half the what -- guess, you're make

Eric Lipar

I houses qualified. customers dollars, affordable Well, our mortgage make take to the what incentive and going it's think it's get to the

cities, fees, So the are doing that's We're that. it's are the dependent development of we're rate cost, as online costs on than cost though selling lot some higher profit, older developer and a are generally communities cost on though house online, permits relief whether costs seeing out. flat capturing the relief, coming of have to even business new not that even coming fairly with communities new a communities that

where at we margins. cost high environment maintain So we're a to still raise just prices to need fairly

James McCanless

guess, communities this I able you to prices were of raise percentage quarter? And what

Eric Lipar

half, I cost more the would the just increases strong demand say to seeing. sure, because offset we're and of that for than

James McCanless

quickly. And one real more then just

you the to of more just see that opportunities your on brought not that Charles not I the Or Eric, function and competitors? aggressively to some buying is it you think or being a seeing remember, -- expected I that market? said deals side. Is if about can't from of land

Eric Lipar

Yes.

little both. of a I it's think

deals seen up lending we -- long we're financed. getting dropped maybe bank you'd private really Jay, really having it about were getting developers, too that comment think, I talking tightening trouble -- that see for private Bank stems SVB what some or wasn't builders, we've the in the for maybe ago and

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

we thought coming. is I comment haven't probably be think seen many as the as may just we

Operator

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

Eric Lipar

on Yes. today's and for continued go, Astros. And in Thanks, participating LGI your interest call Homes. everybody, for

Operator

And this for you Thank concludes today's participating. conference.

You may now all disconnect.

LGI Homes (LGIH) 30 Jul 242024 Q2 Earnings call transcript