LGI Homes (LGIH) 5 Nov 242024 Q3 Earnings call transcript

Welcome to LGI Homes Third Quarter 2024 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 remarks, there will be an opportunity to ask questions.

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

You may begin.

afternoon. good and Latania, Thanks,

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

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

financial this Relations and LGI to Eric ended of financial be measures for Charles as of which XXXX, are September Chairman accordance can Investor and for Executive This XX-Q quarter measures, our found are Board; discuss report not the this information or the with today that file we website. Chief press we Financial morning quarterly me prepared GAAP. in Lipar, SEC will accessible section Merdian, financial of Treasurer. issued XX, and Officer Officer we'll on presented the website the in on expect with On in be with With to filing today. isolation later Homes' and Chief and the SEC's most release substitute GAAP comparable considered to accordance the our Reconciliations call, Form in non-GAAP in be the intended measures in non-GAAP

over I'll to now turn the call Eric.

challenges, by a excellence our welcome every results and affordability profitability demand commitment Call. LGI country. sustained delivered strong on on afternoon, for driven quarter We're operational outstanding and pleased focus Good home maximize Despite that Earnings homes continued new reflect to we the financial sold. report another across Josh. Homes to Thanks, to

we delivered highlighted of $XXX,XXX with third an As year a since the to and of highest Those quarter. revenue more in closings compared the ASP high our the X.X% revenue in of in quarter homes million, release $XXX resulted X,XXX morning, second increase last of this we've combined reported than press record XXXX.

years, land last country. positions attractive considerable the For acquiring developing several we and across in the made progress

the our the XXX quarter to last pleased seen third count Over sixth of you've the have noteworthy and these year, communities, quarter come we're with communities consecutive of and many prior ended year increase over community a online, XX% extremely expansion.

the that Additionally, this in added number communities largest any was absolute single year. of we've

maximizing cost margins incentives. does yield we simply the light communities, substantial. value of acquired span invested replacement this, and optimal assets pricing and the to projects, are development expense the of and and the inherent in at of approach Given economic little these the shortening of a In their when capital not is returns rising their absorptions life these in achievable disciplined patience the believe a with process we

our of adjusted last gross same success strategy standout line balancing the The and we continue basis focusing margin and result commitment our again period, a tomorrow's on longer today's quarter XX the as played from strategy to if maximizing focus strong pace output. even we ensures profitability up with value delivered the is profitability third to sell points we our performance on the long-term in we quarter of sustain This year. on generate reflects an below Therefore, period is driving rather over home average. for out historical it XX.X%, that Further, from opportunities. during shareholders the immediate than with results our prior a margins every solely

of per margin These income of diluted net higher earnings pretax points a other to $X.XX, year-over-year of than and average XXX XX.X%, XX.X%. contributed and delivered basis share of our achievements up XX% sequentially. we significantly representing pre-pandemic sequentially Additionally, increase and X% an

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

on Vegas markets X, was Las to closings teams market closings a X.X Nashville X.X, month. quarter. community outstanding per per basis Worth Tampa with their performance in top also Charlotte and Our community were with per with Dallas/Fort X.X was last these X.X, these Congratulations and

one the We of companies. One with award commitment highlights recognized integrity dream strength by of with to most the This and and employees, trustworthy our year consecutive they country as Newsweek homeownership. the to help proud be our final families This employees exceptional customer the the the culture underscores excellence of of our service were highlight. our our integrity our for second achieve customers, recognition world's and investors. with as across provide who

With that, I'll provide details our additional invite Charles on results. financial to

Eric. Thanks,

revenue earlier, in million. our third year-over-year the mentioned As X.X% to quarter increased $XXX.X

XXX a closed resulted basis year-over-year wholesale compared through year. last compared During sequentially. XX.X% representing revenue of closings X.X% the last closings X.X% of closed total on Those X,XXX We million to year. higher business, $XX.X of higher and homes, increase quarter, our homes to X.X% in our we slightly an

higher sequentially. sales average price driven by majority increases price to period larger and The decision a maintain wholesale by a of as in well increase year higher same slightly increase price average Our and percentage partially of our segments through closings last as Northwest with a over offset and was closings. . X.X% markets an our of percentage was $XXX,XXX, record particularly markets, points, the was our West the in profitability X.X% primarily of

rate and financial use of prices and are of to tools raising again performance of reflected these impact taking approach to our disciplined the buydowns. absolute a ability level Our the offset gross balanced incentives financing margin the

As a result, margin gross our our third was and margin was XX.X%, gross quarter XX.X%. adjusted

to million basis purchase improved year together of to gross points line XX charged in to pre-pandemic prior in cost interest representing million points points basis and the As $XX XXX XXX of capitalized year. last Eric $X.X mentioned, margin compared our basis and average. gross accounting sequentially adjusted with margin results sales was Adjusted excluded related

million costs XX.X%. full same to million as date, our related expect to to line Based of new of lesser a million the Selling community expenses increase The general on the year. revenue. and period the were last related openings. third and increased General personnel of same selling, last percentage in extent, SG&A X.X% expenses revenue, XX.X% was spend were Combined advertising with of year. now compared performance XX% and range expense or to and expenses we our to $XX.X or year a X.X% administrative totaled between revenue administrative revenue primarily quarter X.X% $XX with for higher or in $XX.X period

to Pretax to same last million XX.X% net a income compared Pretax was million was second during $XX.X income revenue as net the in the quarter. and XX.X% year. compared $XX.X period of year XX.X% percentage last

Our effective tax was rate to XX.X% compared last year. XX.X%

quarter will we Given we share. in million. orders per and slightly compared rate full X,XXX were XX.X%. our year our of rate net tax be performance were homes and X,XXX Overall, $X.XX ended approximately representing our cancellation year. backlog, with expect $X.XX net Gross in $XX.X was share income X,XXX million or generated diluted date, to to $XXX.X We per September orders basic our the third last XX.X%, down

we or XX,XXX land XX,XXX XX,XXX controlled those were own September X,XXX were And of Of XX.X% quarter portfolio development, started controlled. owned active those as of consisted remaining XX% end. during XX,XXX raw information Of lots. completed under and lots, quarter, X,XXX lots XX, in lots, owned were our with XX,XXX homes in were lots, development. X,XXX XX.X% the the At centers. at were land than classified or vacant lots, XX,XXX owned and finished had homes and and land our Of homes progress lots less and

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

and We XX.X%. credit quarter facility. including with was million, liquidity net resulting $XXX.X to debt-to-capital drawn on debt of ratio $XX.X ended million our and a of on Charles. of you, our the debt-to-capital Thank of ratio borrow million $XXX.X cash billion in available $X.X Total million including revolver, $XXX.X outstanding, XX.X%

extend X, per year, to offsets billion billion of decision credit the to facility successfully stockholders' pleased and Therefore, $XX.XX. million in expected extend of previously through XX the the we several full our capacity April through XXXX billion, we Our capital at XXXX. XXXX. of that our of our next have our capacity value duration $X.XX amended the in $X.XXX maintain $X $XXX to September and of to April. we book terms the commitments was planned April capacity in will agreement, previously who $XXX equity On April for Their was share lenders through April of choose agreement, million October exit under of and have reduction we're new total

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

the in delivered year-to-date. Josh. pleased all We're results our and we with of accomplishments strong the quarter Thanks, third

guidance. on I'll to prior current Turning the October, today, date briefly fourth quarter our closed thoughts the year. to environment. to the we from updated we down report and Later in XXX that homes sales slightly plan our provide discuss

strong, While fundamentals and get experienced that related and moderation lease supported to as trained normal. new of our believe and is not of We growth the supply of affordability. a this of hires a sales dynamic this the to well underproduction we October, to way experience is near-term selling by and continued housing it October appears on activity in new household Part LGI market broadly years takes and homes. similar industry. traffic did rates the resale higher of as been of The certainly compared to September, are limited time impact were the a trend in across have formations, the a

to results X,XXX lower demand in now year price on and for next retail months, In cost product historically Margins date wholesale and short, quarter make are long-term event. market the the remove the incentives at on outlook mix between unemployment. to trends, grow Finally, similar recent continues expected than in this resilient undeniably geographic remains resulting Based quarter and and X we positive. the an fourth is average sales outlook an economy low be and to during slightly as $XXX,XXX. expect we X,XXX the homes labor third U.S. depending between annual our the offered in to to and delivered close well versus of productive, $XXX,XXX what selling as a

at high and between year variables XX both adjusted points deliver to those by date, strong and expect performance gross are gross full we XX% XX%. now the our and margins on margins raising between basis ends low Based XX% and the guidance to XX% and our margin and

and As count I XX highlighted November. October, at steady held to new for continues beginning, XXX have in planned we community count openings at the community grow. Community

communities. to approximately XXXX continue to with expect XXX We active end

in expect count our to In XX% conclusion, employees. Additionally, our community XXXX. I we another growth want to in XX% thank

the in success results value dedication execution quarter. for call your Your and to are the third long-term positioned for questions. creating We'll were open strategy profitable now work, essential our well our we delivering our continue hard efforts, Thanks shareholders. on to to outstanding and

our first Instructions] moment of question, [Operator which from One will for Research. Trevor Wolfe come Allinson

gross First performance, in margin the quarter. on was one really which impressive

builders full most us anticipating from incentive about were a and in Can You sort what margin gross prior your what came than are in year guide guide? updated describing what raised to bridge you as talk your expectation you challenging better your environment. of

we're reducing We're of are looking incentivize we costs. price product, value necessarily on we And every probably pace. anticipating we pace Trevor, Yes, as avoiding to top like builders, incentives of be put and underneath we'd have to reductions at doesn't other and our There's yearly It's training. really versus what that our house just closely. then in I are the houses can questions things needs QX to be going And updating Eric. results seeing looking with we've because to most on look from but it's at increase some the is that think been upgraded. your that. guidance margin need build prices guidance start. as cases, and our a And the this certainly and other land to goes marketing, wholesale like far I the what it price we initiative overall complete, back just at

new lot but now, a of have We those incentives. hires we're weighing all right of

a comment Okay. you. on Makes in up made sense. then, Got Eric, your prepared wanted remarks. And I you to follow

a talking the of necessarily for I being think not near-term about industry. kind dynamics, change

of about lot talk people A election. nonrate to conditions. of lot a heard the cite demand impact You've builders

your view rates early to by into through we that's move it And then even that maybe is to in think currently dictated that where selling view So next get be you election going you here sustained elevated, going remain season? is are could is see we your that XXXX? to do still isn't and the Or some truly perhaps if affordability? as that year improvement the past rates be rates spring demand

Yes.

I think Trevor.

the coming a it's look of -- number us, in. that For demand as leads we at we have

So by homeownership. the field homeownership what for we're seeing inquired remains last the strong. is week demand X,XXX individual Over and in -- leads

combination So every do challenge Affordability challenged to is and nationwide company of the average we entry-level we affordability. in was price, stated the day don't with believe offices now, through history. right election demand. our anything and is pace quarter the right sales prepared with has our being working what as highest the rates in average the higher price we're now this in The remarks,

has house, entry affordability the to $XXX,XXX a market income market just have ratios challenges the eliminated a the qualification from are it amount income that year from to the customer and in has what been to $XX,XXX makes level X an to Those of relative eliminated eliminated, income takes standpoint to for the qualify we their combined leading are.

lot the are is only is that's pace things about is margins strong. business. is the count gross demand we the a strong, positive strong, right in pace that a but that cautious community absorption have component is happening now So growth standpoint, challenge our because on of

will question Andrew JPMorgan. go next Our at to

for Andrew Mike. Congrats the quarter. Azzi is on on This

your communities again the what's hold gross And think to to allowing openings. about X compared new adjust X In of this and next you we their prices Just on margin go to should relatively how of your of level as steady the as maintain to you it view, quarters margins. peers?

we but to a sales a way our also, profit. do we from capture And on I'll homebuilding land LGI, -- Yes, as of lot development homes, company another also both development believe how lot a a it answer to Andrew, margin from profit have the well at standpoint, price gross tend of it the we development. and our

internally be higher peers because our need on item develop we we about the margin So there more a we're that But to is than value is development the that off-balance balance other should gross that capture than and of in talk sheet. our financing sheet crop. lot land we

certain went as Relative to headwind land is land metrics lot our return it relates on margin. peer in really group but who it like gross banking banking, a of has There on expensive. banking all is to land to a value to equity, is

sheet banking, it relates to We margin of cost gross doing have are as think a an our keeping a land point. lot cost we and advantage that's because than everything I important also on lot balance

contracted Got it. And can would you in what the land actual helpful. terms kind of you are land difference development I land in between appreciate of purchases? inflation, that. the seeing us of And of today? if help terms there kind color versus understand maybe Any then be

still me, lot costs. Don't and development. the remain of business see is development percentage excuse -- coming the component in with larger prices are to down The of for believe Trevor. counties our demand us We just a to land strong Andrew. different elevated. speaking, it's planting not development the costs Obviously, up fees. Generally lot a are Obviously, land. market. that costs finished in bigger is either, costs relief every and or Yes, it's Development for going cities continue go for doing

to private see for starting the are We builders. because challenges of

to as community may opportunities buy pricing an for well. but lots in the capital necessarily We finished to a are not builder, to takedown levels, available see or grow starting more create count future opportunities where wasn't opportunity more by a it our a on distressed

will Our coming of BTIG. be Carl Reichardt next from question

you. Nice to talk to

you, Charles. for question housekeeping one Just

next quarter, be? basically what this number EPS into in income quarter to was a other have year all the difference least produced. the and estimate then do the and at And what you relative sense might then going rate even forward quarter? run on our this our the What that of between that you Just was fourth

Yes, sales had it last to $X.X was land related X.X%. Carl, compared this quarter, to million quarter, we at about

additional the lot to last of delta over related was sales. the majority the some So quarter this

fourth lumpy be to it into going and expect the into We the quarter future.

terms guidance fourth quarter I you really in don't we will have what be. of So specific for XXXX think or

be And I I may have to think that touch I for just I on before, Okay. this might -- you, thought it then again. it. Eric, want so asked

So If at your if I is I your midpoint community look from of X% you're XX% 'XX, there. at you the your -- where rates from were absorption per about in down ASP about year-end up guide. look your

do on How true up to So as how to compensation assume of on to are that them sales them sort dynamic I are opposed per if focus you absorptions, to changing get falling. you more for focus structure salesperson back margin, turnover?

great Yes, Carl. it's question, a

leaving we highest the of having a salesperson know even the community, is higher percentage the years was our though in think pay create same. that salespeople believe in very We I and that percentage be a We focus rates creates really revenue to on down the commission one commission may is do. that the unit industry. ASP, ago. individual same or to few overall per an a volume a the it community similar we

they're part effective income much as on the So revenue of the it. is because not as paid

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

couple of a questions. So

now do of how many Eric, to you a now. one, about mean, homeownership? the $XXX,XXX made market with households comment many at that priced potential can't how that about first talking The think you're look $XX,XXX I out you income customers households, there

as field more think my office was into a weekend number. off sales have and last don't head, or pay I lot down range they running get are work money answer I save of pretty that significant of payment for and much to I that the in the have to have or now this the more right top forced just keep Yes. that as in I debt. a Jay. it's can, But down customers to there's and

of and with customers can helping them where get an in buy. position does our So they team these exceptional working job the

local States. household to paying know, wider to be customers that the used past. constrained has But are and in measure, our all by out because have and commitment income more is been Also, difference down owning in is of rent. agencies just than the it you do now a over programs gap with ASP, And we used as that programs, the the for those That forward than of a it and between rates put that don't community have United ability years a various various buy states lot local bond across bond rates. home

So a a is lot it or those years rate of what X%, than a market ago. completely of which today different programs X.X%, X was rate have X

are guys And pace bringing you mark don't what going of a know Carl guidance are we are mean kind I should thinking you I with years guys ground. right be to to about line in you just from about the be communities all all 'XX the about expecting especially how of yet, about go if but it, pace. or 'XX we here, of how especially couple just was wondering down the to out because thinking half closings pace give saw is you're back it, rates missed that with what of last what you and -- I asking terms not thinking guess to be have the of going in ready aren't your

community, looking Yes. selling looking revenue No to ASP, to gross 'XX I now, it's XX% year, growth would with no would et range, ASP, 'XX is elevated seat in from pace also, cetera. the in in, good any think count positive 'XX new . talked basically LGI doesn't since is strong margin, to margins, we not than here. in year 'XX guidance reason at at next for different just that gross right going But 'XX, call the lot the question, we're the on sit -- We're staying also But an we We're continue result 'XX for reason think, It's of a think pace. give Jay. today. higher, a especially our XX% our we base. very next additional community increasing growth that about a year. EPS, go employees. We're to

I'm been LGI a the and is is year things better One lot getting a strong reps, company. will business year to, of have individuals time of management, positive second and representatives, excited LGI such of had community their Jay, new impact I and time in employees has than new point in new sales And employees, second again have first sales it business. the proven their the we've outgrowth, of all that that many XXXX, at do on LGI we year so business got the the will in into the about managers those

just guess, pretty feel plan stick you take So affordability more on kind there's to other I Or some anymore. plans not it's question, that to your down is book. It's guys mean second. a the then, To where you for right. house that, tight opportunities the size you an I and have if than point, do of I bottom the plans? like a like feel of more ADU just house, all a it a terminal know you Eric. of bring at Do hit

can. for look affordable Certainly, affordable going reduce because want the to on at affordability we're driver overall it new and quite the communities, our build We Jay, and now. We're as at at No, think that. been looking as affordability plans square I a while Yes. always it primary footage about house. looking possibly quality as a we've there, to to make we're

we're So footage the going I think chase to down bottom. square also absolute to don't

be comfortable garages, are at competitors a we that's would with. product of with Some building just building car no one here product garage. LGI, not There's our

be that of couple countertops. we're nationwide a could be certainly, house, our and to addition all the more sure thousand We make going out to finish the We're surface and our out building. we really is we're we take the hard great want probably exterior, product sure product for of be of the and value proud fit to is to have with that proud of the product components our not consistent There we're and the in customers but certainly houses take there, are a fit product of won't nationwide into. that move of and finish building inside hours it's there

rates question. about people well Understood. you don't it, is guys points process that know affordability this be talk I maybe the this price much move-up thought entry-level but selling ride how do gets of better, our Terrata. it, point. And and, you a convert down, some luxury until more mean, of some in this at come X over have we're to seeing Terrata and that to Move-up just markets. call really I wave seem

certainly, the morning. larger Home depending I Yes. was do lot of community. I Terrata development, we We're going to and product mean, communities, market, many same the have a in the fact on we a since in got actual this depending meeting community, on LGI

was when product it's comment. a us. good going the be So to continued the closing, had future, community-by-community at that every Terrata's since, XXXX have forward believe growth in Terrata but more and it for future. believe Jay, closings and doing we'll Terrata look increased . Terrata We we to year every in I well looking basis, going on first our

Housing question Research Our Barrón from of Center. will Alex next be coming

along also ask I Dave's questions. of wanted lines to the

more at but make a that of you to guys is most family. attached are I anything single homes looking considering houses much way think affordable? are don't your guys recall are as doing product, usually I you too

well. attach We be count and the We'll are, of our to year and community home do number next look as at certainly And we Alex, attached United we a part products continue States, that. of growth look at will across have product that.

was, I XX% builders heard are think Got say whereas below in question in now ratio to XX%, the you the it. the never go And is of SG&A then previous public XX%. larger my Many used below years, I other range.

anything is try there working down guys ratio? you on bring So the SG&A to to are

our we're advertising Charles. we're break and this comfortable think we mean I spend, Yes. into down specific, -- Nothing in X Alex, I categories. it is

inside So offices. you commissions and and is salespeople our then predominantly selling spend have advertising both expenses, which to running outside

to So as community continues grow. count

From in new to G&A information average continue corporate country. more of a quarter. our standpoint, We support been $XX the around operation, million and an invest across a running community then of overhead centers that's we've openings, about

bit This came little third year, average. the quarter than our under in a

an supporting And overhead standpoint are on best that continue possible. now, field in the we community to make really, sure So we from expenses way we're right to the monitor more focused our and growth communities markets. the They're where new these new opening in coming coming markets, are the expansion geographic communities lot from. count in of getting of terms a not existing from

hope we going So markets into to established those overhead of in leverage the having future. off the

fixed X if more I one. issuing Any Okay. credit? And around debt out fixed last thoughts could ask -- rate to swap the of lines

constantly current rates bonds We're on where our Alex. evaluate opportunities. where are informed our by trading. We us, the are syndicate those always radar something that's for It's and

make it looking a it's the and is want something capital, there's So actually constantly we to sure but use good attractive for we're situation an that at.

Seaport. will from our And of Kenneth next come Zener question

don't capital on to margin. you. or Maybe you either returns give gross want in A goals. understand you illuminate that could few pace 'XX terms FY I questions your here equity for of

you balancing right return terms your we in trends So goals. margin, could clearly efficiency how understand is outlined asset just against of you now, side, as the are that which peers

is Yes, and Ken. add Charles to. specific then can Eric. This I start can

this that because deal, similar mix versus communities But I now. got And has and of what to will year-over-year a underwriting to a average, couple happened are expensed additional believe just gross there's very of on ROE. these and investment think at land which retail buying the XX% XX% depends historical growth. into for guidance, always there. and in over margins all getting year a years, the XX% we we're last right online lot all the to bringing variables we're we've pain has without geographic we be been and it wholesale a get XX% That mix we'll we're next specific incentives, similar year, and Obviously, when then there.

We are those revenue any seeing not communities. for

our over the heading believe going direction. and is we years So of a couple be in next increasing positive to ROE

that. Appreciate Very good.

As that of quarter in as But land, been I be income up. sheet we on on spread. gross the fourth margin, the to think which in it's capitalized terms statement? increasing and picking interest, been know come year about gave going longer-dated land interest your through is these expense balance next current, you guidance development has the reasonable it or to physicians assume Is the

mean, be up what basis I would XXX now, Charles. I of I somewhere and more see we we've as go get we'll guidance color as to XXXX, for closer in year. terms points is range but that can XXX right this around as visibility we we we're to Ken, next that Yes, think XXX on around into far give into say and giving running basis been as in going point certainly

question common one the been to you use. a both percent your cost versus with my development more then comment cost And development on the And trade of of you assume are which sales builders it's variable considering could guys land think way costs, other Excellent. you helping the you're a on your of because that there similar so is as I obviously last land I specific. past. consistent Is your

Yes, I start. can

finished time. lot XX%, just average percentage has I for our quite around pretty think been a of ASP to as close under some cost our

and a land we from around lots, stays cost. lot about finished can you're total that XX% somewhere that in a the number to up. we buying achieving portion finished of part explaining actual as around that standpoint when consistent number, raw pricing was push think the somewhere would that is remain relatively of think return way, Eric development But usually that's is expect I the that how

order costs see cost detention So bring replace are online, off how infrastructure the much of are development at what to can most the to us do municipalities we project, get and the there deal project required, to when we variability the the of sites look that going Are requiring requirements included and it out in things. what yield to we in requirements. to those be due

in the of come So the replacement spend. costs the vast development majority

I'd like closing questions. the further to any showing call remarks. not to hand I'm time, back this Eric At for

LGI rest call participating Homes. day. and continued Have in for a on everyone, your the today's Thanks, of great interest

Quarter a great concludes Have Call. Third Homes LGI day. This XXXX Conference