Welcome to the LGI Homes Fourth Quarter 2020 Conference Call. Today's call is being recorded, and a replay will be available on the company's website later today at www.lgihomes.com. We have allocated an hour for prepared remarks and Q&A. At this time, I'd like to turn the call over to Joshua Fattor, Vice President of Investor Relations and LGI Homes. Mr. Fattor, you may begin.

Thanks. Good afternoon, and welcome to the LGI Homes conference call to discuss our financial results for the fourth quarter and full year 2020. Before we begin, I will remind listeners that this call will contain forward-looking statements that include, among other things, statements regarding LGI Homes business strategy, outlook, plans, objectives, and guidance for 2021. All such statements reflect management's current expectations; however, these statements do involve assumptions and estimates and are therefore subject to risks and uncertainties that could cause management's expectations to prove to be incorrect. You should review our filings with the SEC, including our risk factors and cautionary statement about forward-looking statements sections for a discussion of the risks, uncertainties, and other factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements. These forward-looking statements are not guarantees of future performance. You should consider these forward-looking statements in light of the related risks and not place undue reliance on these forward-looking statements, which speak only as of the date of this conference call. Additionally, non-GAAP financial measures will be discussed on this conference call. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Reconciliations of these non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP can be found in either the earnings press release that we issued this morning and in our report on Form 10-K for the fiscal year ended December 31, 2020, that we expect to file with the SEC later this week. This filing will be accessible on the SEC's website and in the Investors section of our website. Our hosts for today's call are Eric Lipar, LGI Homes' Chief Executive Officer and Chairman of the Board; and Charles Merdian, Chief Financial Officer and Treasurer. I'll now turn the call over to Eric.

Thank you, Josh. Good afternoon, and welcome to everyone participating on our call today. I'm pleased to say we delivered another remarkable year of growth and profitability, meeting or exceeding all of our guidance expectations. We closed 1,630 homes in December alone, an increase of 55% in our best month ever. Putting that in perspective, we closed more homes in December than we did in all of 2013, the year of our IPO. For the quarter, we closed 3,408 homes, an increase of over 35%. Again, for comparison, this was more homes than we closed in all of 2015. Our ability to deliver such extraordinary results is a testament to our systems-based processes and the talent and dedication of our people. As a result of our great quarter, we outperformed our guidance, closing 9,339 homes in 2020, an increase of 21% over 2019 and our seventh consecutive year of double-digit closings growth. We finished the year with 116 active communities, an increase of over 9% year-over-year and in line with our guidance. During the year, we expanded within our existing markets in addition to establishing new markets in Daytona Beach and Sarasota, Florida; Greenville, South Carolina; and Richmond, Virginia. For the fourth quarter of 2020, we averaged an impressive 10 closings per community per month company-wide, a new quarterly record. Our top five markets were DFW with 15.6 closings per community per month, Phoenix was 14.7%, Austin with 14.1%, Sarasota was 13%, and Seattle was 12.8. For the full year, we averaged seven closings per community per month company-wide, a new annual record. Our top five markets this year were DFW with 10.8 closings per community per month, Austin with 9.9, Houston with 9.3, San Antonio with nine, and Phoenix with 8.9. We generated home sales revenue of approximately $2.4 billion in 2020, an increase of 29% over 2019, marking our seventh consecutive year of double-digit revenue growth. Most importantly, we drove this growth while increasing our profitability. Our pretax net income margins were a record 18.6% for the quarter and 15.5% for the year. We more than doubled our net income in the fourth quarter and finished the full year up 81% over 2019, delivering a record return on equity of 32.6%. Finally, our significant cash flow generation and prudent management of our balance sheet resulted in a net debt-to-capitalization ratio of just 30.6%. A few additional highlights: we were recently recognized as one of America's most trusted builders. Since our founding, our mission has been to provide high-quality homes in desirable locations at price points within the financial reach of families dreaming of their first home, and this recognition is a testament to the success of that mission. We build our homes with the goal of making sustainability affordable for our customers, and we made great strides on this goal in 2020. I'm proud to say that 100% of the homes we closed last year included WaterSense fixtures, Energy Star appliances, and other energy-saving products designed to improve our homes' efficiency. These features ultimately save our customers' money and reduce impacts on our environment. During the fourth quarter, we launched a redesigned website. Utilizing modern design, this new site enhances our online presence to meet the rapidly evolving digital expectations of our customers and allows us to focus on delivering an industry-leading user experience throughout every stage of our buyers' journey. Finally, we closed our 45,000th home in December, a significant landmark for our company and for the families that have entrusted us to fulfill their goal of homeownership. Now, I'll turn the call over to Charles for more detail on our record financial results.

Thanks, Eric. As highlighted in the press release this morning, home sales revenue for the fourth quarter increased 48.2% year-over-year to $897.4 million. This was the single best quarter in our company's history. Home sales revenues for the year totaled nearly $2.4 billion, a 28.8% increase over 2019. As Eric noted, during the quarter, we closed a record 3,408 homes, an increase of 35.5% year-over-year and 63% sequentially. Home closings included 360 homes sold through our wholesale business this quarter, representing 10.6% of our total closings compared to 344 homes or 13.7% of our total closings in the same quarter last year. For the full year, we closed a record 9,339 homes, an increase of 21.4% year-over-year. Home closings included 850 homes sold through our wholesale business this year, representing 9.1% of our total closings and generating $176.6 million in revenue. We currently expect that our wholesale business will represent 10% to 15% of our total closings in 2021. Average sales prices realized from homes closed during the quarter was a record $263,321, a 9.3% increase over the same period last year and a 3.1% increase sequentially. For the full year, our average sales price was $253,553, an increase of 6.1% compared to the full year 2019. Higher average sales prices were primarily driven by a favorable demand environment that supported price increases ahead of rising input costs in all of our markets, higher price points in certain markets, and closeouts and transitions to new communities at higher price points. Last quarter, we delivered our highest gross margin since the fourth quarter of 2016. Gross margin as a percentage of sales in the fourth quarter was 27.1% and compared to 23.5% in the fourth quarter of 2019 and 25.3% in the third quarter of 2020. This represented an increase of 360 basis points year-over-year and 180 basis points sequentially. Our gross margin improvement was primarily driven by lower overhead, resulting from operating leverage, lower capitalized interest and our ability to successfully raise prices. In the fourth quarter of 2020, we delivered our highest adjusted gross margin since the fourth quarter of 2014. Adjusted gross margin in the fourth quarter was 28.8% compared to 25.5% in the fourth quarter of 2019 and 27.3% in the third quarter of 2020. This represented an increase of 330 basis points year-over-year and 150 basis points sequentially. Adjusted gross margin excludes $13.6 million of capitalized interest charged to cost of sales during the quarter and $1.6 million related to purchase accounting, together representing 170 basis points. For the full year, gross margin was 25.5% compared to 23.7% for the full year 2019, an increase of 180 basis points. Adjusted gross margin this year was 27.4% compared to 25.8% for the full year 2019, an increase of 160 basis points. Combined selling, general and administrative expenses for the fourth quarter were 8.7% of revenues compared to 9.6% in the fourth quarter of 2019 and 10.8% sequentially. For the full year, our combined selling, general and administrative expenses were 10.1% compared to 11.4% in the prior year, a 130 basis point improvement and the lowest rate we have reported as a public company. Selling expenses for the quarter were $50.2 million or 5.6% of home sales revenue, compared to $37.4 million or 6.2% of home sales revenue for the fourth quarter of 2019, a 60 basis point improvement. Selling expenses were down 100 basis points sequentially and, as a percentage of revenues, were the lowest level we have reported as a public company. In addition to operating leverage realized from the increase in home sales revenue, our quarterly advertising spend was lower year-over-year as a result of strong demand tailwinds. For the full year, our selling expenses were $148.4 million or 6.3% of home sales revenue, compared to $131.6 million or 7.2% of home sales revenue in 2019, a 90 basis point improvement. General and administrative expenses totaled $27.6 million, or 3.1% of home sales revenue in the fourth quarter compared to 3.4% of home sales revenue last year, a 30 basis point improvement that was driven primarily by operating leverage resulting from increased revenues. For the full year, our general and administrative expenses were approximately $90 million or 3.8% of home sales revenue compared to 4.2% of home sales revenue in 2019, a 40 basis point improvement primarily driven by operating leverage and, to a lesser extent, cost savings resulting from reduced travel and other pandemic-related savings. These savings were partially offset by costs related to the identification and certification of available federal energy-efficient home tax credits. We believe that SG&A will continue to vary quarter-to-quarter based on home sales revenue, and we would expect our full year 2021 SG&A as a percentage of revenue to range between 10.3% and 10.8%. EBITDA for the quarter was an impressive $180.4 million, an increase of 87.2% over the fourth quarter of 2019. EBITDA margin was 20.1%, a 420 basis point improvement over the same period last year and a 380 basis point improvement sequentially. Full year EBITDA was a record $408.9 million, an increase of 52.8% over 2019. And EBITDA margin was 17.3% for the full year, a 270 basis point improvement year-over-year. Pretax income for the quarter was $166.5 million, or 18.6% of home sales revenue, an increase of 460 basis points over the same period in 2019 and the highest quarterly pretax net income dollars and margin in our history. For the full year, we generated pretax net income of $367.8 million or 15.5% of home sales revenue, an increase of 290 basis points over the prior year. This was the highest annual pretax net income result and margin in our company's history. Federal energy-efficient home tax credits recognized during the year totaled $41.2 million, of which $29.7 million related to homes closed in prior tax years. In December of 2020, this tax credit was extended through 2021. And based on our current outlook and information available to us at this time, we estimate our full year effective tax rate will range between 21.5% and 22.5%. Our fourth quarter reported net income more than doubled year-over-year, increasing 110.3% to $136.4 million or 15.2% of home sales revenue, resulting in earnings per share of $5.45 per basic share and $5.34 per diluted share. Excluding the $4.2 million income tax benefit related to the retroactive energy tax credits, our adjusted net income in the fourth quarter increased 103.8% to $132.2 million or 14.7% of home sales revenue, an increase of 400 basis points over 2019. And our fourth quarter adjusted EPS was $5.28 per basic share and $5.18 per diluted share, an increase of approximately 105.6% year-over-year. Our full year reported net income increased 81.3% year-over-year to $323.9 million or 13.7% of home sales revenues, resulting in full year earnings per share of $12.89 per basic share and $12.76 per diluted share. Excluding the $29.7 million income tax benefit related to the retroactive energy tax credits, our adjusted net income increased 64.7% to $294.2 million or 12.4% of home sales revenue, an increase of 270 basis points over 2019. And our full year adjusted EPS was $11.70 per basic share and $11.59 per diluted share, an increase of approximately 65.1% year-over-year. Fourth quarter gross orders were 3,692, net orders were 2,792, an increase of 32.1%. Cancellation rate for the fourth quarter was 24.4%. For the full year, net orders increased 33.4% to 11,070 and the cancellation rate was 21.6%. Driven by continued strong demand during the quarter, we began 2021 with a backlog of 2,964 homes, a 140.4% increase year-over-year. And the value of our backlog at December 31 was $775.5 million, a 167% increase over 2019. Investment in attractive land positions to support our long-term growth remains our top capital allocation priority. As of December 31, our land portfolio consisted of 61,504 owned and controlled lots, a 28% year-over-year increase. 35,268 or 57.3% of our lots at year-end were owned. And of our owned lots, 9,274 were finished vacant lots and 22,132 were either raw or under development. We ended the year with 3,862 completed homes, information centers or homes in process. And during the fourth quarter, we added over 6,000 new lots to our owned inventory and increased our total number of controlled lots 6.8% sequentially to 26,236. 78% of our controlled lots were undeveloped compared to 46% at the end of 2019. I'll conclude with an update on our balance sheet, which has never been stronger. We ended the quarter with $35.9 million in cash, $1.6 billion of real estate inventory, and total assets in excess of $1.8 billion. As of December 31, we had $546.6 million in total debt outstanding under our senior notes and revolving credit facility, and our available borrowing capacity was $392.5 million, resulting in $428 million of total liquidity. As a result of our strong operating results, we ended the quarter with over $1.1 billion in total book equity, a 34.8% increase year-over-year, and a net debt to capitalization ratio of 30.6%, down 550 basis points sequentially and significantly lower than the 43.6% we reported at this time last year. This was our lowest net debt to capitalization ratio since June of 2014, reflecting our successful commitment to conservatively manage our balance sheet, utilize free cash flow to fund our operations, and decrease leverage. Our current expectation is to maintain our leverage in the range of 30% to 40%. As a result of these and other achievements over the year, we recently received a one-notch upgrade by Moody's to Ba3. During the fourth quarter, we repurchased 151,965 shares of our common stock at an average price of $110.20 per share, bringing the total number of shares repurchased over the course of 2020 to 718,993 at an average price of $66.84 a share. As of December 31, 2020, we had $300.4 million remaining under our share repurchase program, and we ended the year with 25 million shares outstanding. At this point, I'd like to turn the call back over to Eric.

Thanks, Charles. Our first quarter is off to a strong start, and our markets continue to benefit from unprecedented demand for new homes. As we reported earlier this month, we closed 650 homes in January, an increase of roughly 50% over a strong comp of 434 closings last January. With that background, we're providing the following guidance for 2021. We expect to close between 9,200 and 9,800 homes, and we expect to have 112 to 120 active selling communities at year-end. During 2021, we will be expanding within our existing geographic footprint and in new markets, such as suburban Baltimore, Maryland and Norfolk, Virginia. Our average sales price is expected to be in the range of $260,000 to $270,000. We expect gross margin will be between 24% and 26%, and adjusted gross margin between 26% and 28%. I'll provide some color on the land market and our available inventory for sale this year, which will influence our expected closings this year. Since demand picked up back in May, the market has experienced a significant shortage of finished lots available for sale. Where there are finished lots to buy, the prices for those deals are reflective of the supply-demand imbalance in the current market. In such cases, LGI will not be the winning bid. We are focused on maintaining our profitability rather than growing at any cost. We continue to underwrite our land to the same high standards we always have, targeting both return and margin minimums of 25%. The deals we've been pursuing over the last nine months are largely self-development opportunities that are expected to deliver lots 18 to 24 months after we close. In 2021, we plan to maintain our industry-leading returns and margins, conservatively manage our balance sheet, and prudently build our land supply with a view to expand our community count and continue on our path to becoming a top five builder. I will close by noting how pleased we are with our incredible results during what was a year of uncertainty. Despite the challenges, we delivered our most successful and profitable year, achieving double-digit closing and revenue growth and record-breaking profitability. I want to personally thank our employees; you made these accomplishments possible. Because of your dedication, passion, and professionalism, we have significant momentum going into 2021 and are well-positioned to achieve all of our long-term goals as we continue to make our customers' dreams of homeownership a reality. Now we'll be happy to take your questions.

Our first question comes from Aaron Hecht from JMP Securities. Please go ahead with your question.

Nice quarter and thanks for taking my question. Obviously, Texas has had a really tough weather situation and energy situation. You guys have pretty significant exposure there. Any impact, on an annual basis, from this weather in your view, is this something you can overcome? Any detail there would be helpful.

Yes, Aaron. This is Eric. I could start. No impact because of the weather on LGI. Thank goodness, all of our employees are safe, our customers in the field that are living in LGI homes. So far, we've heard about minimal damage to those homes, and everyone seems to be doing pretty well, all things considered. The other thing that we're extremely proud of here at LGI is our payroll was met this last week with all the employees getting paid. The team really stepped up and made sure all of our trades got paid on schedule last week. So accounts payable, getting into the office, making sure everybody got paid. So they would have the dollars available to take care of their workers and their families. So the team has done a remarkable job; no delays in our schedule, no delays in forecasting any hit to closings or anything like that. So, all is good here at LGI in Texas.

It's great to hear. It sounded like a tough situation. In terms of the land market, you noted how hypercompetitive it is right now. Is that going to result in any changes to geographic mix in the future that may not have occurred, if you had a more normal land market? Has there been any markets where you just aren't really participating because you think it's gotten out in front of itself? And which ones do you think might be a little bit more attractive?

Yes. It's a good question, Aaron. I don't think we look at it as much as geographically, just like we talked about in the prepared remarks, more of the finished lot opportunities are really getting priced up. Not seeing a lot of finished lot opportunities from developers or deals that are going to result in additional community count or closings in 2021. Most of what we're focused on are the larger land positions, obviously, in entry-level type locations, a little bit further out. But we're comfortable doing our own development. We're comfortable with the larger land positions, 200 to 500 homes in a community plus. A lot of builders really are focused on being asset-light right now and want to buy those finished lots. So, I'm not seeing a lot of crazy inflation in the land prices where we're looking. But certainly, it's more of a timing issue. We talk about 18 to 24 months from the time we close on these pieces to really turn them into sales and closings. I think the hottest markets, as everybody probably suspects and what we talked about, just leading the way in our closings for the fourth quarter of the year, are all the Texas markets, markets like Phoenix, markets like Seattle, Charlotte, really leading the way.

Thank you. Our next question comes from the line of Carl Reichardt from BTIG. Your question please.

Thanks, good morning or good afternoon. It's nice to talk about the weather in Houston. Charles, could you discuss the factors influencing the margin guidance for 2021 within the range of 20 to 26? What are your expectations regarding cost increases for land, labor, and materials? Additionally, how much pricing or operational leverage are you factoring into that guidance for next year?

Yes, sure. Great question, Carl. So yes, when we thought about gross margin for 2021, we then took a look at what's currently happening and what we're currently seeing. Obviously, lumber being the most significant cost pressure that we're seeing and certainly haven't seen lumber at some of the prices that we're seeing today in at least my career. We haven't seen them this high. So there's rising costs in general that is a risk for us. So our overall thought for gross margin guidance was looking at what we achieved in 2020, kind of putting a little bit of a factor for rising costs. We also have a significant amount of closeouts and transitions happening this year, which typically add a little bit of uncertainty to our gross margin expectations as we move from one community to another. And then the other factor, we guided to a higher percentage of wholesale closings this year for 10% to 15%, coming off of 9.1% for 2020. So that was certainly a factor as well. And then if you look at our five-year average, Carl, our adjusted gross margin average for the last five years since 2016, is at 27%. So, right there, kind of in the midpoint of where our 2021 guidance is.

That's very helpful. And then a bigger picture question. On the website, which wouldn't necessarily be a topic we discussed in the conference calls, but given the sales process, which you've operated for a long period of time and alteration to sending customers to the website is a bit of a change, at least in my view. Can you talk just a little bit about how that rollout has gone in terms of driving traffic or interest? And how it fits with the sales process you've been using so successfully for so long?

Carl, this is Eric. I can take that one. I would look at it as not a change to our process. Certainly, we're excited about our new website. The team did a great job putting it together, certainly an enhanced experience for the customer, more information on the website. I think in this day and age, obviously, a lot of our customers are coming to us through digital channels, are spending more time looking at the website before they contact us. But no change in our process, still believe in directly marketing to that consumer. Still want them to pick up the phone, call our sales reps, and set an appointment, and still have that one-on-one interaction. So the website is just a tool to generate more leads and make sure the customer has a better experience.

Thank you. Our next question comes from the line of Nischal Sood from UBS. Your question please.

So first question I wanted to ask was around just the cash flow generation. The very, very strong demand this year and then obviously, the land market conditions that you mentioned, Eric, led to your first year of kind of positive cash flow; brought your debt-to-cap down to 31%. And obviously, I think this is the highest year of share buybacks you've had as well since you've gone public. Are we setting up for another year with a similar dynamic where we could see kind of higher than normal share buybacks, given that you're already at the lower end of your target debt to cap?

Yes, that's a great question. This is Charles. The success we've experienced this year was primarily due to increased volume. Our inventory turnover picked up significantly in the latter half of the year as we ramped up production after summer, responding to rising demand. We were able to effectively build and complete our vertical construction projects. Additionally, the pause we took early in the pandemic regarding acquisitions and development allowed us to improve our cash flow by deferring a quarter's worth of acquisitions. As a result, we finished the year with a net inventory increase of $70 million, compared to a net change of approximately $250 million to $300 million during the previous two years. This increase in inventory has helped us reduce our leverage this year. Moving on to share repurchases, our primary focus is to invest in projects and continue the company's growth. We are currently investing more in raw land compared to finished lots, with 78% of our controlled lots being raw land, up from 46% last year. Our main goal is to keep investing in inventory to increase our community count while maintaining a leverage level of 30% to 40%. Beyond that, we have options available. We can explore M&A opportunities if they arise, and if not, we can opt for share repurchases. This will be a part of our capital strategy moving forward as we aim to be opportunistic in our execution.

Got it. That's very helpful. You mentioned that 10% or 15% of your closings might come from the single-family rent operators, which indicates a lot of activity in that area. It seems that many of these operators are focusing on the outskirts where you traditionally operate. How has that affected competition in the land market? Are they contributing to the rise in finished lot prices? Is this change also influencing the type of development deals you are focusing on?

Yes. Yes, a real positive, Nishu, from the wholesale side. You're correct. We are definitely seeing strong demand from the single-family REIT side. Their appetite to buy our LGI homes and entry-level locations in the entry-level markets is strong as it ever has been, so that's real positive. We don't look at it as direct competition going back to our earlier point. Certainly, the single-family rental operators, some of them have their own construction companies. They're looking to buy finished lots. They're looking to turn those into rental units pretty quickly. So I think, again, it's probably having an impact at any finished lot opportunity or some of the smaller opportunities that are out there. But the bigger land positions that we're really focused on, I don't think it's having an impact. But from the retail side and the wholesale side, demand is as good as we've ever seen it. One thing that we'll mention is our gross and net orders in January were both up over 100%, both on the retail and wholesale side. And our gross orders are up approximately 50% so far for the first three weeks in February. So we're seeing strong demand, wholesale and retail.

Thank you. Our next question comes from the line of Ken Zener from KeyBanc. Your question please.

Could you start by discussing the closeouts and how they impacted your community count growth in 2021 compared to your expectations from November? Can you quantify what percentage of your communities closed out this year versus 2019 to help understand the extent of the decrease in community count?

I don’t think we have that information available, Ken. There’s a lot of transition happening, and it’s really a matter of timing. Sales and closings are very strong, as seen in the fourth quarter numbers. The communities are closing out more quickly. It might seem counterintuitive, but to close as many homes as possible, we would actually need a higher community count at the end of the year since we would add more communities that are still actively selling. This year, our community count guidance is between 112 and 120. The more closings we have this year will likely lead to a lower community count, while if we are closer to the lower end of our closing guidance, it may result in a higher community count. It’s a bit counterintuitive, but these are positive challenges to face, and they mainly relate to timing issues with the communities.

Right. No good deed goes unpunished. I wonder if the SG&A trend that you kind of laid out that range, how would you compare that 10.3, I think, to 10.9. Could you kind of put that in context of the volatility we saw or the swings we saw 1Q to 4Q in '20? And if we're going to see that entry-year cadence swing as high? Or could you explain that a little bit, if you could?

Sure, Ken. This is Charles. Last year was quite unique due to various circumstances affecting the year's timing. Looking back at 2019 and 2020, the SG&A percentage was 11.4% in 2019 and 10.1% in 2020, with an average of 10.8% for those two years. Our approach moving forward is that as we continue to grow, we see potential for operating leverage from SG&A. Throughout the year, we noticed significant reductions in discretionary expenses like travel, meals, and entertainment due to the pandemic. Additionally, with strong demand, we managed our advertising expenditures effectively this year. Our expectations for 2021 include anticipating increased travel and training events, as well as higher advertising and marketing expenses, especially in the latter half of the year. We also have several open positions we are actively recruiting for, mainly in our acquisitions and development department, which will influence our SG&A. Typically, during the first quarter, SG&A percentages are higher, but this year may differ since we are entering the first quarter with a strong backlog. As Eric noted, our pace for January is up 50%, which will also affect this. Therefore, we are focusing more on full-year guidance rather than just quarterly projections.

Our next question comes from the line of Michael Rehaut from JPMorgan. Your question please.

Glad to hear everyone's safe down there in Texas with the weather challenges, so good news there. I appreciate it. A few questions here, if I could. First, on the gross margins, kind of understanding taking into account some of the factors you mentioned in terms of the 50 bp decline if you're looking at the midpoints after interest amortization. But when you look at your fourth quarter, obviously at 27.1% or maybe 27.3% if you exclude the purchase accounting after interest, how should we think about getting towards that 25 flat midpoint? If you're talking about rising lumber costs, which I would presume would be a big factor in the overall full year, is that something that you expect to hit more immediately? Or should we see some type of decline throughout the year in gross margin coming off of the 27? And could that even result in the end of the year being below that 25, even midpoint that you're at this point modeling?

Yes, Mike. This is Charles. I believe the absorptions in the fourth quarter were at 10, with the full year at seven, marking our highest levels. This impacts how we distribute our overhead and its subsequent effect on closings, making the process very efficient. To Eric's point, our field operations and construction managers performed exceptionally well this year, particularly ramping up production in late summer as demand increased. Our longstanding philosophy has focused on high volume, enabling us to meet the demand effectively, especially for closings in the fourth quarter. We observed strong gross margins that exceeded our previous guidance from the last call. A strong fourth quarter is worth acknowledging, and while repeating such performance may not be realistic, it's important to consider the conservatism in our approach. The closeout and transitions play a significant role; typically, a community achieves its highest gross margins towards the end of its lifecycle, while new communities often start lower. Therefore, increased volatility and transitions between communities can lead to expectations of slightly lower gross margins. Additionally, this year's pricing environment was robust, with low interest rates allowing us to raise prices effectively, helping us maintain margins when our outlook at the end of last year was less favorable. Looking into 2021, we anticipate some inconsistencies in managing cost increases initially, adjusting over time, or potentially absorbing them. That's why we provide a range for these expectations. Lastly, in wholesale, although we sell at a discount, we still achieve a similar operating margin, which should be considered when evaluating gross margins for 2021.

Okay. No, I appreciate that. I know there's a lot of moving pieces. And maybe I will follow-up later this afternoon when we're scheduled to talk. Just a couple of others here. Is it possible for you to give us a sense of sometimes you're able to give the current month, what you're thinking of in terms of closings and perhaps even March?

Yes, Mike. I believe we closed 606 last February. We are anticipating a positive year-over-year performance. It's still a bit early to provide detailed information on February closings for retail, but we expect an increase compared to last year, and it’s too soon to comment on March.

I wanted to touch on share repurchase. I understand you bought back about 150,000 shares during the quarter, and at the end of the year, your basic shares were at 25 million. I'm interested in your perspective on share repurchase for 2021, especially regarding whether you plan to keep your current leverage profile regardless of land purchases, based on your modeling. Do you anticipate any additional share repurchase considering your expected operating cash flow?

Yes, Mike, you're absolutely right, is that the first capital allocation going to inventory. So as this year plays out, it's going to depend a little bit in terms of how those acquisitions come in development spending throughout the year. You mentioned maintaining leverage at 30% to 40%. So that's certainly a key component of our strategy. And really based on that, it gives us the flexibility to participate or not, depending on our available free cash flow. So I think we look at it as a permanent part of our long-term capital strategy. So we think we will be active in share repurchases over time. But no specific guidance in terms of actual share count for '21 at this point.

Okay. One last question on community count. You mentioned earlier about investing in development opportunities that will take a bit longer to come online. This relates to the current outlook for community count in 2021. Can you provide any early guidance for 2022? It seems like you might anticipate a stronger growth trajectory in 2022 based on the land you're acquiring and the lag effect. Historically, you've aimed for community count growth between 10% and 20%. Given your larger base today, any directional guidance you have for 2022 would be appreciated.

Yes, Mike, I could touch on that. Not giving guidance for '22, but I think it also goes back to the same story as 2020 and what happens in 2021 and how strong sales are, and then just that lead time and buying land. So we just approved six new deals in the acquisitions committee here in the month of February, and one is going to open in '22 and five are going to open in '23. So any deal that we're closing on and underwriting right now is really impacting '23 community count. But over the last six months, as Charles mentioned in his prepared remarks, owned and controlled lots overall were up 28%. So the deals we've been buying over the last six months really going to impact community count. I would just model that's more heavily weighted in the back half of '22 and then accelerating into 2023.

Our final question for today comes from the line of Jay McCanless from Wedbush. Your question please.

Actually, that was going to be my first question, Eric, with the 78% raw lots this year versus the 40-some percent number you have at the end of '19, is that that's how we should read that, that it's going to be a flex higher community count in the back half of '22 and into '23?

Yes. Yes, that would be a good assumption, using 24 months for all land turning into finished lots and closings.

Okay. And then with the small move higher we've seen in mortgage rates just based on the 250 average price you guys had this year, it looks like the average monthly payment for your buyer has probably gone up by about $50 or $60 off of the lows. Is there any way to quantify what percentage of your average consumers that's knocked out of the box and has rates and not being able to qualify become more of a challenge since the beginning of the year?

Yes, not at all, Jay. Not so far. I mean, mortgage rates are still at historic lows. And even though the 10-year has increased here, we haven't seen that pull-through mortgage rates yet. It's really hard to talk about any headwinds in rates yet because our sales are so strong, like I talked about orders being up 50% year-over-year so far in February. So, just a really strong dynamic sales environment, obviously, when it comes to our guidance and what we're forecasting, we're a little bit more conservative because if rates do go up, and we do expect them to creep up throughout the year, that will be a headwind to sales. But we still think it's going to be a very positive sales environment through the end of the year.

Thank you. This does conclude the question-and-answer session. I'd like to hand the program back to management for any further remarks.

Thanks, Jonathan, and thanks to everyone for participating on the call today and your interest in LGI Homes. We look forward to sharing our achievements of 2021 throughout the year. Thank you.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.