Hello and welcome to LGI Homes First 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.

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. Such statements reflect management's current expectations and involve assumptions and estimates that are subject to risks and uncertainties that could cause those expectations to prove to be incorrect. You should review our filings with the SEC for a discussion of the risks, uncertainties and other factors that could cause actual results to differ from those presented today. All forward-looking statements must be considered in light of those related risks and you should not place undue reliance on such statements, which reflect management's current viewpoints and are not guarantees of future performance. On this call, we'll discuss non-GAAP financial measures that are not intended to be considered in isolation or as substitutes for financial information presented in accordance with GAAP. Reconciliations of non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP can be found in the press release we issued this morning and in our quarterly report on Form 10-Q for the quarter ended March 31, 2024, that we expect to file with the SEC later today. This filing will be accessible on the SEC's website and in the Investor Relations section of our website. With me today 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.

Thanks, Josh. Good afternoon and welcome to our first quarter earnings call. We delivered 1,083 homes in the first quarter at an average sales price of over $360,000, resulting in total revenue of $391 million. During the first quarter, our top markets on a closings per community basis were Raleigh with 7.7 closings per month, followed by Southern California with 5.5 closings and Washington, D.C., with 5. Congratulations to the teams in these markets for the results last quarter. Despite the slower start in closings, the improved lead and sales trends we saw in February accelerated further in March. The resulting increase in net orders allowed us to finish the quarter with 1,335 homes in backlog compared to 590 homes in backlog when we ended the fourth quarter, putting us in a much stronger position entering the second quarter. It's also worth noting that these improvements were accomplished solely through marketing and training, not through price discounting or increasing incentives. These recent sales trends give us confidence that demand remains healthy, supported by positive long-term fundamentals, including strong demographic trends and a limited supply of affordable homes. Along with increasing leads and sales, another positive highlight was our success in controlling costs and protecting our margins. We delivered a first quarter gross margin of 23.4%, up 310 basis points compared to last year and in line with our performance in the fourth quarter. Adjusted gross margin was 25.3%, up 320 basis points over last year and 20 basis points sequentially. Much of the land we acquired over the last few years that's been working through development and slowly accumulating on our balance sheet is now beginning to deliver closings at margins in line with our historical results. As more of these land deals come online, we expect revenue to grow at a faster pace than inventory, resulting in increasingly positive impacts to our overall performance and return metrics. Finally, we ended the quarter with 120 active communities, an increase of 21% over the prior year. This is the highest community count in our history. In addition, we opened 13 new communities in March. They will be added to community count as they deliver closings. I'll now turn the call over to Charles for more details on our financial results.

Thanks, Eric. As mentioned earlier, revenue in the first quarter was $390.9 million based on 1,083 homes closed at an average sales price of $360,897. The 19.8% decline year-over-year was driven by a 20.7% decline in closings partially offset by a 1.2% increase in ASPs. Of our total closings, 102 were through our wholesale channel, representing 9.4% of total closings compared to 7.5% last year. Our first quarter gross margin was 23.4% and adjusted gross margin was 25.3%. Gross margins improved 310 basis points and adjusted gross margins improved 320 basis points compared to the same period last year. Adjusted gross margin excluded $6.6 million of capitalized interest charged to cost of sales and $803,000 related to purchase accounting, together representing 190 basis points compared to 180 basis points last year. The increase was primarily the result of elevated borrowing costs coming through our cost of goods sold, partially offset by lower purchase accounting adjustments. Combined selling, general and administrative expenses for the first quarter were $72.7 million or 18.6% of revenue. Selling expenses were $41.1 million or 10.5% of revenue compared to 8.8% in the same period last year. General and administrative expenses totaled $31.5 million or 8.1% of revenue compared to 6.1% in the same period last year. While SG&A expenses as a percentage of revenue are always higher in the first quarter, this was amplified this year due to lower volumes, as well as increased advertising spend to drive leads and other investments made to support the opening of new communities. First quarter SG&A performance was in line with the expectations we held when we provided our original guidance for the full year. Therefore, we still expect our full year SG&A expense as a percentage of revenue to range between 12.5% and 13.5%. Pretax net income for the quarter was $23.1 million, or 5.9% of revenue. Our effective tax rate was 26.2% compared to 16.7% last year and the higher rate was related to the timing of compensation costs for share-based payments and slightly higher state taxes. We continue to expect our full year tax rate will be in the range between 24% and 25%. Overall, we generated net income of $17.1 million or $0.72 per basic and diluted share. First quarter gross orders were 2,198. Net orders were 1,828 and our cancellation rate was 16.8%. We ended the quarter with 1,335 homes in our backlog, valued at $519.5 million. And of those homes 178 or 13.3% of our total backlog were related to wholesale contracts with single-family rental partners. Turning to our land position. At March 31, our portfolio consisted of 70,145 owned and controlled lots. Of those lots, 54,763 or 78.1% were owned and 15,382 lots were controlled. Of our owned lots, 39,601 were either raw land or land under development. Of the remaining 15,162 owned lots, 11,008 were finished vacant lots and 4,154 were completed homes, information centers and homes in progress. During the quarter, we started 1,810 homes to meet current demand and ensure completed inventory is available for new community openings. With that, I'll turn the call over to Josh for a discussion of our capital position.

Thank you, Charles. We ended the quarter with just under $1.4 billion of debt outstanding, including $703.1 million drawn on our credit facility resulting in a debt-to-capital ratio of 42.5% and net debt-to-capital ratio of 41.6%. Total liquidity at the end of the quarter was $491.5 million, including $49 million of cash and $442.5 million available to borrow on our credit facility. We repurchased 89,227 shares for $10 million during the quarter and we expect to allocate additional capital to share repurchases in the coming quarters. Finally, at March 31, our stockholders' equity was $1.87 billion and our book value per share was $79.31, an increase of 11.5% over the same period last year. With that, I'll turn the call back over to Eric.

Thanks, Josh. The second quarter is off to a positive start. Despite the uptick in interest rates, I'm pleased to say the positive momentum experienced in March continued in April. On Friday, we expect to report that we closed approximately 500 homes in the month of April and added 7 net new communities, bringing us to 127 active communities nationwide, a new company record. The slower start to the year was understood and factored into the full year guidance we shared on our last call. Despite the recent uptick in interest rates, the positive trends we witnessed in March continued into April resulting in over 35,000 leads each month. As a result, we've generated over 800 net sales per month for the last 2 months, reflecting a pace of approximately 6 homes per community per month. With clear visibility into our backlog and the strong demand we continue to see, we are confident in our original closing target of between 7,000 and 8,000 homes at an average selling price between $350,000 and $360,000. Our full year gross margin guidance remains between 23.1% and 24.1% and adjusted gross margin between 25% and 26%. Our teams around the country are doing an outstanding job getting new communities online and ready for sales. We recently welcomed 65 new sales reps and sales managers to support 13 communities opened in March as well as additional openings in the coming months and continue to expect to be active in approximately 150 communities at year-end. I'll close with one final thought. For the fourth consecutive year, LGI Homes has received the Top Workplace USA Award. What makes this recognition especially meaningful is that the results are entirely based on the views of those best positioned to judge our success, our employees. We value our people immensely and it's satisfying to know that they value LGI Homes just as much. Thank you to all of our teams around the country for your continued commitment to our company and to our customers. We'll now open the call for questions.

Our first question comes from Michael Rehaut of JPMorgan.

This is actually Andrew Azzi on for Mike. I was wondering if you could start by giving a sense of how the land pipeline looks right now in terms of inflation for land contracted today, and help us understand the difference between the development part and the raw land part.

Sure. Thanks, Andrew. This is Eric. I can start and Charles can add if he cares to. I think the land market has continued to increase in price, strong demand, it's competitive. We're being selective, make sure we're being diligent in the land we are buying across the United States. We have a lot of projects underway right now, a lot of projects in development. Development costs are continuing to rise. We think we're in good shape in our land market and our land basis, what we have bought over the years. And as we said in the scripted remarks, we do believe the lots will come through and we're going to be able to maintain our historical gross margins on all the lots we have under development.

And it's nice to see that you guys kept your guide. I was just hoping maybe to get more granularity and an update on how you're thinking to community count growth as we go through the year. And maybe any initial thoughts that have been updated as we move into next year?

Sure. Yes, community count, all these new communities is one of the most exciting things happening at LGI right now. It involves hiring a lot of new salespeople, a lot of new managers, a lot of new promotions. We ended the quarter at 120 active communities, which is a new company record. We added 7, which we'll release on Friday and make it official but wanted to talk about on this call. So April we'll end with 127 active communities, which obviously will be another company record and puts us right on track for that 150 by the end of the year. I think from 127 to 150, probably equally spaced out throughout the rest of the year and right on track and pretty exciting to hit that milestone.

And our next question comes from the line of Carl Reichardt with BTIG.

Guys, nice to talk to you. Charles, just on the SG&A side, in dollars, at least on the selling expense side, they are down a little bit. Can you give me a sense, as the communities ramp, how advertising costs will come out and what gives you confidence that you will not have selling expenses related to turning these last units you need to reach your guidance this year?

Yes. Great question, Carl. We spent about $9.5 million in the first quarter on total advertising. We expect that to tick up in absolute dollars, but on a per-community basis it should remain relatively similar for the remainder of the year. Everything we are seeing for the rest of the year points to more of the same. We are confident about where and how we are spending the money, and we are monitoring it to ensure we are allocating funds to the right places and maximizing the effectiveness of our advertising. From an information center and staffing standpoint, we still have new people, including salespeople and sales managers, joining throughout the rest of the year, but the impact of that should be relatively nominal to the overall selling dollars as we move through the year.

Okay. So it's a better than typical leverage on the selling expense side as you go through the year and deliveries ramp. Okay. And then if I backed into the number, right, the average order price, I think, was relatively high. I think it was up over 10% sequentially. Can you talk a little bit about the mix of orders, incoming orders that you saw during the quarter and whether or not were some geographic shifts or maybe even some price point shifts up at Terrata?

Yes. Yes, Carl, it's a great question. Yes. Our pipeline ASP is certainly higher than our reported. We're already at the top end of the range. First, we do see, apples-to-apples comparison, we think prices are going to continue to go up because our costs are continuing to go up, whether it's materials, labor, development, all costs continue to go up. So we believe that's going to flow through, through our pricing. We left the guide alone at $350,000 to $360,000 because there is a mix component to that. We are still seeing individuals in our customers pick smaller square footage houses. So example, first quarter of 2023, 23% of our homes were under 1,500 square feet that closed, in the first quarter of 2024, that went from 23% to 33%. That pipeline also is skewed towards the more expensive West Coast markets that generally have a longer build time and a longer lead time. So that's been pretty consistent that the backlog ASP is higher than the current closing ASP, being the other reason we're keeping guide where it is.

Our next question comes from Alex Barrón with Housing Research Center.

Sorry I joined a little late, so I don't know if you already covered this, but I was trying to understand what changed in the last couple of months where you say you've sold at least 800 sales versus the closings you were reporting earlier in the year. Were you just out of inventory, did you step up incentives, or what caused the dramatic shift?

Yes, Alex, this is Eric. It's a great question. The fourth quarter sales just weren't where we want them to be, going through the holidays and into January and then really ramping up on our advertising spend. No additional incentives, opening of new communities still helped. The leadership team is doing a great job of training in the field. Yes, pretty excited about March and April orders averaging over 800 in each month and getting us back about that 6 absorption pace for orders. So it's really just the leadership team is doing a great job of training and our marketing team doing a great job of driving leads with over 35,000 people inquiring about homeownership in both the months of March and April, really showing how strong the demand is out there, it's still an affordability constraint and we have to work through that but our team is doing a great job.

Okay. Great. And what's roughly the lag between a sale and the closing these days? Is it like 3 months? In other words, is it going to start showing up in May?

Yes. It will start showing up 60 to 90 days later after the orders on average.

Okay. Perfect. And in terms of incentives, lots of other builders are advertising low interest rates, I imagine you guys are doing the same. Or what type of incentives are you guys finding that, that's helping you out at the moment?

Yes. Similar, Alex, I think we're all playing from the same playbook. That lower monthly payment, incentives around the rate, it certainly gives you more value than incentives around pricing. So rate buy-downs, lower fixed rates on a weekly basis, those type of incentives, just like the other builders are doing.

And our next question comes from the line of Jay McCanless with Wedbush.

So looking at the numbers you guys gave out for April, it looks like there was a small deceleration to roughly 3.9 closings per month in April versus 4 in March. Is there anything to say there about when those communities opened or anything along those lines? And is that type of pace, I'm assuming you're thinking it will accelerate but maybe talk a little bit about what type of pace you want to see during the second quarter?

Yes. No, Jay, it's Eric. We're definitely expecting our closings to match orders. It's just going to be a 2- or 3-month lag to that. Yes, I think the only caveat on our April closings, of those 7 new communities, they probably average 2 closings apiece because they're just really starting the first month of closing, some of them even had 1 closing. So it's going to take a month or two for those communities to ramp up. But if we keep selling 800 net orders a month, that is going to result in 800 closings a month.

Okay. Got it. And then when you were talking in the prepared comments about revenue dollars starting to accelerate faster than inventory dollars, when should we expect that to kick in?

Yes, Jay, I think you'll see it throughout the remainder of the year. We're still focused on spending dollars to deliver our new community counts and reach 150 communities by the end of the year, but you'll see it spread out over the year and be heavier in the back half.

And then, Eric, you were talking about pushing price to offset cost. I mean what type of percentage are we targeting here? Like low single-digit percentage pricing to offset? Or what are you having to do there?

Yes. I think that Jay, we've seen pretty nominal increase in our costs so far this year. We expect that to increase. So I think low single digits would be right on for expectations, apples-to-apples price increases across the United States.

And we have a follow-up question from the line of Carl Reichardt with BTIG.

Just a pragmatic question for you, Eric. When you're doing a grand opening like one of these 7 new stores, how many finished homes do you typically have available at that grand opening?

Usually between 4 and 6 that could close in the next 30 days and then another 4 to 6 behind that and another 4 to 6 behind that and usually 4 to 6 months of supply, of that current closing pace, which most of these started were in that 4 to 6 range.

Okay. Great. You mentioned the importance of training the new sales folks coming on. This is a softer question, but are you doing anything differently given today's environment versus three or four years ago in terms of the training process, who you hire, or what you focus on when working with new sales folks?

Generally, no, Carl. We're looking for the same type of salespeople, salespeople that have a proven track record of success. I think the environment that we are in right now, it takes some resolve and some patience. It's a 100-day training program to get the individuals up to speed but it really takes one year for our salespeople really to get up to speed and be comfortable in our process and going through a lot of leads right now, working our backlog, working with what we call credit-challenged people, to work with them on their credit, work with them on their payment, more co-signers than normal. But our teams are doing a great job, no challenge hiring people but as big a challenge as it's always been, getting these new individuals trained and comfortable in our position. But nothing's changed in our overall training program.

And we have another follow-up question from the line of Alex Barrón with Housing Research Center.

I was hoping you could comment. I apologize if you already mentioned it: where is your build time these days? What improvement was there quarter over quarter? Is there any room to keep lowering the build time going forward?

Great question. New build times are relatively the same across the country. I mean we have a range going anywhere from 75 to 180 days and particularly Terrata is a little bit longer. But some of the markets we've been in the longest can be on the low end of the side, like Texas but generally build times are the same. We factor it into our inventory flow in terms of how many starts each month we're doing based on what we're seeing for orders. So ending the quarter at 4,150 units roughly, we would describe as being right on track.

Okay. And did I hear you correctly saying that you expect to be at 150 communities by year-end?

Correct. Same guidance from last quarter and we reiterated our guidance as well and we're confident in that number.

And do you believe your sales pace will remain similar to historical or recent experience? Or as the community count goes up, that could compress a bit?

Well, our guidance has all that built in, Alex. We believe that if leads keep coming into our company and salespeople follow our process, that we are going to have a lot of success on the sales side, similar to what we have seen over the last couple of months and the plan is to continue doing that. And when that happens, we're going to be right on track for all of our guidance and it's going to be an unbelievable year.

Thank you. At this time, I am not showing any further questions.

Thank you, everybody, for participating on today's call and for your continued interest in LGI Homes. Have a great afternoon.

This concludes LGI Homes First Quarter 2024 Conference Call. Have a great day.