LGI Homes, Inc. Q3 FY2024 earnings call

Key Points

• Delivered 1,757 homes in Q3 with revenue of $652 million, up 5.6% y-o-y and highest since Q2 2022.
• Ended Q3 with 138 communities, a 30% increase y-o-y, sixth consecutive quarter of community count expansion.
• Adjusted gross margin was 27.2%, up 20 basis points from prior quarter. Pretax net income margin was 14.1%, up 130 basis points sequentially.
• Diluted earnings per share were $2.95, up 4% y-o-y and 19% sequentially.
• Top markets by closings per community per month: Las Vegas (9.9), Nashville (9), Charlotte (8.9), etc.
• Recognized by Newsweek as one of the world's most trustworthy companies for second year.

In the third quarter, LGI Homes delivered 1,757 home closings with revenue of $652 million, a 5.6% increase compared to the prior year. The average selling price (ASP) was a record over $371,000. The adjusted gross margin was 27.2%, up 20 basis points from the prior quarter. Pretax net income margin was 14.1%, up 130 basis points sequentially. Diluted earnings per share were $2.95, a 4% year-over-year increase. The company ended the quarter with 138 communities, a 30% increase from the prior year. Top markets by closings per community per month included Las Vegas (9.9), Nashville (9), Charlotte (8.9), Dallas-Fort Worth (6.4), and Tampa (6.4). Revenue contribution was from home sales, with wholesale business accounting for 9.1% of total closings, generating $49.5 million in revenue.

Forward-Looking Statements

• Expect full-year closings between 6,100 and 6,400 with ASP between $360,000 and $370,000.
• Raised gross margin guidance to 24%-25% gross margin and 26%-27% adjusted gross margin.
• Community count expected to end 2024 at ~150 and grow 10%-20% in 2025.

Risks Identified

• Affordability challenges due to high ASP and interest rates impacting entry-level buyers.
• Land development costs remaining elevated, with no significant relief expected.
• Impact of market dynamics, such as interest rate fluctuations, on absorption pace and profitability.

Q: Trevor Allinson from Wolfe Research asked about gross margin performance and near-term dynamics.

A: Eric Lipar responded that the margin upgrade was due to the pace versus price initiative, avoiding wholesale price reductions, and strong demand with over 8,000 leads last week.

Q: DeRose from JPMorgan asked about margin maintenance and land inflation.

A: Eric Lipar stated that LGI's gross margin is higher due to capturing development profit and lower land banking costs compared to peers, with land prices still strong and development costs elevated.

Q: Carl Reichardt from BTIG asked about other income and pace.

A: Charles Merdian mentioned other income was related to land sales, and Eric Lipar discussed that sales representatives' performance improves in their second year, positively impacting future pace.

Q: Jay McCanless from Wedbush asked about affordability and Terrata.

A: Eric Lipar noted affordability challenges for $60k-$100k income households, but Terrata move-up price points are selling well, with plans to continue growth in 2025.

Q: Kenneth Zener from Seaport asked about ROE and land costs.

A: Eric Lipar discussed ROE expectations to increase as land communities come online, and Charles Merdian mentioned land cost as a percentage of ASP remains around 20%, with development costs driving variability.