LGI Homes, Inc. Q4 FY2024 earnings call

Key Points

• In 2024, LGI Homes met and exceeded many key strategic goals despite challenges like persistent high mortgage rates and economic uncertainties, including expanding gross margins and increasing community count.
• Fourth-quarter results: Delivered 1,636 homes (including a bulk sale of 103 leased homes), with total closings for the year at 6,131. Excluding the bulk sale, fourth-quarter closings were 1,533. Average sales price over $365,000 led to total revenue over $2.2 billion in 2024. Top markets like Charlotte, Las Vegas, etc., had strong closings per community.
• Community count growth: Opened 80 new communities in 2024, with total active communities reaching 151, a 29% year-over-year increase. Invested in recruiting, hiring, and training new employees for new communities.
• Profitability: Full-year gross margin and adjusted gross margin were up 120 and 160 basis points respectively, and pretax net income margin was up 70 basis points from the prior year. Fourth-quarter pretax net income was $67.1 million or 12% of revenue compared to 11.3% in the same period last year.
• Land position: Owned and controlled a total of 70,899 lots at December 31, with 53,317 owned lots and 17,582 controlled lots.

In the fourth quarter, revenue was $557.4 million, a decrease of 8.4% year over year, driven by a 12.8% decrease in closings of 1,533 homes, partially offset by a 5.1% increase in average selling price to $363,598. Gross margin as a percentage of sales in the fourth quarter was 22.9%, down slightly from the same period last year but in line with expectations. Adjusted gross margin in the fourth quarter was 25.2%, up 10 basis points from the same period last year. Combined selling, general, and administrative expenses were 14.7% of revenue. For the full year, revenue was $2.2 billion, a decrease of 6.6% driven by a 10.4% decrease in closings and offset by a 4.2% increase in average sales price to $365,394. Full-year gross margin was 24.2% and adjusted gross margin was 26.3%, representing year-over-year increases of 120 basis points and 160 basis points respectively. Combined selling, general, and administrative expenses were 14.6%, an increase of 150 basis points compared to 2023.

2025 Outlook

• Expect to close between 6,200 and 7,000 homes and end 2025 with 160 to 170 active selling communities.
• Average sales price guided to be between $360,000 and $370,000.
• Full-year gross margin expected to be between 23.2% and 24.2% and adjusted gross margin between 25.5% and 26.5%.
• SG&A expense expected to range between 14% and 15%.
• Full-year tax rate expected to be approximately 24.5%.

• Macro challenges: Persistent high mortgage rates, economic uncertainties, rising input costs, and inflation continue to strain affordability and demand.
• Community ramp-up: New hires for new communities require time to fully adapt to systems and processes, potentially impacting productivity in the short term.

Q: Trevor Allinson of Wolfe Research asked about gross margins and 2025 outlook.

A: Eric Lipar stated that gross margin will be similar year over year, expecting to offset cost increases through pricing and incentives. Also mentioned that sales pace in 2025 is expected to be slower due to new community openings and ramp-up of new employees.

Q: Kenneth Zener of an analyst asked about units under construction and incentives.

A: Charles Merdian responded that there were just over 4,000 total units in inventory, roughly 2,500 completed, about 1,360 homes in progress, and the rest information centers. Eric Lipar discussed that demand is there but the gap between rent and mortgage payment is wider, leading to more marketing spend for incentives.

Q: William Rooney of BTIG asked about guidance conservatism and community health.

A: Eric Lipar said ASP is likely the most conservative part of the guidance as they expect to raise prices to offset cost inflation. Regarding community health guidance growth, he noted it's more weighted to the back half of 2025 due to prior ramp-up.

Q: Jay McCanless of Wedbush asked about DC market layoffs and affordability.

A: Eric Lipar said Washington DC market hasn't been impacted by layoffs yet. Regarding affordability, he mentioned demand for homeownership is there but the gap between rent and mortgage is wider, requiring more marketing spend to drive leads.