LGI Homes(US:LGIH)2022-08-02 21:34Financial Data and Key Metrics Changes - The company closed 2027 homes in Q2 2022, with an average selling price of over $356,000, resulting in revenue of over $723 million, a decline of only 8.6% from the previous year [9][15] - Gross margin reached a record 32%, a 500-basis-point improvement year-over-year, while adjusted gross margin was also a record at 33.1%, a 460-basis-point improvement [11][17] - EBITDA for the quarter was $169.1 million, representing 23.4% of revenue, a 320-basis-point improvement from the same period last year [20] - Reported net income was $123.4 million, or 17.1% of revenue, also a new company record, with earnings per share increasing by 10.3% year-over-year [23] Business Line Data and Key Metrics Changes - Wholesale business accounted for 7.2% of total closings, down from 15.1% in the same quarter last year, due to a strategic shift towards retail sales [14] - Gross orders for the quarter were 1,244, with net orders at 864, reflecting a 57.3% decrease in net orders compared to the previous year [23] Market Data and Key Metrics Changes - Houston was the top market with 13.6 closings per community per month, followed by Charlotte (12), Dallas Fort Worth (11.8), San Antonio (10.7), and Tucson (10.3) [10] - The company operates in 35 markets across 20 states, having recently closed its first home in Maryland [10] Company Strategy and Development Direction - The company is adjusting its full-year guidance to reflect a closing range of 7,500 to 8,300 homes, down from previous expectations, while maintaining a focus on community count growth of 20% to 30% next year [32][33] - The company is optimistic about long-term growth due to supportive demographic trends, strong labor markets, and low inventory levels [36][41] - The company plans to normalize pricing in new communities, targeting gross margins in the 25% to 28% range moving forward [41][96] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's positioning despite uncertainties in the housing market, citing a solid balance sheet and an attractive land pipeline [12] - The company is increasing marketing spend to drive sales, with nearly 20,000 inquiries about homeownership in July, a 54% increase year-over-year [37][122] - Management acknowledged challenges in the supply chain and development processes but expects improvements in the near future [89] Other Important Information - The company ended the quarter with a backlog of 1,266 homes valued at over $445 million and a land portfolio of 9,984 owned and controlled lots, an 18.5% increase year-over-year [25] - The company repurchased 417,861 shares for $37.4 million during the quarter, with $211.5 million remaining on its stock repurchase program [30] Q&A Session Summary Question: What are the main drivers of gross margin outlook in the back half of the year? - Management indicated that new communities coming online at lower margins, increased wholesale closings, and decreasing costs will influence gross margin [47][49] Question: Have sellers become more willing to negotiate on terms or pricing? - Management noted that while there haven't been significant price decreases in land, they are seeing opportunities for finished lots [50][52] Question: How is demand assessed given selective order acceptance? - Management highlighted that demand remains strong, with orders increasing for four consecutive months, and they are ramping up marketing efforts [118][122] Question: What is the expected community growth for fiscal 2023? - Management is confident in a community count growth of 20% to 30% for 2023, despite delays in development [87] Question: What is the outlook on cancellations? - Cancellations are primarily affordability-related, with some customers unable to qualify due to rising rates [105][108]