LGI Homes(LGIH) - 2023 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company generated revenue of $2.4 billion, an increase of over 2% compared to last year, marking one of the few public homebuilders with year-over-year growth in both closings and revenue in 2023 [11] - Gross margin as a percentage of sales in the fourth quarter was 23.4%, up from 20.7% in the same period last year, reflecting a 270 basis point improvement [14] - Fourth quarter net income was$ 52.1 million, or $2.21 per basic share and$ 2.19 per diluted share [15] Business Line Data and Key Metrics Changes - The company closed 1,758 homes in the fourth quarter, a 21.4% increase year-over-year, with an average selling price (ASP) of $346,083, which was a 2.6% increase [95] - The wholesale business represented 17% of total closings in the fourth quarter, down from 29.8% in the same period last year [69] Market Data and Key Metrics Changes - The company expanded its geographic footprint, adding Salt Lake City, Utah, marking a total of 36 markets across 21 states [12] - The top five markets for the company included Dallas-Fort Worth, Charlotte, Northern California, Fort Pierce, and Las Vegas, with closings per community per month ranging from 7.3 to 9.1 [67] Company Strategy and Development Direction - The company plans to increase community count by 25% to 30% in 2024, aiming to end the year with approximately 150 active selling communities [76] - The focus remains on driving affordability while increasing profitability, with expectations for higher selling prices and gross margins in 2024 [76][103] Management's Comments on Operating Environment and Future Outlook - Management noted a significant increase in leads and traffic since February, with leads up over 73% compared to the prior two months [21] - The company anticipates a challenging affordability environment similar to 2023, with strategies in place to maintain sales pace while protecting gross margins [80][119] Other Important Information - The company ended the year with total debt of$ 1.25 billion and a debt-to-capital ratio of 40.2% [19] - The effective tax rate for the previous year was 23.9%, consistent with prior guidance [16] Q&A Session All Questions and Answers Question: What is the expected absorption rate for the year? - The company expects an absorption rate of 4.5 to 5.3, which is lower than previous years due to anticipated market conditions [25][106] Question: How does the company plan to maintain margins amidst rising land costs? - The company plans to be cautious with discounting and focus on maintaining gross margins while incentivizing customers through mortgage rate buy-downs [80] Question: What is the outlook for community count growth in 2025? - The company expects to maintain community count growth in 2025, with 150 communities anticipated to have closings by the end of 2024 [108]