Earnings Call: Q1 2021

May 4, 2021

Welcome to LGI Homes First Quarter 2021 Conference Call. Today's call is being recorded and a replay will be available on the company's website later today at www.lgihomes.com. We have allocated an hour for prepared remarks and Q and A. Call. At this time, I will turn the call over to Josh Tatar, Vice President of Investor Relations at LGI Homes. Call. Thank you, Lara. Good afternoon and welcome to LGI Homes' conference call to discuss our results for the Q1 of 2021. Call. Today's call contains forward looking statements regarding our business strategy, outlook, plans, objectives and guidance for 2021. Call. These statements, which speak only as of today's call and are based on management's expectations, are not guarantees of future performance call and are subject to risks and uncertainties. You should review our filings with the SEC, including our risk factors and cautionary call. Statements about forward looking statements for a discussion of the risks, uncertainties and other factors that could cause our actual results call to differ materially from those anticipated in these forward looking statements. LGI Homes assumes no obligation call to publicly update or revise any forward looking statements. Reconciliations of any non GAAP financial measures discussed on today's call to the most comparable measures prepared in accordance with GAAP are included in the press release issued this morning and in our quarterly report on Form 10Q for the quarter ended March 31, 2021, 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 company website. Our hosts call today are Eric Leeper, Chairman and Chief Executive Officer and Charles Merdian, Chief Financial Officer and Treasurer. Call. I'll now turn the call over to Eric. Thanks, Josh. Good afternoon and welcome to everyone participating on today's call. 2021 is off to a tremendous start and we're very pleased to share our results with you today. Our remarkable performance was a direct result Our continued focus on sales and closings, our commitment to maintaining gross margins by raising home prices ahead of ongoing cost inflation, call. Managing our supply chain and effectively delivering on our backlog. The demand strength we saw last year Has continued unabated into 2021 and is being driven by several key factors. First, interest rates. Call. Despite a 30 basis points increase since December, mortgage rates are still almost 40 basis points lower than they were at this time last year and remain at historical lows. Not only is this fueling demand, call. It's directly supporting our ability to raise home prices ahead of input cost inflation without impacting our sales pace. In fact, despite an 11% increase in our average sales price over the last year, Demand for our homes has never been higher. The second factor is the supply demand imbalance. Across the country, home inventory is limited and existing home inventory is at historic lows. Pre owned homes are selling in a matter of weeks and often at prices above asking price due to competitive bidding among buyers. This dynamic has increased attention on the new home market, especially within the entry level product segment where we focus. We would expect this trend to continue as long as the total supply of homes remains constrained. Call. The third factor is increased interest in homeownership. When the housing market began to accelerate last May, one of the ideas floated Well, that demand was being fueled by people's freedom to work from home. However, as the economy has reopened call. And many workers have returned to their offices. We haven't seen less demand for homes, but more. We believe this is explained by a deeper fundamental shift in how the home is valued. This is also a trend we expect to continue for the foreseeable future. Call. In short, it remains the strongest housing market we've ever experienced, supported by dynamics that the LGI business model call is uniquely well positioned to capitalize on. Here are a few highlights of our recent performance. Net orders during the quarter call. We're the highest in our history, up over 110% year over year, which in turn drove a 200% increase in our backlog. Closings in the Q1 were up 40% over last year to 2,561. We generated record revenue call of $706,000,000 an increase of 55%, while delivering meaningful increases on all profitability metrics. Call. This was highlighted by a 3 50 basis point improvement in our gross profit margin, call. A 490 basis point improvement in our EBITDA margin, a 540 basis point improvement call in our pre tax profit margin and 137% increase in our earnings per diluted share. Call. During the Q1, we averaged 8 closings per community per month company wide. Dallas Fort Worth was our top market with 12.4 closings per community per month, followed by San Antonio with 12.2 and Austin with 11.4. Phoenix came in 4 with 11 closings per community per month, followed by Denver with 10.6. Finally, we had our first closings in our new Baltimore market and are now officially operating call in 35 markets across 19 states. With that, I'll turn the call over to Charles for more details on our financial results. Thanks, Eric. As highlighted in our press release this morning, revenue in the first quarter Increased 55.2 percent year over year to $706,000,000 This was our 2nd best quarter in company history, call, surpassed only by our performance in the Q4 of 2020. As Eric noted, we closed 2,561 homes, call. An increase of 39.6 percent year over year. Closings included 283 homes sold through our wholesale business this quarter, call, representing 11.1 percent of our total closings compared to 199 homes or 10.8 percent of our total closings call in the same quarter last year. Cost inflation remains a key headwind we monitor on an ongoing basis. Our lumber costs have more than doubled since last year. However, demand tailwinds have enabled us to push through price increases call in all of our markets to mitigate this pressure and maintain our industry leading gross margins. Our average sales price during the Q1 was a company record of $275,655 an 11.2% increase over the same period last year, driven primarily by the favorable demand environment call as well as an increase in closings in certain markets with higher price points and changes in product mix. Gross margin as a percentage of revenue this quarter was 26.9% compared to 23.4% during the same period last year. Call. This exceeded our expectation and represented an increase of 3.50 basis points year over year, driven by our success passing through cost increases, lower capitalized interest and continued operating leverage, partially offset by higher lot costs. Our adjusted gross margin as a percentage of revenue was 28.5% this quarter compared to 25.5% call for the same quarter last year, a 300 basis point increase. Adjusted gross margin excludes Approximately $10,700,000 of capitalized interest charge to cost of sales during the quarter $812,000 related to purchase accounting, together representing approximately 160 basis points. Combined selling, general and administrative expenses for the Q1 were 9.6% of revenue call compared to 11.6 percent at the same time last year. Selling expenses for the quarter were $42,800,000 call or 6.1 percent of revenue compared to $32,800,000 or 7.2 percent of revenue call for the Q1 of 2020, a 110 basis point improvement. Call. In addition to operating leverage realized from increased revenue, our quarterly marketing spend was down nearly 40% year over year, driven by continued strength in demand, call. Reducing advertising expenditures, partially offset by higher commissions paid to Realtors as a percentage of revenue. Call. General and administrative expenses totaled $24,700,000 or 3.5 percent of revenue call compared to 4.4 percent for the Q1 of 2020, a 90 basis point improvement driven primarily by operating leverage call. As a percentage of revenue, we expect full year SG and A expense to be between 9.5% And 10%. EBITDA for the quarter was $134,200,000 and EBITDA margin as a percentage of revenue was 19%, a 490 basis point improvement over the same period last year. Call. Pre tax income for the quarter was $123,300,000 or 17.5 percent of revenue, call. An increase of 5.40 basis points over the Q1 of 2020. For the Q1, our effective tax call in excess of compensation costs or windfalls for share based payments. We would expect that our effective tax rate for the remainder of the year call will range between 21% 22%. Our first quarter reported net income increased 100 call and 32.6 percent year over year to $99,700,000 or 14.1 percent of revenue call. And our first quarter earnings were $3.99 per basic share and $3.95 per diluted share. 1st quarter gross orders were 5,840, an increase of 92.4 percent call. And net orders were 5,229, an increase of 110.8% year over year and the cancellation rate for the Q1 call. Was 10.5%, a record low. Driven by strong demand, we finished the Q1 with a record backlog of 5,632 Homes. This was the highest backlog in our history and an increase call of 199.7 percent year over year. The value of our backlog on March 31 was a record $1,600,000,000 call. An increase of 257.6 percent year over year. Continued investment in attractive land positions call. To support our long term growth objectives remains our top capital allocation priority. As of March 31, Our land portfolio consisted of 67,286 owned and controlled lots, call. A 33.8 percent year over year increase and a 9.4% increase sequentially. Call. We added almost 5,800 new lots to our owned inventory and finished the quarter with 38,502 owned lots, an increase of 22.5 percent year over year. 7,938 of these lots were finished vacant lots and 26,213 were either raw or under development. Call. During the quarter, we started over 3,000 homes and ended with 4,351 completed homes, information centers or homes in process. During the Q1, we increased our total number of controlled lots 52.7% year over year call to 28,784. Turning to the balance sheet. We ended the quarter with approximately $48,000,000 cash, dollars 1,600,000,000 of real estate inventory and total assets in excess of $1,800,000,000 call. At the end of March, we had $414,000,000 in total debt outstanding under our senior notes and revolving credit facility, And our available borrowing capacity under the facility was approximately $518,000,000 resulting in total liquidity call of $566,000,000 We ended the quarter with over $1,200,000,000 in total equity call. And as a result of our strong operating results and profitability, delivered an industry leading return on equity call of 36.6 percent for the trailing 12 month period. At March 31, our net debt to capitalization ratio call was 23.1%, compared to 42.1% at this time last year, our lowest net debt to capitalization ratio call since June of 2014 and a 7 50 basis point improvement sequentially. Call. On April 28, we entered into our 5th amended and restated credit agreement, which increased commitments under the facility call from $650,000,000 to $850,000,000 with the option for an additional $100,000,000 increase. The revised agreement provides for significantly more attractive terms and conditions that are reflective of our continued growth and business diversity, 25 and among other improvements reduces our current borrowing rate to less than 2%, call. During the Q1, we repurchased 216,221 shares of our common stock for $25,800,000 call for a weighted average price of $119.45 per share. We ended the quarter with 24,900,000 shares call and $274,600,000 remaining on our existing stock repurchase program. Call. We remain committed to returning capital to shareholders. And as a component of our broader capital allocation priorities, call. We expect to be a regular and systematic buyer of our shares going forward. At this point, I'll turn the call back over to Eric. Call. Thanks, Charles. Let me provide some thoughts on what we're seeing thus far in the Q2 and update you on our outlook for the remainder of the year. The Q2 is off to a great start and the strong demand we experienced last quarter has continued into April. Call. Subject to our normal review and verification of fundings, we expect to formally report approximately 945 closings for the month of April. Call. This is our best April result on record and represents a year over year increase of 56% over the same month call last year. Based on our current outlook on the market, visibility into our backlog and view of finished lots available to close in 2021, we are updating our guidance. We now anticipate closing between 9,700 call. And 10,300 homes, an increase of 500 homes at both ends of our prior guidance range, at an average sales price between $275,000 $285,000 We maintain our prior expectation of 112 to 120 active communities at year end. Finally, we are raising our full year gross margin guidance call by 70 basis points to a range between 24.7% 26.7% call and our adjusted gross margin guidance by 50 basis points to a range between 26.5% 28.5%. I'll conclude with a few comments on LGI Mortgage Solutions, our exciting new joint venture with our preferred lending partner, LoanDepot. Since 2015, Loandepot has worked side by side with us to make the dream of homeownership a reality for our buyers. Over those years, Loandepot consistently demonstrated its willingness and ability to scale its operations to match our expanded needs and established its position as the most qualified partner for us to continue to grow our business with. We believe this new partnership call will further enhance the quality of our customers' borrowing experience, while creating meaningful value for our shareholders. That concludes our comments on the quarter. And we'll now open the call for questions. Call. Our first question comes from Aaron Hecht with JMP Securities. Hey, guys. Great quarter. Thank you. I had a question sure. I had a question around the guidance on the And the orders, which were obviously outsized on a per community basis. And usually, you guys deliver Almost 100 percent of your backlog. Look at that backlog today, over 5,500 homes, over 2,500 closed in the Q1. Does that imply that there's going to be longer cycle times for deliveries now? How should we be thinking about The delivery pace relative to the pace that you're booking these orders. Yes, Aaron, this is Eric. Great question. No, sales and orders were very strong in the Q1. And you're correct on the cycle time from Sales to close, because sales is ahead of construction right now. We are choosing to keep selling houses and build in our inflation that we projected Cost continuing to rise, but we have went ahead and taken customers' deposits and keep selling out into the second and third quarter. And we think that strategy is working. So our construction time has not slowed meaningful, But certainly the orders we're taking, the contract to close will be extended into the 2nd and third quarters. Right. So going a little deeper into the contract cycle. If the demand remains robust, do you see that Continuing out into the future or do you try to scale that back over time and go with your more traditional Delivery model, how do you think that plays out over the course of the cycle? Yes, I think it will naturally sail back Because we have so many communities that are sold out, if you will, that our opportunity is to keep selling houses, at least over here the next quarter or 2 is going to be Limited, we got strong demand on our retail side. We got strong demand on our wholesale side. We're selling focused on 2021 right now, Not focused on 2022. We'll get there over the next couple of quarters selling into 2022, but right now the focus on is on contracts that can deliver in 2021. Great. Makes sense. Thanks a lot, Eric. Great quarter. You're welcome. Thank you. Our next question comes from Stephen Kim with Evercore ISI. Hey, this is actually Brian Adams on for Steve. Congrats on the great quarter guys and thanks for taking my question. Unsurprisingly, hearing a lot of very positive pricing commentary on the call and was just wondering how many of your homes Are now selling above the FHA loan limits right now and maybe how that compares to your historic norm? Yes, Brian, this is Eric. Yes, I don't know the exact number. I could say it's very few, just Historically being entry level price point, we historically are selling below FHA limits. Now that being said, with in the communities that are above FHA limits, it's a 3.5% down payment, you're looking at a minimum of 5% down payment. And it does not seem to be a headwind for sales in this market selling above the FHA limit, but it's certainly Below 10% of our overall closings above FHA. Got it. That's very encouraging to hear. I guess one quick follow-up from me. A number of other builders have mentioned that they performed stress tests on their backlog call. To kind of take a look at the effect of a 50 basis point or 100 basis point move in mortgage rates to see if how many buyers drop off, Have you guys done something similar? Yes. I would say interest rates are something that we're always looking at. The The income to debt ratios for our customers and monthly payments certainly are impacted from rates. I think we do have an advantage over builders Still, even though we're talking about selling out into the future, most of our customers that are under contract will be closing relatively soon rather In comparison to other builders, we can lock in their rates accordingly. So, I would say we haven't necessarily done stress test, but we're always Looking at our pipeline and comfortable even with a 50 basis point to 100 basis point move in interest rates, we're not going to Lou's a big part of our pipeline by any reason. Awesome. All right. Thanks, Eric, and congrats again, guys. Call. Thank you. Our next question comes from Carl Reichardt with BTIG. Thanks. Good morning, guys. Thanks for taking my question. I'm going to talk about SG and A a bit. So I understand the marketing costs falling and the leverage you've got. Eric, can you talk just a little bit about Hiring new folks as you look out to your growth and starting expanding your community count next year, what's that process been like? Obviously, COVID impacted it early on, that's kind of changed. I just want to get a sense to you, how are you finding getting new sales folks to staff new communities as you go? Yes, it's a great question, Karl. I'll talk about recruiting and Charles can add on the SG and A leverage if you'd like to. But from a recruiting standpoint, the focus during COVID is really focused on construction managers to build the house, acquisition and development personnel to Heathad, Head of Acquisitions, Buying Land, Getting the Developments Done. We're Doing A Lot of Development Work. We Actually Have Been Hiring very few salespeople over the last couple of quarters because sales have been very robust. We have very few Very little turnover in our sales staff. Everybody is doing extremely well, making good compensation. Everybody has got a lot of backlog And we're selling through these communities very quickly. So we haven't we didn't increase our community count guidance, even though our closings guidance went up, Primarily because our absorptions per community is up. Certainly, as we get into adding to our community count over the next couple of years, We'll certainly be recruiting salespeople. We think with LGI, with our sales philosophy, our commission rate, our culture, no challenges in the future recruiting salespeople. Great. Thanks, Eric. And then on the lot side, I think you said 28,000 under control now. Obviously, historically, I think you've tended to want to self develop to capture the margin. Can you talk about whether or not that's beginning to change? Are these all paper lot options? Are you still going to develop? Are you starting to use land bankers? And are you beginning to move towards Yes, we're not doing any land banking at all. So our philosophy hasn't changed, Probably even more so land development opportunities, just finished lot opportunities are so rare in this market. So we are buying raw land the development that cycle time is at least as long as it's ever been, if not added 3 to 6 months to that timeline for development timing, plan approvals, etcetera. Over the last 12 months, if you compare our owned and controlled, we're up 16,000, 17,000 lots, which we described is right on track. So we're adding the inventory needed. It's really about timing and getting these new communities online. That's probably pushing into 2023 for anything that we're buying right now. Great. Thanks, Eric. I'll get back in queue. Thank you. Our next question comes from Ken Zener with KeyBanc. Hello, everybody. Hello, good morning. It is morning on the West Coast. Pretty amazing. So Eric, question. So your inventory units, you said about 4,300. I assume about half of those will be closing just given kind of cycle times on the In the forward quarter. And that's just generally thinking about a 6 month construction cycle. If you could just kind of talk about that if If you're making any comments about 2Q. Yes. Hey, Ken, this is Charles. I think We've seen over the last 6 months or so just with our inventory turns, we've actually seen a shift Into fewer completed units than we typically normally would. So at the end of March, we had less than 700 completed units in our inventory. So the bulk of those units are work in process. We also mentioned we started Around 3,000 houses in the Q1. So I think, what we're seeing from an inventory flow It's just that sales, as Eric mentioned, are ahead of the construction pace. So we're just we're building them. The cycle time itself to build the houses is generally consistent. We've just got a deep backlog, so we're closing them As soon as we finish them. Right. And the reason I kind of asked that is the 3,000 year starts, I basically look at your But you had an inventory closed and what you ended. That's kind of how I calculate the starts. And I'm trying to think about the out Obviously, as this year unfolds, I think your guidance kind of assumes we'll be at that similar start level, which is, I'll call that your capacity, if you will. And I'm trying to think about next year as you kind of get back to your more normalized 15% give or take community count growth. Should we think your capacity will ramp up along with your community count? Is that a reasonable way to think about What you guys can be building, not what the market is demanding because you obviously your business model is production building. So I'm just thinking about is you You think about your capacity, does that kind of just match your community account growth as we think about next year? Yes. So this is Charles again. I'll take that. I mean, I think it's really more dependent on finished lot deliveries, given the fact that we're Spending more of our efforts on developing lots than buying finished lots at the current moment that it's going to really be starts are going to be dependent on when the lots are going to be available to be built. So, there may be a little bit of a disconnect there between the community count itself and the ability or the Capacity, as you mentioned, in terms of what we have available to start. So we're really thinking about it in terms of when the lots will be platted and delivered. And like Eric mentioned, that's pushing into late 2022 and into 2023, just based on our development timelines. And is there anything that stands out given your long history of land development about what we're seeing now? Or is it Just a double scoop of permitting or I mean is there anything really exceptional? I mean so many trades are strained right now. Is it still coming from the The municipalities or is it that the contractors, you just can't get them or they're asking too much or any thoughts would be useful? Thank you very much. Yes. Thanks, Ken. This is Eric. Yes, I think the land development cycle time is just a little longer than it was, but nothing in particular, just A lot of demand on those trades right now. But normally even in a normalized market, if you will, it's 2 years In most of our markets to buy a piece of raw land and turn it into finished lots. So what we're acquiring right now, being under contract, those will turn into construction sales and closings, in 2023. And also since you brought it up, Ken, the 15% historical community count growth, That may or may not happen for next year. Right now, we're thinking similar to community count growth because our absorptions have been so strong. We didn't change our community count assumptions for this year, but if commercialization for this year, but if absorptions were not as strong as they are, our community count would be higher. So we're looking at probably based on pretty strong absorptions and pretty strong market continuing, we're looking at similar community count next year compared to this year. Thank you very much for those comments. You're welcome. Our next question comes from Truman Patterson with Wolfe Research. Hey, good afternoon, everybody. Thanks for taking my question. So, Eric, wanted to follow-up here. In the prepared remarks, You said very strong pricing and I believe you said outstripping inflation, right, really strong first quarter gross margin performance. But when I look at your guide going forward, it implies maybe 100 bps of deterioration at the mid I'm just hoping to understand some of your assumptions and if anything might be weighing on it going forward, the expansion in the new markets I was just going to say, when I look at the breakout of the wholesale mix, to me, it doesn't seem like it might weigh on it call. Yes. I think to start with, our comments in the prepared remarks is just How strong the market is, if you would have told us last year, our average sales price would be $275,000 this quarter and our absorption will be up 40%. We would not have believed that and that's how strong the market is that we've been able to increase Our gross margin is over 300 basis points year over year and take on those additional costs and pass it on to the consumer and And increased closings. So that's how strong the market is. I think going forward, our gross margin guide is really based on we anticipate costs continuing to rise. And based on our average sales price guide going up, we plan on continuing to pass that through the consumers. That's very strong. But overall, Yes, putting the guide less than this Q1 makes sense to us. Hopefully that's conservative and hopefully we don't have the cost inflation that Forecasting, but we want to make sure we have enough cost inflation built in because we're not seeing any slowdown currently in that metric. Okay. Okay. Thank you for that. Encouraging. And then just a quick 2 parter for me On my follow-up. So, land competition we've heard is intensifying across the board and we've even heard that oftentimes the development profit really gets competed away. Clearly, you all based on the margins, you all don't compete that away. But just hoping you can give call. Just an update on competition, what you're seeing in the markets? Is it getting a little more difficult to find land? And then just a Part 2 follow-up on your loanDepot JV comments. Could you just give a little bit more color there on potential profitability? Sure. Yes, I'll start with the land question, Truman. I think it's pretty clear that there's a lot of competition for land. There's a lot of interest in homebuilding. Every builder wants to increase their community count. A lot of single family rental operators are looking for land positions as well. And we're still finding deals as evidenced by our own to control backlog and what we're seeing, but we're also I think it's one of the things that we stress and it's important for our investors to know, We're not going to go out and buy land deals that don't make sense. We're not going to just focus on increasing revenue, increasing community count and sacrifice the The developer profit like you've talked about. We're going to focus on margins. We're going to focus on absorptions. We're going to focus on that return on equity, which we're very pleased with our results from this quarter and that's going to continue to be the focus and we're going to continue to make good decisions. So I think we're in really good shape from a land side. We'll continue to make good decisions. On the LoanDepot joint venture, yes, exciting announcements. Our joint venture with LoanDepot, they've been preferred partners since 2015. They were up to more than 60% of our loan originations were with LoanDepot anyway. So we felt like it was natural timing. As far as profitability and building assumptions into the model, we look at this year, meaning 2021 As a year that joint venture is getting started, we're going through a lot of licensing in the different stage right now. We are optimistic that we'll Putting loans to the joint venture later in 2021 and probably breakeven this year, but certainly not Add earnings in 2021 is not the expectation. And then 2022 will be fully operational in all the states and putting the vast majority of our loans through the joint call. Thank you. Thank you. Our next question comes from Vipa Raghavan with Wells Fargo. Hi, good morning everyone. Eric, Charles, are there any levers you can pull call to raise your gross profit from here. I mean in the past years, you've done much better than this, 26 hitting 27. Just curious, how much if you're able to raise, is there any structural items you could do at your end to Keep them get them higher from where you currently are. Well, this is Charles Deepa. I can start. I mean, I think, First of all, we are very proud of our consistent results. I think the way we think of ourselves as Really from a cost plus type of mentality, meaning that as cost increases come through, We're pushing those through. I think in terms of look going forward where some of our upside may be Is that if costs inflation decelerates, we're likely to keep sales prices similar. So there could be some upside if costs decelerate. We're not assuming that in our model. We're assuming that costs will continue to increase. The other piece we highlighted in our adjusted gross margin guidance is that the announcement we made in our revolving credit facility call. Significantly reducing our overall debt costs. We also intend to access the markets to refinance our high yield notes this year That will reduce our interest costs, which will have a favorable impact to gross margins, but a not impact To adjusted gross margins. So I think just constantly managing our pricing, working with our trades, managing costs, which is Not anything different than what we're used to, but if we do that very well, then there's some potential upside to gross margins. Got it. That's helpful. Are you able to talk about any metrics that was perhaps Below your expectations in the quarter and maybe even talk about how transient you think there could be or not. It could be supply chain or It could be any of the regions, inflation or maybe, I don't know, cancellation rates within your bookings, etcetera. I think, Deepa, it's a great question. I think we can always learn and improve All the costs before we put a price on a house, even if we're selling out in front, make sure we're building enough inflation. Some of the houses that we contracted in the 4th quarter To construct and close over the 1st couple of quarters here, 1st few months of the year, we didn't build in enough. Lumber and costs It really went up more than we expected. We have learned from that and we are assuming the higher cost inflations continue. So that's one area that we're continuously looking at and make sure pricing our homes accordingly to meet our margin requirements. Great. That's helpful. Thanks so much for taking my questions. You're welcome. Call. Our next question comes from Michael O'Biehaut with JPMorgan. Hi. This is Elad Hillman on for Mike. Congrats on the results and thanks for taking my questions. Call. Sorry if I missed this, but what are you assuming in terms of wholesale closings as a percent of total closings for 2021 in the guidance? Yes. Our guidance for wholesale hasn't changed. It's between 10% and 15% of our overall closings will come from wholesale. Great. And then 11.1 percent in the Q1, so similar percentage throughout the year. Perfect. Thank you. And then I was curious if you could just sort of expand on the drivers of the stronger closings this quarter. And then call. In your guidance even after the raise, it seems to imply a deceleration from the 1Q closing levels, some of the future quarters. So any color you could share on how We should think about the puts and takes in terms of the ability to deliver homes through the end of the year. Yes, it's really a lot of availability. I mean, Strong first quarter with 8 closings per month, up basically 40% over last year's 5.6%. Sales are continuing to be strong. April is another strong month for sales. We're just closing a lot of communities, closing out of section. So our ability we had to we wanted to raise our closing guidance for the year up to $9,700 to 10,000 So that implies a similar closing after 2,500 for Q1, multiply that by 4, you're at 10,000 closing. So we think we're right on track. Community count is going to increase from here slightly. So we think absorptions will be similar the rest of the year. Okay, great. That's helpful. And then just on SG and A, just going back to that for a minute. In 1Q, it's kind of 200 basis points higher year on year and then or better year on year. And then I know last year you had some lower costs And now SG and A seems to be roughly flattish for the rest of the year as implied in your guide. So just any of the puts and takes there in terms of advertising marketing spend for the rest of the year. It would be helpful. Yes, sure. This is Charles. I think it's really more driven on the absorptions Comment that Eric just made, I mean coming in at 8% in the Q1 is significantly higher than what we typically would see normally. We're describing the Q1 as a higher percentage just given the absorptions and where that typically comes through. So we think the cadence this year is just going to be very similar between the second, third and fourth quarter, a little different than what we normally would see with absorptions lower in the Q1 and then picking And typically being heavier in 4th. So I think that's the basis, if you will, behind the SG and A guide. Great. Thanks. That's very helpful. You bet. Our next question comes from Jay McCanless with Wedbush. Hey, good afternoon. Thanks for taking my questions. Congrats on the quarter. What was the community count at the end of April? Well, we haven't reported that Jay. We'll put our closing number and community count tomorrow evening. We had said 945 projected closings. We have to verify that through funding, but it will be very close to that number what we report And community count is going to be in that 105, 106 range, I believe. Okay. All right. I'm sorry, yes, asking Michael's question a different way, if you're going to maintain 8 Per month through the rest of the year. I mean, when should we expect the community count increase to really kick in? Is it going to all hit Q4. How are you all thinking for that? Yes, I think it should be back end weighted from here Towards the end of the year, I mean, we're comfortable at 112 to 120, but the absorption is real strong. So the higher we are in our guidance, the closer we are to 10 1,300 closings for the year, the lower we're going to be on community count. And of course, the low end of our guidance, 9,700 closings, we're better There's a better chance of being more towards the 120. It's just the acceleration of these communities and how quickly they close out. Got it. And then you were talking earlier about your timing from buying a raw lot deal or a raw land deal and turning it into finished lots. Where is that Yes, I mean, it's different for every market, Jay. We internally Use 24 months somewhat as a guide. If we buy a piece of raw land, it's going to take about 12 months for engineering and plat approvals and about 12 months For construction to get into construction of the homes. So 24 months is a pretty good guide. And that's a similar timeframe that we've been using over the last couple of years, but it's certainly not shortening up, if you will. It has potential to be longer than 24 months based on what's happened in the market over the next couple of years. And is that just a function of People out because of COVID municipality holdups, what Is there anything specific you can call out there? Because what we heard from some builders was that the municipal headwinds were starting to lessen, but it sounds like now that those are Starting to tighten up again. Yes. I mean, it's so market specific, Jay. It's tough to make a broad statement, I think generally, because there's a lot of Platts going to the system. There's a lot of people looking to develop land, utilities and those contractors play into us somewhat out of our control. So most of our schedules and most of our timing, we're building in some extra hopefully it's conservatism, extra caution to our schedules to make sure we can deliver on call. Have good visibility into our future growth. Got it. Appreciate taking my questions. Call. You're welcome. Our next question comes from Alex Barron with Housing Research Center. Yes. Thanks, guys, and great job on the quarter. Thank you. I wanted to ask about the order I think you said you started a little bit over 3,000 Houses, I'm trying to reconcile that also versus the delivery guidance. I guess, I'm just kind of asking is, Are you guys just trying to be conservative on the deliveries? And also, is it unreasonable to expect That starts pace next quarter would be closer to this 5,000 sales pace. Yes. Alex, this is Eric. You broke up a little bit. I think I got the gist of your question. Yes, it is unreasonable that we're going to start 5,000 houses quarter. That will not happen. Another thing about the backlog and the orders that we haven't talked about, wholesale Closings were 11.1 percent of our closings in the Q1. We believe it's going to end up the year at 10% to 15% of our closings. But our wholesale units and backlog, and Charles read this in the prepared remarks, I believe, was up 300%. So we got a big backlog of wholesale. Now we just need to get them closed. There won't be a lot of new orders on the wholesale business that's going to deliver in 2021. And we won't have a lot of new sales. I mean with our April closings reported plus what we have in the pipeline, we've got a lot Sales baked in for this year, now we got to get them built and closed. Okay. So what you're saying is a lot of the Order upside this quarter came from wholesale orders. Is there a way you can tell us what that was wholesale orders versus Kind of consumer to consumer orders, to understand that better? Well, this is Charles, I can tell you at the ending backlog, we had just over 1300 wholesale units at the end of the Q1 this year compared to 338 At the end of the Q1 last year, so we were up over 1,000 units in the backlog related specifically to wholesale. Okay. That's very helpful. Thanks again, guys. You're welcome. Our next question comes from Carl Reichardt with BTIG. Thanks. Thanks for letting me get a follow-up in here, guys. So on the topic of wholesale, to Alex's We talked before about margins in wholesale being well lower on the growth side, but no SG and A costs. So the operating margin impact is consumer sold homes. Having said that, one of your peers has talked about margins in the wholesale side beginning to increase fairly call. Rapidly given the number of firms with capital chasing this business and finding it hard to get units put together, is there a profile change in your gross margin From the wholesale demand that you're seeing right now, whether it's the city you're selling out of or just demand generally? Yes. I think, Carl, what has changed is demand is strong on the retail side and the wholesale side. So any available lots or houses that we have to sell through either channel needs to be priced with better margin, Just because there's limited supply and limited availability and there is a lot of demand from the wholesale channel to buy our houses. So Our idea of how much discount they get has changed. Now that being said, not a lot of that hasn't flowed through yet call. And some of the prices we committed through the wholesale channel at the end of last year that are delivering for the 1st couple of months or 1st couple of quarters this year, We're not going to make the margin as expected because we didn't build in enough inflation. So it's balancing out and that's why we have similar gross margins and very strong gross margins, guided going forward. That's great. That's perfect. Thank you, Eric. And then last, talk just a little bit about new markets, any for this year? And then maybe refresh our memories as to what you're planning for 2022? Thanks. Yes. Thanks, Carol. Well, we own our 1st piece property in Salt Lake City, Utah. So that timeline of getting developed speech property we're going to develop, we won't be into sales and closings until later in 2022 or even 23 in the Salt Lake market. So smaller markets, we announced in our prepared remarks, we've just had our first closing in the Baltimore market. We're call. We're now in Norfolk, Virginia. But again, I think we'd emphasize more than new markets going forward is really just going deeper in our existing markets. We're in 36 markets now, I believe. So just focusing on going deeper in all those markets is going to be the primary initiative. Our next question comes from Alex Barron with Housing Research Center. Yes, thanks. As far as the share buyback, you said you're going to be More systematic. I was just trying to understand how you guys are thinking about it. Is it going to be, just roughly a certain amount of shares a quarter? Or is it more a Charles, I think we're first thinking our main priority is to continue to grow the balance sheet and invest in real estate inventory, And that generally tends to be fairly lumpy. We're not giving specific 2021 guidance other than the fact that we think That there is an opportunity to just participate in share repurchases on a regular basis. We did about $26,000,000 in the Q1. So we'll continue to evaluate it on a quarter to quarter basis, but I think the message is we should expect to participate to some degree From this point further out. Okay, got it. And then The other question was, I think you mentioned that you expected the community count to be roughly similar next year versus this year. I guess my question is, is the size of your communities in general higher, the What you're acquiring now versus what you've been operating at in the past? Yes. I'd say they're similar, if not Slightly higher. When you buy raw land parcels, they tend to be higher than or more larger, if you will, And if you're buying finished lots, we've always bought a lot of raw land, and we don't necessarily base it on size. Our Typical project is going to be 3 to 5 years. We're developing Lianite, got similar to what it's been in the past. Okay. And if I could ask one other one on the wholesale business. I think in the past, you guys were selling more individual homes within some of your communities. But am I correct that maybe now you guys have switched To entire communities? And if so, what's the average size of that entire community? I would think now we're probably going to see more Lump sum closings, I guess, if I'm correct. Yes, we haven't switched that dynamic. The demand from the rental operators to buy larger sections or entire communities certainly there. Currently, we have 2 as part of our overall community count where we're under contract entire communities. So it's still a pretty small part of our business. But overall, closings will be in that 10% to 15% range on the wholesale side. Okay. Thanks and great job guys. Thank you. Thank you. Our next question comes from Jay McCanless with Wedbush. Hey, thanks for taking my follow-up. I just want to be clear here. Should we expect the gross margin percentage to decline sequentially from 1Q to 2Q. And is that part of the reason that the gross margin guide looks Pretty conservative. Is it based on that wholesale business you were talking about? Well, Jay, this is Charles. I mean, I think we're not necessarily giving specific guidance Q2, but we think that there's heavier weight to the headwinds in terms of, it's yet to be determined, mix and some the other factors that are going to come through the income statement in the Q2. So we're really thinking about it for the remainder of the year, Similar to slightly down is I think how we would describe it. Okay. All right. That's helpful. Thank you. Call. I'm showing no further questions in queue at this time. I'd like to turn the call back to Eric Hooper for closing remarks. Call. Thank you. And thank you for participating on today's call and for your continued interest in LGI Homes. Everyone have a great day. Call. This concludes today's conference call. Thank you for participating. You may now disconnect.