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lgi homes, inc. (lgih) ceo eric lipar on q1 2019 results - earnings call transcript

by:LSDD     2019-12-11
At 12: 30 p. m. on May 7, 2019, ETCompany participant srachel Eaton-2019 earnings call for the first quarter
Eric Lipar, chief marketing officer
Charles Medan, chief executive-
Chief financial officer attending conference call
JPMorgan Chase. Nishu Sood -
Deutsche Bank Securities Co. , Ltd. Stephen East -
Wells Fargo & CompanyJay McCanless-
Wedbush Securities. Carl recat.
Welcome to LGI Homes 2019 conference call for the first quarter.
Today\'s phone is being recorded and the replay will be available on the company\'s website www later today. lgihomes. com.
We allocated an hour for prepared reviews and Q &. [
Operation instructions]
At this point, I will transfer the call to Rachel Eaton, chief marketing officer at LGI Homes. Mrs.
Eaton, you can start.
Thanks, Rachel.
Welcome to the LGI Homes conference call to discuss our 2019 performance for the first quarter.
Today\'s conference call will include
Including, among other things, statements on LGI\'s business strategy, prospects, plans, goals and confirmations for 2019.
All of these statements reflect current expectations.
However, they do involve assumptions, estimates, and other risks and uncertainties that may lead to our expectations being proven incorrect.
You should review our submission to the SEC, including our risk factors and a warning statement about the future
Looking for the presentation section, discussion of risks, uncertainties and other factors that may lead to significant differences in our actual results with those expected in the forward-looking
Look at the report. These forward-
Looking forward to the future is not a guarantee.
You should consider these.
You should not rely too much on these forward-looking statements given the associated risks
Forward-looking statements, made only on the date of this conference call.
In addition, adjusted gross profit margin
GAAP Financial indicators will be discussed in this conference call.
The presentation of this information is not intended to be considered separately, nor is it intended to replace the financial information presented in accordance with GAAP.
The adjusted gross profit margin is reconciled with the gross profit margin, which is the most comparable measure compiled according to recognized accounting principles, included in our earnings press release this morning and our Quarterly Report on Form 10
We expect the quarterly Q as of March 31, 2019 to be submitted to SEC later today.
This document will be accessed on the website of SEC and on the investor section of our website in lgihomes. com.
With me today is Eric Lipar, CEO of LGI hom;
Charles merdean, chief financial officer of the company.
With this, I\'m transferring the phone to Eric now.
Eric liparank, Rachel, welcome to the phone.
We appreciate your continued attention to LGI Homes.
At today\'s conference call, I will summarize the highlights and results of 2019, and then Charles will follow up --
Discuss our financial results in more detail.
After he has finished, we will finish with the comments and start asking questions.
In the first quarter, we closed 1,228 homes and generated about $0. 288 billion in home sales revenue, which represents 3.
1% more than in 2018.
Throughout the first quarter, we saw continued demand for affordable housing and a positive response from buyers to lower interest rates.
Net orders for the first quarter were 1,948 orders, up 8% from the first quarter of last year.
January and February are the year of decline. over-
This year was 3% and 10% respectively, and the response from buyers was very positive, with orders increasing by 32% in the month.
This trend continued in April with net orders exceeding 30%over-
This year reiterated our optimistic outlook for the rest of the second quarter.
In the first quarter, our average score was 4.
The company closes 9 times a month per communitywide.
Our performance in the Las Vegas, Sacramento and Dallas/Fort Worth markets highlighted this quarter\'s absorption.
The biggest market for each of our communities this quarter is an average of 11.
Each community is closed 8 times a month, followed by seven more times in Sacramento.
Close 2 times per community per month and 7 times DFW. 1. Company-
Wide, we have 87 active communities at the end of the first quarter, up more than 10% from 79 active communities at the end of the first quarter of last year.
The first quarter reflects investment and upfront costs associated with our first quarter community count growth and our projected community count growth for the rest of the year.
In the first quarter, we took on 100% of the start-up costs associated with geographic and community count expansion, which will be surcharges for active community counts in the second quarter of this year, such as increased construction overhead, the cost associated with the new office setup, the training paid for the new sales staff and marketing expenses resulted in the 10 community grand opening we held in the third quarter.
All 10 communities will be closed in the second quarter.
The cost for the second quarter will be the same as we continue to encourage start-up costs to support more communities that will achieve closure in the third quarter.
From an operational point of view, nothing is different than before.
The impact of these fees is more pronounced as the closing price in the first quarter is lower and the number of communities increases.
We invested a lot in the first and second quarters of this year to reach the timeline for opening up these new communities.
In April, we increased our active community by 5 to 92, an increase of 16. 5% year-over-year.
We expect to reach more than 100 communities by the end of July and believe that this will have a positive impact on the closure in the second half of the year.
In addition to the increase in marketing spending related to the new community in the first quarter, based on the results of the fourth quarter, we increased our marketing spending on existing communities to offset the potential impact of the interest rate rise environment.
As mentioned earlier, orders for the first two months of fourth quarter of 2018 and 2019, we are not so strong, so we have taken a more cautious attitude towards the price increase in the first quarter, did not raise the price as in the past.
Another factor that affects our pricing strategy is the expected launch of the new interior renovation and completion plan, which we will discuss in a later conference call.
With this, I would like to transfer the call to our chief financial officer Charles merdean
Conduct an in-depth review of our financial performance.
Thanks, Eric.
As mentioned earlier, home sales revenue for the quarter was $287.
6 million based on 1,228 families closed, one 3.
1% more than in 2018.
Home sales fell from $1 in the first quarter.
Between $40 and $500,000, an average of $234,197 per $4. 4% year-over-year increase.
The increase in the average selling price of each household is mainly due to changes in the product mix, and the price points in some new markets are higher, such as the addition of Sacramento and Las Vegas, and a small increase in the price of existing community sales.
In the first quarter, by sector, the average sales price in the middle was about $215,000, $366,000 in the North-West, $228,000 in the South-East, $204,000 in Florida, and $256,000 in the West, growth from $206,000 in 2018.
Gross margin as a percentage of sales is 23.
Compared with 24, this quarter was 1%.
The same period last year was 8%, down 170 basis points.
In the quarter, we closed 58 homes, generating approximately $17 million in revenue related to the homes acquired in Wynn\'s acquisition.
In addition to buying accounting, the gross profit margin of these houses is lower than the average level of our company.
Compared to the previous year, this has an impact on our overall profit margin of 40 basis points.
We also see a 50 basis point decline in gross profit margin, which is related to the increase in building overhead caused by our geographic expansion in Florida and Northwest Division and lower closure rates in each community.
As Eric mentioned earlier, the gross profit margin was also affected as a result of the overall construction cost, the percentage of lot costs in revenue and the more cautious price.
Our adjusted gross profit margin is 25.
Compared with 26, this quarter was 1%.
The first quarter of 2018 was 4% per cent, down 130 basis points.
The adjusted gross profit margin does not include about $5.
4 million of the capitalized interest charged on sales costs this quarter was 188 basis points, about 30 basis points higher than the same period last year, mainly due to the issuance of $0. 3 billion in senior notes in 2018, the average cost of debt increased overall, and LIBOR increased slightly for a year-over-year.
Adjusted gross profit margin also accounted for $630,000 in Wynn residential acquisitions.
We currently expect that our gross margin will increase slightly in the second quarter and at the end of the year within the guidance range we previously stated.
Sales, general and administrative expenses for the first quarter totaled 15.
7% of home sales revenue, compared to 13.
The previous year and 16 years were 8% and 16 respectively.
8% in the first quarter of 2017.
Sales for the quarter were $26. 8 million or 9.
3% of home sales compared to $22. 9 million or 8.
In the first quarter of 2018, home sales revenue was 2%, an increase of 110 basis points.
The increase in sales expenses as a percentage of home sales revenue reflects additional operating expenses related to personnel and advertising.
We spent another $1.
Compared to 2018, advertising costs for the first quarter of this year were 7 million, including additional costs due to the increase in the number of communities and the increase in our existing community spending.
We have also added additional sales related to the growth in community counts, as well as fees related to opening a new office.
General and administrative costs are $18. 4 million or 6.
4% of home sales revenue compared to 5.
The first quarter of 2018 was 5% per cent, an increase of 90 basis points.
The increase in general administrative expenses as a percentage of home sales revenue reflects additional overhead costs associated with the increase in community counts achieved and expected for the remainder of the year.
We believe SG & A will be different every quarter. to-
Quarterly based on home sales revenue and full income
This year, we expect the combined SG & A as A percentage of revenue to be 20 basis points to 50 basis points higher than our 2018
Mainly due to increased sales costs associated with advertising and opening of new communities.
Pre-tax revenue for the quarter was $21. 7 million or 7.
5% of sales revenue.
In the first quarter, our effective tax rate was 15.
5% below our annual expected effective tax rate, mainly the result of deduction of excess of compensation costs or stock gainsbased payments.
We expect the actual tax rate between the second and fourth quarters to be between 23. 5% and 24. 5%.
We generated net income in the $18 quarter. 3 million or 6.
Accounting for 4% of home sales revenue, equivalent to $0 per share.
Basic $81 per share, $0.
73 per share after dilution.
Total orders for the first quarter were 2,359 and net orders increased by 1,948 and 8% over the previous year.
The backlog for the first quarter ended, compared with 1,344 units last year and 1,370 units in 2019, with a cancellation rate of 17. 4%.
We owned and controlled a portfolio of 50,700 lots at the end of the first quarter, of which 29,978 or 59% were owned as of March 31 and 8,600 completed vacant lots.
18,087 are original or under development, and 3,291 are built families, information centers, or families under construction.
Weighted issued shares to calculate diluted earnings per share affected by our outstanding convertible bonds.
In the first quarter of 2019, our average share price was about $58, causing the weighted share price to rise by about 2 million.
Average issued shares calculated in diluted earnings per share for the quarter.
As of March 31, we had about $35 million in cash, about $1.
Accounting for 3 billion of real estate inventory, total assets exceeded $1. 4 billion.
Also at the end of the third quarter, our total outstanding debt under the revolving credit mechanism, convertible notes and senior notes was $0. 685 billion.
Our borrowing capacity is about $75 million.
Our total debt is about 50.
4%, net capital liabilities were 48. 6%.
Yesterday, May 6, we entered into the fourth revised and Restated Credit Agreement, which provides for the provision of a revolving credit loan of $0. 55 billion, subject to the terms and conditions of the credit agreement, up to $100 million can be added at the company\'s request.
The terms of this recent amendment are substantially similar, including the cancellation of the guarantee trigger and the addition of our available loan base as of now from approximately $75 million to $116.
5 million on the basis of form.
At this point, I want to return the phone to Eric.
Thank you, Charles.
Let me provide some guidance and ideas, and what we have seen so far in the second quarter, and look ahead to the rest of the year.
The second quarter was a good start, with 612 closures in April up slightly from 606 in last April.
612 of the closures came from 92 active communities and the average absorption rate was very stable.
Each community is closed 7 times a month.
As I mentioned earlier in this conference call, we will be introducing new interiors and finishes.
The launch of the complete home is our 2019 initiative, designed to make our products more consistent across the country and include the most ideal new home features, all of which are white to be affordable
Starting in the second quarter, all new communities that opened in 2019 and all new beginnings in our existing communities will include a full home interior renovation and completion package.
The complete home showcases enhancements such as upgraded appliances, hard surface countertops, garage door opener, ceiling fans, USB plugs, and more.
All of these features will be standard and our new inventory will provide greater value to our homeowners.
The homebuyer\'s response to the new full home outfit and the finished package was positive as we had guns that sold this new stock and selected communities, so sales have been strong.
We believe that one of the factors that contributed to the growth in sales on April and 9 was the introduction of the entire home.
Closing in the first quarter rarely includes this bag.
We expect that most of our inventory and closures will include the new full home package in the second and third quarters.
At present, all communities across the country are building new complete family packages.
We plan to launch this new product to the public later this month, and we believe this product will maintain a positive sales momentum.
From the rest of the year, we are confident that during 2019 we will continue to increase the number of communities and between 105 and 115 active sales communities by the end of this year.
In addition, we believe that our average selling price will continue to rise this year, ending 2019 at an overall average selling price of $235,000 to $245,000.
We maintain gross margin guidelines for this year and 23 ranges. 5% and 25. 5%.
We expect that the adjusted gross profit margin excluding the impact of interest and procurement accounting will continue to meet the previous expectations as of 25 years. 5% and 27. 5%.
Given our renewed guidance on average selling prices, gross margin and the number of communities, we continue to believe
Basic earnings per share range from $7 to $8.
Now we are happy to answer your question. Question-and-
Operation instructions]
Our first question came from Michael Rehaut at JPMorgan Chase.
Your line is open.
Michael RehautThanks.
Good afternoon, everyone.
My first question is fitness and completion of the plan and it sounds interesting.
I\'m curious that you mentioned that you have received it, or that some better monthly results were supported by the community you launched in April.
I\'m curious if you can give us a feeling-if you observe a difference in the pace of sales in these communities before and after?
Or what do you feel, I don\'t know if these are new communities, where you can\'t really feel what they sold before, if they start with health and completion.
But it would help if you could give us any meaning from the point of view of sales speed? Eric LiparYes.
Mike, this is Eric. Great question.
We are excited about the new fitness and completion plan called the full family package.
I think that\'s one of the reasons why sales were so strong on April and 3.
This is all the new communities we have launched and all the grand opening ceremonies we have.
I know that I work in this area with our team, sales people and listen to the customer\'s response, which is viewed very positively.
It gives us the consistency we want.
I also think that as we roll out better products and do more upgrades, this is valuable for our customers.
Our average selling price now has been over $200,000, and I think this shows value to customers, especially the more qualified ones, and gives us consistency across the country.
In the existing community, we have been careful not to promote the new packages too much because we do want to sell the existing inventory.
But we are starting to see the result that the community that sells both packages, and of course the customer is willing to pay a premium, which will help us upgrade and complete our profits.
Michael in Ray huo tuo Kay
Thanks Eric.
Secondly, I think in terms of quarterly performance, I think you send out some drivers for higher SG & A sales percentages.
Obviously, I think this is one of the huge differences between your actual results and our estimates, and probably the expectations of the street.
You said you would expect something like that if I didn\'t hear it wrong.
I don\'t know if this means a similar year. over-
Annual difference or you-annual growth of about 200 basis points-over-year.
So, when you\'re talking about having enough to eat, try to feel it --
There will still be 20 to 50 basis points this year, which is part of the similar year rhythm you are looking --over-
Annual growth in the second quarter, followed by some leverage in the second half, or how should we look at the rhythm there?
Charles mediannis
This is Charles, Mike.
I can take it first.
I think we\'re definitely talking about sales in the second quarter. over-
The year comparison should be similar to what we see in the year. over-
Annual comparison for the first quarter.
On the G & A side, I think if you look back at the rhythm of G & A spending in 2018, we would expect that figure to gradually decrease over the course of this year --over-
June of 2018 comps for 18 dollars.
Compared to $18, the cost of G & A is 3 million.
We reported 4 million of this quarter.
So we\'ll see-the G & A side didn\'t see much growth for the rest of the year compared to comps, mainly selling more in the second quarter.
And then like you mentioned, see some leverage payments
As these communities are open and closed, they will leave in the third and fourth quarters.
Michael Redhead
If I can sneak it in, there\'s the last one.
On gross margin I just didn\'t hear one of the drivers you said in terms of first quarter performance-you mentioned that your impact on purchasing accounting was 40 basis points, then 50 basis points. I missed it if you could repeat it.
Then, when you talk about the second quarter, your expectations for a small increase, I just want to clarify, do you mean in order or by year? over-year?
Charles mediannis
Therefore, 50 basis points are related to the construction cost.
So even though our revenue across the country is similar, we have lower closing rates for each community in our Florida and Northwest divisions, which are mainly composed of western and central.
This means that we have incurred similar construction overhead in these two lower-income sectors, so the overall impact on our construction overhead, which flows through the gross profit margin, is about 50 basis points.
As far as gross margin expectations are concerned, continuous Gross margin expectations, usually Construction overhead, have the greatest impact in the first quarter due to the overall closure of each community.
So we will see-if nothing else than that, we will see a little pick-up, and the impact of Wynn will be slightly marginalized, and then the normal operation from there.
So we hope it will rise in order.
I think Michael Rehault made further progress in the second half?
Charles median Corey
Michael RedheadThanks so much.
I bet it\'s Charles maydyayu.
Thank you.
Our next question is from Nishu Sood at Deutsche Bank.
Your line is open.
Thank you.
I want to start with gross margin, too.
It is clear that the demand trend in the first quarter of this year has a great impact on the entire market.
Therefore, according to the usual rhythm, it makes sense not to increase the price and the cost of the building.
Does this include any price cuts, or is it just that there is no increase, I will actually pause as I want to follow up. Eric LiparYes.
I\'m Eric.
Yes, we do have some drops and some specials if you want to close some of the old neighborhoods.
This is very consistent with our approach.
We don\'t negotiate on prices, but when we close the community we discount to get rid of the old stock.
But overall, this is not the main driver, the main driver is just-we didn\'t raise prices in a more difficult environment and expect interest rates to be higher in the first quarter, unfortunately, this has not happened, so the cost is increasing.
So we\'re still seeing an increase in costs, and when we don\'t actively raise prices as we did in the past, it has a negative impact on profit margins for the quarter.
Shu SoodGot.
The demand now sounds like from more than 30% years-over-
The pace of April and it sounds like it clearly reflects the health and completion plan and the lower interest rate.
Therefore, with the return of demand, should we consider the delay of 1Q and the shortage of price increases
Is it possible to adjust the timing of the new environment, or is it possible to catch up and push the gross margin back to its level in recent years? Eric LiparYes.
This will be the optimistic side of the equation.
Demand is very strong.
April and, very strong.
Let\'s take a look at our clues.
You mentioned the word traffic. what do we think.
As in the first quarter, we have more than 100,000 consulting and home ownership.
So demand still exists, which is stronger than what we saw in the fourth quarter and at the beginning of the year, and stronger pull on contracts and closures.
So it goes in the right direction and your assumption is correct.
If sales remain strong, it is clear that in order to offset costs, we will increase the crisis, but prices will also rise due to the presence of demand, which is a great environment for raising prices.
So hopefully for the rest of the year.
We expect this to happen and demand remains strong.
If this does happen and we expect this to happen, then gross margin will continue to increase every quarter, as Charles and Mike talk about.
Shu SoodGot.
Health and completion programs sound very exciting for having a national standard of health and completion.
Obviously I can see something that you describe that adds to the cost, but on the other hand, if there is a consistent standard, there may be some synergies with incremental purchases.
So how should we consider the impact of fit and completion on your profitability for a longer period of time
Semester, where will it be?
I think it\'s mainly gross margin, but if you can take us there too. Eric LiparYes.
This is a great question, and I would like to be a little more specific when we look at our health and achievements across the country.
We want more consistency.
Also, we have done some health and finishing work outside the house and we are not sure it was a great decision and put some of it back.
Granite countertops are a hard surface countertop that is easy to use.
For example, there may be 80% of granite or hard surface countertops provided by our community, and 20% is the Formica stage, just focusing on affordability.
While we jump into this and add granite to all of our advantages in these communities, the plan for a house with an extra fee of $800 to $1,500.
We think it is very valuable.
Then, from a marketing point of view, it gives us this tool, and from consistency and pictures, every house in the country will have a hard surface countertop for my LGI starting in the second quarter.
Many of our communities already have houses or hard surface countertops.
So we added something like a ceiling fan and a garage door opener.
Therefore, we believe that this creates value at a cost of only $100.
But what I want to say is that on average, we might add $1,000 or $2,000 to each LGI family, we think we can add $3,000 to $5,000 in income to each household.
So this will increase the profit margin and will also increase the absolute dollar and the overall average selling price, which we think will increase the sales as well.
Shu SoodGot.
So in order to end this, the interest in sales or income or the interest in selling prices will still come, or, when you are transforming these communities or introducing new ones based on new installation and completion standards, is it incorporated into these communities?
Eric LiparWell, from the point of view of our first quarter closure, only 70 were closed in the first quarter and I believe about 6%
Where we were closed, there was a new renovation and renovation package in the first quarter, complete family package.
Shu SoodGot. Okay, great. Thank you.
Welcome, Eric lipello.
Thank you.
The next question is Stephen Dong from Wells Fargo.
Your line is open.
Thank you, Stephen Esther. good morning, everyone.
Eric, can you ask another gross margin question?
You all mentioned the cost of light and you know the higher cost of construction.
Just any color of these two indicators you see there.
This is Charles, Stephen.
Yes, so we accounted for 90 basis points between win clo and the 50 basis points of building overhead.
Most of the differences of 170 basis points change during the year-over-
The year related to the increase in housing costs-our lot costs increased by about 20 basis points to 18 basis points.
Our average selling price is 8%.
But that goes back to the cautious price, which means we usually translate that and push the average selling price.
Stephen Eastby. I\'ve got you. Okay.
Then underwrite FHA manually, how much percentage of your business will be affected?
Did you see the rejection of FHA?
Does it affect your overall needs?
What color is there?
This will not affect the demand, Eric LiparYes.
Demand has been strong.
FHA is a big part of our business and there are still about 70% of customers who choose FHA.
Are there any financing tools, as well as their mortgages?
Stephen, we have not seen the negative impact of austerity.
We assume that they are really in trouble, but those customers who have a higher ratio and need to pay back their debts or save more money for the first payment.
We assume something has happened in this area, but according to the contract we see, we see the closure and based on our pull, this does not seem to have a significant impact on our business in the field at least.
Stephen EastoI\'ve got you.
What percentage of your customers do you think belong to manual underwriting? Eric LiparYes.
We cannot be sure because we cannot measure it.
I mean, we know our average customer has a credit score of 650 and our average debt-to-income ratio is always low40s.
So, you know, a lot of customers fall into that bucket, the Math Society says.
Well, but it doesn\'t seem to get them rejected because of the loan.
They are not in decline.
This only underwrites documents close to the point.
But we don\'t see a lot of cancellations.
They\'re customers in that bucket.
Stephen EastoAll right.
A simple question is that you say your absorption is better than your health and completion.
What do you think is the difference between your heritage and the decor?
Eric lipris, Stephen, I don\'t think we have this information because it\'s one of the metrics we calculate, the main reason is that the community with the complete family decoration and decoration is actually the big opening of the parade that we just started to close.
So when there are only 70 deals, the real absorption rate is really not yet measured gap, but from the point of view of the order or sales, well, it seems really, very positive about what is going on, you can see this in our order and in April.
Stephen EstherOkay. Thanks a lot.
Welcome, Eric lipello.
Our next question is Jay McCanless from Jay bush.
Your line is open.
Jay mccanless is sorry about this.
Thank you for answering my question.
So, the first new information I got under the guidance of ASP about the full home, and then some old legacy communities that you need to sell.
We should consider keeping our ASP assumptions at the low end of the guidance as you all discount and clean up in some old houses to allow yourself to open up these new communities with full families?
That sounds reasonable to us.
I mean, we were at the low end or just below the low end in our first quarter guidance.
So I think Charles and I think the average selling price may go up as we raise prices all year round.
The fit and finish will add thousands of dollars to the total cost of the exact same floor plan.
But customers, they will be selective in their floor plans and qualifications, we will see how the price is and the floor plans are selective.
So we have a lot of mix and location for the average selling price.
But I think it\'s a good way to look at it.
Jay McCanlessOkay. All right. Thank you.
I am sorry if you have mentioned the second question.
What is your wholesale sales this quarter?
Are you still thinking that the total percentage of wholesale this year may be a little less than 2018?
Charles mediannisSure.
I\'m Charles, Jay.
In the first quarter of this year, we closed 30 wholesale companies, compared with 31 in 2018.
Very similar.
This year, we still expect about 5% of our business to come from wholesale.
Then my last question.
As far as pricing is concerned, I mean, what is the percentage of communities you feel you have pricing right now, and how is that compared to the beginning of the year?
Eric LiparYes, I think that\'s a lot more than it was at the beginning of the year.
I mean, as strong as sales, the excitement of our whole family package, the price is the same as the demand we see, yes, I think we will increase the price and 80%, 90% of the community, plus the recentterm.
Jay McCanlessIt sounds great.
Thank you for answering my question.
Welcome, Eric lipello.
Our next question comes from the collaboration between Carl Reichardt and BTIG.
Your line is open.
Thanks Carl. Hi guys.
Hi Eric.
Carl REDcard.
I would like to ask the guide for this year-community count.
When you\'re looking at this is there a specific area, you have more flexibility built into the community count, is there a rhythm for the year you\'re looking for there?
This is 10 communities compared to your absorption, so a lot of delivery may come from more or less communities.
So I just want to know what we should think? Eric LiparYes.
We just had a great promotion in April and we had up to 92 communities in our training class in January and 10 grand opening ceremonies in the month.
The next big problem is that we have just held the largest training course in history, and at the training course in April, we have about 12 communities to prepare for the grand opening.
As I said on the phone, a lot of the vast space and the second quarter are ready for these grand openings, but in July, when we pushed 100 active communities to the north, then it will be a huge return from July, so you can get 105 to 115 this year.
The regional focus of Carl reichard and Eric is . . . . . . Eric LiparYes, relatively deep in the existing market.
As far as the number of communities is concerned, a lot is in the South East, and with the acquisition of Wynn homes, it really drives the number of our communities further into Colombia, into Alabama, and also central Taiwan.
Our first community in Virginia is open in the Atlantic Ocean.
Florida closed two active communities in the first quarter, so we\'re starting over and adding more communities in Florida, which gives you some color.
This is important. Okay, thanks.
Then back to the full House, you talked about the potential impact on the profit margin of each house.
Very helpful.
In terms of the decision-making process, I was thinking, when did you decide that this was the action you wanted to take nationwide?
Is this to some extent a function of some of your peers moving towards lower prices?
Or is this kind of thing you see in the competition with resale helpful to you?
Then, I think nieshu asked this question, or someone asked about the impact on the supplier, if you can get a bigger national sourcing lever here than the package you provided earlier? Eric LiparYes.
I think the decision to go into this internal packaging is actually more focused on the inside and the outside and check out our products for our executive team, and the feedback we got from the president of the department, along with our customers, saw our performance and percentage, signed various contracts with customers and looked at everything.
Because a few years ago, we really took the initiative to value everything about the engineers and adapt and finish the house as much as possible.
We have done very well in this regard.
In some cases it may be a great job and when you go to the Houston community you will see a very healthy community being eliminated, it blessed Mika cabinets, then you go to the next cabinet with granite.
This does not make much sense to us.
Let\'s have a consistent product.
I know that we supply our supplier of granite countertops at last week\'s general meeting, and he will supply this granite countertop and every community in Houston, which will lead to better prices.
We do therefore believe that there is leverage at the regional and even national levels.
I mean, the Whirlpool appliance package we bought from Whirlpool is now 100% consistent.
We have been using Whirlpool, but the packages are not consistent across the country.
Now every LGI family in the country will stay here in exactly the same location.
Carl ReichardtHey, thank you for all the details.
I appreciate it.
Welcome, Eric lipello.
Welcome to Charles merdia. Operator[
Operation instructions]
The next question comes from Alex Barron, from the Housing Research Center.
Your line is open.
Thank you, Alex BarronYes.
So, just to compare a full package with a one with formica.
How much extra does it cost for buyers to buy this house, what\'s the difference in your profit on the same suite, just starting with an upgrade?
Eric LiparFor is a community that has started using formica countertops and we are adding-we will be using hard surface countertops.
We need a ceiling fan.
We added a garage door opener, 36-
Inch cabinet.
Their equipment package may be upgraded.
The cost of the borrower is approximately $3,000 and the monthly payment is approximately $20 to $25. Alex baritzk
But do you guys have incremental profit or do you just pass it on cost?
Eric LiparNo, no, we will have an incremental profit, that is, we will have a gross margin of at least 30% higher than our cost.
So we need to make some money.
So it\'s not going to be negative.
So the overall profit margin of the company.
I think in Nevada, do we think the whole family is at our historical level, the profit margin of our existing inventory, and we \'ve been hit there if you want, then aggressive in raising prices.
Alex barronget is here.
Then, can you comment-there are now more builders who are aware that there is a good need for entry level.
I think in the last few years, what has changed in land prices, you guys are one of the few, taking advantage of entry-level demand when other builders don\'t really realize that this is a good market segment.
But does this affect the cost of your land or what is your outlook? Eric LiparYes.
I think the price of land has been rising over the past few years and we are predicting that they will continue to rise.
There are, of course, many other builders talking about buying entry-level land.
So I think that drives the price.
We certainly did not see a price discount on the land.
We believe that all of us have enough demand to succeed in the entry-level market and we are confident in the purchases we make.
Our land supply is a little more than most builders, 50,000 of the land owns or controls our land, or is very beneficial to our land.
So we don\'t have to make a difference in decision making or stick to our discipline, underwriting and acquisitions, but we do expect land prices to continue to rise. Alex baritzk
What new markets are you planning to enter?
I think the current focus is mainly on the market.
We have invested in these markets and have invested more deeply.
We just closed the door for the first time in the middle.
Atlantic market in Washington, D. C.
So this is exciting.
Began to see the results of our investment there.
Colombia in South Carolina is under surveillance.
Richmond in Virginia is being watched and they just want to get to know more about sarmando and Las Vegas, another deeper world.
We have some new markets in Florida, Level 3, if you like.
This will be launched this year, so there is a lot of growth across the country.
Alex BarronAll is right.
Good luck to you. Thank you.
Eric lipelloThanks, Alex.
Welcome to Charles merdia.
Thank you.
I have not raised any further questions.
I will transfer the phone back to Mr.
Closing words by Eric Lipar
Eric liparank Thank you, Rachel, and everyone, for attending the conference call and continuing to be interested in LGI Homes.
Have a good day.
Ladies and gentlemen, the show is over.
You can disconnect now.
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