LGI Homes Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
October 31, 2023

Key Takeaways

  • LGI Homes closed 1,751 homes in Q3, up 13.2% year-over-year, delivering an adjusted gross margin of 27.2% (up 340 bps sequentially) and a record Q3 pre-tax profit margin of 14.5%.
  • Active community count grew to 106 (up 14% YoY), and the company now expects to operate in 115–125 communities by year-end 2023, over 150 by end-2024 and above 180 by end-2025.
  • In Q3 LGI Homes approved 23 new projects (including nine finished-lot communities) and closed the acquisition of 1,100+ lots from Glenwood Homes, highlighting opportunistic land and M&A activity amid market uncertainty.
  • The company tightened 2023 guidance, raising the low end of full-year adjusted gross margin by 150 bps to 24.5%–25%, and now forecasts 6,700–6,750 home closings at an average selling price of $350k–$355k.
  • Bookings dynamics showed stress as Q3 cancellations climbed to 27.9% (from 21.3% a year ago), causing net orders to slip slightly to 1,490 despite gross orders rising 6%.
AI Generated. May Contain Errors.
Earnings Conference Call
LGI Homes Q3 2023
00:00 / 00:00

There are 10 speakers on the call.

Operator

Welcome to LGI Homes Third Quarter 2023 Conference Call. Today's call is being recorded and a replay will be available on the company's website at www.lgihomes.com. After management's prepared comments, there will be an opportunity to ask questions. Webcast. At this time, I'll turn the call over to Joshua Fatter, Vice President of Investor Relations and Capital Markets.

Speaker 1

Webcast. Thanks and good afternoon. I'll remind listeners that this call contains forward looking statements, webcast, including management's views on the company's business strategy, outlook, plans, objectives and guidance for future periods. Website. Such statements reflect management's current expectations and involve assumptions and estimates that are subject to risks and uncertainties that could cause those Webcast and Webcast.

Speaker 1

You should review our filings with the SEC for a discussion of the risks, uncertainties and other factors that could cause actual results webcast to differ from those presented today. All forward looking statements must be considered in light of those related risks and you should not place undue reliance on such statements, Webcast, which reflect management's current viewpoints and are not guarantees of future performance. On this call, we'll discuss non GAAP Webcast and Webcast Financial Measures that are not intended to be considered in isolation or as substitutes for financial information presented in accordance with GAAP. Webcast. Reconciliations of non GAAP financial measures to the most comparable measures prepared in accordance with GAAP can be found in the press release we issued this morning website and in our quarterly report on Form 10 Q for the quarter ended September 30, 2023, and we expect to file with the SEC later today.

Speaker 1

Website. This filing will be accessible on the SEC's website and in the Investor Relations section of our website. Webcast. I'm joined today by Eric Lieber, LGI Home's Chief Executive Officer and Chairman of the Board and Charles Merdian, Chief Financial Officer Webcast and Treasurer. I'll now turn the call over to Eric.

Speaker 2

Thanks, Josh. Good afternoon and welcome to our quarterly earnings call. Webcast. I'm pleased to share our exceptional performance during the Q3 of 2023. Our strong results built upon the momentum generated in the first half of the year website and the positive impact of decisions we made to align our business with unique challenges of today's affordability constrained market.

Speaker 2

Website. Demand remains healthy supported by positive longer term fundamentals, including strong demographic trends and a low supply of affordable homes. Webcast. We believe that once the Fed's targets are met and we have a clearer view of the economic landscape, website. Interest rate volatility will subside and the market will likely exhibit more stability similar to what we experienced

Speaker 3

webcast in the years prior to the pandemic.

Speaker 2

However, there is no consensus on whether that takes a couple of quarters or a couple of years. Webcast. Therefore, we are laser focused on ensuring that any near term decisions around pricing, incentives, investments and community openings webcast. Not only in the context of their impact to our company's near term success, but also 5, 10 20 years down the road. Webcast.

Speaker 2

A great example of this is the 1751 homes we closed in the 3rd quarter. Webcast. This was a 13.2% increase over the same period last year and represented a strong pace of 5.6 closings website. It is possible that if we'd offer significantly more than our typical 2 to 3 points of rate buy down assistance, website. We may have pushed closings higher, but beating the closing guidance wasn't the goal.

Speaker 2

Hitting the guide, while also protecting and expanding margins webcast. And that's exactly what we did, delivering adjusted gross margins of 27.2%, website, representing a sequential improvement of 3.40 basis points and back within the pre pandemic range website we've been working towards. Additionally, our pre tax profit margin of 14.5% website. Was also up 3.40 basis points and was the highest Q3 result in our history outside of the pandemic. Webcast.

Speaker 2

During the Q3, our top market on a closings per community basis was Dallas Fort Worth with 10.1 closings per month. Webcast. Next was Charlotte with 9.5 closings, followed by Northern California with 8.9. Rounding out the top 5 were Fort Pierce website with 8.5 and Houston with 7.9. Congratulations to the teams in these markets for their strong performance last quarter.

Speaker 2

Webcast. To reiterate, every decision currently being made is being considered within the context of our systems based philosophy webcast. And represents a careful assessment of its potential to create sustainable long term value for our shareholders. Webcast. Along with margin expansion, our continued community count growth is another highlight.

Speaker 2

At the end of the quarter, Webcast. We reported 106 active communities, a 14% increase from a year ago and a 4% increase from the prior quarter. Webcast. Growing our community count remains a key focus and we still expect to be active in 115 to 125 communities

Speaker 3

webcast by the end of 2023.

Speaker 2

Finally, I'll share my thoughts on additional highlights from the quarter, the land market. Webcast. Early in 2020, deals for finished lots began to diminish. By the end of 2020, they were virtually non existent. Website.

Speaker 2

However, we've started to see that shift. During the Q3, we approved a total of 23 new projects, website, 9 of which were composed entirely of finished lots, many of which will contribute to closings and community count in the back half of twenty twenty four. Webcast. Though still in the early innings, we're encouraged by this recent trend and its potential to impact future returns. Along with attractive land opportunities, website.

Speaker 2

We've also seen a meaningful increase in M and A opportunities. The majority of these are small private builders website. Looking to leverage longer dated land pipelines to free up capital to continue to grow their operations. Webcast. During the quarter, we closed a deal to acquire substantially all of the land assets of Glenwood Homes in North Carolina.

Speaker 2

Website. The transaction enabled us to acquire over 1100 lots in one of our best performing regions. On the opposite side of the deal, website. The seller retained their high margin backlog and received an inflow of capital that has the potential to insulate them from turbulent credit markets website and support their continued success as a homebuilder and developer. The win win nature of this deal illustrates a positive upside of today's uncertainty.

Speaker 2

Webcast. Challenging times can create great opportunities that if structured thoughtfully, hold real value for both parties. Website. We expect similar opportunities to materialize in the future and plan to pursue those that work within our profitability focused Webcast, Long Term Growth Strategy. I'll now turn the call over to Charles for more details on our financial results.

Speaker 4

Webcast. Thanks, Eric. Revenue in the 3rd quarter was $617,500,000 webcast based on 1751 homes closed. Revenue was up 12.9% and closings webcast. We're up 13.2% over the same period last year as we benefited from continued demand and the momentum built during the first half of the year.

Speaker 4

Webcast. Of our total closings, 139 were through our wholesale channel, representing 7.9% of total closings, webcast and the Q2 this year. Our average selling price of $352,678 webcast. Was slightly lower year over year, but up 1.3% sequentially. Our 3rd quarter gross margin was 25.7% website.

Speaker 4

And adjusted gross margin was 27.2%. As Eric highlighted, adjusted gross margins webcast. Improved 340 basis points sequentially compared to the 150 basis point improvement we guided to on our last call. Webcast. The outperformance was driven by our success in maintaining and where possible raising prices in many communities as well as lower input costs website and new and replacement community openings at normalized margin profiles.

Speaker 4

Adjusted gross margin excluded $8,600,000 of capitalized website. We will now begin the call to discuss the financial results and $767,000 related to purchase accounting together representing 150 basis points. Webcast. Combined selling, general and administrative expenses for the Q3 were $76,500,000 or 12.4 percent of revenue. Webcast.

Speaker 4

Selling expenses were $49,800,000 or 8.1 percent of revenue compared to 7.6% in the Q2 of this year. Webcast. The 50 basis point sequential increase was primarily due to spending on advertising to drive leads and support new community openings. Webcast. General and administrative expenses totaled $26,700,000 or 4.3 percent of revenue, a level that was in line with the Q2 of this year.

Speaker 4

Webcast. We expect advertising and G and A dollars will remain consistent in the 4th quarter resulting in full year SG and A as a percentage of revenue webcast of around 13%. Pretax net income for the quarter was $89,400,000 or 14.5 percent of revenue, Webcast, a 3 40 basis point improvement over the prior quarter. Our effective tax rate was 25.1% compared to website at 16.8% in the same quarter last year. The increase in the rate was primarily due to fewer federal energy efficient home tax credits webcast and the same period last year.

Speaker 4

We expect the rate in the 4th quarter to be similar to the 3rd, website, resulting in a full year effective tax rate of approximately 24%. 3rd quarter reported net income was $67,000,000 website for $2.85 per basic share and $2.84 per diluted share. Website. 3rd quarter gross orders were 2,068, up 6% over the same period last year. Net orders webcast for 1490, a slight decrease compared to the Q3 of last year.

Speaker 4

Our cancellation rate during the quarter was 27.9% webcast compared to 21.3% in the same period last year. At September 30, our backlog consisted of Webcast and Webcast. We are now ready to open the call for questions. Thank

Speaker 3

you, sir. Thank you, sir.

Speaker 4

Thank you, sir. Thank you, sir.

Speaker 3

Thank you, sir. Thank you, sir. Our next question comes from the line of John R. C. With

Speaker 4

website or 19.8 percent of our total backlog were related to wholesale contracts with single family rental partners. Webcast. Turning to our land position. At September 30, our portfolio consisted of 72,109 owned and controlled lots, webcast. A decrease of 5.7% year over year, but an increase of 4.2% sequentially driven by an increase in the availability website of fairly valued land deals during the quarter.

Speaker 4

Of those lots, 56,301 website or 78.1 percent were owned, a decrease of 7.1% year over year and less than 1% sequentially. Website. Of our owned lots, 42,618 were raw land or land under development. Webcast. Of the remaining 13,683 owned lots, 1471 were completed homes, including our information centers website.

Speaker 4

And 3,009 were homes in progress and 9,203 were finished vacant lots. Webcast. We controlled 15,808 lots at quarter end, essentially flat year over year, but an increase of 26.8% sequentially. Webcast. With that, I'll turn the call over to Josh for a discussion of our capital position.

Speaker 1

Thanks, Charles. Webcast. As of September 30, we had just under $1,200,000,000 of notes payable outstanding, including 904 point webcast and

Speaker 2

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Speaker 3

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Speaker 1

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Speaker 4

Total liquidity at the end

Speaker 1

of the quarter was $243,200,000 including $47,000,000 of cash on hand and 196 webcast and cash equivalents and cash equivalents and cash equivalents and cash equivalents and cash equivalents and cash equivalents

Speaker 5

and cash equivalents and cash equivalents and cash

Speaker 1

equivalents and cash equivalents and cash equivalents and cash equivalents and cash equivalents and cash equivalents and cash equivalents and cash equivalents and cash equivalents and cash equivalents and cash equivalents and cash equivalents and cash equivalents and cash equivalents and cash equivalents. Website. Our book value per share was $76.50 an increase of 10.9% over the same time last year. Website. At this point, I'll turn the call back over to Eric.

Speaker 2

Thanks, Josh. On Friday, we expect to report October closings of 567 Homes, website, up 5% compared to last October in 108 active communities. Based on those deliveries website. In a sales pace in October that was consistent with this time last year, we expect to achieve an increase in closings year over year in the Q4. Webcast.

Speaker 2

Based on this, we are tightening the range of our expected closings for the year. We now expect to close between 6,707,000 homes website at an average selling price between $350,000 $355,000 for the full year. Webcast. Margins in the Q4 are expected to be similar to slightly lower than what we delivered in the Q3 depending on several factors, including geographic, website and retail versus wholesale mix as well as incentive levels offered in the 4th quarter webcast related to our Make Your Move national sales event. Based on those variables and our performance in the 3rd quarter, website.

Speaker 2

We are raising the low end of our margin guidance by 150 basis points while holding the top end steady. We now expect full year gross margins webcast between 23% 23.5% and adjusted gross margins between 24.5% 25%. Webcast. Community count is building. As I mentioned earlier, we continue to expect 115 to 125 active communities at year end.

Speaker 2

Webcast. As a closing thought, I'll add that based on our existing land pipeline and views on development timing, webcast. We now expect to end 2024 with over 150 communities and to be operating in over 180 communities by the end of 2025. Webcast. I'll conclude by saying again how proud I am of our strong Q3 results and our success in returning profitability metrics back to pre pandemic levels.

Speaker 2

Webcast. Our continued success is a result of outstanding execution by our teams around the country. Despite volatile rate movements, market uncertainty webcast. And the occasional need to move between projects due to the timing of new openings, our dedicated employees continue to construct, sell and close homes, webcast, while delivering the best service in the industry. Thank you for continued commitment to our company and to our customers.

Speaker 2

We'll now open the call for questions.

Speaker 3

Webcast.

Operator

Webcast. And our first question will come from Michael Rehaut of JPMorgan. Your line is open, Michael.

Speaker 6

Hi, guys. This is Andrew Razi on for Mike. Congrats on an impressive quarter.

Speaker 5

Webcast. I just wanted to

Speaker 6

ask if maybe you can bucket out then maybe quantify more website. What drove the gross margin beat and maybe if there was a lean in one direction or the other?

Speaker 3

Web. Yes.

Speaker 2

I think Andrew, this is Eric. I can start and Charles can add if you'd like. I think the gross margin beat webcast. It comes from a couple of different factors. One is we held pricing strong.

Speaker 2

We're still in a very strong demand environment, low supply of inventory out there and able to hold pricing and raise prices in a substantial number of communities. Webcast. The other thing that happened during the quarter is when we guided to 25.3% and then beat that webcast. As we didn't have a lot of wholesale closings or gave room for more wholesale closings to come through in the quarter, which didn't web. And I'd point to those 2 as the 2 primary reasons.

Speaker 6

That's really good color. And then webcast. Maybe just one more in terms of how maybe widespread were these price increases that you guys are seeing?

Speaker 2

Webcast. Yes, I would say in October, we did our Q4 pricing. We probably raised prices in a quarter to a third of our communities.

Speaker 6

Web. Okay. And maybe if you could quantify the magnitude or?

Speaker 2

Yes, very slight. Just to website. Quantify the strong demand communities and also we did have some house cost increases, which we need to raise prices to maintain margins as well. Thanks

Speaker 3

webcast.

Operator

Our next question will be coming from Truman Patterson of Wolfe. Your line is open Truman. Webcast.

Speaker 7

Hey, good afternoon everyone and thanks for taking my questions. First, Eric, I'm hoping to understand how you're website. Balancing your historically elevated gross margin, which you all were able to rebuild kind of back to normalized levels this webcast. By balancing that with the recent spike in rates and the affordability constraints, are you all going to continue to favor price a bit more webcast at the sake of absorption pace given just all of this community growth that you all have in the pipeline? Web.

Speaker 2

Yes, it's a great question, Truman, and good afternoon. Starting again with very strong demand, but certainly Affordability is getting constrained, whether it's raising prices to offset additional costs, which I should also mention, the development costs are generally Increasing as well or the increasing in rates. And we're cautious about webcast. Throwing too many incentive dollars with the customers because incentives are really short term and there's no question in our mind webcast. We put a lot more dollars into large forward commitments or buying down rates, that would improve sales temporarily.

Speaker 2

Webcast. But we want to make sure we're making good strategic long term decisions. We're protective of that gross margin because the financials as we just showed for this quarter at 5 point website. Absorption pace creating a 14.5 percent pre tax. The financials can handle a slower absorption pace.

Speaker 2

Webcast. So when you start discounting your houses tremendously and start throwing a lot of incentives into a short term bucket webcast to drive that absorption pace. That may or may not be the right long term decision for the company and that's what we're really focused on.

Speaker 7

Web. Okay. Perfect. And then, I believe you mentioned that you all were maintaining, I think, 2 to 3 points of financial incentives. Webcast.

Speaker 7

Could you help us understand what portion of your buyers are getting a mortgage rate buy down? Webcast. And are you all doing any sort of forward commitments at all? Or is this just kind of a case by case basis web With incentives that the consumer can use based on their specific needs.

Speaker 2

Yes, it's another great question webcast. And there's a lot of talk about rate buy downs and incentives. For clarification, what we've been really focused on is getting the consumer website. I spent here recently even paying a couple of points. We have not purchased any big forward commitments, which instead of costing 2 to 3 points may cost 600,900, 1000 basis points to get a rate materially lower from that and that is very expensive to do.

Speaker 2

Webcast. But we're continuing to analyze sales week to week and what incentives are going to be best for our customers.

Speaker 7

Webcast. Okay. Perfect. And then just one final one for me. Just in your Q4 gross margin guide, any discussion around there, does that webcast.

Speaker 7

Contemplate any buyers or incremental rate buy downs incentives needed for any buyers that might get ticked out due to affordability or any way you can help us kind of think about the sensitivity of buyers that Might not be able to qualify without a buy down today.

Speaker 2

Yes, I think it does contemplate that, Truman, I think we're all it's an unknown. Rates got to 6.5% to 7%. We didn't necessarily expect them to go to 7.5% or 8%. And I think from this point forward, where do they go from here? So we're giving our gross margin guide, we said similar to slightly down.

Speaker 2

So we think we got 100 basis points to 200 basis website. We'll see where the costs come in, see what percentage of our business comes from the wholesale Investors and geographic mix also plays a role in that.

Speaker 7

All right. Thank you all.

Speaker 2

Thank you.

Operator

Web. One moment for our next question. Webcast. And our next question will come from Ken Zener of Seaport Research. Your line is open, Ken.

Speaker 3

Webcast.

Speaker 2

Good afternoon.

Speaker 5

So a couple of different angles here. I believe you said you bought finished lots that you saw website. And was it 23 communities, is that what you actually said?

Speaker 2

23 overall, 9 of which were finished lots,

Speaker 5

website. And how does that play into and When you find that attractive, given your self development bias to buy raw land and keep that 300 basis point spread development to buying from somebody. What makes you go ahead and do this? Is it because you're trying to get Just literally opportunistically came up and how do you think about that relative to the margin bias you have for your existing land development business webcast.

Speaker 2

Yes. It's really opportunistic, Ken. And that's the positive about being in a more challenging market, a more challenging website. That's one of the most exciting things that we shared on the call is the ability to buy these new communities, instead of buying bigger land positions, which website. Take a lot more capital, there's more timing on development risk.

Speaker 2

What we're seeing in the market today on these 23 communities, these are smaller, Smaller deals, most are coming from private builders or private developers, probably average lot size around 100 lots instead of a few 100 lots, website. Less capital intensive, less risk, stress testing these deals to meet our margin requirements, probably works at Half the absorption pace is a larger community. So really accretive earnings, we can get in there and create closings quicker. And then that led to us being confident that webcast. We're on track for our community count growth this year.

Speaker 2

We're confident that we're going to have 150 communities by the end of 2024, which is webcast. Substantial growth in 180 communities by the end of 2025. All those developments are already in play. It's just a matter of timing of getting them open.

Speaker 5

Web. Right. So absorptions, there's community size risk, which is duration. But how do you think broadly about like the margin differential? When you introduce webcast.

Speaker 5

The pace. Yes. Historically, you kind of talk about a 300 basis point spread, I believe, for margins

Speaker 2

you want to achieve and develop.

Speaker 5

And the reason I'm asking is if you could just kind of reaffirm that range and how it plays out with finished lots. Because if you can buy finished lots webcast. Structurally, I wonder if there's something that you might be more open to depending on how the environment is given your high land positions today.

Speaker 2

Web. Yes. No, we're more open to it. First of all, you're correct. I mean, it's a big thing and we've used 300 basis points in our history as a guide.

Speaker 2

I think that's still a reasonable guide. Website. I think the biggest objective that we're always cognizant about is when you're doing developments and putting lots on the ground for the purposes of homebuilding, You need to make sure you're capturing the development profit as well as the homebuilding profit for taking on that risk and spending the upfront capital. Website. What we're talking about on this call, the ability to buy finished lots is just a market component.

Speaker 2

For the last 20 years, if we could go out and buy all finished lots, webcast. We'd be open minded to that. There just wasn't a lot available. Most of the developers can sell finished lots to smaller private builders website at higher margins for the developers. So it's really competitive and we have the balance sheet and we're comfortable developing.

Speaker 2

So we thought that's where the opportunity was for us. That's just a dynamic that's happening in the market as we're seeing more finished lot opportunities that we can buy, get into closings quicker. And the prices for those finished lots, I won't say they're distressed pricing or coming down, but they're prices webcast that are very realistic at today's pricing. We can make a good margin on them and we think we should buy them and get in there and start selling and closing houses.

Speaker 5

Good. I appreciate that. I think it's a fascinating part of the industry. Last question here, Charles, Could you give us confidence? I mean, obviously, you've recovered your margins.

Speaker 5

They ran gross margins ran 'twenty one, 'twenty one, 'twenty one, 'twenty two and then they popped up, Which is great. There's some vacillation here in the quarter, wholesale, obviously rates. But could you give us maybe website. Some clarity about obviously input costs have gone down, but was this really a function I. E.

Speaker 5

Your price stability As opposed to your incentives is what it sounds like you're talking about because I'm just trying to get a sense of This level rates do go up, what keeps us from going backwards again? Webcast. You've talked about the pace, but it's just I'm just trying to get a sense of clarity of just market firm pricing is what it sounds like to you, but that could go away if that were the case.

Speaker 2

Webcast. Yes, I mean, he mentioned the call.

Speaker 4

Yes, I can take the input costs, webcast. Ken, really is that, I think our philosophy hasn't changed in terms of how we think of the input costs. And I think our lot website. Cost as a percentage of our average sales price has been pretty consistent. So kind of running that 18% to 20% range from a lot cost basis.

Speaker 4

So webcast. Overall, we've done a great job of budgeting webcast through either contingency or through our estimates to make sure that we're getting the most appropriate standard lock cost that's going to flow through the financials. So I think on website. On the land side, we feel like we have a pretty good visibility to where we're going to sit there. The house costs can fluctuate webcast.

Speaker 4

And certainly that's a timing piece as well. So it starts from the second quarter and into the third or what's going to come through in the 4th quarter and even into the first webcast. And we've seen nominal movement between house costs really slightly up to slightly down website. In most of our markets, so I think the input costs, have been about as stable, as we've seen. We're starting to see website.

Speaker 4

Lumber come down at least under the last couple of months, which is going to impact closings going into the Q1. So I think it is webcast. More so about evaluating every community, looking at it on a community by community basis from a pricing and expected margin. Webcast. We're doing a fantastic job of our estimating our purchasing team is doing a great job across the country, really working hard on making sure we're getting webcast.

Speaker 4

Fair bids, multiple bidders on our projects, and I think that is paying off for us and we have a very high confidence level on what it's going webcast. So I think that has helped us navigate making sure that we can maintain margins

Speaker 1

webcast. Thank you.

Speaker 2

You bet. You're welcome.

Operator

And one moment for our next question. Webcast. And our next question will be coming from Carl Reichardt of BTIG. Carl, your line is open.

Speaker 8

Webcast. Thanks,

Speaker 9

everybody. Eric, I wanted to talk a little bit about sales. Your team, You've got a unique operating model when it comes to selling houses. And I'm curious how you manage the toggle between volume since I assume they're paid on that commission wise versus holding margin and maybe an individual salesperson sells 1 less house a month. Webcast.

Speaker 9

How do you balance that in terms of motivating and rewarding those folks when you toggle between margin and volume and look more in the direction of margin?

Speaker 2

Web. Yes, great question, Karl. I think the first thing and we talked about earlier on the call is really focusing on the long term. Webcast. Even when we hire salespeople and you're paid on commission and we all want to close as many houses as possible every single month.

Speaker 2

Webcast. But sometimes getting that additional closing is not worth it because we need to think longer term. For example, reducing prices in the communities website. It's something that we want to avoid as much as we can, because when you start reducing price in the communities, it's just not really good for anyone, website. The utility is going to settle in some point.

Speaker 2

It's not there yet. And when the interest rates are likely to come down, what the experts are saying, the 30 year mortgage, webcast. We're going to be in really good position. Our sales teams across the United States are doing a really good job of working with website. It's more challenging now from an affordability standpoint.

Speaker 2

We're seeing more cosigners. The ability for a customer, they may have to go pay more Pay some debt down in order to qualify. The customer may have to save up money for a down payment. They may have to look at a smaller square footage house webcast. And the team of salespeople, about 400 of them nationwide, they all have a pool of customers that they're webcast.

Speaker 2

Working with to create those closings in the future even if it's more of a headwind on a very short term basis.

Speaker 9

Webcast. I appreciate that, Eric. Thanks. And then can we talk about vertical construction times? We've heard sort of this mixed commentary website.

Speaker 9

Can you talk about how long it's taken you from start to webcast. The CFO right now, are you back to pre pandemic norms? And if you're not, sort of how far away are you? Thanks.

Speaker 4

Web. Yes, Karl, this is Charles. I mean, we haven't really seen much movement in our build times. I would describe them as generally the same. I I mean, we're constantly working with our trades looking for opportunities to find spots in schedule.

Speaker 4

Webcast. From a construction time standpoint, I mean, we're still running that 80 to 120 days timeframe depending on the market. So we've seen it very consistent.

Speaker 2

Yes, similar to pre pandemic levels.

Speaker 9

Yes. Okay, great. If I could sneak one more, do you know, Afan, what percentage of the orders you took this quarter were on homes that were in process already vertically?

Speaker 2

Web Well, I think the vast majority of the mortgage will. I mean, almost all of them would have been under construction at some point, being a spec builder. Okay.

Speaker 9

All right. Thanks a lot, Phil. Appreciate it.

Speaker 5

Yes. Thanks, Carl.

Operator

And one moment for our next question. Webcast. And our next question will come from Jay McCanless of Wedbush. Your line is

Speaker 8

open. Web. Hey, good afternoon everybody. So my first question,

Speaker 2

what do you think

Speaker 8

kind of webcast. I don't want to call it a hiccup, but a little bit sore sales pace in September and now you've seen the rebound in October. Was that a larger competitor trying webcast. Make their year or were there some other things going on there that we need to know about?

Speaker 2

No, I think, Jay, this is Eric. I mean October sales are similar to Webcast. And it's a little slower than July August. And I don't want to say it's all about rates, but certainly rates are website. Higher in September October than they were in July August.

Speaker 2

We're seeing those 7% plus rates, which the rate really doesn't matter as we talked about. It's really more about website. Affordability and really what our our success is not really determined on what our competitors are doing. We are seeing more builders doing price discounts. Certainly, a lot of them are doing mortgage commitments and everybody's got their own view on incentives.

Speaker 2

And we're continuously watching the cost of rent versus the cost of own based on where rates and pricing is today. Website. That's difference between those two is probably as high as it's ever been. But our team is also our teams across the country are also focused on the reason to buy. And website.

Speaker 2

It's not a mathematical equation. It's not a spreadsheet equation. All the reasons that customers buy homes for their lifestyle decisions, webcast. Those are all still there and that's what we're focused on.

Speaker 8

And then web. Asking the sales pace question in a different way, is the goal maybe for the next call it 12 to 24 months webcast. To sell it something at the lower end of normal 5 to 5.5 per month to get the company to 140 communities by year end webcast rather than trying to brute force open a bunch or buy a bunch of small builders?

Speaker 2

Yes. No, well, I think the focus is on maintaining our historical margins at the highest absorption rate possible. Website. I think that would be a way to describe it. And we're pretty excited about putting up website.

Speaker 2

5.6 absorption pace and creating 14.5 pretax because the absolute dollars for the way our average sales price has increased over the last few years, webcast. The absolute dollars coming through the income statements, very positive for us. So the sales pace, whether it's 4 a month or 5 a month website. 6 or 8 a month during the pandemic is one item that we close supposedly look at and we all want more sales and closings, but we also webcast. We have to be protective of the margins and make good long term decisions for the company.

Speaker 2

But you're right, we are really excited about our community count growth webcast. And we are going to be increasing revenue and closings for the company overall because of all that community count growth, webcast. Irregardless of how many closings per community that equates to.

Speaker 8

Okay, got it. And then the other question I had, just webcast. Are you seeing enough savings on lumber yet to maybe contribute a little bit more to doing mortgage rate buy downs? Or is that

Speaker 4

webcast. Yes, Jay, it's I would describe it as webcast. Relatively nominal at this point. I mean, it is a couple of $1,000 month over month, but certainly something that gives us a little bit more flexibility. Webcast.

Speaker 4

We've seen it more in the last 2 months, which is really looking more into the Q1 of 2024, really when by the time those house

Speaker 8

webcast. Okay, great. That's all I had. Thanks, guys. Webcast.

Speaker 8

I

Operator

would now like to turn the conference back over to Eric for closing remarks.

Speaker 2

Webcast. Yes. Thanks everyone for participating on today's call and for your continued interest in LGI Homes. Have a great afternoon.

Operator

Webcast. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.

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