LGI Homes, Inc. (NASDAQ:LGIH) Q3 2023 Earnings Call Transcript

LGI Homes, Inc. (NASDAQ:LGIH) Q3 2023 Earnings Call Transcript October 31, 2023

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. At this time, I’ll turn the call over to Joshua Fattor, Vice President of Investor Relations and Capital Markets.

Joshua Fattor: Thanks and good afternoon. I’ll remind listeners that this call contains forward-looking statements, including management’s views on the company’s business strategy, outlook, plans, objectives and guidance for future periods. Such statements reflect management’s current expectations and involve assumptions and estimates that are subject to risks and uncertainties that could cause management’s expectations to prove to be incorrect. You should review our filings with the SEC for a discussion of the risks uncertainties and other factors that could cause actual results 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, which reflect management’s current viewpoints and are not guarantees of future performance.

On this call, we’ll discuss non-GAAP financial measures that are not intended to be considered in isolation or as substitutes for financial information presented in accordance with GAAP. 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 and in our quarterly report on Form 10-Q for the quarter ended September 30, 2023 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 website. I’m joined today by Eric Lipar, LGI Homes Chief Executive Officer and Chairman of the Board; and Charles Merdian, Chief Financial Officer and Treasurer. I’ll now turn the call over to Eric.

Eric Lipar: Thanks Josh. Good afternoon and welcome to our quarterly earnings call. I’m pleased to share our exceptional performance during the third quarter of 2023. Our strong results built upon the momentum generated in the first half of the year and the positive impact of decisions we made to align our business with the unique challenges of today’s affordability-constrained market. Demand remains healthy, supported by positive longer-term fundamentals, including strong demographic trends and a low supply of affordable homes. We believe that, once the Fed’s targets are met and we have a clear view of the economic landscape, interest rate volatility will subside and the market will likely exhibit more stability similar to what we experienced in the years prior to the pandemic.

However, there’s no consensus on whether that takes a couple of quarters or a couple of years. Therefore, we are laser focused on ensuring that any near-term decisions around pricing, incentives, investments, and community openings are weighed not only in the context of their impact to our company’s near-term success but also five, 10 and 20 years down the road. A great example of this is the 1,751 homes we closed in the third quarter. This was a 13.2% increase over the same period last year and represented a strong pace of 5.6 closings per community per month. It is possible that if we’d offered significantly more than our typical 2 to 3-points of rate buydown assistance, we may have pushed closings higher. But beating the closing guidance wasn’t the goal.

Hitting the guide while also protecting and expanding margins was our focus. And that’s exactly what we did, delivering adjusted gross margins of 27.2% representing a sequential improvement of 340 basis points and back within the pre-pandemic range we’ve been working towards. Additionally, our pretax profit margin of 14.5% was also up 340 basis points and was the highest third quarter result in our history outside of the pandemic. During the third quarter our top market on a closings per community basis was Dallas Fort Worth with 10.1 closings per month. Next was Charlotte with 9.5 closings followed by Northern California with 8.9. Rounding out the top five were Fort Pierce with 8.5 and Houston with 7.9. Congratulations to the teams in these markets for their strong performance last quarter.

To reiterate every decision currently being made is being considered within the context of our systems-based philosophy and represents a careful assessment of its potential to create sustainable long-term value for our shareholders. Along with margin expansion our continued community count growth is another highlight. At the end of the quarter, we reported 106 active communities a 14% increase from a year ago and a 4% increase from the prior quarter. Growing our community count remains a key focus and we still expect to be active in 115 to 125 communities by the end of 2023. Finally, I’ll share my thoughts on an additional highlight from the quarter, the land market. Early in 2020 deals for finished lots began to diminish. By the end of 2020 they were virtually non-existent.

However, we’ve started to see that shift. During the third quarter we approved a total of 23 new projects nine of which were composed entirely of finished lots, many of which will contribute to closings and community count in the back half of 2024. 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, we’ve also seen a meaningful increase in M&A opportunities. The majority of these are small private builders looking to leverage longer-dated land pipelines to free up capital to continue to grow their operations. During the quarter we closed a deal to acquire substantially all of the land assets of Glenwood Homes in North Carolina. The transaction enabled us to acquire over 1,100 lots in one of our best-performing regions.

On the opposite side of the deal the seller retained their high-margin backlog and received an inflow of capital that has the potential to insulate them from turbulent credit markets 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. Challenging times can create great opportunities that if structured thoughtfully hold real value for both parties. We expect similar opportunities to materialize in the future and plan to pursue those that work within our profitability focused long-term growth strategy. I’ll now turn the call over to Charles for more details on our financial results.

Charles Merdian: Thanks, Eric. Revenue in the third quarter was $617.5 million based on 1,751 homes closed. Revenue was up 12.9% and closings were 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. Of our total closings, 139 were through our wholesale channel, representing 7.9% of total closings in line with the second quarter this year. Our average selling price of $352,678 was slightly lower year-over-year, but up 1.3% sequentially. Our third quarter gross margin was 25.7%, and adjusted gross margin was 27.2%. As Eric highlighted, adjusted gross margins improved 340 basis points sequentially compared to the 150 basis point improvement we guided to on our last call.

The outperformance was driven by our success in maintaining and where possible raising prices in many communities, as well as lower input costs and new and replacement community openings at normalized margin profiles. Adjusted gross margin excluded $8.6 million of capitalized interest charged to cost of sales and $767,000 related to purchase accounting together representing 150 basis points. Combined selling general and administrative expenses for the third quarter were $76.5 million or 12.4% of revenue. Selling expenses were $49.8 million, or 8.1% of revenue compared to 7.6% in the second quarter of this year. The 50 basis point sequential increase was primarily due to spending on advertising to drive leads and support new community openings.

General and administrative expenses totaled $26.7 million, or 4.3% of revenue a level that was in line with the second quarter of this year. We expect advertising and G&A dollars will remain consistent in the fourth quarter resulting in full year SG&A as a percentage of revenue of around 13%. Pre-tax net income for the quarter was $89.4 million, or 14.5% of revenue, a 340 basis point improvement over the prior quarter. Our effective tax rate was 25.1%, compared to 16.8% in the same quarter last year. The increase in the rate was primarily due to fewer federal energy efficient home tax credits recognized this quarter compared to the same period last year. We expect the rate in the fourth quarter to be similar to the third resulting in a full year effective tax rate of approximately 24%.

Third quarter reported net income was $67 million, or $2.85 per basic share and $2.84 per diluted share. Third quarter gross orders were 2,068 up 6% over the same period last year. Net orders were 1,490 a slight decrease compared to the third quarter of last year. Our cancellation rate during the quarter was 27.9%, compared to 21.3% in the same period last year. At September 30, our backlog consisted of 1,377 homes valued at $510 million. Of those homes 273 or 19.8% of our total backlog were related to wholesale contracts with single-family rental partners. Turning to our land position. At September 30, our portfolio consisted of 72,109 owned and controlled lots a decrease of 5.7% year-over-year, but an increase of 4.2% sequentially, driven by an increase in the availability of fairly valued land deals during the quarter.

Of those lots 56,301 or 78.1% were owned a decrease of 7.1% year over year and less than 1% sequentially. Of our owned lots 42,618 were raw land or land under development. Of the remaining 13,683 owned lots, 1,471 were completed homes, including our information centers and 3,009 were homes in progress and 9,203 were finished vacant lots. We controlled 15,808 lots at quarter end, essentially flat year-over-year, but an increase of 26.8% sequentially. With that, I’ll turn the call over to Josh, for a discussion of our capital position.

Joshua Fattor: Thanks Charles. As of September 30th, we had just under $1.2 billion of notes payable outstanding, including $904.2 million drawn on our credit facility. Our debt-to-capital ratio was 39.8% and our net debt-to-capital ratio was 38.8%. Total liquidity at the end of the quarter was $243.2 million including $47 million of cash on hand and $196.2 million of available capacity, under our credit facility. At September 30th our stockholders’ equity was over $1.8 billion and our book value per share was $76.50, an increase of 10.9%, over the same time last year. At this point, I’ll turn the call back over to Eric.

Eric Lipar: Thanks Josh. On Friday, we expect to report October closings of 567 homes, up 5% compared to last October, in 108 active communities. Based on those deliveries and the 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 fourth quarter. Based on this, we are tightening the range of our expected closings for the year. We now expect to close between 6,700 and 7,000 homes at an average selling price between $350,000 and $355,000 for the full year. Margins in the fourth quarter are expected to be similar to slightly lower, than what we’ve delivered in the third quarter depending on several factors including geographic, product and retail versus wholesale mix as well as incentive levels offered in the fourth quarter related to our Make Your Move National Sales Event.

Based on those variables, and our performance in the third quarter, 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 between 23% and 23.5% and adjusted gross margins between 24.5% and 25%. Community count is building. As I mentioned earlier, we continue to expect 115 to 125 active communities at year end. As a closing thought, I’ll add that, based on our existing land pipeline and views on development timing, we now expect to end 2024 with over 150 communities and to be operating in over 180 communities by the end of 2025. I’ll conclude by saying again, how proud I am of our strong third quarter results and our success at returning profitability metrics back to pre-pandemic levels.

Our continued success is a result of outstanding execution by our teams around the country. Despite volatile rate movements, market uncertainty 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 while delivering the best service in the industry. Thank you for continued commitment to our company and to our customers. We’ll now open the call for questions.

Operator: Certainly. [Operator Instructions] And our first question will come from Michael Rehaut of JPMorgan. Your line is open, Michael.

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Q&A Session

Andrew Azzi: Hi guys. This is Andrew Azzi on for Mike. Congrats on an impressive quarter. I just wanted to ask if maybe you can bucket out to maybe quantify more succinctly what drove the gross margin beat and maybe if there was a lean in one direction or the other.

Eric Lipar: I think Andrew — this is Eric. I can start and Charles can add if he’d like. I think the gross margin beat comes from a couple different factors. One is we held pricing strong. 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. The other thing that happened during the quarter is when we guided to 25.3% and then beat that is 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 happen. I’d point to those two as the two primary reasons.

Andrew Azzi: That’s really good color. And then maybe just one more. How maybe widespread were these price increases that you guys are seeing?

Eric Lipar: Yeah. I would say in October when we did our Q4 pricing, we probably raised prices in one-quarter to one-third of our communities.

Andrew Azzi: Okay. And maybe if you could quantify the magnitude or…?

Eric Lipar: Yeah. They’re very slight. Just to 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.

Andrew Azzi: Thanks so much. We’ll talk soon.

Eric Lipar: You’re welcome.

Operator: And one moment for our next question. Our next question will be coming from Truman Patterson of Wolfe. Your line is open, Truman.

Truman Patterson: Hey, good afternoon, everyone and thanks for taking my questions. First, Eric I’m hoping to understand how you’re balancing your historically elevated gross margin, which you all were able to rebuild back to normalized levels this quarter. 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 at the sake of absorption pace given just all this community growth that you all have in the pipeline?

Eric Lipar: Yeah, 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 throwing too many incentive dollars with the customers because incentives are really short-term and there’s no question in our mind if we put a lot more dollars into large forward commitments or buying down rates that would improve sales temporarily. 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 with this quarter at 5.6 absorption pace, creating a 14.5% pre-tax, the financials can handle a slower absorption pace.

But when you start discounting your houses tremendously and start throwing a lot of incentives into a short-term bucket 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.

Truman Patterson: Okay, perfect. And then, I believe you mentioned, that you all were maintaining I think two to three points of financial incentives. Could you help us understand, what portion of your buyers are getting a mortgage rate buydown? And are you all doing any sort of forward commitments at all? Or is this just a case-by-case basis with incentives that the consumer can use based on their specific needs?

Eric Lipar: Yes, it’s another great question, Truman. And there’s a lot of talk about rate buydowns and incentives. For clarification, what we’ve been really focused on, is giving the consumer the lowest fixed rate possible every week. And what has that involved over the last couple quarters, is really paying two or three discount points if you will, to get the lowest rate possible on a week to week basis. And that has been over 7% here recently, even paying a couple points. We have not purchased any big forward commitments, which instead of costing two to three points may cost 600 900 1,000 basis points to get a rate materially lower from that and that is very expensive to do, but we’re continuing to analyze it. We’re continuing to analyze sales week to week and what incentives are going to be best for our customers.

Truman Patterson: Okay, perfect. And then just one final one for me. Just in your fourth quarter gross margin guide, any discussion around there? Does that contemplate any buyers or incremental rate buydowns incentives needed for any buyers that might get kicked out due to affordability or any way you can help us think about, the sensitivity of buyers that might not be able to qualify without a buydown today?

Eric Lipar: Yes. I think it does contemplate that, Truman. I think, it’s an unknown. When 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 when we’re giving our gross margin guide, we said, similar to slightly down. So we think, we got 100 to 200 basis points of room either for mortgage incentives, we’ll see where the costs come in, see what percentage of our business comes from the wholesale, investors and then geographic mix also plays a role in that.

Truman Patterson: All right. Thank you all

Eric Lipar: Thank you.

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

Ken Zener: Good afternoon, everybody.

Eric Lipar: Good afternoon.

Charles Merdian: Good afternoon.

Ken Zener: So couple different angles here. I believe you said, you bought finished lots that you saw in the market. And was it 23 communities? Is that what you actually said?

Eric Lipar: 23 overall, nine of which were finished lots Ken, is what we said.

Ken Zener: And how does that play into — when you find that attractive ,given your self-development bias to buy raw land and keep that 300 basis point spread development to buying it from somebody? What makes you go ahead and do this? Is it because you’re trying to get — something 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 or process?

Eric Lipar: Yes. It’s really opportunistic, Ken. And that’s the positive about being in a more challenging market, a more challenging affordability market, where we’re seeing lower absorptions than historical past but we’re seeing tremendous opportunities to grow our community count. And I think 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 take a lot more capital, there’s more timing and development risk. What we’re seeing in the market today, on these 23 communities, these are smaller deals, most are coming from private builders or private developers, probably average lot size around 100 lots instead of a few hundred lots, less capital intensive, less risk, stress testing these deals to meet our margin requirements probably works at half the absorption pace as a larger community.

So really accretive earnings. We can get in there and create closings quicker. And that led to us being confident that we’re on track for our community count growth this year. We’re confident that we’re going to have 150 communities by the end of 2024, which is substantial growth and 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.

Ken Zener: Right, so absorptions, there’s community size risk which is duration. But how do you think broadly about the margin differential, when you introduce the pace historically, you talk about a 300 basis point spread I believe for margins you want to achieve develop. And the reason I’m asking is if you could just reaffirm that range and how it plays out with finished lots. Because if you can buy finished lots 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.

Eric Lipar: Yes. No we’re more open to it. First of all you’re correct. It’s a big thing. And we’ve used 300 basis points in our history as a guide and I think that’s still a reasonable guide. 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 the home building, 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. What we’re talking about on this call, the ability to buy finished lots is just a market component. For the last 20 years, if we could go out and buy all finished lots, 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 at higher margins for the developers, so it’s really competitive and we had the balance sheet and we’re comfortable developing 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 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 start selling and closing houses.

Ken Zener: Good. I appreciate that. I think it’s a fascinating part of the industry. Last question here Chuck. Could you give us confidence obviously, you’ve recovered your margins. Gross margins ran 21%, 21%, 22% 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 some clarity about obviously input costs have gone down, but was this really a function i.e. 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? You’ve talked about the pace, but I’m just trying to get a sense of clarity. If it’s just market firm pricing is what it sounds like to you, but that could go away if that were the case. Thank you.

Eric Lipar: Yeah. I mean he mentioned in the call…

Charles Merdian: Yeah. I can take the input costs Ken. Really is that I think our philosophy hasn’t changed in terms of how we think of the input costs. I think our lot costs as a percentage of our average sales price has been pretty consistent. Its kind of running in that 18% to 20% range from a lot cost basis. So development costs overall, we’ve done a great job of budgeting through either contingency or through our estimates to make sure that we’re getting the most appropriate standard lot cost that’s going to flow through the financials. So I think 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 and certainly, that’s a timing piece as well. So our starts from the second quarter and into the third or what’s going to come through in the fourth quarter and even into the first quarter, and we’ve seen nominal movement between house costs really slightly up to slightly down 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 lumber come down at least under the last couple of months, which is going to impact closings going into the first quarter. So I think it is more so about evaluating every community, looking at it on a community-by-community basis from a pricing and expected margin. 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 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 to cost to build our houses going into the future. So I think that has helped us navigate making sure that we can maintain margins in our historical range.

Ken Zener: Thank you.

Eric Lipar: You bet.

Charles Merdian: You’re welcome.

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

Carl Reichardt: Thanks. Hi, buddy. 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 one less house a month. 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?

Eric Lipar: Yeah. Great question, Carl. I think the first thing and we talked about it earlier on the call is really focusing on the long-term. 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, but sometimes getting that additional closing is not worth it because we need to think longer term. For example, reducing prices in the communities is something that we want to avoid as much as we can, because when you start reducing prices in the communities, it’s just not really good for anyone, the customers ourselves, our employees. So, that’s one thing that we balance because we believe the interest rate volatility is going to settle in some point. It’s not there yet.

And when interest rates are likely to come down, what the experts are saying the 30-year mortgage, 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 the customers. It’s more challenging now from an affordability standpoint. We’re seeing more cosigners, the ability for a customer they may have to go 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, and the team of salespeople, about 400 of them nationwide, they all have a pool of customers that they’re working with to create those closings in the future, even if it’s more of a headwind on a very short-term basis.

Carl Reichardt: I appreciate that Eric. Thanks. And then can we talk about vertical construction times? We’ve heard a mixed commentary from some of your peers about a return to normalcy. Can you talk about how long it’s taken you from start to CFO right now? Are you back to pre-pandemic norms? And if you’re not how far away are you? Thanks.

Charles Merdian: Yes, Carl, this is Charles. I mean we haven’t really seen much movement in our build times. I would describe them as generally the same. We’re constantly working with our trades looking for opportunities to find spots in the schedule. But from a construction time standpoint, we’re still running that 80 to 120 days timeframe depending on the market. So, we’ve seen it very consistent.

Eric Lipar: Yes, similar to pre-pandemic levels.

Charles Merdian: Yes.

Carl Reichardt: Okay, great. If I could sneak one more in. Do you know offhand what percentage of the orders you took this quarter were on homes that were in process already vertically?

Eric Lipar: Well, I think the vast majority of them — almost all of them would have been under construction at some point being a spec builder.

Carl Reichardt: All right. figured as much. All right, thanks a lot. Appreciate it.

Eric Lipar: Yes, thanks Carl.

Operator: And our next question will come from Jay McCanless of Wedbush. Your line is open.

Jay McCanless: Hey, good afternoon everybody. My first question what do you think — I don’t want to call it a hiccup, but a little bit slower sales pace in September and now you’ve seen the rebound in October. Was that a larger competitor trying to make their year or were there some other things going on there that we need to know about?

Eric Lipar: No, I think Jay, this is Eric October sales are similar to September and it’s a little slower than July and August. And I don’t want to say it’s all about rates, but certainly, rates are higher in September and October than they were in July and August. We’re seeing those 7% plus rates, which the rate really doesn’t matter as we talked about. It’s really more about affordability and really 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 and we’re continuously watching the cost of rent versus the cost of own. Based on where rates and pricing is today that difference between those two is probably as high as it’s ever been.

But our teams has also — our teams across the country are also focused on the reason to buy, and it’s not a mathematical equation, it’s not a spreadsheet equation. All the reasons that customers buy homes for their lifestyle decisions, those are all still there and that’s what we’re focused on.

Jay McCanless: And then, asking the sales pace question a different way. Is the goal maybe for the next call it 12 to 24 months to sell at something at the lower end of normal five to 5.5 per month to get the company to 140 communities by year end, rather than trying to brute force, open a bunch or buy a bunch of small builders?

Eric Lipar: Yes. No, well, I think the focus is on maintaining our historical margins at the highest absorption rate possible, right. I think, that would be a way to describe it. And we’re pretty excited about putting up a 5.6 absorption pace and creating 14.5 pretax, because the absolute dollars with the way our average sales price has increased over the last few years, the absolute dollars coming through the income statements, very positive for us. So, the sales pace, whether it’s four a month or five a month or six or eight a month during the pandemic, is one item that we closely look at. And we all want more sales and closings, but we also have to be protective of the margins and make good long-term decisions for the company.

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

Jay McCanless: Got it. And then the other question I had just, are you seeing enough savings on lumber yet to maybe contribute a little bit more to doing mortgage rate buydowns or is that going to flow through like first half of ’24?

Charles Merdian: Yes, Jay, I would describe it as relatively nominal at this point. It is $2000 month over month, but certainly something that gives us a little bit more flexibility. We’ve seen it more in the last two months, which is really looking more into the first quarter of ’24, really by the time those houses get completed and are available to close.

Jay McCanless: Okay. Great. That’s all I had. Thanks guys.

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

Eric Lipar: Yes. Thanks everyone for participating on today’s call and for your continued interest in LGI Homes. Have a great afternoon.

Operator: Ladies and gentlemen, this concludes today’s conference. Thank you for participating. You may now disconnect.