Welcome to the LGI Homes First Quarter 2020 Conference Call. Today's call is being recorded and a replay will be available on the company's website later today at www.lgihomes.com. We have allocated an hour for prepared remarks and Q&A [Operator Instructions] At this time I will turn the call over to Rachel Eaton, Chief Marketing Officer at LGI Homes. Ms. Eaton you may begin.

Thank you. Welcome to the LGI Homes conference call discussing our results for the first quarter of 2020. Today's conference call will contain forward-looking statements that include among other things statements regarding LGI's business strategy, outlook, plans, and objectives. All such statements reflect current expectations; however, they do involve assumptions, estimates, and other risks and uncertainties that could cause our expectations to prove to be incorrect. You should review our filings with the SEC including our risk factors and cautionary statement about forward-looking statements section for a discussion of the risks uncertainties and other factors that could cause our actual results to differ materially from those anticipated in these forward-looking statements. These forward-looking statements are not guarantees of future performance. You should consider these forward-looking statements in light of the related risks and you should not place undue reliance on these forward-looking statements which speak only as of the date of this conference call. Additionally, non-GAAP financial measures will be discussed on this conference call. The presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Reconciliations of these non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP are included in the earnings press release that we issued this morning and in our quarterly report on Form 10-Q for the quarter ended March 31st, 2020 that we expect to file with the SEC later today. This filing will be accessible on the SEC's website and in the Investors section of our website at lgihomes.com. Joining me today are Eric Lipar LGI Homes' Chief Executive Officer; and Charles Merdian the company's Chief Financial Officer. With that, I'll now turn the call over to Eric.

Thank you, Rachel and welcome to everyone on this call. We appreciate you're joining us for our first quarter earnings call and thank you for your continued interest in LGI Homes. Before I begin I'd like to express my best wishes to everyone on the call. We sincerely hope you and your families are safe healthy and successfully navigating the challenges confronting all of us during this unprecedented time. To our dedicated health care workers and others on the front lines of this pandemic all of us at LGI would like to express our heartfelt gratitude for your dedication bravery and self sacrificing efforts on behalf of our nation. And we thank you for providing for our citizens' needs during this challenging time. To our LGI Homes employees your dedication grit and commitment to our LGI values and to our customers is an inspiration. We know that many if not most of you have taken on expanded responsibilities in addition to your day-to-day roles here at LGI. Many of you are now working in your homes as teachers cooks counselors entertainers and in many cases caretakers. Despite these challenges you have performed above and beyond our expectations as you continue to help our customers realize their dreams of homeownership at a time when our idea of shelter has taken on a new and more profound meeting. During today's call I will share highlights from the first quarter of 2020 and then Charles will follow-up to discuss our financial results in more detail. I will then conclude with comments on what we are seeing in the market since the beginning of April our performance during this period and our near-term expectations. Finally we will open the call for questions. Coming into the first quarter we saw continued strong demand for LGI…

Thanks, Eric. Home sales revenues for the quarter were $454.7 million based on 1,835 homes closed, a 58.1% increase over the first quarter of 2019. Sales prices realized from homes closed during the first quarter averaged $247,808, a 5.8% year-over-year increase. This increase in the average sales price per home was primarily due to changes in geographic mix, highlighted by our strong performance in our Northwest division, which includes the states of Washington, Oregon and Colorado. In these states, we closed 273 homes in the first quarter compared to 99 in the prior year. This quarter represented 15% of our overall closings compared to 8% in the first quarter of 2019 and our average sales price was approximately $375,000. Gross margin as a percentage of sales was 23.4% this quarter compared to 23.1% for the same quarter last year, an increase of 30 basis points. We closed 199 homes in our wholesale business in the first quarter of 2020 or 10.8% of total closings compared to 30 homes or 2.4% in the first quarter of 2019. Gross margins excluding wholesale closings were up 90 basis points year-over-year. Our adjusted gross margin was 25.5% this quarter compared to 25.1% for the first quarter of 2019, a 40 basis point increase. Adjusted gross margin excludes approximately $9 million of capitalized interest charged to cost of sales during the quarter, representing 200 basis points and consistent with expectations. Combined selling, general and administrative expenses for the first quarter were 11.6% of home sales revenue compared to 15.7% in the prior year, primarily reflecting operating leverage from more homes closed and higher average sales prices. Selling expenses for the quarter were $32.8 million or 7.2% of home sales revenues compared to $26.8 million or 9.3% of home sales revenues for the first quarter of…

Thanks, Charles. Throughout this challenging time, we have remained focused on our commitment to our customers' dreams of homeownership. Home has always played a vital role in our lives. Now more than ever, our homes have become command central for all that we do and our LGI team has worked diligently to continue to provide homes for our customers despite many obstacles. The safety, health and well-being of our employees, customers and trade partners has been at the forefront of every decision we have made over the past nine weeks. As social distancing mandates and stay-at-home orders were released, we quickly adjusted our operations to comply with government and health agency guidelines. By the third week of March, most states where we operate had designated construction as an essential service. Since we were permitted to continue to operate, we implemented additional measures at our information centers to protect the health of our customers and employees. These include, but are not limited to increased frequency of cleaning, shorter selling hours, showing by appointment only and a rotating schedule limiting the number of people in our offices. We have enacted social distancing protocols in our communities and arranged construction schedules so that no more than one trade is in the home at any one time. Due to our ebb and flow construction schedules, we already followed many of these protocols limiting the need for significant changes which minimize delays in construction time lines. Additionally, we have suspended all nonemergency warranty work until it's deemed safe for us to enter our customers' homes and they are comfortable with us doing so. A key to preserving our shared beliefs and maintaining morale during this difficult time has been a heightened level of open, collaborative communication. Management has implemented a targeted program of meetings and…

[Operator Instructions] Our first question comes from the line of Michael Rehaut from JPMorgan. Your line is now open.

Hi, thanks for taking my question. This is Elad Hillman on for Mike. My first question was just -- I wanted to -- maybe you could give a little more color on that closings number for April, any regional standouts were you seeing a slowdown, and also on the demand side? And then additionally going into May, in your press release you talked about some positive momentum in recent sales trends. So any more color on the -- more like a weekly trend than any regional standouts would be helpful? Thanks.

Yeah. Thanks for the question. This is Eric. I can start. Yeah, in April 605 closings. We'll report 115 communities, so averaging 5.3 closings per community. And as far as recent trends, we talked about April as a month being down 35% overall. The first two weeks of April were softer than the last two weeks of April. And then the first week of May was the best week this past weekend, the best week since we've had -- since the beginning of March. So like other builders have said, we are seeing positive trends and seeing more people come out to our offices as the stay-at-home orders have been limited. It is also important I think as we said in the scripted remarks that when we're talking about sales and comparisons, everybody does have to realize we have put the safety and health and well-being of our customers, employees first, we've been complying with all the government orders. So when you reduce your hours, you limit your staffing in the office. We've cut back marketing by approximately 80%. It's hard to get a real good feel for where sales are and we've been pleasantly surprised by the demand we're seeing with all those restrictions in place.

All right, great, and anything on a regional -- you mentioned, Houston was very strong in the quarter. How that's been trending given the decline in oil prices in the market there or any other kind of regional standouts?

Yeah. I think the regions have been consistent. Yeah, like we mentioned in the first quarter, the Northwest is real strong, San Antonio, Houston, the Texas market remains strong. Carolinas has been strong over the last month. And then, most recently, I think the state of Georgia, the state of Texas, the state of Tennessee, Oklahoma, the states that have loosened up on the restrictions. And opening up some restaurants and getting more people comfortable with going out. As far as last week, we saw a little bit more momentum in those areas.

Great, thank you, just on my last question here. I wanted to follow-up on -- and you mentioned a lot spend, in advertising spend and marketing spend. And so, I was just wondering what your -- in terms of the pace getting -- improving or getting a little better, what's your current level of incentives in the market? And have you been adjusting these? And I guess more broadly your strategy, regarding price versus pace?

Yeah. I'll take the incentive question to start with. We're not offering any additional incentives to our buyers. Right now we're seeing strong demand relative to the world that we're living in. There is a shortage of supply in most of the markets of new homes. We think there will be coming out of this, very strong demand from customers that are living in, densely populated areas, or living in apartment complexes, to get out and get more space and privacy. And we expect that demand to get there. And increase as we move further away from this situation, that we're in. So we don't think it makes sense for LGI business to offer additional incentives. We'll stay with our historical way that we price our houses. And really price to margin. And new communities come online. If we see some pricing pressures relax. And we can offer better value to our customers. We'll certainly do that. And if prices continue to increase, whether its materials, labor, fees, development costs then we'll adjust pricing accordingly, in that direction as well, but no additional incentives.

Got it, thanks Eric. Thank you very much.

You're welcome.

Thank you. Our next question comes from the line of Truman Patterson from Wells Fargo. Your line is now open.

Yeah. Hi. Actually it's, Paul Przybylski. I was wondering, first off, there was a pretty meaningful increase in your wholesale business year-over-year. How are you looking at that here over the let's call it near to intermediate term? And are the buyers still in the market, or is their appetite waned at all?

Yeah, sure, thanks Paul, for the question. Yeah in the first quarter of 2020 we had a very positive, quarter from the wholesale standpoint. We had 199 closings, in Q1 that was 10.8% of our business. And that is up from 30 closings or 2.4% of our business in Q1. That was not because of large a discount to our wholesale partners is because, these homes that closed in Q1, were contracted a quarter or two quarters previous to that. So we've been very excited about the wholesale business. It's been a growing part of our business. And then in April we had 86 closings from the wholesale business or 14.2% of our business. We think wholesale similar to the first quarter will be 10% to 15% of our closings in Q2. And as you have probably heard some of the public REIT say just like we are in buying new land properties our wholesale partners are in a pause right now from new acquisitions. And we think that will come back. And be another very positive part of our story, when we get past the COVID-19 situation that we believe is temporary.

Okay. You mentioned the states that, we're opening or have opened you've seen some positive response. Have you been able to make any operational changes in those states yet, as far as going back to your basic normal sales process?

We have to a limited extent. We're still being very much cognizant of social distancing. And doing all the proper hygiene and focus on the health and safety of our workers. But the fact that -- I'll use Texas for example, the fact that in Texas you can go out to a restaurant, that are -- it's only 25% capacity, but I think that's a good moral boost for the economy here in Texas and people are more comfortable going out. And then we've been able to increase our staffing and we've increased marketing spend just looking forward to that increased traffic. And it's early. Texas just opened up last Friday and the states that I mentioned just opened up last week. So, it's early but we did see some positive signs over the weekend and had what we consider a very solid week of sales.

Okay. And then just one final one. Have you noticed any increase in your -- sorry realtor sales?

I don't think so. It's consistently run about 30% of our business over the last couple of years. I believe that was a pretty consistent number in the first quarter as well. So, no I think it's similar.

Okay. Thank you. Appreciate it.

You're welcome.

Thank you. [Operator Instructions] Our next question comes from the line of Carl Reichardt from BTIG. Your line is now open.

Thanks. Hi guys. Thanks for all the detail, it really helpful. I just have a follow-up on Truman's question about co-broke. You said you hadn't raised incentives to customers. Your co-broke is about the same, have you raised what you'll pay buyer's brokers?

We have not. No, we actually -- beginning of 2019 -- in the first quarter of 2019, we reduced the co-broke that we pay brokers from 3% to 2.5% and that has remained the same up to today.

Okay. Super. Thank you for that clarification. On the land side, if I got my notes right you have 20,000 lots under development 7,800 finished, are you pausing your spend on underdeveloped lots?

Yes. Hey Carl, this is Charles. The answer is, is that any section that we're currently in development on is continuing as normal. But we're being cautious at the moment under our strategy just managing cash to release any new sections or go out to bid just yet as we just continue to monitor what's happening and we'll continue to evaluate it on a community-by-community basis.

Okay. So, if you had a community where you had -- where you were matching starts with sales and it was running well and then you had a phase in front of you, you might go ahead and finish development there, but in general, you're not, is that the best way to think about it?

Correct. No, that's correct.

Okay. Thank you for that. And then I'm sorry if you don't mind me sneaking one more in. Just on your community count which is running -- has been running quite fast how -- what's your thinking now in terms of communities where you could open in the next quarter or two? Are those on pause as well? Should we just sort of budget for flat communities until this is over?

Yes, Carl great question. This is Eric. We're going to report 115 active communities for the end of April. And then we're not giving guidance for third quarter or end of the year community count. Our prior guidance has been taken off. But we have communities ready to go. There are just too much uncertainty on the timing of those openings and where we're going to be with the state regulations and if we can put people on airplanes and continue our recruiting process. But the plan is to recruit and open new communities in the third or fourth quarter but the timing is so unknown that we can't give guidance.

Okay, that's perfectly fine. I appreciate that. Thanks Eric.

You're welcome.

Thank you. Our next question comes from the line of Alex Barrón from Housing Research Center. Your line is now open. Alex Barrón: Yes. Thank you. Hope you guys are all doing fine. I wanted to ask -- I know generally in your sales process you guys focus a lot of face-to-face kind of meetings. So, I'm kind of curious and I think you focus most of your sales over the weekend. So, I'm kind of curious how you've adapted to the current environment? Are you using more online tools, or are you selling throughout the week, or like has any of that changed?

There's the primary thing that's changed Alex is just all the social distancing protocols and really focusing on the safety and healthy -- safety and health of our customers employees. So, our process has not changed. We're very positive about our process. We're a systems based company. So, we're not going to change that process in a temporary situation. But we've certainly all had to adapt to these changing times. So, we certainly limited the number of people that have come into our offices, limited the staffing, but we're still meeting customers one-on-one, but with a lot of social distancing and a lot of restrictions in place. Alex Barrón: Got it. That makes sense. And as far as your build times have those been impacted at all, or how much by the social distancing between the crews and stuff?

Yes. This is Charles. No not significantly at all. It's -- I think in the prepared remarks we actually mentioned that we had a lot of the scheduling processes already in place where we limit the number of trades that are in the homes at any one particular time. I think at the end of March, you saw a lot of movement in terms of how to get inspections and certificates of occupancies and things like that which we were able to manage through pretty effectively. So our construction schedules are in line and on time. Alex Barrón: Okay. If I could ask one last one. I think I heard you say you lowered your marketing spend by 80% temporarily. So has that already started to come back, or where is it at these days?

Yes. It started to come back Alex in the markets that are reopening or reopening more parts of their economy where we can ramp up our sales efforts in the field. But it's still pretty slow. Most states are pretty highly restricted. So we'll be cautious on our marketing spend and gradually increase that as states start to reopen. Alex Barrón: Okay. Well, best of luck and stay safe. Thanks.

Thank you, Alex.

Thank you. Our next question comes from the line of Barry Haimes from Sage Asset Management. Your line is now open.

Thanks for taking my question. Most of might have been answered. But one I just wanted to be clear in terms of the regions most affected by energy and the reduction that we're seeing in the oil patch. Are you saying to-date you have not seen any impact from that? I think you alluded to that but I just wanted to clarify. Thank you.

Yes. Barry, I think when oil prices have been so substantially hit and there's substantial job loss of economy. I don't think we want to say we haven't been impacted. I think it's just tough to gauge the impact right now, again, going back to we've really restricted our hours, restricted staffing, cut back marketing by 80%. So we're positive on the overall feel that we are hearing from customers. And what we're hearing from the customers as far as wanting to get more space and move out of dense areas. I mean, we are a suburban entry level single-family detached builder, and we think that is the right space to be in. We're also the only public homebuilder that's 100% spec builder. So we have the inventory on the ground to satisfy the demand for customers that want to get out of those apartment situations, and get into a home quickly. And we also have the systems and processes in place that we can build inventory and turn on the faucet if you will for marketing and sales and construction to ramp up very quickly.

Great. Good quarter. Thanks a lot. Appreciate it.

All right.

Thank you.

Thank you. At this time I'm showing no further questions. I would like to turn the call back over to Eric Lipar for closing remarks.

Thank you. As a final note, I would like to introduce Josh Fattor, who recently joined our team as our Vice President of Investor Relations. Josh has worked in and around the homebuilding industry for over 20 years. Prior to joining us, he was a director at Deutsche Bank covering the homebuilding and building product space. We first met Josh in 2013 when he was part of the team that worked on our IPO and he has worked closely with us on our capital market transactions every since. As part of the LGI way, Josh is currently participating in our 100-day training program, and I know he's looking forward to meeting and working with all of you in the future. Thank you everyone for participating on today's call and your continued interest in LGI Homes. Have a great day.

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