Good day, ladies and gentlemen and welcome to the LGI Homes 2015 Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, today’s program is being recorded. I would now like to introduce your host for today’s program, Rachel Eaton, Chief Marketing Officer at LGI Homes. Please go ahead.

Thank you. And welcome to the LGI Homes conference call discussing our results for the fourth quarter and full year of 2015. Today’s conference call will contain forward-looking statements that include among other things, statements regarding LGI’s business strategy, outlook, plans, objectives and guidance for 2016. 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 statements 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, certain non-GAAP financial measures will be discussed. 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 annual report on Form 10-Q for the fiscal year ended December 31, 2015 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 www.lgihomes.com. Joining me today are Eric Lipar, LGI Homes’ Chief Executive Officer; and Charles Merdian, the company’s Chief Financial Officer, Secretary and Treasurer. With that, I will now turn the call over to Eric.

Thank you, Rachel, and welcome everyone to this call. We appreciate your continued interest in LGI Homes. 2015 marked our second full year as a public company. Our primary objective, when we went public in 2013 was to access the capital markets to fuel our growth by replicating our business model, across the country. Over the past two years, we have more than doubled the size of our organization and today LGI Homes is selling across eight states, in 14 markets, and we have start-up operations in four additional new markets. As we have continued to grow, we have maintained the LGI culture, demonstrating that our unique operating model is sustainable. Our employees are our most vital assets in continue to make the difference. It is only through and with the voluntary cooperation of our employees that we can leverage our systems and processes, execute our model of constant and never ending improvement, and embrace our focus on sales and closings. So to all of our LGI employees, we appreciate and thank you for your commitments, loyalty and hard work, which have produced another year of record setting results. During today’s call, I will summarize the highlights from the fourth quarter and the full year. Then Charles will follow-up to discuss our financial results in more detail. After he is done, we will conclude with comments and what we are seeing this quarter and our expectations for 2016 before we open the call for questions. At the start of 2015, we provided guidance announcing our expectations to deliver between 2,800 and 3,200 home closings. In addition to having 50 to 55 active communities by the end of the year and to deliver earnings per share to our investors in the range of $1.85 to $2.25, all while maintaining our adjusted…

Thanks, Eric. Home sales revenues for the quarter were $177 million based on 946 homes close, which represents a 63% increase over the fourth quarter of 2014. Our average sales price was $186,855 for the fourth quarter, a 12.4% year-over-year increase and consistent with the third quarter. The increase in average sales price year-over-year reflects changes in product mix, a favorable pricing environment in new or replacement communities added during 2015 that have higher price points. Sales prices realized from homes closed during the fourth quarter range from the 120s to the 460s. This includes 10 homes in our Toronto communities, which had an average net sales price of approximately $404,000. For the year, we closed 33 homes in our Toronto communities representing less than 1% of our overall closings. Going forward, we expect closings from our Toronto communities to be less than 5% of our overall business. Our adjusted gross margin was 27.6% this quarter compared to 28.9% for the fourth quarter of 2014, which is within our expected range and consistent with the previous quarter. For the year, adjusted gross margin was 27.8% compared to 28.2% for the full year 2014. Adjusted gross margin excludes approximately $1.7 million of capitalized interest charges cost of sales during the quarter representing 95 basis points and we expect this to remain in that range between 90 and 125 basis points for the upcoming year. Combined selling, general and administrative expenses for the fourth quarter were 13.1% of revenues and 13.8% for the full year. As a percentage of revenues, we believe that SG&A will be between 13% and 14% for the full year 2016. Varying quarter-to-quarter based on home sales revenue. We typically expect the first quarter to have the highest SG&A ratio as our first quarter generally results in the…

Thanks Charles. In summary, we had another impressive quarter and a phenomenal 2015. Let me provide some guidance and thoughts on what we are seeing for the upcoming year. The first quarter of 2016 is off to a solid start with 477 closings through February, representing year-over-year growth of 28%. Based on our strong performance today and assuming a continuation of today’s housing market conditions for the remainder of this year, we offer the following guidance. We expect to close between 4,000 and 4,400 homes in two 2016. We expect Texas to close 40% to 45% of our homes for the year, with the Houston market representing between 15% and 20% of our closings. As mentioned on previous calls, we plan to expand into five new markets this year, because we are systems based company with proven processes in place, we believe our expansions into these new markets are well positioned for success. Our goal is to simply duplicate what we have accomplished thus far in our current markets. Our expectation is that each of these markets will perform at a high level, produce results consistent with our existing communities. And all will be accretive to our operations. To update you on the new markets, we had our first home closing in Jacksonville, Florida in January. Our expansion in the Seattle market is underway. I will be in Olympia with some of our leadership team this weekend for our grand opening event. The following weekend March 19, we will hold our first grand opening event in the Colorado Springs market. The initial response from customers at both locations has been positive and we believe we’ll have very successful openings. We’re on track for our first community in Nashville and Riley to open later this year and we anticipate closings in…

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

Thanks, good morning everyone, and congrats on the quarter and the year.

Thank you. Good Morning.

First question I had was, the Houston market specifically in Texas. Obviously, you continue to put out good results there. And you kind of gave your expectation for Houston to be 15% to 20% of your closings in 2016 and Texas 40% to 45%. I apologize, I’m away from my desk, I’m calling from out of the office, and wasn’t able to run all the numbers on my computer. But maybe could you just give us a sense what that implies, in terms of growth for those for Houston and Texas more broadly? And if that is reflecting either any of macro concerns that a lot of people continue to be top of mind for a lot of people?

Yes, thanks, Michael. This is Eric, great, great question. Yes, the Houston market had a really strong year in 2015 exceeding our expectations as most of our markets did, averaging over eight closings per community per month, and that was above our budget. So a couple of things going to happen in Houston in 2016. We expect to close more absolute homes because we’re going to go down by two in the community count. Our sales were so good in 2015 that we sold out of a couple of communities and the replacement projects are not ready to go yet. So we’re going to go down by a couple in community count, but the absorption pace in Houston, that’s going to be modeled less than our year, last year because the year was a phenomenal year. But it’ll be modeled at the same absorption pace about six closings per month, consistent with what we had margined and budgeted in 2015. And I can also say, our guidance that we’re putting out there for 2016, as far as closings between 4,000 homes, 4,400 homes, we are comfortable with that guidance regardless of what happens in the Houston market, regardless of where oil prices are at.

Right. That’s helpful. Thank you for that Eric. And I guess, just secondarily, obviously, you exceeded a lot of your goals handily in 2015 as compared to the original guidance given at the beginning of the year. I would think that that was – and I believe you kind of alluded to this, due to better than expected performance in your non-Texas markets, as well as probably Houston that you just said. Could you give us a sense for what could drive performance in 2016 towards the higher end of the range both from closings and also a gross margin standpoint? Would it be – some of the continued better than expected performance in some of your new markets or your non-Texas markets? Or do you feel that there’s perhaps also any upside relative to expectations around Houston and Texas as well?

Yes, great question, Mike. We certainly had a great year in 2015 and exceeded our guidance that we gave to the market and us as a leadership team, discussed with our board of directors a lot on providing guidance to the market and we want to make sure that we’re building a reputation for making sure if we put numbers out there and we put a lot of numbers out there that we’re hitting those targets. And when we are forecasting for 2015, we far exceed our guidance because what we did as we expanded into a whole lot of new markets, we hired a lot of new people, we had a lot of new managers. But we were able to maintain gross margins, we were able to maintain our absorption paces and grow revenues by over 60%, and that was a great year. In 2016, how we hit the upside the guidance, to answer your question, yes, we do the same thing again. If we can continue to expand into new markets and continue to create similar absorption rates and similar gross margins and not be dilutive, that would certainly put us at the high end of the range. And, is that the best way to provide guidance where it’s assuming that we’re going to be able to maintain absorption rates even though we’re adding 20% to 25% more communities and adding new markets and adding a lot of people. We want to provide a little bit more conservative guidance from that because we think it would be a great year if we hit our guidance in 2016. But I would not argue with the fact there is some upside in those numbers if you we do in 2016 what we did in 2015.

So, I appreciate that. And just lastly on that answer I mean – will there be any, and I apologize if this sounds repetitive or if you don’t want to go into too much detail, but where there any reasons that might exceed the – I don’t think conservative guidance because I think what you’re giving is not conservative per se but there is certainly still some upside. Do you think that would be more likely coming from your non-Texas markets or your Texas markets? And on the gross margin side are there anything baking in from a cost inflation standpoint that maybe you’re not seeing today, but you expect, like for example further, labor inflation, just throw one of those out there.

Yes, I think it’s relative to time into this as well if you want but I think the upside is really the new communities outside the state of Texas, because we gave a range of our community count of 62 to 67. And certainly they’re – when you’re forecasting new communities and new markets and dealing with finishing development or relying on other developers to finish development; that should create some upside if we got to the high end of the community count range. Gross margin-wise, one of the things that also was very positive in 2015 is all of our regions had adjusted gross margins of 25% or above. So, how we look at gross margin, as we think in our existing communities that are underway, most of those will have higher gross margins in 2016, and 2015 offset by some of the new communities and new markets having a little bit lower gross margin, more towards the 25% range, and offsetting and be consistent in 2016 like 2015.

Great. Thanks so much.

Yes, I appreciate it, Mike. Great questions.

Thank you. Our next question comes from the line of Nishu Sood from Deutsche Bank. Your question please.

Thanks, and congrats on the terrific year and the growth.

Thank you.

I wanted to – Houston is the number one thing everyone likes to think about, especially when it comes to you folks. I just want to dig into these numbers a little bit. 15% to 20% of your 4,000 to 4,400 closings at Houston that works simply about 7.35 or so.

Yes.

You have eight communities in Houston at the moment, and you’re going to drop down. So I used 7.25. That gets me to a sales pace of about 8.5 a month, which is pretty similar to the pace of the fourth quarter, I think for 2015 as well. There has been some concern about the monthly numbers that obviously December, a blowout number, February a little bit slow on a year-over year-basis. So the concern is that Houston that the weakness will continue to filter down the price points and that will affect you folks at some stage. So, I was wondering so your outlook is for there to be a little change in absorption pace. I was wondering, if you could get real reason in terms of your experiences in Houston. What you’re seeing in terms of the success rate on the flyers, the conversion rates, the flow through of the pipeline specifically January and February, clearly December was a terrific month. And what gives you the confidence for your forecast for absorption for this year out of Houston?

Yes, great question, Nishu. The primary thing that we’re looking at in the Houston market – we’re looking at past results. But the most important thing we’re looking at what this year is going to bring, as we’re looking at the lease that are coming in the office and we’ve got information on that on a week to week basis. And I can tell everyone on the call that through the first eight, nine, ten weeks of this year, we have not seen a drop off in demand. The number of customers that are calling us, the number of customers that are calling out as a percentage of the direct mail pieces that we mail. We have not seen a drop off at all. So converting those leads to appointments and tours and contracts and closings both a lot of people and lot of management but we have not seen the drop off in Houston relative to comparing at year-over-year or our experience that we’ve seen. So we’re – we in our modeling, we’re modeling a slightly lower absorption rate and then we’re going to lose a community or two depending on throughout the year, but all is good here in Houston.

Got it, and I appreciate it. The mortgage lending environment especially with the way that your folks model works. As things ease, it should provide a tailwind for you folks. There was a little bit of easing at the entry level of the market and easing at some return of subprime. I know you guys didn’t use subprime before and I don’t think you and that continues to be the case. But what are you seeing out there on the mortgage lending environment? Is it providing a tailwind in a market like Houston where their economic headwinds, well, oil is – for the low end consumer there are some tailwinds. But are you seeing it as a tailwind or you seeing it as more stable. How is it impacting your pipeline conversion on the ground across your communities?

Yes. First of all, we don’t do any subprime lending at all. Government based lending FHA, VA and USDA just like other builders, that’s our primary driver and focus. As far as mortgage underwriting requirements as far as credit score, debt to income ratios, I would characterize those as very similar sort of last quarter, very similar over the last 12 months. One thing that is helping Houston and helping all of our customers is this $40, $50 price of gasoline. That is certainly helping our customers have a little bit more money at the end of the month. But as far as mortgage underwriting guidelines, I would say they’ve been fairly stable.

Got it. Got it, that’s great. And then, just one last one, if I could, the community count, another 13 this year, that’s pretty similar to the 12 to 15 range you’ve had over the past few years. Is that the sustainable phase of healthy expansion. And then I guess one way to look at it is, is opening that same number getting easier because you have a larger base and more talent to drew from, is it getting harder because the enterprise has gone so much larger. So if you could just give us your thoughts on that continued growth path, please.

Well, I’m not sure it’s easier or harder. But that 20% growth of the community count for the next few years, that feels about right, Nishu. We’ve expanded into a lot of the what I consider really good markets and the next set, the Raleigh, the Nashville, the Seattle’s, but we have a lot of room to go deeper in these markets as well rather than just keep expanding into new markets. So, I think we’re in pretty good shape for our continued expansion of the 20% a year for the next few years. I will get back to you after that.

Great. Thanks for the thoughts.

You’re welcome.

Thank you. [Operator Instructions] Our next question comes from the line of Barry Haimes from Sage Asset Management. Your question please. Barry, you might have your phone on mute, looks like. Looks like he just removed himself from the queue. Our next question comes from the line of [indiscernible] from Sidoti. Your question please.

Hey, good morning, how are you?

Great.

Great.

Good. I appreciate the time. Just staying on the Nishu’s question, I know in the past you guys have detailed a number of leads you got in the quarter. I was just wondering if you had that for this quarter, fourth quarter?

I don’t have that right in front of me, Daniel. We could certainly get you that information. But I can tell you, what I’ve been looking at consistent with years past, 70 to 100 leads per week per community. So we’re running 5,000 or so leads per week. 60,000 to 80,000 leads for the quarter would be a very good estimated lead, so demand for home ownership is still there.

Great. That seams in line with the last few quarters where I think you actually saw an acceleration. And then, I guess a larger picture question, if I am not mistaken, the absorption rate in the metropolise kind of DFW area is lagging, the Houston – is there anything you guys, if I’m correct, is there anything you guys are doing internally or taking any initiatives to potentially narrow the gap?

Yes, I think we’ve made some changes in DFW as that team up there gets more experience. We’re excited about everything we got going on in DFW. New communities are off to a good start. So we averaged 6.2 closings per community in the DFW region in last quarter, which is very strong. But Houston is a tough comp, Houston is our home base, we’ve got great managers in the Houston region. So that’s a very high standard to compete with Houston. But at six closings per month, we’re happy with the absorption in DFW and look forward to a great 2016.

Okay. It’s all that takes. And then, last one, you mentioned and congrats on finally, I think you had a closing in Jacksonville, your first one.

Thank you.

Yes. Can you just remind us again, what drew you to that market to begin with? And if there’s any parallels with some of your kind of core markets?

Yes, I think what got us in the Jacksonville market is really our success in Orlando and Tampa, we’re having good success in the Florida markets. Jacksonville is obviously closely geographically close to the Orlando market. We have a lot of confidence in our Florida leadership team and came across individual deal and add potential acquisitions from a seller in a matter hurdles, we did our test marketing, the demand was there. So we bought it, and we’re off to a great start.

All right, thanks a lot, appreciate it.

All right, appreciate it.

Thank you. And this does conclude the question-and-answer session of today’s program. I’d like to hand the program back to Eric Lipar for any further remarks.

Thank you everyone for participating on the call and for your interest in LGI Homes. We look forward to sharing our achievements, as we finish out the rest of the year. Have a great day.

Thank you, ladies and gentlemen for your participation in today’s conference. This does conclude the program. You may now disconnect. Good day.