Rachel Eaton - Chief Marketing Officer Eric Lipar - CEO & Chairman Charles Merdian - CFO Meg Britton - Chief Administrative Officer.

Nishu Sood - Deutsche Bank Michael Rehaut - JPMorgan Edward O'Kine - Basso Capital Barry Haimes - Sage Asset Management.

Good morning and welcome to the LGI Homes First Quarter 2015 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. Mrs. Eaton, you may begin..

Thank you. Good morning and welcome to the LGI Homes conference call discussing our results for the first of 2015. 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 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 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 first quarter of 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 Chairman of the Board; Charles Merdian, the company's Chief Financial Officer, Secretary and Treasurer; and Meg Britton, the company's Chief Administrative Officer. With that, I will now turn the call over to Eric..

Thank you, Rachel, and good morning everyone. We appreciate you joining us on the call today. First of all, we’ve some breaking news out off the presses the Builder 100 rankings were released this morning and LGI Homes was named the 21st largest builder in the United States according to builder magazine.

I want to thank the entire team at LGI Homes for all their hard work contributing to our success. On the call this morning I’ll summarize the highlights from the quarter. Then Charles will follow up to discuss our financial results in more detail.

After he has done I’ll conclude with comments and how the second quarter is unfolding and our expectations for the remainder of 2015 before we open the call for questions. The first quarter of 2015 was another record setting quarter for closings in revenues at LGI.

We closed 671 homes during the quarter with just over $120 million of home sales revenues which represents a 38% increase in the number of homes closed and a 59% in home sales revenues over the first quarter of 2014. March 2015 set a new record for home closings in a single month.

We had 298 home closings which represents a 21% increase over our previous record of 246 homes closed in December 2014. Our average sales price for the first quarter increased more than $23,000 over the first quarter of last year.

One factor contributing to this increase was our first six closings in our new Terrata community, Potranco Ranch San Antonio and Texas. These six closings had an average sales price of just north of $400,000 with an average size of 3,400 square feet.

During the first quarter we demonstrated that with our disciplined commitment to our systems and processes, we can successfully expand our footprint in addition to our price points. We ended the quarter with 44 active communities which is an increase of 16 communities or 57% over the first quarter of the previous year.

Our focus on production building based upon including standardized features in all of our homes and building in affordable locations continues to support our industry leading absorption rates as well as adjusted gross margins at the high end of the range reported by our home building peers.

Looking now at some of our market highlights from the quarter. Our presence in Texas remain strong and it continues to be our leading division representing approximately 57% of our closings. During the first quarter we had 382 closings across our Texas markets this is a 10% increase over the 345 homes closed for the first quarter of 2014.

Approximately 51% or 194 closings in Texas during the first quarter of 2015 were in the Houston region. With eight active selling communities our absorption for the first quarter was 8.1 closings per community per month. This compares to 7.5 closings per Houston community for the first quarter of 2014.

In addition our average sales price in Houston increased 17% to $177,600 in the first quarter of 2015. Not only do we increase our average sales price year-over-year now we realized an increase in absorption as well.

During the first quarter of 2015, we’ve continued to diversify our operations outside of Texas, a total of 43% of our first quarter closings were generated by our Southwest, Southeast and Florida divisions an increase over the 29% of closings generated by those divisions during the same quarter in the prior year.

This increase is due to substantial organic growth including the addition of 12 active selling communities in those divisions as well as growth attributable to the Oakmont acquisition completed in October 2014 which established our immediate presence in the Charlotte market. The integration of the Oakmont assets in [indiscernible] homes is complete.

We’ve converted all systems to the LGI way and are very pleased with the results. During this past quarter we had a first home closings in our newest market Denver, Colorado which expanded the geographic footprint of our Southwest division. We’ve two communities in Denver, our legacy part community and our Bella Vista community.

Between the two locations we closed 15 homes during the quarter. The average sales price for our homes closed in this market was approximately 276,000 and the average size was just over 1,800 square feet. We’re excited about our momentum in these new communities. We have found Denver to be a very good market for us.

We ended the quarter with portfolio of 21,286 lots that we own our control on which we own 16,299 lots. Of the owned lots approximately 10,700 are either raw or underdevelopment. In order to sustain our presence in our sub-markets, we are performing development activities so that we can control the pace of future sections.

We believe that our lot inventory generally represents 3 to 5 years of supply in our markets. We remain disciplined in our evaluation of land acquisitions and expansion opportunities. As a result we only move forward on deals that meet our underwriting criteria and our strategy.

Overall we believe the market conditions we have experienced this quarter have been favorable. Each of our markets continues to experience strong momentum in housing demand drivers including nationally leading population and employment growth trends, general housing affordability and desirable lifestyle characteristics.

For more detailed financial results, I will now turn it over to our Chief Financial Officer, Charles Merdian..

Thanks Eric. Home sales revenues for the quarter were $120.7 million based on 671 homes closed which represents a 59% increase over the first quarter of 2014. Our average sales price was $179,866 for the first quarter, an increase of 14.9%. Increased average home sales prices have contributed to our strong revenue performance.

Average sales prices increased across all our divisions and companywide we realized an 8.2% increase compared to the previous quarter.

This increase reflects price increases, changes in product mix and new communities we added during 2014 in the first quarter of 2015 which have higher price points all of which offsets by an average sales price of approximately $147,000 for home sales in our Charlotte market which is still showing some lower overall pricing from the homes acquired in Oakmont acquisition.

Sales prices realized from homes closed during the first quarter of 2015 ranged from the 110 to 430s. This includes as Eric mentioned previously the closings of our first six Terrata brand homes during the first quarter which had an average net sales price of approximately $400,000.

Excluding Terrata homes we experienced the first quarter year-over-year price depreciation of 13.6%. Adjusted gross margin was 27.8% for the quarter, 30 basis points higher than the first quarter of 2014.

Adjusted gross margin excludes purchase accounting included in cost of sales for the quarter of $1.1 million, of which approximately $700,000 was related to the Oakmont acquisition and approximately $400,000 was from the GTIS acquisitions.

On the balance sheet we have approximately $2 million of step up remaining which we expect to maturity to come through the income statement throughout this year.

In addition, adjusted gross margin excludes approximately $1.1 million of capitalized interest charged to cost of sales during the quarter representing 88 basis points and we expect this to increase to 100 to 125 basis points over the remainder of the year.

Selling expenses were $11.6 million or 9.6% of home sales revenues compared to $7.4 million or 9.7% of home sales revenues for the first quarter of 2014. Selling expenses as a percentage of home sales revenues are consistent with previous quarters.

General and administrative expenses were 8.2% in the first quarter or 6.8% of homes sales revenue as compared to $5.1 million or 6.7% of home sales revenue for the first quarter of 2014, the absolute increase in G&A expenses is primary due to the increased number of active communities, higher number of home closings and the employees needed the support to increase the activity.

General and administrative expenses were $7.2 million in the fourth quarter 2014 or 6.6% of revenues. Our first quarter 2015 G&A expense includes approximately $1 million in additional costs related to your annual performance recognition and training events that are traditionally held during the first quarter of each year.

As previously mentioned on earlier calls, we believe that SG&A expense as a percentage of revenue will be in the range of 14.5% and 15.5% for the full year. Pre- tax income from the quarter with $11.7 million or $9.7% of home sales revenue an increase of 40 basis points over the same quarter in 2014.

We had net income of 7.7 million or 6.4 % of home sales revenue for the first quarter of 2015 which represents $0.39 for basic share. First quarter net orders were 968 ending backlog from March with 601 units and the cancellation rate for the first quarter was 21.4%.

As of March 31, we had 39 million of cash, 387 million of real estate inventory and total assets of 466 million. In November of 2014, we issued $85 million of our 4.25% convertible notes due in 2019 which under their terms are convertible under certain circumstances into approximately 3.95 million shares of our common stock.

On March 31, notes payable on our financial statement included 77.1 million which represents the fair value of the convertible notes at the date of issuance plus accretion of 6.63% discount through March 31.

5.5 million of the original proceeds were recorded to additional paid in capital to reflect the equity component of the convertible notes and 3 million is included in deferred tax liabilities.

In our annual stockholders meeting last week, our stockholders approved the flexible settlement provisions of the convertible notes which enable us to choose whether we will settle the conversion of notes with cash, shares of our common stock, or any combination of cash and stock.

Diluted earnings per share for the first quarter reflect the impact of the convertible notes using the if converted method from the date of issuance. The underlying shares of approximately 3.95 million were treated as diluted.

Since we have obtained stockholder approval for the flexible settlement feature of the convertible notes we will now be eligible to use the treasury stock method for determining the impact of the conversion feature of the notes on EPS.

Under the treasury stock method, the convertible notes will not be dilutive unless the market price exceeds the conversion price of our common stock. A portion of the net proceeds from the issuance of the convertible notes was used to reduce other debt outstanding.

The outstanding borrowings under our secured bank credit facility at March 31 were approximately 152.9 million and total debt was approximately 230 million.

At the end of the March, we had approximately 46.5 million of additional availability under our secured bank facility and we are currently in discussions with various lenders to enter into an unsecured revolving bank credit facility that would replace our existing secured facility.

On March 31, our gross debt to capitalization was 54.7% and net debt to capitalization was 50%. At this point I would like to turn it back over to Eric..

Thanks Charles. In summary, we had another outstanding quarter. Let me provide some guidance and thoughts on what we are seeing for this quarter and looking ahead into the remainder of 2015.

The second quarter starting strong with 267 closings in April up from 191 closings in April 2014 representing 39.8% year-over-year growth which represents over six closings per months per active community. Sales have been strong during the second quarter and we continue to see the demand for home ownership remain high.

As previously discussed home closings were strong in Texas during the first quarter of 2015 and have been continued to be very solid going into the second quarter. As of now our performance has not been impacted negatively by the week oil and gas sector in Texas and Houston economies. In fact, April absorption Houston was nine closings per community.

One of our highlights in April was the close of our longest running project today [sun rise matter] in Houston market because 973 homes between of March 2006 and April of 2015. Over the life of the project we average 8.9 home closings per month and increased average sales prices from the 120s to 170s.

Our replacement for this community is [indiscernible] with 370 lots and we are on track for seamless transition. At the end of April we had 44 active selling communities. We have many new projects in the works this quarter and we are still expecting to have 50 to 55 active sign communities by the end of 2015.

In preparation for closings in 2016 and 2017 we have begun to evaluating expansion opportunities in new markets such as Seattle and Nashville as well as opportunities to leverage our existing management teams and expand to adjacent markets such as Jacksonville Raleigh-Durham. We offer this line of our expansion to the Seattle market.

We have promoted an experienced manager with proven success in opening new markets to lead the region secure top talent of local expertise and identify great land positions. We are encouraged by our test marketing results and expect to begin construction on new homes in the greater Seattle area later this year.

We believe strong interest in home ownership will continue. This coupled with our first quarter results indicates that we are on track to meet our market guidance. Last quarter we committed to deliver 2,800 to 3,200 home closings and as of April 30, 2015, we are on pace to meet this expectation.

In addition we saw a significant increase in average sales price over this past quarter. We expect that to moderate over the remainder of the year with our average sales price increasing at a rate of 1% to 2% each quarter. Based on this early momentum we expect to see our average sales price in 2015 increase by least a 11% over 2014.

We expect our 2015 adjusted gross margins to be consistent with what we experienced in 2014. Our adjusted gross margin is expected to continue to be in our target range of 27% to 29% after taking into account purchase accounting, interest costs and other non-recurring type items.

Based on these assumptions including 2,800 to 3,200 expected home closings are likely increase in average sales price consistent adjusted gross margins and expected improvements in our G&A leverage we believe our basic earnings per share will be in the range $1.85 to $2.25.

The midpoint of our EPS guidance of $2.05 per share represents basic EPS growth of approximately 50% over 2024. Now we will be happy to take your questions..

[Operator Instructions] Our first question comes from Nishu Sood of Deutsche Bank. Your line is open..

Thanks and very, very good results for the quarter. I wanted to ask about the monthly closings March was obviously a super strong month April was quite strong as well but some of the let down.

Did you experience some of the with March being so strong was there were you running a little light on completed homes to that holdback April any color there would be helpful?.

Yes, I would say yes Nishu we consider April a strong month too almost 40% year-over-year increase. So March and April certainly strong months, January and February traditionally are slowest closing months of the year because that’s based on December and January sales.

So March and April coming up, January and February sales rather than getting pass to Christmas holidays has been very strong. But yes we can only close as many houses as we have finished and we would certainly close more homes in April if we would have more homes closed. You are exactly right..

Got it. Got it. Okay great. And you had mentioned on the SG&A 14.5% to 15.5% for this year, clearly with the pace of expansion that you had it is a, I think Charles mentioned this in some of his commentary has boosted some expenses the earlier stage communities.

Underlying now and obviously we have had the chance to observe the public company for some time what’s your updated thoughts about leverage on that number in the out years - obviously you’re not going to give specific numbers but how much greater potential is there for leverage once you begin to mature a little bit more maybe obviously low of large number the growth profile begins to slow down a little bit?.

Yes, this is Charles. Good question Nishu, so really what we have seen like you said over the past year being newly public in building the internal team primarily is what’s been driving the G&A portion. Selling expenses has historically been in that 9% to 10% and as we mentioned in the comments at 9.6% that’s right in the range.

So that portion of SG&A we would expect to be right there consistently with possibly a little bit of leverage as we continue to grow the average sales price.

On the G&A side, like you said it really will depend in future years on which markets we expand to and how we end up structuring the overhead so I really don't have anything else maybe to add for 2016 and 2017 yet but there is definitely a possibility to see more operating leverage but time will tell and we will get there as we get a little bit closer..

Got it. And one final if I could on Houston very good color, 8.1% absorption in the first quarter and Eric you mentioned up the 9 level for April so very strong and there doesn't seem to be any signs of slowdown.

I kind of want to ask why first of all in the earlier stage part of your selling process the responses to your fliers has that continued to be strong or have you seen some drop off in that I kind of consider that to be the earlier stage equivalent reading for your sales process.

And just on a bigger picture basis it really has surprised a lot of people that Houston hasn't slowed down so you are there, I mean for the sake of saying so maybe if you could give your thoughts on the dynamic that’s had play and when we might expect to see some slow down because certainly you would think there would be some effect at some stage?.

Yes, an issue, we being LGI do not expect to slowdown at all. Over the last four months obviously we gave some stats that indicate very strong performance in Houston I can tell you that sales have continued to be strong over the last 30 and 60 days. So for closings for the next 30, 60 to 90 days those houses are already sold.

We expect closings to remain very strong. Historically, we have been building houses since 2003 in Houston and through our process it doesn't matter if it was the lower point of the housing downturn in 2007 or 2008, the phone has never stopped ringing, the demand in the Houston market for renters looking for home ownership has always remained strong.

So, we do not see that changing for LGI..

Got it.

So you have seen no drop off in response rates?.

We have not..

Okay. Great. Thanks a lot..

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

Thanks. Good morning everyone and nice quarter.

The first question I had was just to make sure I got it correct that basically talking about your guidance for the year just want to make sure it appears that you essentially reiterated all components of the guidance is that fair to say from last quarter?.

Yes. That is correct. .

Okay and then I guess really the follow-on to that would be the ASP for the first quarter and then you kind of said that you expect it to moderate over the next two or three quarters to 1% to 2% up sequentially.

Did the ASP come in a little bit higher than you expected for 1Q and just kind of curious if you thought maybe that if that’s the case that maybe that provides the potential for you guys to maybe hit towards the upper half of the EPS guidance range is that kind of a fair statement or how does the 1Q ASP play into the bigger picture for ASP expectations for the full year and EPS?.

Sure Mike, this is Eric, I will start off and Charles can add to it if he wants to. The first quarter was a surprise to the upside primarily driven by Denver getting after a really good start and us getting off to a good start in Terrata homes and San Antonio certainly influence that.

Now that absorption built into the model if you will, we won’t have new communities like that coming in the second and third and fourth quarters. So that’s why our model is showing more moderate price appreciation in the second, third and fourth quarters of about 1% or 2%.

On the last call, I believe we talked about price increases year-over-year of north of 8% so now based on the first quarter results, and similar appreciations second third and fourth quarter we feel that north of 11% is more accurate..

And so with that then guidance maybe being raised but you keep the range at least for the EPS is it fair to say that all of sequel maybe you could kind of points to maybe at least somewhere above the midpoint of that range I mean obviously you are still baking in, I would presume some cushion for what may or may not happen let’s say from a cost side in the back half but it’s certainly I think a minimum would strengthen your conviction in the - up to 225 range?.

Yes. Yes. I will agree with that statement Mike, I mean we are exchange very positive about the year, very comfortable with all our guidance the first four months we have got a great start to the year. The pipeline looks great for next quarter so we are very optimistic on the year.

Being only four months into it or just being the first quarter call, probably too early to raise guidance on some of those metrics. But certainly everything is heading into the right direction..

Okay.

And then one last one on guidance, the share count Charles, maybe you could just review how we should think about that given the updates around the decisions around the treatment of the debt and so forth?.

Sure. Based on the stockholder vote so the 3.95 million shares will be treated as dilutive for the month of April and would be treated as non-dilutive assuming that the market price is below the conversion price of the 2152, so the 3.95 would be diluted for one month and the non-diluted for two months..

And then going forward it would be non-dilutive so would be using the 20.9 that we had previously, is that right as long as the share price doesn’t stay below the strike?.

You would use the 19.9 which was the 20.9 minus the 1 million shares that we repurchased when we did the convertible notes..

Okay. One last one if I could on the gross margin side, you reiterated your guidance for that for the year and at the same time you continue to be expanding into new markets, evaluating new markets etcetera.

As you’re looking at those new markets and finding different opportunities you had mentioned Denver doing well and Seattle which in particular those are two let’s say everything else weaker, a little bit high areas markets, same time during this little lower ASP.

But as you’re looking out and expanding, are your expectations for the adjusted gross margins in the 27 to 29 range is that something that you are going to continue to kind of build into your model that you would want to keep the underwriting of those levels and that you expect to continue to see opportunities for land at those gross margins or would there be any type of change to that outlook overtime where the 27 to 29 might be lets the range might be taken down by a 100 or 200 bips?.

No, we’re comfortable saying that range of 27% to 29% that’s what we would expect in the future for the last five quarters of being in public company including a lot of expansion into other markets, we’ve been between 27.5% and 28.9%.

So, we’re right on track there will be fluctuation within that range but we think that’s where we’re going to be there in the future.

We underwrite to a 25% gross margin so in the new markets they tend to be a little bit lower but as the markets get seasoned we tend to increase the gross margin that makes up for it in that average of 27 to 29 for the year we think that’s very accurate..

Great thanks guys..

Thank you. Our next question comes from [indiscernible] your line is open..

Actually while most of my questions have been answered already I had one regarding the ASP. Obviously we saw an upside to the ASP how much of that was a price increase and how much of that would you attribute to a mixed shift and seeing that upside I would have expected to see a little more operating leverage particularly on the sales expense.

So, can you give us a sense of what’s going on there?.

It’s a mix Sam of both. We’ve been able to raise prices in all of our existing communities, most of that price increase because it’s a pretty big number in first quarter’s result of new communities and the higher price communities opening up.

Our existing communities apples-to-apples year-over-year comparison certainly increased but most of the increase would come from newer higher priced communities and replace an older communities with newer communities because of the lot costs and etcetera that creates high price points..

How does that affect G&A line though, I mean, the sales expense because I would have expected to see a little more leverage on that expense lane?.

So, from a selling expense standpoint it’s really made up of three components, so you have sales commissions made up of internal and outside commissions, we have over the last 12 months a slight increase in outside commissions as we move up the price band.

We’ve about a third of the expenses that we allocate or budget for, for our marketing expense or our direct mail campaigns and our in internet campaigns. And really a third of the selling expense bucket is allocated towards operating the sales centers in each individual community.

As kind of as we mentioned there is some potential for maybe some leverage on the selling side, but we don’t certainly expect it to be very significant. We still think will be in that 9% to 10% range..

Okay, great, thank you..

You bet..

Thank you. Our next question comes from Edward O'Kine of Basso Capital your question please..

Thanks.

Just back to the Houston situation, I mean, is it your particular product that’s why you said that you’re not seeing any slowdown at all of the - the Houston region as a whole you think would not see any drawdown?.

Yes, this is Eric speaking.

I think there is certainly, the facts are we’re in the entry level of housing business in Houston, we’re focused on converting that renter to homeownership, so we’re not in the higher price point in the Houston market and I think oil and gas may affect the higher price point more than the entry level but all I can tell you is what you have seen and we have not seen a slowdown and arguably we have seen an uptick as far as our closings go we have been able to maintain absorption with our average sales pricing increasing we said earlier $177,000 first quarter average sales price in Houston.

But I think it’s more of a our process we have been strong in Houston for a long time, we had a lot of referral business, we got a great management and people team here in the Houston market and I think our success in Houston is going to continue..

Okay. Thank you..

You are welcome..

Thank you. Our next question comes from Barry Haimes of Sage Asset Management. Your question please..

Thanks. Congrats guys on the great quarter. My question has to do with Terrata and now that you are out in the market you have got a few closing just you mentioned. I am wondering if you can tell about both the sales process and the sort of - and kind of what’s the same and what’s different compared with traditional LGI.

And then also the kind of construction standardization element, I presume at this price point there are probably some differences on each of those two sides and so I wondered if you could just talk a little bit about what’s the same, what’s different and are there any learnings or tweaks so far as you have gone through the initial phases? Thanks..

Sure Barry, this is a Eric. I appreciate the question. First of all on the sales process itself which I would define as when the customer contacts us, the process that we take them through to talk about LGI, to talk about the Terrata brand and all the information they need to do business with us that process is exactly the same.

Same process that we have been using since the mid 90s in the land business and same process we use in entry level housing. The marketing to get the customer to inquire on Terrata home is slightly different.

I obviously we are not sending direct mail to people leaving in apartment complexes and focused on that although there is a direct mail component to Terrata it’s going after a little bit different buyers and little bit different price point in that community north of $400,000.

So the process is the same marketing to get them to that point is little bit different.

The product itself we are still building our Terrata home brands San Antonio, at a 100% spec and by that we mean we are going to build the houses in advance of sales we believe there is demand for customers even at that price point they are looking to move in the next 30, 60, 90 days and unless you have an existing house ready to satisfy that demand, you are not going to be able to sell to that customers.

And sales have been very strong.

We are happy with our results so far because six in our - essential our first quarter of our business we have got enough contracts pending right now that we believe are going to close at six next quarter so everything is looking good in Terrata and we are going to roll that out in community in Charlotte that open in the third quarter of this year and then roll it out in a few more communities end of this year, first of next year..

That’s great.

One just quick follow-up so if I was to go into the community how many different types of models would you have within Terrata?.

We have five different floor plans with each floor plans having three different elevations. .

Got it. Thank you very much. I appreciate it..

You are welcome..

Thank you. At this time I’d like to turn the call over to Chairman and Chief Executive Officer, Lipar with any closing remarks..

Thanks. I want to thank everyone for joining us today. We look forward to sharing our success as 2015 unfolds. Thanks..

Thank you, sir. And thank you ladies and gentlemen that does conclude today's conference. You may disconnect your lines at this time. Have a wonderful day..