Good day, ladies and gentlemen, and thank you for standing by. Welcome to the LGI Homes' 2022 Second Quarter Earnings Conference Call. At this time, all participants are on a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. At this time, I would like to turn the conference over to Mr. Josh Fattor. Sir, please begin. Thank you and good afternoon. Before we begin, I'll remind listeners that this call will contain forward-looking statements that includes management's views on LGI Homes' business strategy, outlook, plans, objectives, and guidance for 2022. 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, including the risk factors and cautionary statement about forward-looking statements sections 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 viewpoints as of the date of this conference call and are not guarantees of future performance. Additionally, on today's call, we will discuss non-GAAP financial measures that are not intended to be considered in isolation or as a substitute 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 that we issued this morning and in our quarterly report on Form 10-Q for the quarter ended June 30th, 2022, 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. Our hosts today are 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. Thanks, Josh. Good afternoon, everyone, and welcome to our earnings call. I'll open with highlights from our second quarter, and then Charles will provide details on our financial results. Finally, I'll provide an update on our performance to date in the third quarter and our outlook for the rest of the year. I'm pleased to share the record results delivered by the LGI team in the second quarter, continuing our track record of operational excellence and industry-leading profitability. We closed 2,027 homes at an average selling price of over $356,000, resulting in over $723 million in revenue. Absorptions for the quarter came in at 7.4 closings per community per month above our historical second quarter average of 7.1. Houston was our top market with 13.6 closings per community per month. Charlotte was second with 12, followed by Dallas-Fort Worth with 11.8, San Antonio with 10.7, and Tucson rounded out the top five with 10.3. Congratulations to these teams on outstanding performance last quarter. I'm also pleased to announce that in June, we had our first closing in the state of Maryland and are now operating in 35 markets across 20 states. Despite fewer closings compared to last year, our commitment to our systems, combined with continued pricing power, allowed us to deliver our most profitable second quarter ever, and we set new company records in every profitability metric we track, including gross margins, EBITDA, pre-tax income, and net income. While the housing market outlook is uncertain, we're confident in our positioning and path going forward. We enter the remainder of the year with a solid balance sheet, an attractive land pipeline, a proven expertise in land development and marketing, and the most experienced, well-trained sales force in the industry. Regardless of what the market does in the near term, LGI is on solid footing and well-positioned to succeed. Now I'll turn the call over to Charles for more details on our financial results. Thanks, Eric. During the quarter, we closed 2,027 homes. Of our total closings, 146 homes were sold through our wholesale business, representing 7.2% of our total closings, compared to 430 homes or 15.1% of our total closings in the same quarter last year. The year-over-year decline in wholesale closings was driven by our decision to write fewer wholesale contracts in the second half of 2021, when cost inputs were at their most volatile, our prioritization of retail sales, and the timing of closings. Revenue in the second quarter was $723.1 million, a decline of only 8.6% from last year, as the decrease in home closings was offset by a 28.7% increase in average selling prices to a record $356,719. Selling prices increased in all of our reportable segments, primarily driven by continued strong demand that enabled us to pass through cost increases. Gross margin this quarter was a new company record at 32%, a 500 basis point improvement over the same period last year and a 300 basis point improvement over our prior record. The increase resulted from our success at passing through cost increases, lower capitalized interest expense, and lower lot costs as a percentage of average sales price. Adjusted gross margin this quarter was also a new company record at 33.1%, a 460 basis point improvement over the same period last year and a 280 basis point improvement over our prior record. Adjusted gross margin excludes $5.7 million of capitalized interest charged to cost of sales during the quarter and approximately $2 million related to purchase accounting, together representing a 110 basis points. Combined selling, general, and administrative expenses for the second quarter were 10% of revenue, compared to 8.6% during the same period last year and 11.5% in the first quarter of this year. Selling expenses for the quarter were $43.3 million or 6% of revenue, compared to 5.7% for the second quarter of 2021. General and administrative expenses totaled $29.1 million or 4% of revenue, compared to 2.9% last year. The 110 basis point increase was driven by lower overall revenue, increased overhead, and other personnel costs. EBITDA for the quarter was $169.1 million or a record-setting 23.4% of revenue, a 320 basis point improvement over the same period last year, which was also our previous record. Adjusted EBITDA was $167.1 million or 23.1% of revenue, a 310 basis point increase from the same period last year and also a new record. Adjusted EBITDA excludes $4 million of other income and $2 million related to purchase accounting, together representing approximately 30 basis points. Pre-tax net income was $163 million, a record-setting 22.5% of revenue and a 370 basis point improvement over the same period last year, which was also our previous record. Our effective tax rate in the second quarter was 24.3% compared to 20.8% last year. The increase was primarily due to the expiration of benefits related to the 45L tax credits. Our second quarter reported net income was $123.4 million or 17.1% of revenue, also a new company record. Finally, earnings in the second quarter were $5.24 per basic share and $5.20 per diluted share, both representing year-over-year increases of 10.3%. Second quarter gross orders were 1,244, and net orders were 864. The 57.3% decrease in net orders was primarily due to last year's strong comp, as well as our decision to defer sales to later in the construction process. Our cancellation rate for the second quarter was 30.5% compared to 24.4% last year, primarily due to the moderation in demand experienced in June as mortgage rates increased and some buyers chose to cancel their contracts. We finished the second quarter with a backlog of 1,266 homes, representing over $445 million in value. As of June 30th, our land portfolio consisted of 89,984 owned and controlled lots, an 18.5% increase year-over-year and a 3.5% decrease sequentially. We added over 4,800 new lots to our owned inventory and ended the quarter with 61,893 owned lots, an increase of 45.7% year-over-year and 4.8% sequentially. Of our owned lots, 49,595 were either raw land or land under development, and only a third of those lots were in active development. The remaining 12,298 of our owned lots were finished lots, of which 7,481 were vacant lots. During the quarter, we started over 2,400 homes, and at June 30th, we had 4,817 completed homes, information centers or homes in process. Excluding information centers, we had just 603 completed homes. Finally, at the end of the quarter, we controlled 28,091 lots, a decrease of 15.9% year-over-year and 17.8% sequentially. Turning to the balance sheet, we ended the quarter with $42 million in cash, over $2.6 billion in real estate inventory, and total assets of nearly $2.9 billion. Total debt at quarter end was $1.2 billion, resulting in a debt to capitalization ratio of 43.3% and a net debt to capitalization ratio of 42.4%. We expect our leverage ratio will remain in the range between 35% and 45%. As of June 30th, we had total liquidity of $245.7 million, consisting of the $42 million of cash on hand and $203.7 million available to borrow under our credit facility. In the last year, our shareholders' equity has increased by $228 million to over $1.5 billion, and we delivered a return on equity of 29.6%. During the second quarter, we repurchased 417,861 shares of our common stock for $37.4 million, and we ended the quarter with 23.3 million shares outstanding. Since 2020, we have repurchased approximately 12% of our common stock, and as of June 30, we had $211.5 million remaining on our stock repurchase program. At this point, I'll turn the call back over to Eric. Thanks, Charles. As highlighted in our press release, we're adjusting our full-year guidance to reflect our current outlook for the rest of 2022. Pending verifications of fundings, we expect to report that we closed 470 homes in July. We now expect to close between 7,500 and 8,300 homes for the full year. While lower than our original guidance, this new range assumes a closing pace of 7.5-eight closings per community per month for the rest of the year, which is in line with our strong performance during the back half of 2019 when we had a similar number of communities. We continue to experience headwinds on the development side and now expect 100-110 active communities at year-end. Additionally, we still expect community count growth of 20%-30% next year. Based on our results to date and current backlog, we expect an average selling price between $345,000 and $360,000 for the full year. Additionally, we now expect our SG&A expense will range between 10% and 11%. We maintain our guidance for gross margins in a range between 27% and 29% and adjusted gross margins between 28.5% and 30.5%. After a two-year boom market unlike any other in history, the new home market is at a crossroads. From a short-term perspective, homes are more expensive, consumer prices are up, and moves to curb inflation nearly doubled mortgage rates. However, the longer-term outlook reveals a solid foundation for multiyear growth. Demographic trends remain supportive of demand. Strong labor markets are fueling wage growth. Tight rental supply is pushing up rents, and the inventory of homes available for sale remains historically low. At LGI, we're taking a long-term view and remain optimistic about our business for several reasons. For the first half of the year, we were mainly focused on closing the homes in our backlog. Now we're back to focusing on sales and closings, and our marketing faucet is turned on. While others may be cutting expenses, we've been increasing our advertising spend with favorable results. In July alone, nearly 20,000 people inquired about moving from renting to homeownership, a 54% increase over last year. Additionally, our orders have been up for four consecutive months. These results give us confidence that there is still a large pool of qualified buyers for our homes, and we expect these numbers to grow as we connect with more of those target buyers. We have removed the governor from our sales process. For the last few months, we've only sold homes that were within 60 days of closings. That was the right decision at the time, given the supply chain disruptions. However, with supply chains now normalizing, we are adjusting accordingly. This weekend, we will start selling homes that are within 90 days of closing. These homes will be at a phase of construction where we can have confidence in our delivery times, a clear view of costs, and certainty that we can provide a great experience for our homebuyers. Prices are normalizing. While we're proud of the 33% adjusted gross margin we just delivered, it's not a sustainable expectation, and it's not our target moving forward. As we bring new communities online, we're offering them at prices that will deliver normalized margins in the 25%-28% range. Additionally, we're seeing input cost decrease in almost all of our communities, which will enable us to offer homes at monthly payments that are more affordable for our buyers. Finally, as we right-size our inventory to meet current levels of demand, we expect to generate additional cash flow that will position us to capitalize on opportunities to accelerate our growth. To conclude, I want to congratulate our employees on our record-setting quarter and thank them for their commitment to our continued success. The days of retail investor demand, shifts in housing preferences, work-from-home migration, and low interest rates filling sales offices are behind us. What matters now is an unwavering focus on connecting directly with customers, educating buyers on the benefits of ownership, building homes that offer a compelling value compared to renting, and delivering the industry's best customer experience. LGI Homes was built to thrive in challenging markets, and we believe our people, systems, culture, and 100% spec-focused model will continue to differentiate our company as we navigate this dynamic period. We'll now open the call for questions. Ladies and gentlemen, if you have a question or comment at this time, please press star one one on your telephone keypad. Again, to ask a question, please press star one one. Please stand by while we compile the Q&A roster. Our first question or comment comes from the line of Trevor Allinson from Wolfe Research. Your line is open. Hi. Good morning. Thank you for taking my questions. First question, I just wanted to touch on what you had ended with there on your gross margin outlook for the back half of the year. It sounds like the main driver there is gonna be new communities coming online at lower margins. Are there any other factors that are major drivers of that, maybe increased wholesale closings or, you know, still higher costs flowing through in the back half of the year that's gonna drive that sequential decrease from Q2's strong level? It's a great question. This is Eric. I can start. I'd point to three things talking about our margin guidance, and also with the, you know, caveat that our gross margin guidance midpoint will be the best year in company history, so still a very strong margin for the year. But the margin that we just came off, our adjusted gross margin on how we price our house, you know, 33.1% in Q2 and 31.9%, year to date is phenomenal. It really shows how strong the market dynamics were and phenomenal results. I think going forward, there's three things I'd point to is, one, new communities coming online, we're pricing at normalized margins, you know, 25%-28%. We've seen those communities get off to fast starts with more normalized orders and sales pace, which is very positive. I'd also point to the wholesale business. Wholesale is only 7% of our closings last quarter. We expect that to get normal, probably 10%-15% of our closings in the back half of the year. As we have closed out the pipeline, our costs are going down. Even in our existing community, we're gonna be able to adjust our pricing to normalize margins in addition with the costs coming down and offer a more affordable payment to our customers. Okay, great. Thanks. That's very helpful. Second, looking at your option lots, they took a step down sequentially. I was hoping to get an update with what you're seeing in the land market in general, and then with your option agreements, just given the slower demand environment. Have you seen sellers become more willing to negotiate on terms or pricing? Have you seen any actual price declines? With your option lots moving lower sequentially, have you actually walked away from any of those option deals? Yeah, I think it's a great question. I think what we're seeing in the land market is probably consistent with what everyone else has been saying. Haven't seen a lot of price decreases on land yet. When I say land, I mean raw land or paper lots per se, but it's early. You know, I was in Colorado last week for a board meeting and spent some time in the field with our acquisitions team. For the first time in a couple years, we had a couple finished lot opportunities we were looking at. There's a lot of developments going on across the United States, and we're pretty excited about the potential opportunities that may come about with a more normal market. For the last couple of years, it's just been an unbelievable market where all the builders are taking orders. Everybody's having phenomenal success. Everybody's having phenomenal margins. A lot of the land coming to market and a lot of developments that's going on has been financed with more expensive debt, more expensive land banking. Those communities come online, we'll see. We're starting to see some of those opportunities, but it's early yet. I think rather than focusing on raw land, we may see some opportunities for finished lots. Okay, great. Thanks for taking my questions. Good luck in the next couple quarters. Thank you. Thank you. Our next question or comment comes from the line of Trevor Allinson from Wolfe Research. Mr. Allinson, your line is open. Mr. Allinson from Wolfe Research, your line is open. I think we got Trevor's question. Hey, yeah, I guess I'll hop in with one quick one, then we can move on. I'm just hoping you guys could discuss the demand by geography here. Your west region was really strong, and you've got some community count growth there. I'll just ask one quick one there, and I'll hop back out. I think I can take this. This This is Eric again, the demand question in general. Charles can add to it if he wants to see fit. I think demand is consistent across the country. What I mean by that is really our focus on the first half of the year was really focused on our backlog and getting that closed. We made a decision in March to only sell houses within 60 days of closing because you know supply chain challenges. We weren't having great experiences with the customers as we were missing closing dates, which is not good for us, not good for the customer. We really focused through Q2 on closing out our backlog and did not focus on sales 'cause we did not have a lot of finished inventory to sell within a 60-day period. That has started to change. In fact, that's one of the things in the scripted remarks we talked about. Our orders are up four consecutive months because we are bringing more houses on that are within that 60-day period and gave us more inventory to sell in four consecutive months. We are confident August will be an increase over July, and that'll make five consecutive months of order increase. Also, like we talked about in our remarks, we decided to with construction and pipeline and supply chain easing, starting this weekend, we're gonna start selling houses within 90 days of closing. We also think that's gonna add to our orders and produce a really good solid month of orders as well. That's pretty consistent nationwide, Trevor, what we're seeing. Our focus has now entirely shifted to selling more houses. We're gonna have more available inventory. We're gonna spend more money on marketing. We're gonna be hiring a lot of salespeople and opening up these new communities at normalized margins. We're real optimistic about the second half of the year. Yeah, Trevor, this is Charles. I'll just add specifically to the West, you're correct. It was increase in community count, specifically in our Phoenix and Northern California markets. All right. Thanks, guys. Thank you. Our next question or comment comes from the line of Michael Rehaut from JP Morgan. Just a second. Mr. Rehaut, your line is open. Thank you. Good afternoon. Thanks for taking my questions. Good afternoon. I just want to, you know, circle back and make sure I'm understanding the gross margin comments well, as it relates to the back half. You're talking about opening up new communities in a 25%-28% range, and just wanna be clear, that is, pre or post-interest? That's adjusted gross margin. Okay. You know, with the guidance that you have, pre-interest, currently, you know, it looks like you'd have to get to around a, you know, closer to, like, a, you know, 28% or less that's coming off of the 33%. You know, still at the high end of that range. Number one, I just wanted to make sure, you know, my math is roughly correct. If it's gonna be all of a step down in the third quarter, or if it could go even below that 28% average in the fourth quarter, and how quickly might we see the 25%-28% range flow through? Because obviously, there's a certain element of community count turnover. Yeah, I think the only clarification like I'd make is, you know, the adjusted gross margin, when we're saying new communities, it's not only new, you know, net communities, additive community count, it's also our replacement communities. We've got a lot of communities nationwide that are in the process of closing out, and then we're bringing the quote replacement online, which isn't additive to community count but does have an impact on this gross margin discussion. Charles can weigh in, but I personally think gross margin in the third quarter probably higher than the fourth quarter 'cause our backlog percentage gross margin is still really strong, and we think that's gonna gradually go back to normalization, and then we factor that in when we provided the year-end range that we did. Yeah. I would agree, Mike, with Eric's comment that it's likely that the third quarter will be higher than the fourth. We're thinking the step down would likely happen in the fourth quarter. Right. Okay. Also, you know, if you kind of run some of the math on, you know, the absorption for the back half of the year, your comments around absorption 7.5 to eight and getting to a midpoint of the community count, you know, we just kind of step that up gradually over the next several months, even keeping, you know, sale closing pace between 7.5 and eight or even at the lower end of that, gets you actually towards the higher end of your closings range. Just curious, any thoughts on that, you know, if there, if there's anything we're missing here? Because it does seem like, you know, based on, you know, again, a gradual, you know, move towards community count getting to the middle o f the 100-110 by the end of the year and, you know, 7.5 to eight seems like you're coming up at the higher end. Just any thoughts? Yeah, I think that's, you know, my comment on that is really that's why we give ranges. You know, anywhere in that 7.5 to eight a month range in the second half is gonna put us in our guidance range. It really depends. A lot of it's gonna depend on, you know, what happens in the economy the next three or four months. A lot of it's gonna depend on getting these new communities open, where we're at in the range of community count, high end versus low end. That's still a, you know, challenge for us, how many houses we can deliver, what the supply chain looks like. I don't know if I have any more comments other than that's why we give the range. We're confident in our new, you know, new closing guidance range. We had to adjust that down based on where we were and what we're seeing on construction development and sales, but we're confident of being in that range. Okay. One last one, if I could. You know, you gave the 10%-11% for the SG&A for the year. Is that, you know, something that, you know, all else equal, we should expect going forward into 2023? Or, you know, if the, you know, market remains, you know, soft or you're not kind of getting the results that you'd want, you know, would we see that come up a little bit more, or could we see, you know, further adjustments on the gross margin side? Yeah, it's a great question, Mike. This is Charles. You know, not necessarily giving specific guidance on 2023, but I think what we have been talking about as it refers to SG&A is that we generally think that, you know, our increase in marketing and advertising is gonna return back to normal. We've seen, you know, over the last year and a half or so just the benefits of not having to spend as much money. I think I'd break it into the selling portion. We are expecting it to increase as a percentage of revenue over time to get back to normal ranges. The G&A portion in our income statement is generally more fixed. I would say, you know, depending on where our closings end up in 2023 and how the pace of community count goes is there's some opportunity for leverage there to offset some of the increase in selling expenses. I think overall, we're kind of trending back to this 10-11 range for the near term. Right. Selling expenses were, you know, 7%-7.5% from 2017 to 2019. Is that a good reference point? I don't know that I would go quite necessarily that high, but probably the lower end of the range is what I would say. Great. Thanks so much. Appreciate it. You bet. Thank you. Our next question or comment comes from the line of Jay McCanless from Wedbush. Mr. McCanless, your line is open. Hey, good afternoon, guys. Can you remind us on the community growth that you're expecting for fiscal 2023, when is the bulk of those communities gonna hit? Yeah, that is a great question, Jay. After the last couple of years, probably the correct answer is I'm not sure. You know, we are confident that 30% number. I mean, those communities are just getting delayed. They will be there, so we're confident community count's gonna grow next year. You know, for modeling purposes, yeah, I think an equal amount coming through the year would probably be appropriate. Okay. That was actually gonna be my next question. If you could talk about what type of delays you're seeing on horizontal development, and have the supply chain issues gotten any better for that side of the business? It doesn't seem to be getting any better yet. We're still having challenges, electrical transformers as some other supply chain, getting you know the start of the development process, getting the plats recorded, getting the necessary approvals from the city, all the engineers are still busy. Supply chain on the development side, I would say is similarly challenged. We do expect that to get better because we believe, and other builders have said as well as us, probably not doing as much development near term, probably adjusting development sizes of the sections for today's normalizing market. Just like on the construction side, we do see that improving, but we have not seen that yet on the development side. Okay. Then on this not new, but going back towards a more historical gross margin range, it would imply, I think, some pretty steep price cuts maybe to what you had originally intended to bring these communities out. Is that line of thinking correct? How much, if it is, you know, how much are we talking about on percentage? Have you marked down what you think your initial base prices are gonna be on these communities? Yeah, it's a great question. I don't think we're looking at it as having a lot of price cuts, Jay, because we increased prices so rapidly over the last couple of years. It's just going back to normal. We have not been focused on price cuts because we haven't had a lot of finished inventory. I think our reaction is probably similar to a lot of builders. Until you have a lot of standing inventory, there's not gonna be a lot of discussion about, you know, price cuts per se. That's changing, and we are looking at our pricing on a community-by-community basis nationwide. Everybody can tell by our backlog, and the fact that we've only been selling 60 days in advance, we describe it as we do need to normalize our pricing. Some of our communities had unbelievable gross margins. We were able to increase pricing a lot, like in markets like Austin. While in markets like Austin, you know, we're not gonna be able to keep selling. We don't believe, you know, 35% plus gross margins. We've seen some pushback on those type of pricing. We will normalize our pricing. Yes, we'll probably be selling the same floor plans in the future for less money than we were over the last 24 months, but it's gonna be similar to what it was two and three years ago because the last couple of years have just They're just gonna be an outlier as far as pricing goes. I mean, a 33% adjusted gross margin we are very likely never to post that again in our history. It's such an outlier on gross margin. We're just going back to normal. In a normal market, we believe we're gonna thrive and there's gonna be great, tremendous opportunities for LGI, and we're pretty excited about it. Got it. One more quick one. It's interesting that you're starting to see finished lot deals again. Do you think with the pace of what you're seeing that you could potentially buy enough of those communities to make up for some of the shortfall that you're expecting, you know, relative to your previous guidance for this year? Not necessarily this year, because I mean, even, you know, they're just starting to see opportunities. I mean, it's certainly wouldn't relate in any home closings in 2022. We think it may create opportunities for community count growth and closing growth in 2023. I gave a couple examples, but it just really depends on what happens with the industry. The more challenging the industry becomes, whether it's a recession, whether rates, pricing, supply chain, any of the headwinds that we potentially face as an industry, our attitude and what we're talking about internally, the more challenging environment it is, the more opportunities it's going to create for LGI. You have to remember our company, and we haven't talked about this in the last couple of years, but we've never lost money in any year, including the greatest downturn anyone's ever seen in, you know, 2006, 2007, and 2008. We have never taken an inventory impairment in the company history. If it's a more challenging environment going forward, it's gonna create more opportunities for finished lots. If it's a more normalized market or, you know, things get really good and rates stay down or whatever the tailwinds may be, then that's fine as well. LGI will thrive in that market. Okay. Sounds great. Thank you. You're welcome. Thank you. Our next question or comment comes from the line of Carl Reichardt from BTIG. Standby. Thanks for taking the questions. One question I had, Eric, is just on cancellations. Your rate was up, although your unit cans weren't up much. Did you see an alteration in why folks were canceling over the course of the quarter? Is it still more affordability related, or would you say it's more sort of psychological and fear of the future? I'd just kind of like your take on if that's changed and how it's changed. Yeah. I think for us, it's still primarily affordability related. You know, our pipeline got very large in Q2 of last year. We've been working on getting that closed out. You know, rates are certainly higher. Not all our customers had rate locks. Usually we're locking their rate to within 60, 90 days of closing. So some of the customers just didn't qualify anymore. Certainly that cancellation rate, and we've talked about it on calls before, we don't think it's as relevant, you know, for us as maybe other companies being a spec builder. But we didn't have enough orders either. If we'd had more orders, the cancellation rate would've been normal. We did see, Carl, and I appreciate you asking the question on cancellations. We have seen some of our retail investors cancel, but we've also closed a lot of those homes over the last couple quarters in first part of the year, which has been very, very good for us as a company. You know, we just think we're going back to a normalized market where our customers are predominantly going to be customers that are currently paying rent. I mean, LGI, we offer an affordable alternative to renting. Rents are up across the country and we're going back to catering to that customer. We've sold a lot of houses to investors over the last couple years. We believe that was the right decision, but in a more normal market, we think that will get back to normal activity as well. Great. Thanks, Eric. Then Charles, You're welcome. The line of credit, and you're about, I think I got this right, 75% capacity utilization at this point. If I did this right, more typically, you're sort of back of the year, third quarter, fourth quarter is your peak utilization. I'm curious, are you planning on being operating cash flow positive fourth quarter? Can we expect to see a diminished utilization of the capacity as we move into the next couple of quarters? Yeah, great question, Carl. Yeah, we had mentioned in the script as we right-size inventory. One of the things we're focused on, you know, with 4,700 units in inventory, we would expect our vertical inventory to work its way down throughout the year. We're also, you know, focused on just inventory management in general and keeping an eye on what we need in terms of from acquisitions and development. Then we also, you know, evaluate what we have available for share repurchases as well. That's kind of a function that goes into that. All keeping in mind our 35%-45% target leverage ratio. Yes, we should generate some positive cash flow based on right-sizing the inventory and stay within our targeted ranges. Charles, with the dollars in inventory a little bit stuck in the field just because things have slowed and because it's taken longer to build stuff, is that forcing you then to divert dollars to finish that inventory as opposed to doing development spend? No, I don't think so. I think it's a balance between all categories, you know, acquisitions, development, and vertical construction. I think it's, you know, it shifts between whether we have heavily weighted towards complete versus WIP, comes into play. We'll see that shift continue throughout the year, only having 600 completed homes. At the end of June, we would expect completed homes to increase, getting back to, as Eric mentioned, kind of a more normal selling cycle where we're selling spec. We would expect completed homes to increase, but the WIP number would come down as kind of supply chain works itself out. We just look at all those combined to really see what our targeted inventory number is to make sure we're managing that accordingly. Okay. All right. I appreciate the help. Thanks so much, guys. Thank you. Our next question or comment comes from the line of Deepa Raghavan from Wells Fargo. Your line is open. Good afternoon, everyone. Thanks for taking my question. Eric, can you talk through how you're assessing demand deterioration at your end if you're only accepting orders selectively? Any way to provide color on demand fallout versus how many you might have turned away within your order performance? I mean, as you talk through this, can you talk about traffic trends at your communities as well? Yeah, I think it's hard to measure how many we would have sold. Deepa, it's a good question, and I think we don't wanna diminish that. You know, we're in the affordable housing business, and with ASP up 27% year-over-year, interest rates higher, you know, affordability, you know, does matter, and rates do matter. I think we're calling on more of our experience in the business because we did believe, we do believe it was the right decision to turn off sales, if you will, make sure the customer has great experience, focus on our backlog, focus on getting homes closed, and now that we've closed the majority of our backlog, focus on orders. So we're not sure how many we missed, but orders have went up for four straight months. We are confident in our sales team. We are confident in our ability to spend marketing. Over 20,000 people inquired about homeownership in July. We know and got all kinds of data behind it. We know that if we spend dollars on marketing, that's gonna result in leads. We know what percentage of those leads are going to make an appointment, show up for their appointment, be qualified, contracts, and close. That's just those are mathematical facts that we've been doing since 2003, and our team's on top of it. Our salespeople have to be on their game. We have to be trained. We have to execute on our systems. All that math always works. Our guidance and our confidence in our numbers, that's because of our experience and been through this before. Yes, we're gonna be dealing with higher rates. We're gonna be dealing with higher prices. We know spending on marketing with a trained sales force works. Unlike a lot of companies that are cutting back on expenses, laying off employees, we are ramping up. Now is the time to spend more money on marketing. I got with our recruiting department before the call, and we're hiring to make sure we hit our numbers and hiring to ramp up and staff our existing office to normal capacity and also ramping up hiring to staff all of our communities that are coming online. Because we are hiring. We've got 67 open positions, including 51 new sales positions that we're hiring for our October training class. We add 50 salespeople to the LGI mix for getting our staffing up to current levels in new communities, and that will have an impact. How many starts did you start last quarter? Around just over 2,400. Your construction cycle is how many days now? Still pushing. Depends on the market. Yeah, depends on the market. Pushing, you know, 85-120 in there. We've seen some relief, but I think we still have some ways to go to get back to a normal construction cycle. Okay. Is 2,400 kind of the starts and order pace roughly that we can expect near term? Well, I think the way we think about it, Deepa, is gonna, you know, four to six months inventory is what we're targeting. I would expect us to start fewer than what we close in the short run. Future starts in the back half of the year will be, you know, based on what we think, you know, outlook for the next three to six months are gonna look like. We will likely start fewer than what we close in the third quarter as part of rightsizing that inventory, getting down from, you know, 4,700 to, say, something like 4,000 units, which would be, you know, six months at an 8,000 a year pace. That's how we're thinking about it. That's very helpful color. Thanks very much and good luck. Thank you. Thank you. Thank you. Our next question or comment comes from the line. Follow-up from Mr. Michael Rehaut from JP Morgan. Your line is open. Thanks. Appreciate the follow-up. Just wanted to actually a little more of a technical clarification, but the difference between adjusted and reported gross margin guidance is still 150 basis points. I know that's the difference between there's interest amortization and purchase accounting. You know, purchase accounting has been at 30, roughly 30 basis points. So you're talking about 120 basis points from interest amortization. If we've only been doing about 80 basis points so far in the first half, and on a dollar basis, it's been about half as much as a year ago. You know, to get that 1.2%, you'd be more like in a 1.5% range in the back half, and that would be up nicely year-over-year on a, you know, 40-50 basis points and up a few, you know, $several million year-over-year on a dollar basis. Just wanted to be sure if that's, you know, correct. I mean, I would think all else equal, it would still be relatively low, but not, you know, just not sure if we're missing something. Yeah, great question, Mike. I mean, I think, you know, from our guidance standpoint, we, you know, we use 150 as the, as the range. That doesn't necessarily mean we're saying specifically that interest in purchase accounting will be 150. I think it'll range in between the 110 we just saw and slightly tick up. As you know, over the last couple years, we've been capitalizing interest on development deals. A lot of those communities are now coming online, so there's a potential that it'll tick up a little bit. We also saw an increase in average sales price, you know, fairly rapid increase in average sales price, which will, you know, kind of minimize the percentage just in terms of percentage of revenue. Our credit facility is also floating rate debt as well. As interest rates are rising, you know, we'll expect to see, you know, all things equal, slightly higher dollars related to floating rates increasing. Right. Maybe increasing a little bit, but if you're at $4 or $5 million or $5-$6 million in the first half per quarter, I mean, we shouldn't be doubling that in the back half. Is that fair? Yeah, I think that's fair. Somewhere in between. Great. All right, thanks very much. Appreciate it. You bet. Thank you. Our next question or comment comes from the line of Kenneth Zener from Seaport Research Partners. Your line is open. Afternoon, gentlemen. Good afternoon. Check in. Look, you're with your product mix more tied to first time, and obviously you have a spec versus build-to-order approach. Can you contrast your experience or what you're seeing, you know, relative to the trade-up buyers or anybody that really has to sell their house, given the kind of lock-up that we're seeing on the existing side? Could you just offer us your thoughts on, you know, how that demand dynamic, you know, varies within the process that you guys have? Yeah, Ken, I'll take a shot. This is Eric. If I understand your question, it's really. You know, I think we have an advantage focused on the first time homebuyer focusing on that monthly payment. 90% plus of our customers are currently in a rental situation. And what triggers their inquiry about LGI Homes and they get our marketing pieces, whether it's mail or digital in the world we live in today, is their lease is expiring or their lease is coming up. And almost exclusively now, everybody's rents are increasing and most of them are increasing a pretty material amount. So we're confident we're gonna have the demand there 'cause we're very you know, pro homeownership. Where a lot of the existing, you know, customers or existing homeowners, and a lot of people probably listening to this call are in the same boat, we all have very low, you know, fixed rate mortgages on our homes. I think that's a headwind for the move up builders, which we don't have to deal with as much dealing with the entry-level builder. I think is where your question was going. You know, affordability does matter and we're still solving for that monthly payment. Right. That was the direction where I was going. You know, with the challenges you face developing, considering you do develop more of your own land, you know, high gross margins, how do you look at, you know, your growth? 'Cause as these communities come on with 30% plus gross margins, you have a lot of leeway, to grow and offer price up, right, to attract those renters. How wedded are you to kind of the gross margins, you know, as you bring on new products? I mean, I think you talked about 4,000 units in inventory at the end of the year. Are there any other metrics like, you know, that you're gonna be targeting in terms of the turnover that your margins would be, you know, part of the solution to? How should we think about that? Yeah. A little bit of what we talked about earlier, Ken. I think, you know, it's a shifting dynamic. You know, we were never ones to talk a lot about price versus pace, but certainly the first half of the year is all about capturing price. You know, we had all kinds of unbelievable wait lists, people wanting, you know, waiting in line to buy our houses, and every time a house went on the price list, you know, it sold and we kept raising prices and it didn't matter, everyone still wanted to buy our houses. That was the environment that we've been living in for a lot of the last years, and that's changed. Now, it's about normalized margins and pace. You know, I think it's important though, and I think we've done a good job at that, if everybody looks at our gross margins over time compared to the industry, that if you're doing development, if we're spending the upfront capital, we are taking the development risk, we're taking the timing risk, which certainly has been a challenge. We have to price the homes accordingly to where we capture both the development profits and the home builder profit. I think we've done so. We don't wanna forget that. Certainly, I do think we have an advantage in the pricing and the gross margin when you're doing your own development. We're doing the development where our debt expense, 'cause we're using our credit facility, is significantly less than the builders that use land banking and then buy the lots from land bankers at a very expensive interest rate. So we do have that advantage as well. And that's why I think you're gonna continue to see elevated margins from LGI compared to the industry. Thank you very much. You're welcome. Thank you. I'm showing no additional questions in the queue at this time. I'd like to turn the conference back over to management for any closing remarks. Thank you. Thanks to everyone for participating on today's call and for your continued interest in LGI Homes. Have a great day. Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Have a wonderful day. Speakers stand by.