LGI Homes, Inc. (Nasdaq:LGIH) today announced results for the third
quarter 2018 and the nine months ended September 30, 2018.
Third Quarter 2018 Results and
Comparisons to Third Quarter 2017
- Net Income increased 12.0% to $37.7 million, or $1.66 Basic EPS
and $1.52 Diluted EPS
- Net Income Before Income Taxes increased 3.7% to $49.0
million
- Home Sales Revenues increased 4.0% to $380.4 million
- Home Closings decreased 7.4% to 1,601 homes
- Average Home Sales Price increased 12.3% to $237,582
- Gross Margin as a Percentage of Homes Sales Revenues was 25.6%
as compared to 25.1%
- Adjusted Gross Margin (non-GAAP) as a Percentage of Home Sales
Revenues was 27.4% as compared to 26.5%
- Active Selling Communities at September 30, 2018 increased
to 81 from 77
- 53,647 Total Owned and Controlled Lots at September 30,
2018
Please see “Non-GAAP Measures” for a
reconciliation of Adjusted Gross Margin (a non-GAAP measure) to
Gross Margin, the most directly comparable GAAP measure.
Nine Months Ended September 30,
2018 Results and Comparisons to Nine Months Ended
September 30, 2017
- Net Income increased 45.0% to $112.6 million, or $5.07 Basic
EPS and $4.57 Diluted EPS
- Net Income Before Income Taxes increased 22.8% to $142.9
million
- Home Sales Revenues increased 26.5% to $1.1 billion
- Home Closings increased 16.5% to 4,660 homes
- Average Home Sales Price increased 8.6% to $231,597
- Gross Margin as a Percentage of Homes Sales Revenues was 25.6%
as compared to 26.0%
- Adjusted Gross Margin (non-GAAP) as a Percentage of Home Sales
Revenues was 27.3% as compared to 27.4%
Please see “Non-GAAP Measures” for a
reconciliation of Adjusted Gross Margin (a non-GAAP measure) to
Gross Margin, the most directly comparable GAAP measure.
Management Comments
“This was a solid and productive quarter for LGI
Homes,” said Eric Lipar, the Company’s Chief Executive Officer and
Chairman of the Board. “We ended the quarter with over 1,600
closings, reached new company highs for average sales price, showed
margin improvement and completed the largest acquisition in LGI
Homes history with the purchase of Wynn Homes for approximately $80
million.”
“We continued to see strong demand and increased
traffic in our information centers, from renters wanting to convert
to homeownership, proving that buyer interest levels are still
high. Our focus on keeping margins consistent and offsetting rising
costs, coupled with rising interest rates has created some
challenges around affordability ultimately slowing our absorption
pace in recent months. We remain optimistic on industry dynamics
and current operating conditions for the remainder of the year. We
expect to close more than 6,400 homes, believe average sales price
will be between $225,000 and $235,000, and believe basic EPS will
be in the range of $6.50 to $7.25 for the full year 2018. This
assumes that general economic conditions, including interest rates
and mortgage availability for the remainder of the year, are
similar to the third quarter of 2018.”
“Looking forward to 2019, we are on track to
grow community count 20-30% across the country continuing our focus
on providing an affordable alternative to renting. We believe this
growth will offset any future absorption concerns and continue to
drive growth for LGI in 2019.”
2018 Third Quarter Results
Home closings during the third quarter of 2018
decreased 7.4% to 1,601 from 1,729 during the third quarter of
2017. This decrease was largely due to decreases in home closings
in the Central and Florida divisions mostly due to close out of or
transition between communities. This was partially offset by
increases in home closings in the Southeast and Northwest divisions
during the three months ended September 30, 2018 as compared to the
three months ended September 30, 2017. At the end of the third
quarter active selling communities increased to 81, up from 77
communities at the end of the third quarter of 2017.
Home sales revenues for the third quarter of
2018 were $380.4 million, an increase of $14.5 million, or 4.0%,
over the third quarter of 2017. The increase in home sales revenues
is primarily due to the increase in the average home sales price
during the three months ended September 30, 2018, partially offset
by a decrease in home closings of 7.4%. The average home sales
price was $237,582 for the third quarter of 2018, an increase of
12.3% over the third quarter of 2017. This increase is primarily
due to changes in product mix, price points in new markets, and a
favorable pricing environment.
Gross margin as a percentage of home sales
revenues for the third quarter of 2018 was 25.6% as compared to
25.1% for the third quarter of 2017. Adjusted gross margin
(non-GAAP) as a percentage of home sales revenues for the third
quarter of 2018 was 27.4% as compared to 26.5% for the third
quarter of 2017. These increases are primarily due to a higher
average home sales price, offset by a combination of higher land
cost and construction costs. Please see “Non-GAAP Measures” for a
reconciliation of adjusted gross margin (non-GAAP) to gross margin,
the most comparable GAAP measure.
Net income of $37.7 million, or $1.66 per basic
share and $1.52 per diluted share, for the third quarter of 2018
increased $4.0 million, or 12.0%, from $33.7 million for the third
quarter of 2017. The increase in net income is primarily due to the
decrease in the effective tax rate.
Results for the Nine Months Ended
September 30, 2018
Home closings for the nine months ended
September 30, 2018 increased 16.5% to 4,660 from 4,001 during
the nine months ended September 30, 2017.
Home sales revenues for the nine months ended
September 30, 2018 increased 26.5% to $1.1 billion compared to
the nine months ended September 30, 2017. The increase in home
sales revenues is primarily due to the increase in the number of
homes closed and an increase in the average home sales price. The
increase in home closings was largely due to the overall increase
in the number of active communities for the nine months ended
September 30, 2018.
The average home sales price was $231,597 for
the nine months ended September 30, 2018, an increase of
$18,404, or 8.6%, over the nine months ended September 30,
2017. This increase is primarily due to changes in product mix,
higher price points in certain new markets, and a favorable pricing
environment.
Gross margin as a percentage of home sales
revenues for the nine months ended September 30, 2018 was
25.6% as compared to 26.0% for the nine months ended
September 30, 2017. Adjusted gross margin (non-GAAP) as
a percentage of home sales revenues for the nine months ended
September 30, 2018 was 27.3% as compared to 27.4% for the nine
months ended September 30, 2017. These decreases are primarily
due to a combination of higher construction costs and lot costs
partially offset by higher average home sales price, and to a
lesser extent due to 238 wholesale home closings during the nine
months ended September 30, 2018 compared to 168 wholesale home
closings during the nine months ended September 30, 2017.
Please see “Non-GAAP Measures” for a reconciliation of adjusted
gross margin (non-GAAP) to gross margin, the most comparable GAAP
measure.
Net income of $112.6 million, or $5.07 per basic
share and $4.57 per diluted share, for the nine months ended
September 30, 2018 increased $35.0 million, or 45.0%, from
$77.7 million for the nine months ended September 30, 2017.
This increase is primarily attributable to the 16.5% increase in
homes closed, the 8.6% increase in average home sales price, a
substantial decrease in the effective tax rate, and improved
leverage realized compared to the nine months ended
September 30, 2017. For the nine months ended
September 30, 2018, the Company’s effective tax rate of 21.2%
is higher than the federal statutory rate primarily as a result of
the deductions in excess of compensation cost (“windfalls”) for
share-based payments, offset by an increase in rate for state
income taxes, net of the federal benefit payments.
Outlook
Subject to the caveats in the Forward-Looking
Statements section of this press release, the Company believes it
will have between 85 and 90 active selling communities at the end
of 2018, close more than 6,400 homes in 2018, and generate basic
EPS between $6.50 and $7.25 per share during 2018. In addition, the
Company believes 2018 gross margin as a percentage of home sales
revenues will be in the range of 24.5% and 26.5% and 2018 adjusted
gross margin (non-GAAP) as a percentage of home sales revenues will
be in the range of 26.0% and 28.0% with capitalized interest
accounting for substantially all of the difference between gross
margin and adjusted gross margin. The Company also believes that
the average home sales price in 2018 will be between $225,000 and
$235,000. This outlook assumes that general economic conditions,
including interest rates and mortgage availability, and average
home sales price, construction costs, availability of land, land
development costs and overall absorption rates in the remainder of
2018 are similar to those in the third quarter of 2018. This
guidance also assumes that none of the Company’s 4.25% Convertible
Notes due November 15, 2019 are converted during the remainder of
2018.
Earnings Conference Call
The Company will host a conference call via live
webcast for investors and other interested parties beginning at
12:30 p.m. Eastern Time on Tuesday, November 6, 2018 (the
“Earnings Call”). The Earnings Call will be hosted by Eric Lipar,
Chief Executive Officer and Chairman of the Board, and Charles
Merdian, Chief Financial Officer.
Participants may access the live webcast by
visiting the Investor Relations section of the Company’s website at
www.LGIHomes.com. The Earnings Call can also be accessed by dialing
(855) 433-0929, or (970) 315-0256 for international
participants.
An archive of the webcast will be available on
the Company’s website for approximately 12 months. A replay of the
Earnings Call will also be available later that day by calling
(855) 859-2056, or (404) 537-3406, using conference id “1977416”.
This replay will be available until November 13, 2018.
About LGI Homes, Inc.
Headquartered in The Woodlands, Texas, LGI
Homes, Inc. engages in the design, construction and sale of homes
in Texas, Arizona, Florida, Georgia, New Mexico, Colorado, North
Carolina, South Carolina, Washington, Tennessee, Minnesota,
Oklahoma, Alabama, California, Oregon, and Nevada. The Company has
a notable legacy of more than 15 years of homebuilding operations,
over which time it has closed over 27,000 homes. For more
information about the Company and its new home developments please
visit the Company’s website at www.LGIHomes.com.
Forward-Looking Statements
Any statements made in this press release or on
the Earnings Call that are not statements of historical fact,
including statements about the Company’s beliefs and expectations,
are forward-looking statements within the meaning of the federal
securities laws, and should be evaluated as such. Forward-looking
statements include information concerning projected 2018 home
closings, year-end selling communities, basic earnings per share,
gross margins as a percentage of home sales revenues, adjusted
gross margins as a percentage of home sales revenue, average home
sales price, and effective tax rate, as well as the acquisition of
Wynn Homes and the integration of such assets into the Company’s
operations, market conditions and possible or assumed future
results of operations, including descriptions of the Company’s
business plan and strategies. These forward-looking statements can
be identified by the use of forward-looking terminology, including
the terms “anticipate,” “believe,” “continue,” “could,” “estimate,”
“expect,” “forecast,” “goal,” “intend,” “may,” “objective,” “plan,”
“potential,” “predict,” “projection,” “should,” “will” or, in each
case, their negative, or other variations or comparable
terminology. For more information concerning factors that could
cause actual results to differ materially from those contained in
the forward-looking statements please refer to the “Risk Factors”
section in the Company’s Annual Report on Form 10-K for the fiscal
year ended December 31, 2017, including the “Cautionary Statement
about Forward-Looking Statements” subsection within the “Risk
Factors” section, and subsequent filings by the Company with the
Securities and Exchange Commission. The Company bases these
forward-looking statements or projections on its current
expectations, plans and assumptions that it has made in light of
its experience in the industry, as well as its perceptions of
historical trends, current conditions, expected future developments
and other factors it believes are appropriate under the
circumstances and at such time. As you read and consider this press
release or listen to the Earnings Call, you should understand that
these statements are not guarantees of future performance or
results. The forward-looking statements and projections are subject
to and involve risks, uncertainties and assumptions and you should
not place undue reliance on these forward-looking statements or
projections. Although the Company believes that these
forward-looking statements and projections are based on reasonable
assumptions at the time they are made, you should be aware that
many factors could affect the Company’s actual results to differ
materially from those expressed in the forward-looking statements
and projections. The Company undertakes no obligation to update or
revise any forward-looking statements, whether as a result of new
information, future events or otherwise. If the Company does update
one or more forward-looking statements, there should be no
inference that it will make additional updates with respect to
those or other forward-looking statements.
LGI HOMES,
INC. |
CONSOLIDATED BALANCE
SHEETS |
(Unaudited) |
(In thousands, except
share data) |
|
|
|
|
|
September 30, |
|
December 31, |
|
2018 |
|
2017 |
ASSETS |
|
|
|
Cash and cash equivalents |
$ |
37,969 |
|
|
$ |
67,571 |
|
Accounts receivable |
31,379 |
|
|
44,706 |
|
Real estate inventory |
1,187,994 |
|
|
918,933 |
|
Pre-acquisition costs and deposits |
40,055 |
|
|
18,866 |
|
Property and equipment, net |
1,520 |
|
|
1,674 |
|
Other assets |
11,033 |
|
|
14,196 |
|
Deferred tax assets, net |
3,858 |
|
|
1,928 |
|
Goodwill and intangible assets, net |
19,979 |
|
|
12,018 |
|
Total assets |
$ |
1,333,787 |
|
|
$ |
1,079,892 |
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
Accounts payable |
$ |
17,891 |
|
|
$ |
12,020 |
|
Accrued expenses and other liabilities |
75,782 |
|
|
102,831 |
|
Notes payable |
627,695 |
|
|
475,195 |
|
Total liabilities |
721,368 |
|
|
590,046 |
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES |
|
|
|
EQUITY |
|
|
|
Common stock, par value $0.01, 250,000,000
shares authorized, 23,717,153 shares issued and 22,717,153 shares
outstanding as of September 30, 2018 and 22,845,580 shares issued
and 21,845,580 shares outstanding as of December 31, 2017 |
237 |
|
|
228 |
|
Additional paid-in capital |
239,611 |
|
|
229,680 |
|
Retained earnings |
389,121 |
|
|
276,488 |
|
Treasury stock, at cost, 1,000,000 shares |
(16,550 |
) |
|
(16,550 |
) |
Total equity |
612,419 |
|
|
489,846 |
|
Total liabilities and equity |
$ |
1,333,787 |
|
|
$ |
1,079,892 |
|
LGI HOMES,
INC. |
CONSOLIDATED STATEMENTS
OF OPERATIONS |
(Unaudited) |
(In thousands, except
share and per share data) |
|
|
|
|
|
Three Months Ended September
30, |
|
Nine Months Ended September
30, |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
Home sales revenues |
$ |
380,369 |
|
|
$ |
365,896 |
|
|
$ |
1,079,240 |
|
|
$ |
852,985 |
|
|
|
|
|
|
|
|
|
Cost of sales |
283,035 |
|
|
274,000 |
|
|
802,882 |
|
|
631,242 |
|
Selling expenses |
27,890 |
|
|
26,018 |
|
|
80,140 |
|
|
66,318 |
|
General and administrative |
17,794 |
|
|
15,431 |
|
|
51,536 |
|
|
40,376 |
|
Operating income |
51,650 |
|
|
50,447 |
|
|
144,682 |
|
|
115,049 |
|
Loss on extinguishment of debt |
3,058 |
|
|
— |
|
|
3,599 |
|
|
— |
|
Other income, net |
(399 |
) |
|
(430 |
) |
|
(1,806 |
) |
|
(1,312 |
) |
Net income before income taxes |
48,991 |
|
|
50,877 |
|
|
142,889 |
|
|
116,361 |
|
Income tax provision |
11,268 |
|
|
17,190 |
|
|
30,256 |
|
|
38,695 |
|
Net income |
$ |
37,723 |
|
|
$ |
33,687 |
|
|
$ |
112,633 |
|
|
$ |
77,666 |
|
Earnings per share: |
|
|
|
|
|
|
|
Basic |
$ |
1.66 |
|
|
$ |
1.55 |
|
|
$ |
5.07 |
|
|
$ |
3.60 |
|
Diluted |
$ |
1.52 |
|
|
$ |
1.40 |
|
|
$ |
4.57 |
|
|
$ |
3.32 |
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
|
|
|
Basic |
22,658,457 |
|
|
21,668,585 |
|
|
22,236,018 |
|
|
21,544,747 |
|
Diluted |
24,896,569 |
|
|
24,050,385 |
|
|
24,642,882 |
|
|
23,413,467 |
|
Non-GAAP Measures
In addition to the results reported in
accordance with U.S. GAAP, the Company has provided information in
this press release relating to Adjusted Gross Margin.
Adjusted gross margin is a non-GAAP financial
measure used by management as a supplemental measure in evaluating
operating performance. The Company defines adjusted gross margin as
gross margin less capitalized interest and adjustments resulting
from the application of purchase accounting included in the cost of
sales. Management believes this information is useful because it
isolates the impact that capitalized interest and purchase
accounting adjustments have on gross margin. However, because
adjusted gross margin information excludes capitalized interest and
purchase accounting adjustments, which have real economic effects
and could impact the Company’s results, the utility of adjusted
gross margin information as a measure of the Company’s operating
performance may be limited. In addition, other companies may not
calculate adjusted gross margin information in the same manner that
the Company does. Accordingly, adjusted gross margin information
should be considered only as a supplement to gross margin
information as a measure of the Company’s performance.
The following table reconciles adjusted gross
margin to gross margin, which is the GAAP financial measure that
management believes to be most directly comparable (dollars in
thousands, unaudited):
|
|
Three Months Ended September
30, |
|
Nine Months Ended September
30, |
|
|
2018 |
|
2017 |
|
2018 |
|
2017 |
Home sales revenues |
|
$ |
380,369 |
|
|
$ |
365,896 |
|
|
$ |
1,079,240 |
|
|
$ |
852,985 |
|
Cost of sales |
|
283,035 |
|
|
274,000 |
|
|
802,882 |
|
|
631,242 |
|
Gross margin |
|
97,334 |
|
|
91,896 |
|
|
276,358 |
|
|
221,743 |
|
Capitalized interest charged to cost of sales |
|
6,185 |
|
|
5,135 |
|
|
17,085 |
|
|
11,548 |
|
Purchase accounting adjustments (1) |
|
850 |
|
|
54 |
|
|
847 |
|
|
226 |
|
Adjusted gross margin |
|
$ |
104,369 |
|
|
$ |
97,085 |
|
|
$ |
294,290 |
|
|
$ |
233,517 |
|
Gross margin % (2) |
|
25.6 |
% |
|
25.1 |
% |
|
25.6 |
% |
|
26.0 |
% |
Adjusted gross margin % (2) |
|
27.4 |
% |
|
26.5 |
% |
|
27.3 |
% |
|
27.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Adjustments result from the application of
purchase accounting for acquisitions and represent the amount of
the fair value step-up adjustments included in cost of sales for
real estate inventory sold after the acquisition dates. |
(2) Calculated as a percentage of home sales
revenues. |
Home Sales Revenues, Closings, Average Community Count
and Average Monthly Absorption Rates by
Division(Revenues in thousands,
unaudited)
|
|
Three Months Ended
September 30, 2018 |
|
|
Revenues |
|
Closings |
|
ASP |
|
Average Community
Count |
|
Average
MonthlyAbsorption Rate |
Central |
|
$ |
150,045 |
|
|
691 |
|
|
$ |
217,142 |
|
|
29.3 |
|
|
7.9 |
|
Southwest |
|
65,742 |
|
|
229 |
|
|
287,083 |
|
|
15.0 |
|
|
5.1 |
|
Southeast |
|
73,507 |
|
|
352 |
|
|
208,827 |
|
|
19.7 |
|
|
6.0 |
|
Florida |
|
38,750 |
|
|
183 |
|
|
211,749 |
|
|
10.7 |
|
|
5.7 |
|
Northwest |
|
50,697 |
|
|
139 |
|
|
364,727 |
|
|
5.3 |
|
|
8.7 |
|
Midwest |
|
1,628 |
|
|
7 |
|
|
232,571 |
|
|
2.0 |
|
|
1.2 |
|
Total |
|
$ |
380,369 |
|
|
1,601 |
|
|
$ |
237,582 |
|
|
82.0 |
|
|
6.5 |
|
|
|
Three Months Ended
September 30, 2017 |
|
|
Revenues |
|
Closings |
|
ASP |
|
Average Community
Count |
|
Average Monthly
Absorption Rate |
Central |
|
$ |
165,870 |
|
|
830 |
|
|
$ |
199,843 |
|
|
28.0 |
|
|
9.9 |
|
Southwest |
|
66,002 |
|
|
255 |
|
|
258,831 |
|
|
16.0 |
|
|
5.3 |
|
Southeast |
|
54,331 |
|
|
284 |
|
|
191,306 |
|
|
16.0 |
|
|
5.9 |
|
Florida |
|
56,171 |
|
|
288 |
|
|
195,038 |
|
|
12.0 |
|
|
8.0 |
|
Northwest |
|
23,522 |
|
|
72 |
|
|
326,694 |
|
|
4.3 |
|
|
5.6 |
|
Midwest |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Total |
|
$ |
365,896 |
|
|
1,729 |
|
|
$ |
211,623 |
|
|
76.3 |
|
|
7.6 |
|
|
|
Nine Months Ended
September 30, 2018 |
|
|
Revenues |
|
Closings |
|
ASP |
|
Average Community
Count |
|
Average Monthly Absorption
Rate |
Central |
|
$ |
438,811 |
|
|
2,062 |
|
|
$ |
212,808 |
|
|
28.8 |
|
|
8.0 |
|
Southwest |
|
193,055 |
|
|
688 |
|
|
280,603 |
|
|
14.1 |
|
|
5.4 |
|
Southeast |
|
178,984 |
|
|
879 |
|
|
203,622 |
|
|
17.9 |
|
|
5.5 |
|
Florida |
|
136,211 |
|
|
649 |
|
|
209,878 |
|
|
11.2 |
|
|
6.4 |
|
Northwest |
|
129,852 |
|
|
372 |
|
|
349,065 |
|
|
5.3 |
|
|
7.8 |
|
Midwest |
|
2,327 |
|
|
10 |
|
|
232,700 |
|
|
1.7 |
|
|
0.7 |
|
Total |
|
$ |
1,079,240 |
|
|
4,660 |
|
|
$ |
231,597 |
|
|
79.0 |
|
|
6.6 |
|
|
|
Nine Months Ended
September 30, 2017 |
|
|
Revenues |
|
Closings |
|
ASP |
|
Average Community
Count |
|
Average Monthly Absorption
Rate |
Central |
|
$ |
370,550 |
|
|
1,824 |
|
|
$ |
203,152 |
|
|
25.4 |
|
|
8.0 |
|
Southwest |
|
162,386 |
|
|
635 |
|
|
255,726 |
|
|
16.1 |
|
|
4.4 |
|
Southeast |
|
133,665 |
|
|
710 |
|
|
188,261 |
|
|
14.3 |
|
|
5.5 |
|
Florida |
|
129,345 |
|
|
656 |
|
|
197,172 |
|
|
11.4 |
|
|
6.4 |
|
Northwest |
|
57,039 |
|
|
176 |
|
|
324,085 |
|
|
4.1 |
|
|
4.8 |
|
Midwest |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Total |
|
$ |
852,985 |
|
|
4,001 |
|
|
$ |
213,193 |
|
|
71.3 |
|
|
6.2 |
|
CONTACT: |
Investor
Relations: |
|
Caitlin Stiles, (281)
210-2619 |
|
InvestorRelations@LGIHomes.com |
LGI Homes (NASDAQ:LGIH)
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