LGI Homes, Inc. (Nasdaq:LGIH) today announced results for the first
quarter 2019.
First Quarter 2019 Results and
Comparisons to First Quarter 2018
- Net Income of $18.3 million, or $0.81 Basic EPS and $0.73
Diluted EPS
- Net Income Before Income Taxes of $21.7 million
- Home Sales Revenues increased 3.1% to $287.6 million
- Home Closings remained similar at 1,228
- Average Home Sales Price increased 4.4% to $234,197
- Gross Margin as a Percentage of Homes Sales Revenues was 23.1%
as compared to 24.8%
- Adjusted Gross Margin (non-GAAP) as a Percentage of Home Sales
Revenues was 25.1% as compared to 26.4%
- Active Selling Communities at March 31, 2019 increased to
87 from 79
- 50,700 Total Owned and Controlled Lots at March 31,
2019
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
“The first quarter provided a solid start to the
year with 1,228 homes closed,” said Eric Lipar, the Company’s Chief
Executive Officer and Chairman of the Board. “LGI Homes continues
to benefit from our strategic focus on the entry-level buyer.
Throughout the quarter we saw continued demand for affordable homes
coupled with a positive response from buyers to lower interest
rates resulting in an 8% increase in net orders over the first
quarter of last year.”
“First quarter performance, year-over year, was
impacted by lower overall margins, our acquisition of Wynn Homes,
and increased construction overhead due to our targeted growth.
Although revenues were similar we incurred additional costs
primarily associated with marketing and personnel related to our
geographic and community count expansion.”
“Overall, we remain optimistic on industry
dynamics and are encouraged by the strength of our sales in recent
months. We are confident in our ability to deliver robust results
and believe we are on track to meet our goal of 6,900 to 7,800 home
closings in 2019 and generate basic EPS in the range of $7.00 to
$8.00 per share,” Lipar concluded.
2019 First Quarter Results
Home closings during the first quarter of 2019
totaled 1,228 showing a slight decrease of 1.3% from 1,244 home
closings during the first quarter of 2018. This decrease was
primarily attributable to decreases in home closings in the
Northwest and Florida divisions mostly due to close out of or
transition between communities. The decrease was partially
offset by increases in home closings in the Southeast and West
divisions during the first quarter of 2019 as compared to the first
quarter of 2018. At the end of the first quarter active selling
communities increased to 87, up from 79 communities at the end of
the first quarter of 2018.
Home sales revenues for the first quarter of
2019 were $287.6 million, an increase of $8.6 million, or 3.1%,
over the first quarter of 2018. The increase in home sales revenues
is primarily due to the increase in the average home sales price
during the first quarter of 2019, partially offset by the decrease
in home closings.
The average home sales price was for the first
quarter of 2019 was $234,197, an increase of $9,901, or 4.4%, over
the first quarter of 2018. This increase in average home sales
price was primarily due to changes in product mix, higher price
points in certain new markets and increases in sales prices in
existing communities.
Gross margin as a percentage of home sales
revenues for the first quarter of 2019 was 23.1% as compared to
24.8% for the first quarter of 2018. Adjusted gross margin
(non-GAAP) as a percentage of home sales revenues for the first
quarter of 2019 was 25.1% as compared to 26.4% for the first
quarter of 2018. This decrease in gross margin as a percentage of
home sales revenues is primarily due to a combination of higher
construction costs, construction overhead, lot costs, and to a
lesser degree purchase accounting, partially offset by higher
average home sales price for the first quarter of 2019 as compared
to the first quarter of 2018. 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 $18.3 million, or $0.81 per basic
share and $0.73 per diluted share, for the first quarter of 2019
decreased $9.0 million, or 32.8%, from $27.3 million, or $1.23 per
basic share and $1.10 per diluted share, for the first quarter of
2018. The decrease in net income is primarily attributed to lower
gross margin, increased advertising and additional costs realized
from the increase in personnel associated with the increase in
community count and start-up costs in the Southeast, partially
offset by a higher average sales price realized during the first
quarter of 2019 as compared to the first quarter of 2018.
On May 6, 2019, the Company entered into a
Fourth Amended and Restated Credit Agreement with several financial
institutions, and Wells Fargo Bank, National Association, as
administrative agent (the “Credit Agreement”), which amends and
restates and has substantially similar terms and provisions to the
2018 Credit Agreement and provides for a $550.0 million revolving
credit facility, which can be increased at the request of the
Company by up to $100.0 million, subject to the terms and
conditions of the Credit Agreement.
Outlook
Subject to the caveats in the Forward-Looking
Statements section of this press release, the Company reaffirms its
prior 2019 guidance. The Company believes it will have
between 105 and 115 active selling communities at the end of 2019,
close between 6,900 and 7,800 homes in 2019, and generate basic EPS
between $7.00 and $8.00 per share during 2019. In addition, the
Company believes 2019 gross margin as a percentage of home sales
revenues will be in the range of 23.5% and 25.5% and 2019 adjusted
gross margin (non-GAAP) as a percentage of home sales revenues will
be in the range of 25.5% and 27.5% 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 2019 will be between $235,000 and
$245,000. This outlook assumes that general economic conditions,
including interest rates and mortgage availability, in the
remainder of 2019 are similar to those experienced in the first
quarter of 2019 and that average home sales price, construction
costs, availability of land, land development costs and overall
absorption rates in the remainder of 2019 are consistent with the
Company’s recent experience. In addition, this outlook assumes that
none of the Company’s 4.25% Convertible Notes due 2019 ($70.0
million aggregate principal amount currently outstanding) are
converted prior to their maturity on November 15, 2019.
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, May 7, 2019 (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 “7796845”.
This replay will be available until May 14, 2019.
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, Nevada and West Virginia.
The Company has a notable legacy of more than 16 years of
homebuilding operations, over which time it has closed over 30,000
homes. For more information about the Company and its new home
developments please visit the Company’s website at
www.LGIHomes.com.
Forward-Looking StatementsAny
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 2019 home closings, year-end
selling communities, basic earnings per share, gross margin as a
percentage of home sales revenues, adjusted gross margin as a
percentage of home sales revenue, and average home sales price, as
well as 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, 2018, 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)
|
|
March 31, |
|
December 31, |
|
|
2019 |
|
2018 |
ASSETS |
|
|
|
|
Cash and cash
equivalents |
|
$ |
35,084 |
|
|
$ |
46,624 |
|
Accounts
receivable |
|
31,987 |
|
|
42,836 |
|
Real
estate inventory |
|
1,290,855 |
|
|
1,228,256 |
|
Pre-acquisition costs and deposits |
|
43,698 |
|
|
45,752 |
|
Property
and equipment, net |
|
1,478 |
|
|
1,432 |
|
Other
assets |
|
19,943 |
|
|
15,765 |
|
Deferred
tax assets, net |
|
1,140 |
|
|
2,790 |
|
Goodwill
and intangible assets, net |
|
12,018 |
|
|
12,018 |
|
Total assets |
|
$ |
1,436,203 |
|
|
$ |
1,395,473 |
|
|
|
|
|
|
LIABILITIES AND
EQUITY |
|
|
|
|
Accounts
payable |
|
$ |
14,690 |
|
|
$ |
9,241 |
|
Accrued
expenses and other liabilities |
|
68,512 |
|
|
76,555 |
|
Notes
payable |
|
676,075 |
|
|
653,734 |
|
Total liabilities |
|
759,277 |
|
|
739,530 |
|
|
|
|
|
|
COMMITMENTS AND
CONTINGENCIES |
|
|
|
|
EQUITY |
|
|
|
|
Common stock, par value $0.01, 250,000,000 shares authorized,
23,964,730 shares issued and 22,925,730 shares outstanding as of
March 31, 2019 and 23,746,385 shares issued and 22,707,385 shares
outstanding as of December 31, 2018 |
|
239 |
|
|
237 |
|
Additional paid-in capital |
|
244,635 |
|
|
241,988 |
|
Retained
earnings |
|
450,108 |
|
|
431,774 |
|
Treasury
stock, at cost, 1,039,000 shares |
|
(18,056 |
) |
|
(18,056 |
) |
Total equity |
|
676,926 |
|
|
655,943 |
|
Total liabilities and equity |
|
$ |
1,436,203 |
|
|
$ |
1,395,473 |
|
LGI HOMES,
INC.CONSOLIDATED STATEMENTS OF
OPERATIONS(Unaudited)(In
thousands, except share and per share data)
|
|
Three Months Ended March 31, |
|
|
2019 |
|
2018 |
Home sales revenues |
|
$ |
287,594 |
|
|
$ |
279,024 |
|
|
|
|
|
|
Cost of sales |
|
221,290 |
|
|
209,765 |
|
Selling expenses |
|
26,791 |
|
|
22,949 |
|
General and
administrative |
|
18,438 |
|
|
15,440 |
|
Operating income |
|
21,075 |
|
|
30,870 |
|
Loss on extinguishment
of debt |
|
— |
|
|
175 |
|
Other income, net |
|
(619 |
) |
|
(532 |
) |
Net income before
income taxes |
|
21,694 |
|
|
31,227 |
|
Income tax
provision |
|
3,360 |
|
|
3,925 |
|
Net income |
|
$ |
18,334 |
|
|
$ |
27,302 |
|
Earnings per
share: |
|
|
|
|
Basic |
|
$ |
0.81 |
|
|
$ |
1.23 |
|
Diluted |
|
$ |
0.73 |
|
|
$ |
1.10 |
|
|
|
|
|
|
Weighted average shares
outstanding: |
|
|
|
|
Basic |
|
22,744,726 |
|
|
22,188,121 |
|
Diluted |
|
25,086,183 |
|
|
24,772,027 |
|
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 results, the utility of adjusted gross margin
information as a measure of 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
performance.
The following table reconciles adjusted gross
margin to gross margin, which is the GAAP financial measure that
our management believes to be most directly comparable (dollars in
thousands):
|
|
Three Months Ended March 31, |
|
|
2019 |
|
2018 |
Home sales revenues |
|
$ |
287,594 |
|
|
$ |
279,024 |
|
Cost of sales |
|
221,290 |
|
|
209,765 |
|
Gross margin |
|
66,304 |
|
|
69,259 |
|
Capitalized interest charged to cost of sales |
|
5,394 |
|
|
4,312 |
|
Purchase
accounting adjustments (1) |
|
630 |
|
|
(3 |
) |
Adjusted gross
margin |
|
$ |
72,328 |
|
|
$ |
73,568 |
|
Gross margin % (2) |
|
23.1 |
% |
|
24.8 |
% |
Adjusted gross margin %
(2) |
|
25.1 |
% |
|
26.4 |
% |
- 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.
- Calculated as a percentage of home sales revenues.
Home Sales Revenues, Home Closings, Average Home Sales
Price, Average Community Count and Average Monthly Absorption Rates
by Reportable Segment(Revenues in thousands,
unaudited)
|
|
Three Months Ended March 31,
2019 |
|
|
Revenues |
|
HomeClosings |
|
ASP |
|
AverageCommunityCount |
|
Average Monthly AbsorptionRate |
Central |
|
$ |
124,197 |
|
|
578 |
|
|
$ |
214,874 |
|
|
32.0 |
|
|
6.0 |
|
Northwest |
|
36,254 |
|
|
99 |
|
|
366,202 |
|
|
11.0 |
|
|
3.0 |
|
Southeast |
|
52,414 |
|
|
230 |
|
|
227,887 |
|
|
19.0 |
|
|
4.0 |
|
Florida |
|
28,912 |
|
|
142 |
|
|
203,606 |
|
|
11.0 |
|
|
4.3 |
|
West |
|
45,817 |
|
|
179 |
|
|
255,961 |
|
|
11.3 |
|
|
5.3 |
|
Total |
|
$ |
287,594 |
|
|
1,228 |
|
|
$ |
234,197 |
|
|
84.3 |
|
|
4.9 |
|
|
|
Three Months Ended March 31,
2018 |
|
|
Revenues |
|
HomeClosings |
|
ASP |
|
AverageCommunityCount |
|
AverageMonthlyAbsorptionRate |
Central |
|
$ |
107,498 |
|
|
521 |
|
|
$ |
206,330 |
|
|
29.3 |
|
|
5.9 |
|
Northwest |
|
57,173 |
|
|
155 |
|
|
368,858 |
|
|
10.3 |
|
|
5.0 |
|
Southeast |
|
45,108 |
|
|
229 |
|
|
196,978 |
|
|
17.0 |
|
|
4.5 |
|
Florida |
|
42,443 |
|
|
209 |
|
|
203,077 |
|
|
11.3 |
|
|
6.2 |
|
West |
|
26,802 |
|
|
130 |
|
|
206,169 |
|
|
9.0 |
|
|
4.8 |
|
Total |
|
$ |
279,024 |
|
|
1,244 |
|
|
$ |
224,296 |
|
|
76.9 |
|
|
5.4 |
|
CONTACT:Investor Relations:Caitlin Stiles, (281)
210-2619InvestorRelations@LGIHomes.com
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