LGIH LGI Homes Inc

LGI Homes, Inc. (NASDAQ: LGIH) today announced financial results for the second quarter 2022 and the six months ended June 30, 2022.

Second Quarter 2022 Highlights and Comparisons to Second Quarter 2021

• Net Income increased 4.4% to $123.4 million, or $5.24 Basic EPS and $5.20 Diluted EPS
• Net Income Before Income Taxes increased 9.3% to $163.0 million
• Home Sales Revenues decreased 8.6% to $723.1 million
• Home Closings decreased 29.0% to 2,027 homes closed
• Average Sales Price increased 28.7% to $356,719
• Gross Margin as a Percentage of Homes Sales Revenues increased 500 basis points to 32.0%
• Adjusted Gross Margin* as a Percentage of Home Sales Revenues increased 460 basis points to 33.1%
• Active Selling Communities at June 30, 2022 of 92

Six Months Ended June 30, 2022 Highlights and Comparisons to Six Months ended June 30, 2021

• Net Income decreased 7.2% to $202.1 million, or $8.53 Basic EPS and $8.43 Diluted EPS
• Net Income Before Income Taxes decreased 3.6% to $262.6 million
• Home Sales Revenues decreased 15.2% to $1.3 billion
• Home Closings decreased 33.1% to 3,626 homes closed
• Average Sales Price increased 26.6% to $350,005
• Gross Margin as a Percentage of Homes Sales Revenues increased 370 basis points to 30.7%
• Adjusted Gross Margin* as a Percentage of Home Sales Revenues increased 340 basis points to 31.9%
• Total Owned and Controlled lots of 89,984
• Ending backlog of 1,266 homes valued at $445.1 million

*Non-GAAP

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.

Balance Sheet Highlights

• Total liquidity of $245.7 million at June 30, 2022, including cash and cash equivalents of $42.0 million and $203.7 million of availability under the Company’s revolving credit facility
• Net debt to capitalization of 42.4% at June 30, 2022, compared to 35.1% at December 31, 2021
• 417,861 shares of common stock repurchased during the second quarter of 2022 for an aggregate amount of $37.4 million

Management Comments

“I am pleased to announce the results of another outstanding quarter that included record setting results in every profitability metric we track,” stated Eric Lipar, Chairman and Chief Executive Officer of LGI Homes.

“During the quarter we closed 2,027 homes, resulting in $723.1 million dollars in revenue. Absorptions continued to exceed our historical average, coming in at 7.4 closings, per community, per month. Despite fewer closings compared to last year’s record comp, our commitment to executing on our systems, combined with continued pricing power, enabled us to deliver the most profitable quarter in our history. In addition to new Company records in pre-tax income and net income, we delivered a 500 basis point improvement in our gross margin to 32.0% and a 460 basis point improvement in our adjusted gross margin to an impressive 33.1%.

“The interest rate hikes at the end of the second quarter caused some buyers to pause and see if rates return to more familiar levels. Given the uncertainty this and other macro events have created, we are updating our full year guidance. We now expect to close between 7,500 and 8,300 homes at an average sales price between $345,000 and $360,000. SG&A as a percentage of revenue is now expected in a range between 10.0% and 11.0% and we expect to end the year with between 100 and 110 active communities. Finally, we are maintaining our prior guidance for gross margins between 27.0% and 29.0%, adjusted gross margins between 28.5% and 30.5% and an effective tax rate between 23.5% and 24.5%.”

Mr. Lipar concluded, “After a two-year boom market unlike any other in history, the housing market sits at a pivotal moment. The short-term view is that homes are more expensive, consumer prices are up, and mortgage rates have nearly doubled. However, the longer-term outlook reveals a solid foundation for multi-year 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 the long-term view and remain optimistic about our business. Our operating model was built to thrive in challenging environments and we believe our people, systems, culture and 100% spec-focused model will continue to drive our success and differentiate our business, regardless of market conditions, for many years to come.”

Full Year 2022 Outlook

Subject to the caveats in the Forward-Looking Statements section of this press release, the Company is providing the following updates to its guidance for the full year 2022. The Company now believes:

• Home closings between 7,500 and 8,300
• Active selling communities at the end of 2022 between 100 and 110
• Average sales price per home closed between $345,000 and $360,000
• Gross margin as a percentage of home sales revenue between 27.0% and 29.0%
• Adjusted gross margin (non-GAAP) as a percentage of home sales revenue between 28.5% and 30.5% with capitalized interest accounting for substantially all the difference between gross margin and adjusted gross margin as a percentage of home sales revenue
• SG&A as a percentage of home sales revenue between 10.0% and 11.0%
• Effective tax rate between 23.5% and 24.5%

This updated outlook assumes that general economic conditions, including input costs, materials, product and labor availability, interest rates and mortgage availability, in the remainder of 2022 are similar to those experienced so far in the third quarter 2022 and that construction costs, availability of land, and land development costs in the remainder of 2022 are consistent with the Company’s most recent experience. In addition, this outlook assumes that governmental regulations relating to land development, home construction and COVID-19 are similar to those currently in place. Any further COVID-19 governmental restrictions on land development, home construction or home sales could negatively impact the Company’s ability to achieve this guidance.

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, August 2, 2022 (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 and Treasurer.

Participants may access the live webcast by visiting the Investor Relations section of the Company’s website at www.lgihomes.com.

An archive of the webcast will be available for replay on the Company’s website for one year from the date of the conference call.

About LGI Homes, Inc.

LGI Homes, Inc. is a pioneer in the homebuilding industry, successfully applying an innovative and systematic approach to the design, construction and sale of homes. As one of America’s fastest growing companies, LGI Homes has a notable legacy of more than 19 years of homebuilding excellence, over which time it has closed more than 50,000 homes and has been profitable every year. Headquartered in The Woodlands, Texas, LGI Homes has operations across 35 markets in 20 states and, since 2018, has been ranked as the 10th largest residential builder in the United States based on units closed. Nationally recognized for its quality construction and exceptional customer service, LGI Homes’ commitment to excellence extends to its more than 900 employees, earning the Company numerous workplace awards at the local, state and national level, including Top Workplaces USA’s 2022 Cultural Excellence Award. For more information about LGI Homes and its unique operating model focused on making the dream of homeownership a reality for families across the nation, 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 2022 home closings, active selling communities, average sales price per home closed, gross margin as a percentage of home sales revenues, adjusted gross margin as a percentage of homes sales revenues, SG&A as a percentage of home sales revenue and effective tax rate, and the impact of the COVID-19 pandemic and its effect on the Company, its business, customers, subcontractors, and its markets, 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, 2021, including the “Cautionary Statement about Forward-Looking Statements” subsection within the “Risk Factors” section, the “Risk Factors” and “Cautionary Statement about Forward-Looking Statements” sections in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 and June 30, 2022 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)

		June 30,				December 31,
			2022				2021
ASSETS
Cash and cash equivalents		$	41,971			$	50,514
Accounts receivable			52,106				57,909
Real estate inventory			2,633,706				2,085,904
Pre-acquisition costs and deposits			38,277				40,702
Property and equipment, net			20,311				16,944
Other assets			69,481				81,676
Deferred tax assets, net			5,487				6,198
Goodwill			12,018				12,018
Total assets		$	2,873,357			$	2,351,865
LIABILITIES AND EQUITY
Accounts payable		$	40,162			$	14,172
Accrued expenses and other liabilities			163,811				136,609
Notes payable			1,155,463				805,236
Total liabilities			1,359,436				956,017
COMMITMENTS AND CONTINGENCIES
EQUITY
Common stock, par value $0.01, 250,000,000 shares authorized, 27,212,108 shares issued and 23,272,636 shares outstanding as of June 30, 2022 and 26,963,915 shares issued and 23,917,359 shares outstanding as of December 31, 2021			271				269
Additional paid-in capital			302,688				291,577
Retained earnings			1,565,984				1,363,922
Treasury stock, at cost, 3,939,472 shares and 3,046,556 shares, respectively			(355,022	)			(259,920	)
Total equity			1,513,921				1,395,848
Total liabilities and equity		$	2,873,357			$	2,351,865

LGI HOMES, INC.CONSOLIDATED STATEMENTS OF OPERATIONS(Unaudited)(In thousands, except share and per share data)

		Three Months Ended June 30,								Six Months Ended June 30,
			2022				2021				2022				2021
Home sales revenues		$	723,069			$	791,512			$	1,269,119			$	1,497,465
Cost of sales			491,710				577,433				879,353				1,093,437
Selling expenses			43,269				44,796				77,667				87,579
General and administrative			29,084				23,276				57,373				47,999
Operating income			159,006				146,007				254,726				268,450
Loss on extinguishment of debt			—				662				—				662
Other income, net			(4,006	)			(3,776	)			(7,836	)			(4,609	)
Net income before income taxes			163,012				149,121				262,562				272,397
Income tax provision			39,636				30,987				60,500				54,605
Net income		$	123,376			$	118,134			$	202,062			$	217,792
Earnings per share:
Basic		$	5.24			$	4.75			$	8.53			$	8.75
Diluted		$	5.20			$	4.71			$	8.43			$	8.66
Weighted average shares outstanding:
Basic			23,552,883				24,844,644				23,694,241				24,897,462
Diluted			23,745,853				25,061,812				23,968,263				25,138,691

Non-GAAP Measures

In addition to the results reported in accordance with accounting principles generally accepted in the United States (“GAAP”), the Company has provided information in this press release relating to adjusted gross margin, adjusted net income and adjusted earnings per share.

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 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 June 30,								Six Months Ended June 30,
			2022				2021				2022				2021
Home sales revenues		$	723,069			$	791,512			$	1,269,119			$	1,497,465
Cost of sales			491,710				577,433				879,353				1,093,437
Gross margin			231,359				214,079				389,766				404,028
Capitalized interest charged to cost of sales			5,735				10,442				10,248				21,115
Purchase accounting adjustments(1)			2,026				1,446				4,308				2,258
Adjusted gross margin		$	239,120			$	225,967			$	404,322			$	427,401
Gross margin %(2)			32.0	%			27.0	%			30.7	%			27.0	%
Adjusted gross margin %(2)			33.1	%			28.5	%			31.9	%			28.5	%

(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, Home Closings, Average Sales Price Per Home Closed (ASP), Average Community Count, Average Monthly Absorption Rates and Closing Community Count by Reportable Segment

(Revenues in thousands, unaudited)

		Three Months Ended June 30, 2022												As of June 30, 2022
		Revenues			Home Closings		ASP			Average Community Count		AverageMonthlyAbsorption Rate		Community Count at End of Period
Central		$	316,654		935		$	338,667		31.0		10.1		32
Southeast			117,569		361			325,676		19.7		6.1		20
Northwest			70,792		133			532,271		8.3		5.3		8
West			123,956		301			411,814		12.7		7.9		12
Florida			94,098		297			316,828		19.6		5.1		20
Total		$	723,069		2,027		$	356,719		91.3		7.4		92

		Three Months Ended June 30, 2021												As of June 30, 2021
		Revenues			Home Closings		ASP			Average Community Count		AverageMonthlyAbsorption Rate		Community Count at End of Period
Central		$	347,963		1,348		$	258,133		38.0		11.8		40
Southeast			159,714		632			252,712		25.7		8.2		25
Northwest			106,197		255			416,459		10.3		8.3		11
West			80,813		232			348,332		10.7		7.2		10
Florida			96,825		389			248,907		20.3		6.4		20
Total		$	791,512		2,856		$	277,140		105.0		9.1		106

		Six Months Ended June 30, 2022
		Revenues			Home Closings		ASP			Average Community Count		AverageMonthlyAbsorption Rate
Central		$	578,952		1,779		$	325,437		30.5		9.7
Southeast			190,032		599			317,249		19.8		5.0
Northwest			173,666		334			519,958		9.3		6.0
West			179,539		443			405,280		11.3		6.5
Florida			146,930		471			311,953		19.3		4.1
Total		$	1,269,119		3,626		$	350,005		90.2		6.7

		Six Months Ended June 30, 2021
		Revenues			Home Closings		ASP			Average Community Count		Average MonthlyAbsorption Rate
Central		$	636,713		2,475		$	257,258		37.6		11.0
Southeast			296,265		1,180			251,072		26.7		7.4
Northwest			224,388		551			407,238		10.5		8.7
West			161,961		481			336,717		10.7		7.5
Florida			178,138		730			244,025		20.2		6.0
Total		$	1,497,465		5,417		$	276,438		105.7		8.5

Owned and Controlled Lots

The table below shows (i) home closings by reportable segment for the six months ended June 30, 2022 and (ii) owned or controlled lots by reportable segment as of June 30, 2022.

		Six Months Ended June 30, 2022		As of June 30, 2022
Reportable Segment		Home Closings		Owned(1)		Controlled		Total
Central		1,779		24,231		9,199		33,430
Southeast		599		16,591		5,186		21,777
Northwest		334		6,909		4,079		10,988
West		443		9,065		5,960		15,025
Florida		471		5,097		3,667		8,764
Total		3,626		61,893		28,091		89,984

(1)	Of the 61,893 owned lots as of June 30, 2022, 49,595 were raw/under development lots and 12,298 were finished lots. Finished lots included 722 completed homes, including information centers, and 4,095 homes in progress.

Backlog Data

As of the dates set forth below, the Company’s net orders, cancellation rate and ending backlog homes and value were as follows (dollars in thousands, unaudited):

Backlog Data		Six Months Ended June 30,
		2022(4)				2021(5)
Net orders(1)			2,837				7,254
Cancellation rate(2)			20.8	%			14.8	%
Ending backlog – homes(3)			1,266				4,801
Ending backlog – value(3)		$	445,120			$	1,434,382

(1)	Net orders are new (gross) orders for the purchase of homes during the period, less cancellations of existing purchase contracts during the period.
(2)	Cancellation rate for a period is the total number of purchase contracts cancelled during the period divided by the total new (gross) orders for the purchase of homes during the period.
(3)	Ending backlog consists of homes at the end of the period that are under a purchase contract that has been signed by homebuyers who have met preliminary financing criteria but have not yet closed and wholesale contracts for which vertical construction is generally set to occur within the next six to twelve months. Ending backlog is valued at the contract amount.
(4)	As of June 30, 2022, the Company had 412 units related to bulk sales agreements associated with its wholesale business.
(5)	As of June 30, 2021, the Company had 940 units related to bulk sales agreements associated with its wholesale business.

CONTACT:Joshua D. FattorVice President of Investor Relations(281) 210-2586investorrelations@lgihomes.com