March 7, 2017

LGI Homes, Inc. Reports Fourth Quarter and Full Year 2016 Results and Releases 2017 Guidance

THE WOODLANDS, Texas, March 07, 2017 (GLOBE NEWSWIRE) -- LGI Homes, Inc. (Nasdaq:LGIH) today announced results for the fourth quarter and full year ended December 31, 2016.

Fourth Quarter 2016 Highlights and Comparisons to Fourth Quarter 2015

  • Net Income of $23.2 million, or $1.09 Basic EPS and $1.01 Diluted EPS
  • Net Income Before Income Taxes increased 45.1% to $34.9 million
  • Home Sales Revenues increased 34.0% to $236.8 million
  • Home Closings increased 20.4% to 1,139 homes
  • Average Home Sales Price increased 11.3% to $207,928
  • Gross Margin as a Percentage of Homes Sales Revenues was 27.2% as compared to 26.5%
  • Adjusted Gross Margin (non-GAAP) as a Percentage of Home Sales Revenues was 28.5% as compared to 27.6%
  • Active Selling Communities at quarter-end increased to 63 from 52
  • Total Owned and Controlled Lots increased to 29,460 lots

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.

Full Year 2016 Highlights and Comparisons to Full Year 2015

  • Net Income of $75.0 million, or $3.61 Basic EPS and $3.41 Diluted EPS
  • Net Income Before Income Taxes increased 41.6% to $113.7 million
  • Home Sales Revenues increased 33.0% to $838.3 million
  • Home Closings increased 22.3% to 4,163 homes
  • Average Home Sales Price increased 8.8% to $201,374
  • Gross Margin as a Percentage of Home Sales Revenues was 26.4% as compared to 26.5%
  • Adjusted Gross Margin (non-GAAP) as a Percentage of Home Sales Revenues remained at 27.8%

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

"2016 was another great year for LGI Homes," said Eric Lipar, the Company's Chief Executive Officer and Chairman of the Board. "Our fourth quarter provided a solid finish with a record-breaking 4,163 homes closed for the year, achieving significant growth in revenues and active community count, and increasing basic earnings per share 36.2% over the prior year."

"As we turn our attention to 2017, we remain focused on delivering strong results. Although we have only closed 396 homes through February, our sales to date in 2017 have been strong and we believe these will fuel our future closings over the next few months. As a result, we maintain our positive outlook on the year."

"We are poised to see continued growth in 2017 and believe we are well positioned to increase our revenues, community count and earnings per share, allowing LGI Homes to achieve our long term goals and objectives of market leading returns for our shareholders. For the year, we expect to close more than 4,700 homes and believe basic EPS will be in the range of $4.00 to $4.50 per share," Lipar concluded.

2016 Fourth Quarter Results

Home closings during the fourth quarter of 2016 increased 20.4% to 1,139 from 946 during the fourth quarter of 2015. Active selling communities increased to 63 at the end of the fourth quarter of 2016, up from 59 communities at the end of the third quarter of 2016.

Home sales revenues for the fourth quarter of 2016 were $236.8 million, an increase of $60.1 million, or 34.0% over the fourth quarter of 2015. The increase in home sales revenues is due to both the increase in the number of homes closed and an increase in the average home sales price.

The average home sales price was $207,928 for the fourth quarter of 2016, an increase of 11.3% over the fourth quarter of 2015. This increase is largely attributable 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 fourth quarter of 2016 was 27.2% as compared to 26.5% for the fourth quarter of 2015.  Adjusted gross margin (non-GAAP) as a percentage of home sales revenues for the fourth quarter of 2016 was 28.5% as compared to 27.6% for the fourth quarter of 2015. This increase primarily reflects a combination of higher average home sales price and benefits of managing overall 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 $23.2 million, or $1.09 per basic share and $1.01 per diluted share, for the fourth quarter of 2016 increased $7.5 million, or 47.5%, from $15.7 million for the fourth quarter of 2015. This increase is primarily attributable to the 20.4% increase in homes closed, the increase in average home sales price, and operating leverage realized related to selling, general and administrative expenses, net of increased expenses associated with new communities.

2016 Full Year Results

Home closings reached an all-time high for 2016, increasing 22.3% to 4,163, far surpassing the previous record of 3,404 from 2015. Active selling communities increased by 11 communities during 2016 and totaled 63 active selling communities at the end of 2016. Reflected in this increase are an additional four communities in the Southwest Division, one in the Southeast Division, three communities in the Florida Division, and three communities in the Northwest Division.

Home sales revenues for 2016 increased 33.0% to $838.3 million compared to 2015. The average home sales price during 2016 was $201,374, an increase of 8.8% over 2015. Consistent with the Company's fourth quarter 2016 results, this increase is primarily due to changes in product mix, price points in new markets, and a favorable pricing environment.

Net income of $75.0 million, or $3.61 per basic share and $3.41 per diluted share, for the year ended December 31, 2016, increased $22.2 million, or 42.0%, from $52.8 million for the year ended December 31, 2015. This increase is primarily attributable to the 22.3% increase in homes closed, the increase in average home sales price, and operating leverage realized related to selling, general and administrative expenses, net of increased expenses associated with new communities.

Outlook

Subject to the caveats in the Forward-Looking Statements section of this press release, the Company offers the following guidance for 2017. The Company believes it will have between 75 and 80 active selling communities at the end of 2017, close more than 4,700 homes in 2017, and generate basic EPS between $4.00 and $4.50 per share during 2017. In addition, the Company believes 2017 gross margin as a percentage of home sales revenues will be in the range of 25.0% and 27.0% and 2017 adjusted gross margin (non-GAAP) as a percentage of home sales revenues will be similar to previous years in the range of 26.5% and 28.5% 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 2017 will be between $210,000 and $220,000. This outlook assumes that general economic conditions, including interest rates and mortgage availability, in the remainder of 2017 are similar to those in the fourth quarter of 2016 and that average home sales price, construction costs, availability of land, land development costs and overall absorption rates for 2017 are consistent with the Company's recent experience.

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, March 7, 2017 (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 "48646058". This replay will be available until March 14, 2017.

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, and Tennessee. The Company has a notable legacy of more than 13 years of homebuilding operations, over which time it has closed over 16,000 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 2017 home closings, basic earnings per share, gross margins and average home sales price, 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 "believe," "estimate," "project," "anticipate," "expect," "seek," "predict," "contemplate," "continue," "possible," "intent," "may," "might," "will," "could," "would," "should," "forecast," or "assume" 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, 2016, 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
(In thousands, except share data)
 
  December 31,
  2016 2015
     
ASSETS    
Cash and cash equivalents $49,518  $37,568 
Accounts receivable 17,055  17,325 
Real estate inventory 717,681  531,228 
Pre-acquisition costs and deposits 10,651  7,001 
Property and equipment, net 1,960  2,108 
Other assets 5,631  11,238 
Goodwill and intangible assets, net 12,018  12,234 
Total assets $814,514  $618,702 
     
LIABILITIES AND EQUITY    
Accounts payable $12,277  $24,020 
Accrued expenses and other liabilities 46,389  40,006 
Deferred tax liabilities, net 164  2,726 
Notes payable 400,483  304,561 
Total liabilities 459,313  371,313 
COMMITMENTS AND CONTINGENCIES    
EQUITY    
Common stock, par value $0.01, 250,000,000 shares authorized, 22,311,310 shares issued and 21,311,310 shares outstanding as of December 31, 2016 and 21,270,389 shares issued and 20,270,389 shares outstanding as of December 31, 2015 223  213 
Additional paid-in capital 208,346  175,575 
Retained earnings 163,182  88,151 
Treasury stock, at cost, 1,000,000 shares (16,550) (16,550)
Total equity 355,201  247,389 
Total liabilities and equity $814,514  $618,702 
         


LGI HOMES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
 
  Three Months Ended
December 31,
 For the Year Ended
December 31,
  2016 2015 2016 2015
         
Home sales revenues $236,830  $176,764  $838,320  $630,236 
Cost of sales 172,502  129,874  616,707  463,304 
Selling expenses 18,019  13,966  66,984  52,998 
General and administrative 12,003  9,210  43,158  34,260 
  Operating income 34,306  23,714  111,471  79,674 
Other income, net (641) (378) (2,201) (606)
Net income before income taxes 34,947  24,092  113,672  80,280 
Income tax provision 11,742  8,361  38,641  27,450 
Net income $23,205  $15,731  $75,031  $52,830 
Earnings per share:        
Basic $1.09  $0.79  $3.61  $2.65 
Diluted $1.01  $0.75  $3.41  $2.44 
         
Weighted average shares outstanding:        
Basic 21,290,257  20,088,010  20,798,333  19,939,761 
Diluted 22,878,789  21,174,417  22,024,091  21,740,719 
             

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

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):

  Three Months Ended December 31,
  2016 2015
Home sales revenues $236,830  $176,764 
Cost of sales 172,502  129,874 
Gross margin 64,328  46,890 
Capitalized interest charged to cost of sales 3,249  1,681 
Purchase accounting adjustments (a) 31  272 
Adjusted gross margin $67,608  $48,843 
Gross margin % (b) 27.2% 26.5%
Adjusted gross margin % (b) 28.5% 27.6%


  Year Ended December 31,
  2016 2015
Home sales revenues $838,320  $630,236 
Cost of sales 616,707  463,304 
Gross margin 221,613  166,932 
Capitalized interest charged to cost of sales 10,680  6,057 
Purchase accounting adjustments (a) 485  2,131 
Adjusted gross margin $232,778  $175,120 
Gross margin % (b) 26.4% 26.5%
Adjusted gross margin % (b) 27.8% 27.8%

(a)  Adjustments result from the application of purchase accounting related to prior 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.

(b)  Calculated as a percentage of home sales revenues.

Home Sales Revenues and Closings by Division
(Dollars in thousands)

  Three Months Ended December 31,
  2016 2015
  Revenues Closings Revenues Closings
Texas $120,180  595  $94,528  495 
Southwest 46,645  192  35,872  185 
Southeast 28,342  157  27,218  164 
Florida 34,364  173  19,146  102 
Northwest 7,299  22     
Total home sales $236,830  1,139  $176,764  946 


  Year Ended December 31,
  2016 2015
  Revenues Closings Revenues Closings
Texas $429,505  2,143  $350,674  1,856 
Southwest 165,017  737  109,878  565 
Southeast 111,651  635  95,949  587 
Florida 115,276  595  73,735  396 
Northwest  16,871  53      
Total home sales $838,320  4,163  $630,236  3,404 


CONTACT:
Investor Relations:
Caitlin Stiles, (281) 210-2619
InvestorRelations@LGIHomes.com


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