In words and in deeds, the Eric Lipar recipe for making a home building enterprise in his image and likeness is simple. Win, no matter what. The math is simple, and you can see it in the publicly disclosed third-quarter earnings statement LGI Homes put out yesterday: multiply 448 home closings times $151,779 and you get a $68 million.
Continue the simple arithmetic, using LGI's guidance on its 2013 Q4, and its 2014 estimates based on expanding its operational footprint from 22 active communities to 36, and you arrive at a tally of 44% growth in home closings expected in the next 12 month stretch. The 2014 total estimate of 2,200 homes closed would make for annual revenues totaling $334 million.
Impressive for a company that developed its unusual sales-centric model in a couple of subdivisions in the Houston area in 2006 and 2007. From its beginnings, LGI and Lipar have been a rush of adrenaline and focus. Even the company's IPO last month defied conventional wisdom as to the timing and receptiveness of the deal.
With the help of Builder Advisor Group, the initial public offering accomplished what it intended to, which was to access the public equity markets for $102 million capital that would put the company's shares in the hands of the holders and give management a green light on its strategy. From an executional perspective, the IPO went off flawlessly, and now the shares are trading at $17, with strong buy recommendations from a big league list of analysts from JP Morgan, Bank of America, Deutsche Bank, and Barclays.
What's noteworthy about LGI is that its system, its culture, and its model have been iterative, even in the depths of the housing recession, and even when the model transports to new markets. The compelling "you don't have to pay rent" message to prospective buyers, put across with precision blitz advertising and promotional campaigns and high-energy in-person sales sessions, seems to counter most of the trends the media have focused on in writing about the recovery. Namely, that entry-level, first-time buyers are shut out, and that young adults choose renting over buying in the first place.
We'll look forward to seeing where LGI goes next--Lipar's vision is nothing short of world domination. So far, the LGI footprint expansion program has been de novo organic growth, but we would not be surprised to see the company join in some of the mergers and acquisitions activity in the months ahead. Whatever it takes to keep LGI quantum leaping ahead has to be considered an option.
It's no coincidence that the LGI call with analysts and investors this morning is smack up against that of another member of the public home building set: Lennar.
Here's the press statement from LGI on it's Q3 earnings release:
LGI Homes, Inc. Reports Third Quarter and YTD 2013 Financial Results
THE WOODLANDS, Texas, Dec. 17, 2013 (GLOBE NEWSWIRE) -- LGI Homes, Inc. (Nasdaq:LGIH) today announced results for its third quarter and the nine months ended September 30, 2013.
Third Quarter 2013 Highlights and Comparisons to Third Quarter 20121
Home Closings Increased 40.0% to 448
22 Active Selling Communities as of September 30, 2013
Home Sales Revenue Increased 58.4% to $68.0 Million
Average Home Sales Price Increased 13.1% to $151,779
Adjusted Gross Margin as a Percentage of Home Sales Revenues of 27.4%2
Approximately 11,000 Owned and Controlled Lots as of September 30, 2013
"LGI Homes' third quarter and year to date financial results demonstrate our proven ability to successfully grow using the unique sales model LGI has created which delivers better returns on capital and industry leading margins," said Eric Lipar, the Company's Chief Executive Officer and Chairman of the Board. "We are extremely pleased with these strong results and maintain our positive outlook as we continue to see robust demand from consumers looking for homeownership."
On November 13, 2013, LGI Homes, Inc. (the "Company") completed its initial public offering (the "IPO") issuing 10,350,000 shares of its common stock at $11.00 per share which generated net proceeds of approximately $102.7 million after deducting the underwriters' discounts and commissions, and offering expenses. Concurrent with the IPO, the Company acquired all of the equity interests of LGI Homes Group, LLC and LGI Homes Corporate, LLC and their subsidiaries (collectively referred to as "predecessor" or "LGI Homes Group (Predecessor)") in exchange for 10,003,358 shares of the Company's common stock. Prior to the IPO, the Company's predecessor owned a 15% equity interest in four unconsolidated joint ventures ("the LGI/GTIS Joint Ventures"). The Company's predecessor managed the day-to-day operations of the LGI/GTIS Joint Ventures, and accounted for its interests in the joint ventures using the equity method. At the time of the IPO, the Company also acquired all of GTIS' equity interests in the LGI/GTIS Joint Ventures in exchange for aggregate consideration of $41.4 million, consisting of a cash payment of approximately $36.9 million and 409,091 shares of the Company's common stock valued at $4.5 million (based on the IPO price of $11.00 per share).
For the quarter ended September 30, 2013, home closings increased 40.0% to 448 from 320 during the third quarter of 2012. This consists of a 44.6% increase in predecessor home closings to 240 and a 35.1% increase in the LGI/GTIS Joint Ventures' home closings to 208 homes. Active selling communities increased to 22 communities as of September 30, 2013, consisting of 14 predecessor communities and 8 LGI/GTIS Joint Ventures communities.
Home sales revenue for the third quarter of 2013 increased 58.4% as compared to the third quarter of 2012 to $68.0 million, consisting of an increase of 62.1% to $37.0 million for the Company's predecessor and an increase of 54.1% to $31.0 million for the LGI/GTIS Joint Ventures. This increase was due to the increase in the number of active selling communities, homes closed and average selling price per home.
The average home sales price during the third quarter of 2013 increased 13.1% as compared to the third quarter of 2012 to $151,779, consisting of a 12.1% increase in the Company's predecessor's average home sales price to $154,313 and a 14.1% increase in the average home sales price for the LGI/GTIS Joint Ventures to $148,855. This increase was primarily due to a shift in product mix and the pass through of increased construction costs to the homebuyer.
Adjusted gross margin as a percentage of home sales revenues of 27.4% for the third quarter of 2013 slightly decreased 50 basis points from 27.9% for the third quarter of 2012, reflecting the net impact of increased construction costs and higher developed lot costs, offset by higher average home sales prices.
Nine Months Ended September 30, 2013 Compared to Nine Months Ended September 30, 2012:
Home Closings Increased 49.9% to 1,112
Home Sales Revenue Increased 65.3% to $164.0 Million
Average Home Sales Price Increased 10.3% to $147,452
Adjusted Gross Margin as a Percentage of Home Sales Revenues of 27.9%3
For the nine months ended September 30, 2013, home closings increased 49.9% to 1,112 from 742 during the first nine months of 2012. This consists of a 72.2% increase in predecessor home closings to 637 and a 27.7% increase in the LGI/GTIS Joint Ventures' home closings to 475 homes.
Home sales revenue for the nine months ended September 30, 2013 increased 65.3% as compared to the first nine months of 2012 to $164.0 million, consisting of an increase of 87.4% to $95.0 million for the Company's predecessor and an increase of 42.2% to $68.9 million for the LGI/GTIS Joint Ventures. This increase in revenue was largely due to the increase in the number of active selling communities and expansion into new markets.
The average home sales price during the nine months ended September 30, 2013 increased 10.3% as compared to the first nine months of 2012 to $147,452, consisting of an 8.9% increase in the Company's predecessor's average home sales price to $149,188 and an 11.4% increase in the average home sales price for the LGI/GTIS Joint Ventures to $145,123. This increase was primarily due to a shift in product mix and the pass through of increased construction costs to the homebuyer.
Adjusted gross margin as a percentage of home sales revenues of 27.9% for the nine months ended September 30, 2013 slightly decreased 50 basis points from 28.4% for the nine months ended September 30, 2012, reflecting the net impact of increased construction costs and higher developed lot costs, offset by higher average home sales prices.
Subject to the caveats in the Forward-Looking Statements section of this press release, the Company offers the following limited guidance. With the addition of two new communities in the fourth quarter of 2013, the Company will have at least 24 active selling communities at the end of 2013. The Company expects to close more than 420 homes during the fourth quarter of 2013.
Looking forward to 2014, the Company believes it will have 36 active selling communities at the end of the year and close 2,200 homes during the year. This outlook assumes that general economic and mortgage availability conditions in 2014 are similar to those in 2013.
Learn more about markets featured in this article: Houston, TX.