• Revenue: $652 million, an increase of 5.6% year over year.
• Homes Delivered: 1,757 homes in the third quarter.
• Average Sales Price (ASP): Record high of $371,004, up 5.2% year over year.
• Adjusted Gross Margin: 27.2%, up 20 basis points sequentially.
• Pretax Net Income Margin: 14.1%, up 130 basis points sequentially.
• Diluted Earnings Per Share: $2.95, an increase of 4% year over year.
• SG&A Expenses: $83.2 million or 12.8% of revenue.
• Net Income: $69.6 million.
• Backlog: 1,088 homes, representing $417.8 million.
• Debt-to-Capital Ratio: 43.6%.
• Total Liquidity: $375.4 million.
• Community Count: 138 communities, a 30% increase over the prior year.

• Warning! GuruFocus has detected 5 Warning Signs with LGIH.

Release Date: November 05, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• LGI Homes Inc (NASDAQ:LGIH) reported a strong third quarter with revenue of $652 million, marking a 5.6% increase compared to the previous year.
• The company achieved a record high average sales price (ASP) of over $371,000, contributing to their financial success.
• LGI Homes Inc (NASDAQ:LGIH) expanded its community count by 30% year-over-year, ending the quarter with 138 communities, the largest annual increase in its history.
• The company maintained a strong adjusted gross margin of 27.2%, reflecting their focus on profitability and operational excellence.
• LGI Homes Inc (NASDAQ:LGIH) was recognized by Newsweek as one of the world's most trustworthy companies for the second consecutive year, highlighting their commitment to integrity and customer service.

Negative Points

• The company experienced a moderation in sales activity in October, attributed to affordability challenges and higher interest rates.
• LGI Homes Inc (NASDAQ:LGIH) reported a cancellation rate of 26.2% for the third quarter, indicating some instability in order retention.
• The company's selling expenses increased to 8.5% of revenue, up from 8.1% the previous year, due to higher advertising spend and personnel costs.
• Despite strong revenue growth, the pretax net income margin decreased slightly to 14.1% from 14.5% in the same period last year.
• Affordability challenges have priced out households with incomes between $60,000 and $100,000, limiting the potential customer base for entry-level homes.

Q & A Highlights

Q: Can you discuss the impressive gross margin performance and what factors led to raising your full-year gross margin expectations? A: Eric Lipar, CEO: The improvement is due to our pace versus price initiative. We focus on maintaining margins by avoiding wholesale price reductions and instead use targeted incentives and marketing strategies. This approach has allowed us to update our guidance based on strong Q3 results and anticipated Q4 performance.

Q: How do you view the impact of current demand conditions and the potential influence of the upcoming election on the housing market? A: Eric Lipar, CEO: We believe demand remains strong, driven by leads and inquiries for homeownership. The main challenge is affordability due to high rates and prices, which has priced out many potential buyers. We don't see the election affecting demand significantly, and we expect the market fundamentals to remain positive.

Q: What is allowing LGI Homes to maintain higher gross margins compared to peers, and how do you foresee this trend continuing? A: Eric Lipar, CEO: Our strategy involves significant land development, capturing both development and homebuilding profits. We finance more on-balance sheet rather than relying heavily on land banking, which gives us a cost advantage and helps maintain higher gross margins.

Q: How are you addressing the affordability challenges for households with incomes between $60,000 and $100,000? A: Eric Lipar, CEO: Many in this income range are currently priced out due to high rates and prices. We work with customers to improve their financial positions, but the gap between owning and renting has widened. We continue to explore ways to make homeownership more accessible.

Q: Are there plans to adjust your product offerings, such as introducing more attached homes, to address affordability issues? A: Eric Lipar, CEO: Yes, we are considering more attached home products as part of our community count growth strategy. This approach can help address affordability while maintaining the quality and standards of our offerings.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.