LGI Homes(LGIH) - 2023 Q4 - Annual Report

PART I Business Overview LGI Homes operates in 36 markets across 21 states, building entry-level, active adult, and luxury homes with a focus on efficient construction and strategic land acquisition - LGI Homes operates in 36 markets across 21 states, offering homes under the LGI Homes brand (entry-level, active adult) and Terrata Homes brand (luxury)[12][15][16] Key Operating Metrics | Metric | 2023 | 2022 | | :----------------------------- | :----- | :----- | | Home Closings | 6,729 | 6,621 | | Average Sales Price per Home | $350,510 | $348,052 | | Active Communities (end of year) | 117 | 99 | - The company's strategy involves acquiring finished lots or raw land, often further from urban centers, and maintaining a land pipeline, alongside wholesale home sales and single-family home leasing[18][19][35] - LGI Homes employs a direct sales and marketing approach, targeting renters with extensive digital and print advertising and utilizing commission-based sales professionals[20][21][22] - Homebuilding operations are organized into seven segments, focusing on standardized floor plans and finishes for efficient, continuous construction and maintaining move-in ready home inventory[23][26] Segmental Homebuilding Data | Segment | 2023 Home Closings | 2023 Owned Lots | 2023 Controlled Lots | 2023 Total Lots | | :-------- | :----------------- | :-------------- | :------------------- | :-------------- | | Central | 2,241 | 20,606 | 3,093 | 23,699 | | Southeast | 1,716 | 14,563 | 5,429 | 19,992 | | Northwest | 511 | 5,934 | 1,652 | 7,586 | | West | 992 | 9,049 | 2,747 | 11,796 | | Florida | 1,269 | 5,179 | 2,829 | 8,008 | | Total | 6,729 | 55,331 | 15,750 | 71,081 | Risk Factors The company faces operational, industry, economic, regulatory, financial, and cybersecurity risks that could impact its business and financial performance - Operational risks include challenges in acquiring suitable land, labor and raw material shortages, price fluctuations, and supply chain constraints, potentially delaying construction and increasing costs[72][73][76] - Industry and economic risks stem from higher mortgage interest rates, tightening lending standards, inflation, and housing market downturns, potentially decreasing demand and increasing cancellation rates[72][92][93][100] - The homebuilding industry is highly competitive, facing risks from national, regional, and local builders, as well as existing home sales and rental markets[52][105] - Regulatory risks involve compliance with zoning, development, environmental, health, and safety laws, which may lead to delays, increased costs, or development restrictions[47][48][121][122] - Financial risks include leverage, potential difficulties in securing sufficient capital, and the impact of financial market turmoil on liquidity and financing access[143][152][179] - Cybersecurity incidents, data breaches, and information system failures pose significant risks to business operations, financial data, and reputation[170][171] Unresolved Staff Comments The company has no unresolved staff comments from the SEC regarding its filings - The company has no unresolved staff comments[187] Cybersecurity LGI Homes maintains a comprehensive cybersecurity risk management program, overseen by IT leadership and the Board, with no material incidents reported to date - LGI Homes integrates cybersecurity risk management into its broader risk framework, aligning with NIST and CIS Critical Security Controls[188] - The company employs processes for prevention, detection, mitigation, and remediation, including incident response plans, safeguards, employee training, and third-party assessments[189][190][192][196] - Cybersecurity risk management is overseen by the Vice President, Information Technology, and the Board of Directors, with semi-annual updates to the Board[195][197] - As of the report date, LGI Homes has not experienced cybersecurity incidents materially affecting its operations or financial standing[194] Properties LGI Homes leases its corporate headquarters in Texas and additional offices across various states, while also owning or controlling properties for land development - The company leases approximately 25,000 square feet for its corporate headquarters in The Woodlands, Texas, with the lease expiring in 2028[199] - LGI Homes leases additional offices across 14 states, including Arizona, California, Colorado, Florida, Georgia, Maryland, Minnesota, Nevada, North Carolina, Oregon, Tennessee, Texas, Utah, and Washington[199] Legal Proceedings LGI Homes faces routine legal claims and proceedings typical for the industry, which management does not expect to materially impact financial results - The company faces claims and proceedings in the ordinary course of business related to real estate and homebuilding[201] - Management assesses these matters as usual obligations for the industry and does not expect a material effect on consolidated financial position, results of operations, or cash flows[201] Mine Safety Disclosures This item is not applicable to LGI Homes, Inc - Mine Safety Disclosures are not applicable to the registrant[202] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities LGI Homes' common stock trades on NASDAQ under 'LGIH', with an authorized stock repurchase program and no cash dividends paid to date - LGI Homes' common stock is traded on the NASDAQ Stock Market under the symbol 'LGIH'[205] - As of December 31, 2023, the company had $211.5 million remaining under its $550.0 million stock repurchase program, with no shares repurchased during the three months ended December 31, 2023[206][207] - The company has not previously declared or paid any cash dividends on its common stock[208] Cumulative Total Return (Indexed to $100) | Date | LGIH | S&P 500 Index | S&P Homebuilders Index | | :--------- | :----- | :------------ | :--------------------- | | 12/31/2018 | $100.00 | $100.00 | $100.00 | | 12/31/2019 | $156.24 | $128.88 | $140.12 | | 12/31/2020 | $234.08 | $149.83 | $176.78 | | 12/31/2021 | $341.62 | $190.13 | $263.06 | | 12/31/2022 | $204.78 | $153.16 | $185.08 | | 12/31/2023 | $294.47 | $190.82 | $291.68 | Reserved This item is reserved and contains no information Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes LGI Homes' financial condition and results of operations for 2023 and 2022, covering key financial metrics, liquidity, capital resources, and critical accounting policies Key Results This section presents a summary of LGI Homes' key financial and operational results for 2023 compared to 2022 Key Financial Results (YoY Change 2023 vs 2022) | Metric | 2023 | 2022 | Change (%) | | :------------------------------------ | :----------- | :----------- | :--------- | | Home sales revenues | $2.4 billion | $2.3 billion | +2.3% | | Homes closed | 6,729 | 6,621 | +1.6% | | Average sales price per home closed | $350,510 | $348,052 | +0.7% | | Gross margin as % of home sales revenues | 23.0% | 28.1% | -5.1 pp | | Adjusted gross margin as % of home sales revenues | 24.7% | 29.2% | -4.5 pp | | Net income before income taxes | $261.8 million | $418.1 million | -37.4% | | Net income | $199.2 million | $326.6 million | -39.0% | | EBITDA as % of home sales revenues | 12.6% | 19.1% | -6.5 pp | | Adjusted EBITDA as % of home sales revenues | 11.7% | 18.2% | -6.5 pp | | Active communities at end of year | 117 | 99 | +18.2% | | Total owned and controlled lots | 71,081 | 71,904 | -1.1% | Results of Operations This section details the company's consolidated statements of operations and provides a year-over-year comparison of financial performance Consolidated Statements of Operations (in thousands) | Metric | 2023 | 2022 | 2021 | | :-------------------------- | :----------- | :----------- | :----------- | | Home sales revenues | $2,358,580 | $2,304,455 | $3,050,149 | | Cost of sales | $1,816,393 | $1,657,855 | $2,232,115 | | Selling expenses | $191,582 | $144,928 | $170,005 | | General and administrative | $117,350 | $111,565 | $100,331 | | Operating income | $233,255 | $390,107 | $547,698 | | Net income before income taxes | $261,754 | $418,116 | $542,775 | | Income tax provision | $62,527 | $91,549 | $113,130 | | Net income | $199,227 | $326,567 | $429,645 | | Basic earnings per share | $8.48 | $13.90 | $17.46 | | Diluted earnings per share | $8.42 | $13.76 | $17.25 | | Average community count | 103.9 | 91.9 | 104.4 | | Community count at end of period | 117 | 99 | 101 | | Home closings | 6,729 | 6,621 | 10,442 | | Average sales price per home closed | $350,510 | $348,052 | $292,104 | | Gross margin % | 23.0% | 28.1% | 26.8% | Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 This section provides a detailed comparison of LGI Homes' financial performance for the fiscal years 2023 and 2022 - Home sales revenues increased 2.3% to $2.4 billion in 2023, driven by a 1.6% increase in home closings and a 0.7% increase in average sales price, supported by a higher average community count despite lower absorption due to higher mortgage rates[221] - Wholesale home closings decreased significantly from 1,233 in 2022 (18.6% of total) to 679 in 2023 (10.1% of total), positively impacting the overall average sales price[34][222] - Cost of sales increased 9.6% to $1.8 billion in 2023, primarily due to higher construction costs, capitalized interest, and increased home closings, leading to a decrease in gross margin from 28.1% in 2022 to 23.0% in 2023[224] - Selling expenses rose 32.2% to $191.6 million in 2023, increasing as a percentage of home sales revenues from 6.3% to 8.1%, driven by higher advertising, fewer wholesale closings, and increased outside commissions[225] - General and administrative expenses increased 5.2% to $117.4 million, primarily due to higher personnel-related costs and indirect overhead, partially offset by lower payroll-related costs and terminated land purchase expenses[226] - Net income before income taxes decreased 37.4% to $261.8 million in 2023, and net income decreased 39.0% to $199.2 million, primarily due to lower gross margin and higher selling expenses[228][230] Non-GAAP Measures The company provides non-GAAP measures like Adjusted Gross Margin, EBITDA, and Adjusted EBITDA to offer supplemental insights into operating performance, excluding certain non-cash or non-recurring items Adjusted Gross Margin Reconciliation (in thousands) | Metric | 2023 | 2022 | 2021 | | :------------------------------------ | :----------- | :----------- | :----------- | | Home sales revenues | $2,358,580 | $2,304,455 | $3,050,149 | | Cost of sales | $1,816,393 | $1,657,855 | $2,232,115 | | Gross margin | $542,187 | $646,600 | $818,034 | | Capitalized interest charged to cost of sales | $33,368 | $20,276 | $37,546 | | Purchase accounting adjustments | $6,492 | $6,869 | $4,964 | | Adjusted gross margin | $582,047 | $673,745 | $860,544 | | Gross margin % | 23.0% | 28.1% | 26.8% | | Adjusted gross margin % | 24.7% | 29.2% | 28.2% | EBITDA and Adjusted EBITDA Reconciliation (in thousands) | Metric | 2023 | 2022 | 2021 | | :------------------------------------ | :----------- | :----------- | :----------- | | Net income | $199,227 | $326,567 | $429,645 | | Income tax provision | $62,527 | $91,549 | $113,130 | | Depreciation and amortization | $2,408 | $1,576 | $1,154 | | Capitalized interest charged to cost of sales | $33,368 | $20,276 | $37,546 | | EBITDA | $297,530 | $439,968 | $581,475 | | Purchase accounting adjustments | $6,492 | $6,869 | $4,964 | | Loss on extinguishment of debt | — | — | $13,976 | | Other income, net | ($28,499) | ($28,009) | ($9,053) | | Adjusted EBITDA | $275,523 | $418,828 | $591,362 | | EBITDA margin % | 12.6% | 19.1% | 19.1% | | Adjusted EBITDA margin % | 11.7% | 18.2% | 19.4% | Backlog The company's backlog comprises homes under purchase or wholesale contracts, typically closing within one to two months, with an increased cancellation rate and decreased ending backlog in 2023 due to higher mortgage rates - Backlog includes homes under purchase contracts with preliminary financing met and wholesale contracts; most are under construction or complete and close within 1-2 months[240] - Net orders increased in 2023 due to higher average community count, but wholesale orders decreased 61.8% to 60 units[241] Backlog Data | Metric | 2023 | 2022 | 2021 | | :-------------------- | :----- | :----- | :----- | | Net orders | 6,617 | 5,268 | 9,533 | | Cancellation rate | 25.4% | 24.4% | 19.3% | | Ending backlog - homes | 590 | 702 | 2,055 | | Ending backlog - value | $224,851 | $252,002 | $659,234 | - The ending backlog decreased 16.0% in 2023 compared to 2022, primarily due to continued increases in mortgage rates[242] Seasonality The homebuilding industry is seasonal, with LGI Homes typically closing more homes in the latter half of the year, leading to quarterly fluctuations in operating results and capital requirements - The homebuilding industry generally exhibits seasonality, with LGI Homes historically closing more homes in the second, third, and fourth quarters[244] - Quarterly operating results and financial position, especially in the first quarter, are not necessarily representative of year-end results due to seasonal patterns[245] Liquidity and Capital Resources LGI Homes manages liquidity through operating cash flows, a revolving credit facility, and land banking, with capital primarily used for land, development, construction, and debt servicing - As of December 31, 2023, LGI Homes had $49.0 million in cash and cash equivalents[246] - Principal uses of capital include operating expenses, land/lot purchases, lot development, home construction, interest costs, and stock repurchases[247] - The company relies on operating cash flows and a $1.205 billion revolving credit facility for short-term liquidity, expecting to fund long-term needs through operations and available credit, potentially accessing debt or equity markets[248][250][257] Material Cash Requirements (in thousands) | Obligation | Total | < 1 year | 1 - 3 years | 3 - 5 years | More than 5 years | | :------------------------------ | :---------- | :--------- | :---------- | :---------- | :---------------- | | Credit Agreement | $569,816 | — | $115,818 | $453,998 | — | | Senior Notes | $700,000 | — | — | $400,000 | $300,000 | | Land banking financing arrangements | $104,459 | $61,337 | $43,122 | — | — | | Interest and fees | $435,226 | $91,362 | $181,077 | $162,787 | — | | Operating Leases | $5,604 | $1,535 | $2,452 | $1,604 | $13 | | Total | $1,815,105 | $154,234 | $342,469 | $1,018,389 | $300,013 | - As of December 31, 2023, $354.8 million was available to borrow under the Credit Agreement, which has a borrowing base of $1.7 billion[259] - The company issued $400.0 million in 8.750% Senior Notes due December 15, 2028, in November 2023, and has $300.0 million in 4.000% Senior Notes due July 15, 2029[261][262] Cash Flows (in thousands) | Activity | 2023 | 2022 | 2021 | | :------------------------------------ | :----------- | :----------- | :----------- | | Net cash provided by (used in) operating activities | ($56,968) | ($370,451) | $21,700 | | Net cash used in investing activities | ($13,648) | ($5,968) | ($70,391) | | Net cash provided by financing activities | $87,596 | $357,903 | $63,263 | | Net increase (decrease) in cash and cash equivalents | $16,980 | ($18,516) | $14,572 | | Cash and cash equivalents, end of year | $48,978 | $31,998 | $50,514 | Inflation Inflation negatively impacts LGI Homes by increasing costs for land, financing, labor, and materials, and by raising mortgage rates, reducing home affordability and demand - Inflation adversely affects LGI Homes by increasing costs for land, financing, labor, and materials[275] - Higher inflation can lead to increased mortgage rates, reducing homebuyers' ability to obtain financing and decreasing demand for homes[275] - The company has experienced significant increases in land, labor, materials, and construction costs, and may be unable to raise sales prices sufficiently to offset these, leading to decreased profit margins[92][275] Critical Accounting Policies and Estimates LGI Homes' financial statements rely on critical accounting policies and estimates for revenue recognition, inventory valuation, warranty reserves, business acquisitions, and income taxes - Home sales revenue is recognized when control of the completed home is transferred to the customer at closing[277] - Real estate inventory is stated at cost, including capitalized land, development, and construction costs, and is evaluated for impairment each reporting period[278][279][282] - Warranty reserves are accrued and charged to cost of sales based on historical warranty cost experience, adjusted for qualitative risks and expansion impacts[287][288] - Business acquisitions are accounted for using the acquisition method, requiring significant estimates for fair value of acquired assets, particularly real estate inventory[290] - Income taxes are accounted for using the liability method, recognizing deferred tax assets and liabilities, and requiring judgment in evaluating tax positions[291] Quantitative and Qualitative Disclosures About Market Risk LGI Homes is exposed to interest rate risk, impacting housing demand and financing costs, with a hypothetical 100 basis point increase in variable rates raising annual interest costs by $5.7 million - The company's operations are sensitive to interest rate fluctuations, which can adversely affect housing demand and financing costs[293] - LGI Homes utilizes both fixed-rate debt (Senior Notes) and variable-rate debt (Credit Agreement) for financing[294] - As of December 31, 2023, the company had $569.6 million in variable-rate indebtedness under the Credit Agreement, bearing interest at SOFR plus 1.85%[296] - A hypothetical 100 basis point increase in the average interest rate above the SOFR floor would increase annual interest costs by approximately $5.7 million[296] Financial Statements and Supplementary Data This section presents LGI Homes' audited consolidated financial statements for 2021-2023, including the independent auditor's report and detailed notes on accounting policies and financial components REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM This section contains the independent auditor's report on the consolidated financial statements and internal control over financial reporting - Ernst & Young LLP issued an unqualified opinion on the consolidated financial statements for the period ended December 31, 2023, and on the effectiveness of internal control over financial reporting[300][301] - The critical audit matter identified was the measurement of land development costs, due to significant estimation required for costs to complete, project schedules, and labor/material costs[306] CONSOLIDATED BALANCE SHEETS This section presents the company's consolidated balance sheets as of December 31, 2023, and December 31, 2022 Consolidated Balance Sheets (in thousands) | Asset/Liability/Equity | December 31, 2023 | December 31, 2022 | | :------------------------------------ | :------------------ | :------------------ | | ASSETS | | | | Cash and cash equivalents | $48,978 | $31,998 | | Accounts receivable | $41,319 | $25,143 | | Real estate inventory | $3,107,648 | $2,898,296 | | Pre-acquisition costs and deposits | $30,354 | $25,031 | | Property and equipment, net | $45,522 | $32,997 | | Other assets | $113,849 | $93,159 | | Deferred tax assets, net | $8,163 | $6,186 | | Goodwill | $12,018 | $12,018 | | Total assets | $3,407,851 | $3,124,828 | | LIABILITIES AND EQUITY | | | | Accounts payable | $31,616 | $25,287 | | Accrued expenses and other liabilities | $271,872 | $340,128 | | Notes payable | $1,248,332 | $1,117,001 | | Total liabilities | $1,551,820 | $1,482,416 | | Common stock | $275 | $272 | | Additional paid-in capital | $321,062 | $306,673 | | Retained earnings | $1,889,716 | $1,690,489 | | Treasury stock | ($355,022) | ($355,022) | | Total equity | $1,856,031 | $1,642,412 | | Total liabilities and equity | $3,407,851 | $3,124,828 | CONSOLIDATED STATEMENTS OF OPERATIONS This section presents the company's consolidated statements of operations for the years ended December 31, 2023, 2022, and 2021 Consolidated Statements of Operations (in thousands) | Metric | 2023 | 2022 | 2021 | | :-------------------------- | :----------- | :----------- | :----------- | | Home sales revenues | $2,358,580 | $2,304,455 | $3,050,149 | | Cost of sales | $1,816,393 | $1,657,855 | $2,232,115 | | Selling expenses | $191,582 | $144,928 | $170,005 | | General and administrative | $117,350 | $111,565 | $100,331 | | Operating income | $233,255 | $390,107 | $547,698 | | Loss on extinguishment of debt | — | — | $13,976 | | Other income, net | ($28,499) | ($28,009) | ($9,053) | | Net income before income taxes | $261,754 | $418,116 | $542,775 | | Income tax provision | $62,527 | $91,549 | $113,130 | | Net income | $199,227 | $326,567 | $429,645 | | Basic earnings per share | $8.48 | $13.90 | $17.46 | | Diluted earnings per share | $8.42 | $13.76 | $17.25 | | Weighted average shares outstanding (Basic) | 23,507,136 | 23,486,465 | 24,607,231 | | Weighted average shares outstanding (Diluted) | 23,648,548 | 23,730,770 | 24,908,991 | CONSOLIDATED STATEMENTS OF EQUITY This section presents the company's consolidated statements of equity for the years ended December 31, 2020, 2021, 2022, and 2023 Consolidated Statements of Equity (in thousands) | Metric | Dec 31, 2020 | Dec 31, 2021 | Dec 31, 2022 | Dec 31, 2023 | | :------------------------------------ | :----------- | :----------- | :----------- | :----------- | | Total Equity | $1,139,005 | $1,395,848 | $1,642,412 | $1,856,031 | | Net income | | $429,645 | $326,567 | $199,227 | | Stock repurchase | ($193,783) | ($95,102) | — | | Compensation expense for equity awards | $13,595 | $9,188 | $8,926 | | Stock issued under employee incentive plans | $7,114 | $5,617 | $5,260 | CONSOLIDATED STATEMENTS OF CASH FLOWS This section presents the company's consolidated statements of cash flows for the years ended December 31, 2023, 2022, and 2021 Consolidated Statements of Cash Flows (in thousands) | Activity | 2023 | 2022 | 2021 | | :------------------------------------ | :----------- | :----------- | :----------- | | Net cash provided by (used in) operating activities | ($56,968) | ($370,451) | $21,700 | | Net cash used in investing activities | ($13,648) | ($5,968) | ($70,391) | | Net cash provided by financing activities | $87,596 | $357,903 | $63,263 | | Net increase (decrease) in cash and cash equivalents | $16,980 | ($18,516) | $14,572 | | Cash and cash equivalents, end of year | $48,978 | $31,998 | $50,514 | NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS This section provides detailed notes to the consolidated financial statements, explaining significant accounting policies and financial disclosures 1. ORGANIZATION AND BUSINESS This note describes LGI Homes' corporate structure, business activities, and recent acquisitions - LGI Homes, Inc. is a Delaware corporation headquartered in The Woodlands, Texas, engaged in community development, design, construction, and sale of new homes across 21 states[322] - In 2021, the company acquired real estate assets from KenRoe Inc. and Buffington Homebuilding Group, Ltd., expanding its presence in Minnesota and Austin, Texas, respectively[323][324] 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines the significant accounting policies and estimates used in preparing the company's financial statements - Financial statements are prepared in accordance with GAAP, requiring management estimates for land development costs, inventory impairment, warranty reserves, and income taxes[325][326] - Real estate inventory is stated at cost, including capitalized land, development, and construction costs, and is written down to fair value if not recoverable; no impairment charges were recorded in 2021-2023[329][330][334] - The company uses land banking financing arrangements, where assets are held as 'real estate not owned' with a corresponding obligation, to acquire finished lots in staged takedowns[332] - Goodwill, related to the 2013 IPO, is not amortized but assessed for impairment annually using a qualitative test; no impairment charges were recorded in 2021-2023[345] - Revenue from home sales is recognized when control is transferred at closing, and warranty costs are accrued and charged to cost of sales based on historical experience[346][349] - Recently issued ASUs 2023-09 (Income Tax Disclosures) and 2023-07 (Segment Reporting) are being evaluated for their impact on future financial statements[357][358] 3. REAL ESTATE INVENTORY This note provides a breakdown of the company's real estate inventory, including owned and not owned categories Real Estate Inventory (in thousands) | Category | December 31, 2023 | December 31, 2022 | | :------------------------------------ | :------------------ | :------------------ | | Land, land under development, and finished lots | $2,099,133 | $1,911,307 | | Information centers | $47,936 | $35,074 | | Homes in progress | $313,124 | $287,069 | | Completed homes | $542,996 | $523,054 | | Total owned inventory | $3,003,189 | $2,756,504 | | Real estate not owned | $104,459 | $141,792 | | Total real estate inventory | $3,107,648 | $2,898,296 | - Real estate not owned relates to land banking financing arrangements, where the company repurchases land sold to a third-party land banker to acquire finished lots in staged takedowns[359] 4. PROPERTY AND EQUIPMENT This note details the company's property and equipment, net, including categories and depreciation expense Property and Equipment, Net (in thousands) | Category | December 31, 2023 | December 31, 2022 | | :-------------------------- | :------------------ | :------------------ | | Rental properties | $43,324 | $29,833 | | Computer software and equipment | $3,946 | $3,894 | | Leasehold improvements | $1,722 | $1,466 | | Furniture and fixtures | $2,091 | $1,060 | | Machinery and equipment | $231 | $127 | | Total property and equipment | $51,314 | $36,380 | | Less: Accumulated depreciation | ($5,792) | ($3,383) | | Property and equipment, net | $45,522 | $32,997 | - In 2023, $13.5 million of home assets were transferred from real estate inventory to rental properties[361] - Depreciation expense was $2.4 million in 2023, up from $1.6 million in 2022 and $1.1 million in 2021[362] 5. ACCRUED EXPENSES AND OTHER LIABILITIES This note provides a detailed breakdown of the company's accrued expenses and other liabilities Accrued Expenses and Other Liabilities (in thousands) | Category | December 31, 2023 | December 31, 2022 | | :------------------------------------ | :------------------ | :------------------ | | Land banking financing arrangements | $104,459 | $141,792 | | Real estate inventory development and construction payable | $71,193 | $73,678 | | Accrued compensation, bonuses and benefits | $22,550 | $12,900 | | Taxes payable | $14,694 | $47,037 | | Warranty reserve | $13,600 | $10,750 | | Accrued interest | $13,522 | $10,906 | | Inventory related obligations | $11,924 | $13,039 | | Lease liability | $4,947 | $5,182 | | Contract deposits | $2,909 | $5,545 | | Other | $12,074 | $19,299 | | Total accrued expenses and other liabilities | $271,872 | $340,128 | - Land banking financing arrangements decreased from $141.8 million in 2022 to $104.5 million in 2023, with principal payments generally coinciding with lot repurchases over 1-3 years[363][364] - Warranty reserves increased to $13.6 million in 2023 from $10.8 million in 2022, reflecting a provision of $8.5 million and expenditures of $5.7 million[363][366] 6. NOTES PAYABLE This note details the company's notes payable, including its revolving credit facility and senior notes - The company's revolving credit facility is $1.205 billion, maturing in part on April 28, 2025 (20.3%) and April 28, 2028 (79.7%)[367] - As of December 31, 2023, borrowings under the Credit Agreement totaled $569.6 million, with $354.8 million available to borrow[369] - The company issued $400.0 million of 8.750% Senior Notes due December 15, 2028, in November 2023, and has $300.0 million of 4.000% Senior Notes due July 15, 2029[372][374] Notes Payable (in thousands) | Category | December 31, 2023 | December 31, 2022 | | :------------------------------------ | :------------------ | :------------------ | | Credit Agreement borrowings | $569,633 | $828,350 | | 4.000% Senior Notes due 2029 | $300,000 | $300,000 | | 8.750% Senior Notes due 2028 | $400,000 | — | | Net debt issuance costs | ($21,301) | ($11,349) | | Total notes payable | $1,248,332 | $1,117,001 | - Interest incurred was $87.6 million in 2023, all of which was capitalized to inventory[377] 7. INCOME TAXES This note provides information on the company's income tax provision and deferred tax assets and liabilities Provision for Income Taxes (in thousands) | Category | 2023 | 2022 | 2021 | | :-------------------------- | :----------- | :----------- | :----------- | | Current tax provision | $64,505 | $91,537 | $112,342 | | Deferred tax provision (benefit) | ($1,978) | $12 | $788 | | Total income tax provision | $62,527 | $91,549 | $113,130 | | Income taxes paid | $96,500 | $56,900 | $127,900 | - The effective tax rate increased to 23.9% in 2023 from 21.9% in 2022, primarily due to higher state income taxes and compensation limitations, partially offset by share-based payment deductions and federal energy efficient homes tax credits[229][379] Net Deferred Tax Assets (in thousands) | Category | December 31, 2023 | December 31, 2022 | | :------------------------------------ | :------------------ | :------------------ | | Total deferred tax assets | $12,962 | $10,816 | | Total deferred tax liabilities | ($4,799) | ($4,630) | | Total net deferred tax assets | $8,163 | $6,186 | 8. EQUITY This note details the company's equity structure, including common stock, treasury stock, stock repurchase program, and earnings per share - As of December 31, 2023, LGI Homes had 27,521,120 shares of common stock issued and 23,581,648 shares outstanding, including 3,939,472 treasury shares[384] - The company has a stock repurchase program with $211.5 million remaining as of December 31, 2023, with no shares repurchased in 2023[385][386] Earnings Per Share Calculation | Metric | 2023 | 2022 | 2021 | | :------------------------------------ | :----------- | :----------- | :----------- | | Net income (Numerator) | $199,227 | $326,567 | $429,645 | | Basic weighted average shares outstanding | 23,507,136 | 23,486,465 | 24,607,231 | | Diluted weighted average shares outstanding | 23,648,548 | 23,730,770 | 24,908,991 | | Basic earnings per share | $8.48 | $13.90 | $17.46 | | Diluted earnings per share | $8.42 | $13.76 | $17.25 | 9. STOCK-BASED COMPENSATION This note describes the company's stock-based compensation plans, including Restricted Stock Units (RSUs) and the Employee Stock Purchase Plan (ESPP) - LGI Homes has non-performance-based Restricted Stock Units (RSUs) and performance-based RSUs (PSUs) under its 2013 Equity Incentive Plan[389][392] - In 2023, $4.9 million in stock-based compensation expense was recognized for RSUs, with $7.8 million unrecognized compensation cost remaining[391] - For PSUs, management estimates recipients will receive 101%, 0%, and 83.2% of target for the 2023, 2022, and 2021 cycles, respectively, with $2.9 million in expense recognized in 2023 and $6.2 million unrecognized[394] - The Employee Stock Purchase Plan (ESPP) allows employees to purchase stock at a 15% discount; in 2023, 53,078 shares were issued, generating $5.3 million in net proceeds, and $0.9 million in compensation expense was recognized[395] 10. FAIR VALUE DISCLOSURES This note explains the company's fair value measurements for financial instruments and nonrecurring items, using a three-level hierarchy - Fair value measurements are used for certain financial instruments and nonrecurring items like asset impairments, following a three-level hierarchy (Level 1: quoted prices, Level 2: observable inputs, Level 3: unobservable inputs)[397][398][399][400] - The fair value of the 2029 Senior Notes ($300.0 million carrying value) was $296.4 million, and the 2028 Senior Notes ($400.0 million carrying value) was $486.3 million as of December 31, 2023, both classified as Level 2 measurements[401] 11. RELATED PARTY TRANSACTIONS This note discloses related party transactions, including land purchase contracts in prior years - No related party transactions were entered into or completed during the years ended December 31, 2023 and 2022[402] - In 2021, the company completed land purchase contracts totaling $6.5 million from affiliates of a director and a family member of the CEO[402][403] 12. RETIREMENT BENEFITS This note describes the company's 401(k) savings plan and matching contributions - Employees are eligible to participate in a 401(k) savings plan with a discretionary company match of up to 100% of the first 4% of deferrals[404] - Company matching contributions were $4.4 million in 2023, $4.5 million in 2022, and $4.6 million in 2021[405] 13. COMMITMENTS AND CONTINGENCIES This note outlines the company's commitments and contingencies, including legal claims, land purchase contracts, operating leases, and letters of credit - The company is subject to ordinary course claims and proceedings, including environmental indemnities, which management believes will not materially affect financial results[406][407] - As of December 31, 2023, land purchase contracts involved $27.0 million in cash deposits for 15,750 lots, with an aggregate purchase price of $513.9 million[254][408] - Operating lease liabilities were $4.9 million as of December 31, 2023, with a weighted-average remaining life of 2.6 years[410][411] - Outstanding letters of credit and performance/surety bonds totaled $357.0 million as of December 31, 2023, for site improvements[264][413] - Investments in unconsolidated entities (land joint venture, mortgage, and insurance) totaled $21.5 million as of December 31, 2023, generating $12.8 million in income for the year[414] 14. REVENUES This note details the company's home sales revenue recognition policy and provides a breakdown of revenues by stream and geography - Revenues from home sales are recognized when control of the completed home is transferred to the customer at closing[415] Home Sales Revenues by Stream (in thousands) | Revenue Stream | 2023 | 2022 | 2021 | | :----------------------- | :----------- | :----------- | :----------- | | Retail home sales revenues | $2,156,237 | $1,963,896 | $2,700,866 | | Wholesale home sales revenues | $202,343 | $340,559 | $349,283 | | Total home sales revenues | $2,358,580 | $2,304,455 | $3,050,149 | Home Sales Revenues by Geography (in thousands) | Segment | 2023 | 2022 | 2021 | | :-------- | :----------- | :----------- | :----------- | | Central | $730,688 | $1,011,844 | $1,252,782 | | Southeast | $556,808 | $455,340 | $594,742 | | Northwest | $251,171 | $253,416 | $510,497 | | West | $381,102 | $300,968 | $351,219 | | Florida | $438,811 | $282,887 | $340,909 | | Total home sales revenues | $2,358,580 | $2,304,455 | $3,050,149 | 15. SEGMENT INFORMATION This note provides financial information by operating segment, including home sales revenues, net income (loss) before income taxes, and total assets - LGI Homes operates seven operating segments aggregated into five reportable segments: Central, Southeast, Northwest, West, and Florida[423] - The Central division is the largest, comprising approximately 31.0% of total home sales revenues in 2023[423] Net Income (Loss) Before Income Taxes by Segment (in thousands) | Segment | 2023 | 2022 | 2021 | | :-------- | :----------- | :----------- | :----------- | | Central | $87,246 | $213,151 | $242,615 | | Southeast | $79,721 | $88,382 | $105,572 | | Northwest | $23,900 | $51,006 | $115,002 | | West | $29,543 | $26,643 | $50,809 | | Florida | $48,862 | $37,786 | $49,927 | | Corporate | ($7,518) | $1,148 | ($21,150) | | Total net income before income taxes | $261,754 | $418,116 | $542,775 | Total Assets by Segment (in thousands) | Segment | December 31, 2023 | December 31, 2022 | | :-------- | :------------------ | :------------------ | | Central | $1,026,303 | $986,779 | | Southeast | $664,877 | $633,542 | | Northwest | $528,319 | $485,086 | | West | $671,558 | $599,714 | | Florida | $420,286 | $334,824 | | Corporate | $96,508 | $84,883 | | Total assets | $3,407,851 | $3,124,828 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There have been no changes in or disagreements with accountants on accounting and financial disclosure matters - There are no changes in or disagreements with accountants on accounting and financial disclosure[429] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2023, with no material changes during the year - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of December 31, 2023[430] - Management assessed and concluded that the company's internal control over financial reporting was effective as of December 31, 2023, based on the 2013 COSO framework[432] - Ernst & Young LLP issued an unqualified attestation report on the effectiveness of the company's internal control over financial reporting[434][438] - No material changes in internal control over financial reporting occurred during the year ended December 31, 2023[435] Other Information No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the three months ended December 31, 2023 - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the three months ended December 31, 2023[446] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to LGI Homes, Inc - Disclosure regarding foreign jurisdictions that prevent inspections is not applicable[447] PART III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the 2024 Proxy Statement - Information for this item is incorporated by reference from the definitive Proxy Statement for the 2024 Annual Meeting of Stockholders[450] Executive Compensation Information on executive compensation is incorporated by reference from the 2024 Proxy Statement - Information for this item is incorporated by reference from the definitive Proxy Statement for the 2024 Annual Meeting of Stockholders[451] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information on security ownership and related stockholder matters is incorporated by reference from the 2024 Proxy Statement - Information for this item is incorporated by reference from the definitive Proxy Statement for the 2024 Annual Meeting of Stockholders[452] Certain Relationships and Related Transactions, and Director Independence Information on certain relationships, related transactions, and director independence is incorporated by reference from the 2024 Proxy Statement - Information for this item is incorporated by reference from the definitive Proxy Statement for the 2024 Annual Meeting of Stockholders[453] Principal Accounting Fees and Services Information on principal accounting fees and services is incorporated by reference from the 2024 Proxy Statement - Information for this item is incorporated by reference from the definitive Proxy Statement for the 2024 Annual Meeting of Stockholders[454] PART IV Exhibits and Financial Statement Schedules This section lists consolidated financial statements, confirms the omission of schedules, and provides an index of exhibits filed or furnished - The consolidated financial statements, including the independent auditor's report, are filed as part of this report[457] - All financial statement schedules are omitted because the required information is either not present or included in the financial statements and related notes[458] - An index of exhibits, including management contracts and compensatory plans, is provided[460] Form 10-K Summary This item indicates that no Form 10-K Summary is provided - No Form 10-K Summary is included in this report[465] SIGNATURES This section contains the required signatures for the Form 10-K report, affirming its submission by the Chief Executive Officer, Chief Financial Officer, and Board of Directors - The report is signed by the Chief Executive Officer and Chairman of the Board, Eric Lipar, and the Chief Financial Officer and Treasurer, Charles Merdian, along with other directors, on February 20, 2024[469][470]