LGI Homes(LGIH) - 2023 Q2 - Quarterly Report

PART I Item 1. Consolidated Financial Statements (Unaudited) This section presents LGI Homes, Inc.'s unaudited consolidated financial statements, including balance sheets, operations, equity, and cash flows, for the periods ended June 30, 2023 Consolidated Balance Sheets As of June 30, 2023, total assets increased slightly to $3.14 billion, while total liabilities decreased to $1.41 billion, leading to an increase in total equity to $1.73 billion Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $43.3M | $32.0M | | Real estate inventory | $2.89B | $2.90B | | Total assets | $3.14B | $3.12B | | Notes payable | $1.05B | $1.12B | | Total liabilities | $1.41B | $1.48B | | Total equity | $1.73B | $1.64B | Consolidated Statements of Operations LGI Homes reported a significant decline in Q2 2023 profitability, with home sales revenues decreasing by 10.8% to $645.3 million and net income falling 56.9% to $53.1 million Quarterly Performance (Three Months Ended June 30, in millions) | Metric | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Home sales revenues | $645.3M | $723.1M | -10.8% | | Operating income | $65.1M | $159.0M | -59.1% | | Net income | $53.1M | $123.4M | -56.9% | | Diluted EPS | $2.25 | $5.20 | -56.7% | Year-to-Date Performance (Six Months Ended June 30, in millions) | Metric | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Home sales revenues | $1.13B | $1.27B | -10.8% | | Operating income | $91.1M | $254.7M | -64.2% | | Net income | $80.1M | $202.1M | -60.4% | | Diluted EPS | $3.39 | $8.43 | -59.8% | Consolidated Statements of Equity Total equity increased to $1.73 billion as of June 30, 2023, primarily driven by $80.1 million in net income, with no stock repurchases in the first half of 2023 - Total equity grew to $1.73 billion at June 30, 2023, up from $1.64 billion at December 31, 2022, mainly due to retained earnings from net income[18] - The company did not repurchase any stock in the first six months of 2023, in contrast to $95.1 million in repurchases during the same period in 2022[22][51] Consolidated Statements of Cash Flows For the six months ended June 30, 2023, the company generated $92.8 million in cash from operating activities, a significant reversal from the $263.3 million used in the prior year, resulting in a net cash increase of $11.3 million Cash Flow Summary (Six Months Ended June 30, in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash from operating activities | $92.8M | ($263.3M) | | Net cash used in investing activities | ($6.8M) | ($2.5M) | | Net cash (used in) provided by financing activities | ($74.7M) | $257.2M | | Net increase (decrease) in cash | $11.3M | ($8.5M) | | Cash and cash equivalents, end of period | $43.3M | $42.0M | Notes to the Consolidated Financial Statements The notes detail accounting policies and key financial items, including $2.9 billion in real estate inventory, $1.05 billion in notes payable, and segment performance, with no stock repurchases in 2023 Real Estate Inventory Breakdown (in thousands) | Category | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Land, land under development and finished lots | $1.93B | $1.91B | | Homes in progress | $508.8M | $287.1M | | Completed homes | $270.4M | $523.1M | | Total owned inventory | $2.75B | $2.76B | - As of June 30, 2023, total notes payable amounted to $1.05 billion, comprising $768.1 million under its revolving credit facility and $300.0 million in 4.000% Senior Notes due 2029[44] - The company did not repurchase any common stock during the first six months of 2023, with $211.5 million remaining available under the authorized program as of June 30, 2023[51] Segment Revenues (in thousands) | Segment | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | Central | $230.6M | $316.7M | $381.0M | $579.0M | | Southeast | $143.6M | $117.6M | $248.0M | $190.0M | | Northwest | $70.4M | $70.8M | $145.2M | $173.7M | | West | $82.7M | $124.0M | $161.6M | $179.5M | | Florida | $117.9M | $94.1M | $196.8M | $146.9M | | Total | $645.3M | $723.1M | $1.13B | $1.27B | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q2 2023 performance to demand recovery strategies, despite year-over-year declines in home closings and revenues, and a significant gross margin compression from 32.0% to 22.0% - The company attributes Q2 2023 performance to strategies offsetting affordability pressures, including mortgage buy-down programs and a pivot to smaller, lower-priced homes[82] Key Financial Results (Three Months Ended June 30, in millions) | Metric | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Home sales revenues | $645.3M | $723.1M | -10.8% | | Homes closed | 1,854 | 2,027 | -8.5% | | Average sales price | $348,042 | $356,719 | -2.4% | | Gross margin % | 22.0% | 32.0% | -10.0 p.p. | | Net income | $53.1M | $123.4M | -56.9% | - Gross margin as a percentage of home sales revenues decreased to 22.0% for Q2 2023 from 32.0% in Q2 2022, primarily due to higher costs and sales incentives[99] - The number of homes in backlog increased by 29.4% to 1,638 homes at June 30, 2023, compared to 1,266 homes at June 30, 2022[130][131] - As of June 30, 2023, the company maintained strong liquidity with $43.3 million in cash and $341.4 million available under its credit facility[141][149] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate sensitivity on its $768.1 million variable-rate debt, where a 100 basis point increase would raise annual interest costs by $7.7 million - The company is exposed to interest rate risk on its $768.1 million of variable rate debt outstanding under the Credit Agreement[172] - A hypothetical 100 basis point increase in the average interest rate on variable rate debt would increase annual interest costs by approximately $7.7 million[172] - The company also holds $300.0 million in fixed-rate 2029 Senior Notes, which helps mitigate interest rate risk[170] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[174] - No material changes to the company's internal control over financial reporting occurred during the second quarter of 2023[178] PART II Item 1A. Risk Factors A new material risk factor addresses potential adverse effects from financial industry turmoil and bank failures on the company's liquidity and credit facility availability - A new risk factor addresses potential adverse effects from financial industry turmoil, including bank failures observed in the first half of 2023[180] - The failure of a bank participating in the company's Credit Agreement could reduce available borrowing capacity, as non-defaulting lenders are not obligated to cover a defaulting lender's commitment[180] Item 5. Other Information No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the second quarter of 2023 - No director or officer adopted or terminated a Rule 10b5-1 trading plan during the three months ended June 30, 2023[181] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL data files - The report includes CEO and CFO certifications as required by Sections 302 and 906 of the Sarbanes-Oxley Act[184] Signatures - The report was duly signed on August 1, 2023, by Eric Lipar, CEO and Chairman, and Charles Merdian, CFO and Treasurer[187][188]