LGI Homes(LGIH) - 2021 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Consolidated Financial Statements (Unaudited) Presents LGI Homes, Inc.'s unaudited consolidated financial statements for Q2 and H1 2021, covering balance sheets, operations, equity, and cash flows Consolidated Balance Sheets Total assets increased to $2.06 billion by June 30, 2021, driven by cash and real estate inventory, with liabilities and equity also rising Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $111,704 | $35,942 | | Real estate inventory | $1,750,860 | $1,569,489 | | Total assets | $2,058,837 | $1,826,087 | | Liabilities & Equity | | | | Notes payable | $583,656 | $538,398 | | Total liabilities | $772,431 | $687,082 | | Total equity | $1,286,406 | $1,139,005 | Consolidated Statements of Operations Home sales revenues surged to $791.5 million in Q2 2021, driving net income to $118.1 million, with strong growth continuing into H1 Statement of Operations Summary (in thousands, except per share data) | Metric | Q2 2021 | Q2 2020 | H1 2021 | H1 2020 | | :--- | :--- | :--- | :--- | :--- | | Home sales revenues | $791,512 | $481,602 | $1,497,465 | $936,329 | | Operating income | $146,007 | $67,834 | $268,450 | $121,712 | | Net income | $118,134 | $55,624 | $217,792 | $98,463 | | Diluted EPS | $4.71 | $2.21 | $8.66 | $3.88 | Consolidated Statements of Equity Total equity increased to $1.29 billion by June 30, 2021, driven by $217.8 million in net income, partially offset by stock repurchases - Key changes in equity for the six months ended June 30, 2021 include net income of $217.8 million ($99.7M in Q1 and $118.1M in Q2) and stock repurchases totaling $81.6 million ($25.8M in Q1 and $55.8M in Q2)[18] Consolidated Statements of Cash Flows Net cash increased by $75.8 million in H1 2021, driven by operating activities, partially offset by investing and financing outflows Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $139,852 | $146,072 | | Net cash used in investing activities | ($29,763) | ($1,685) | | Net cash used in financing activities | ($34,327) | ($133,630) | | Net increase in cash | $75,762 | $10,757 | | Cash and cash equivalents, end of period | $111,704 | $49,102 | Notes to the Consolidated Financial Statements Provides detailed information supporting financial statements, covering revenue recognition, inventory, debt, stock compensation, segment reporting, and subsequent events Home Sales Revenues by Stream (in thousands) | Revenue Stream | Q2 2021 | Q2 2020 | H1 2021 | H1 2020 | | :--- | :--- | :--- | :--- | :--- | | Retail home sales | $696,826 | $443,507 | $1,340,398 | $853,909 | | Wholesale home sales | $94,686 | $38,095 | $157,067 | $82,420 | | Total | $791,512 | $481,602 | $1,497,465 | $936,329 | Real Estate Inventory (in thousands) | Category | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Land, land under development and finished lots | $1,105,388 | $981,838 | | Homes in progress | $554,012 | $337,364 | | Completed homes | $62,258 | $220,086 | | Total | $1,750,860 | $1,569,489 | - On May 6, 2021, the company acquired real estate assets from KenRoe Inc. for approximately $27.3 million in cash, expanding its presence in the Minneapolis market with about 100 homes under construction and over 3,000 owned and controlled lots[40] - Subsequent to the quarter end, on July 15, 2021, the company redeemed all outstanding 6.875% Senior Notes due 2026. On July 14, 2021, it acquired assets from Buffington Homebuilding Group in Austin, TX for approximately $40.0 million[86][87] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strong Q2 and H1 2021 financial performance, highlighting significant growth in revenues, net income, and home closings, driven by strong demand Key Results The company reported substantial year-over-year growth in Q2 and H1 2021, with Q2 home sales revenues up 64.3% and net income up 112.4% Q2 2021 vs Q2 2020 Performance | Metric | Q2 2021 | Q2 2020 | % Change | | :--- | :--- | :--- | :--- | | Home sales revenues | $791.5M | $481.6M | +64.3% | | Homes closed | 2,856 | 2,005 | +42.4% | | Average sales price | $277,140 | $240,200 | +15.4% | | Net income | $118.1M | $55.6M | +112.4% | H1 2021 vs H1 2020 Performance | Metric | H1 2021 | H1 2020 | % Change | | :--- | :--- | :--- | :--- | | Home sales revenues | $1.5B | $936.3M | +59.9% | | Homes closed | 5,417 | 3,840 | +41.1% | | Average sales price | $276,438 | $243,836 | +13.4% | | Net income | $217.8M | $98.5M | +121.2% | Results of Operations Strong performance driven by demand and pricing, with Q2 2021 home sales revenue up 64.3% and gross margin expanding to 27.0%, achieving operating leverage - For Q2 2021, home sales revenue increased 64.3% YoY, driven by a 42.4% increase in homes closed and a 15.4% increase in average sales price. Gross margin percentage rose to 27.0% from 24.5% due to price increases outpacing input cost rises[108][111] - For H1 2021, home sales revenue increased 59.9% YoY, driven by a 41.1% increase in homes closed and a 13.4% increase in average sales price. Gross margin percentage improved to 27.0% from 24.0%[118][121] - Selling, General & Administrative (SG&A) expenses decreased as a percentage of home sales revenues due to operating leverage from higher revenues. For Q2 2021, selling expenses were 5.7% of revenue (vs. 6.2% in Q2 2020) and G&A was 2.9% (vs. 4.2%)[112][113] Non-GAAP Measures The company uses non-GAAP measures like Adjusted Gross Margin and EBITDA, with Q2 2021 Adjusted Gross Margin at 28.5% and Adjusted EBITDA margin at 20.0% Reconciliation of Adjusted Gross Margin (in thousands) | | Q2 2021 | Q2 2020 | H1 2021 | H1 2020 | | :--- | :--- | :--- | :--- | :--- | | Gross margin | $214,079 | $117,973 | $404,028 | $224,537 | | Capitalized interest | $10,442 | $8,684 | $21,115 | $17,614 | | Purchase accounting adj. | $1,446 | $1,252 | $2,258 | $1,875 | | Adjusted gross margin | $225,967 | $127,909 | $427,401 | $244,026 | | Adjusted gross margin % | 28.5% | 26.6% | 28.5% | 26.1% | Reconciliation of Adjusted EBITDA (in thousands) | | Q2 2021 | Q2 2020 | H1 2021 | H1 2020 | | :--- | :--- | :--- | :--- | :--- | | Net income | $118,134 | $55,624 | $217,792 | $98,463 | | Adjustments | $40,010 | $22,302 | $74,568 | $43,055 | | Adjusted EBITDA | $158,144 | $77,926 | $292,360 | $141,518 | | Adjusted EBITDA margin % | 20.0% | 16.2% | 19.5% | 15.1% | Backlog and Land Inventory Ending backlog more than doubled to $1.43 billion by June 30, 2021, with cancellation rate improving to 14.8%, and total owned/controlled lots reaching 75,910 Backlog Data | Metric | As of June 30, 2021 | As of June 30, 2020 | | :--- | :--- | :--- | | Net orders (H1) | 7,254 | 4,734 | | Cancellation rate (H1) | 14.8% | 21.8% | | Ending backlog – homes | 4,801 | 2,127 | | Ending backlog – value | $1,434,382,000 | $558,007,000 | Owned and Controlled Lots by Segment (as of June 30, 2021) | Reportable Segment | Owned | Controlled | Total | | :--- | :--- | :--- | :--- | | Central | 19,110 | 13,529 | 32,639 | | Southeast | 11,944 | 7,201 | 19,145 | | Northwest | 3,685 | 4,899 | 8,584 | | West | 4,942 | 4,776 | 9,718 | | Florida | 2,811 | 3,013 | 5,824 | | Total | 42,492 | 33,418 | 75,910 | Liquidity and Capital Resources The company maintained strong liquidity with $111.7 million cash and $714.5 million available credit, issuing new senior notes and repurchasing common stock - On April 28, 2021, the company amended its credit agreement, increasing commitments to $850.0 million, extending the maturity to 2025, and reducing the applicable margin for LIBOR loans[152] - On June 28, 2021, the company issued $300.0 million of 4.000% Senior Notes due 2029. The proceeds were used to redeem all outstanding $300.0 million of 6.875% Senior Notes due 2026 in July 2021[156][159] - During the six months ended June 30, 2021, the company repurchased 551,221 shares of its common stock for $81.6 million. As of June 30, 2021, $218.8 million remained available under the stock repurchase program[162] Quantitative and Qualitative Disclosures About Market Risk Primary market risk is interest rate sensitivity, with minimal variable-rate debt outstanding, and a hypothetical 100 basis point rate increase having an immaterial impact - The company is exposed to interest rate risk on its variable-rate debt under the Credit Agreement. As of June 30, 2021, only $0.3 million of variable rate debt was outstanding[185] - A hypothetical 100 basis point increase in the average interest rate above the 0.50% LIBOR floor would increase annual interest cost by approximately $0.0 million, indicating minimal current exposure on outstanding balances[185] Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of June 30, 2021, with no material changes to internal control over financial reporting - The CEO and CFO concluded that as of June 30, 2021, the company's disclosure controls and procedures were effective[188] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal controls[191] PART II - OTHER INFORMATION Risk Factors No material changes to the risk factors previously disclosed in the company's 2020 Annual Report on Form 10-K - There have been no material changes to the risk factors disclosed in the company's 2020 Form 10-K[193] Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2021, the company repurchased 335,000 shares for $55.8 million, with $218.8 million remaining available under the repurchase program Common Stock Repurchases (Q2 2021) | Period | Total Shares Purchased | Average Price Paid Per Share | Value of Shares Remaining for Purchase (end of period) | | :--- | :--- | :--- | :--- | | May 2021 | 160,000 | $172.76 | $246,943,000 | | June 2021 | 175,000 | $160.77 | $218,809,000 | | Total Q2 | 335,000 | $166.50 | $218,809,000 | Exhibits This section lists exhibits filed with Form 10-Q, including CEO and CFO certifications and incorporated by reference documents - Key exhibits filed include CEO and CFO certifications (31.1, 31.2, 32.1, 32.2) and XBRL data files. The Third Supplemental Indenture for the 4.000% Senior Notes and the Fifth Amended and Restated Credit Agreement were incorporated by reference[198]