LGI Homes(LGIH) - 2024 Q1 - Quarterly Results

First Quarter 2024 Financial and Operational Review LGI Homes reported mixed Q1 2024 results, with decreased closings but strong demand, expanding communities, and maintained margins, alongside detailed financial statements and segment performance First Quarter 2024 Highlights LGI Homes reported mixed results for Q1 2024, with a decrease in home closings but positive trends in demand, sales, and an expansion of active communities, while successfully maintaining its gross and adjusted gross margins Management Commentary Management highlights strong demand, expanding community count, and maintained margins despite fewer closings, with positive trends continuing into April - Despite fewer closings, positive lead and sales trends, an expanding community count, and maintained margins signal healthy demand, bolstered by strong demographics and limited affordable home supply[5] - Demand significantly improved each month during the quarter, resulting in 1,335 homes in backlog by quarter-end[6] - Gross margin increased by 310 basis points year-over-year to 23.4%, and adjusted gross margin rose by 320 basis points year-over-year (20 basis points sequentially) to 25.3%[7] - The company concluded the quarter with a record 120 active communities, representing a 21.2% increase over the prior year[8] - Positive demand trends persisted into April, yielding over 800 net sales in each of the last two months and an absorption pace of six homes per community per month[8] Key Financial and Operational Metrics This section presents a summary of LGI Homes' key financial and operational performance indicators for the first quarter of 2024 First Quarter 2024 Key Financial and Operational Metrics | Metric | Value | | :------------------------------------- | :------------------- | | Home sales revenues | $390.9 million | | Home closings | 1,083 | | Average sales price per home closed | $360,897 | | Gross margin as % of home sales revenues | 23.4% | | Adjusted gross margin (non-GAAP) as % of home sales revenues | 25.3% | | Net income before income taxes | $23.1 million | | Net income | $17.1 million | | Basic EPS | $0.72 | | Diluted EPS | $0.72 | | Active selling communities at March 31, 2024 | 120 | | Total owned and controlled lots | 70,145 | | Ending backlog (homes) | 1,335 | | Ending backlog (value) | $519.5 million | | Common stock repurchased (Q1 2024) | 89,227 shares for $10.0 million | | Total liquidity at March 31, 2024 | $491.5 million | | Net debt to capitalization at March 31, 2024 | 41.6% | Consolidated Financial Statements The consolidated financial statements for Q1 2024 show a decrease in home sales revenues and net income compared to the prior year, while the balance sheet reflects an increase in real estate inventory and notes payable from the end of 2023 Consolidated Statements of Operations This section details the company's revenues, costs, and net income for the three months ended March 31, comparing 2024 to 2023 Consolidated Statements of Operations (Three Months Ended March 31) | Metric | 2024 ($ thousands) | 2023 ($ thousands) | | :-------------------------- | :------------------ | :------------------ | | Home sales revenues | $390,851 | $487,357 | | Cost of sales | $299,450 | $388,541 | | Selling expenses | $41,128 | $42,805 | | General and administrative | $31,540 | $29,960 | | Operating income | $18,733 | $26,051 | | Net income before income taxes | $23,094 | $32,348 | | Income tax provision | $6,041 | $5,386 | | Net income | $17,053 | $26,962 | | Basic EPS | $0.72 | $1.15 | | Diluted EPS | $0.72 | $1.14 | Consolidated Balance Sheets This section provides a snapshot of the company's assets, liabilities, and equity as of March 31, 2024, compared to December 31, 2023 Consolidated Balance Sheets (As of March 31, 2024 vs. December 31, 2023) | Metric | March 31, 2024 ($ thousands) | December 31, 2023 ($ thousands) | | :-------------------------- | :---------------------------- | :----------------------------- | | ASSETS | | | | Cash and cash equivalents | $48,996 | $48,978 | | Accounts receivable | $27,151 | $41,319 | | Real estate inventory | $3,229,100 | $3,107,648 | | Property and equipment, net | $49,775 | $45,522 | | Total assets | $3,522,886 | $3,407,851 | | LIABILITIES AND EQUITY | | | | Accounts payable | $46,156 | $31,616 | | Accrued expenses and other liabilities | $224,307 | $271,872 | | Notes payable | $1,383,220 | $1,248,332 | | Total liabilities | $1,653,683 | $1,551,820 | | Total equity | $1,869,203 | $1,856,031 | | Total liabilities and equity | $3,522,886 | $3,407,851 | Non-GAAP Measures: Adjusted Gross Margin LGI Homes utilizes Adjusted Gross Margin as a non-GAAP financial measure to provide a clearer view of operating performance by excluding the impact of capitalized interest and purchase accounting adjustments from the GAAP gross margin - Adjusted gross margin is a non-GAAP measure utilized by management to assess operating performance, defined as gross margin excluding capitalized interest and purchase accounting adjustments within the cost of sales[21] Reconciliation of Gross Margin to Adjusted Gross Margin (Three Months Ended March 31) | Metric | 2024 ($ thousands) | 2023 ($ thousands) | | :------------------------------------- | :------------------ | :------------------ | | Home sales revenues | $390,851 | $487,357 | | Cost of sales | $299,450 | $388,541 | | Gross margin | $91,401 | $98,816 | | Capitalized interest charged to cost of sales | $6,601 | $6,757 | | Purchase accounting adjustments | $803 | $2,036 | | Adjusted gross margin | $98,805 | $107,609 | | Gross margin % | 23.4% | 20.3% | | Adjusted gross margin % | 25.3% | 22.1% | Segment Performance In Q1 2024, all reportable segments experienced a decrease in home sales revenues and closings compared to Q1 2023, while the average community count increased across all segments, contributing to a higher total community count at period end Segment Performance (Three Months Ended March 31, 2024) | Reportable Segment | Revenues ($ thousands) | Home Closings | ASP | Average Community Count | Average Monthly Absorption Rate | Community Count at End of Period | | :----------------- | :---------------------- | :------------ | :-------- | :---------------------- | :------------------------------ | :------------------------------- | | Central | $103,736 | 319 | $325,191 | 41.7 | 2.5 | 43 | | Southeast | $116,445 | 355 | $328,014 | 26.7 | 4.4 | 27 | | Northwest | $36,067 | 62 | $581,726 | 12.0 | 1.7 | 14 | | West | $73,079 | 179 | $408,263 | 17.0 | 3.5 | 17 | | Florida | $61,524 | 168 | $366,214 | 19.3 | 2.9 | 19 | | Total | $390,851 | 1,083 | $360,897 | 116.7 | 3.1 | 120 | Segment Performance (Three Months Ended March 31, 2023) | Reportable Segment | Revenues ($ thousands) | Home Closings | ASP | Average Community Count | Average Monthly Absorption Rate | Community Count at End of Period | | :----------------- | :---------------------- | :------------ | :-------- | :---------------------- | :------------------------------ | :------------------------------- | | Central | $150,380 | 453 | $331,965 | 35.0 | 4.3 | 35 | | Southeast | $104,376 | 316 | $330,304 | 24.0 | 4.4 | 24 | | Northwest | $74,815 | 159 | $470,535 | 9.3 | 5.7 | 10 | | West | $78,886 | 209 | $377,445 | 13.4 | 5.2 | 14 | | Florida | $78,900 | 229 | $344,541 | 16.0 | 4.8 | 16 | | Total | $487,357 | 1,366 | $356,777 | 97.7 | 4.7 | 99 | Lot Inventory and Backlog Data As of March 31, 2024, LGI Homes held 70,145 total owned and controlled lots, with a significant portion being raw/under development. The ending backlog decreased year-over-year in both homes and value, while the cancellation rate slightly increased Owned and Controlled Lots by Reportable Segment (As of March 31, 2024) | Reportable Segment | Home Closings (Q1 2024) | Owned Lots | Controlled Lots | Total Lots | | :----------------- | :---------------------- | :--------- | :-------------- | :--------- | | Central | 319 | 20,840 | 2,279 | 23,119 | | Southeast | 355 | 14,191 | 4,720 | 18,911 | | Northwest | 62 | 5,500 | 2,141 | 7,641 | | West | 179 | 9,068 | 3,031 | 12,099 | | Florida | 168 | 5,164 | 3,211 | 8,375 | | Total | 1,083 | 54,763 | 15,382 | 70,145 | - Of the 54,763 owned lots, 39,601 were raw/under development and 15,162 were finished lots (including 2,154 completed homes and 2,000 homes in progress)[26] Backlog Data (Three Months Ended March 31) | Backlog Data | 2024 | 2023 | | :-------------------- | :--- | :--- | | Net orders | 1,828 | 2,219 | | Cancellation rate | 16.8% | 15.9% | | Ending backlog – homes | 1,335 | 1,555 | | Ending backlog – value ($ thousands) | $519,507 | $561,422 | Company Outlook and General Information This section outlines LGI Homes' full-year 2024 guidance, provides an overview of the company, and includes important disclaimers regarding forward-looking statements Full Year 2024 Outlook LGI Homes is maintaining its previously issued guidance for the full year 2024, based on assumptions of stable general economic conditions, input costs, interest rates, and regulatory environment - The Company maintains its prior guidance for full year 2024, assuming stable general economic conditions, input costs, labor availability, interest rates, and regulatory environment[10] Full Year 2024 Guidance | Metric | Guidance Range | | :------------------------------------- | :------------------- | | Home closings | 7,000 to 8,000 | | Active selling communities (end of 2024) | Approximately 150 | | Average sales price per home closed | $350,000 to $360,000 | | Gross margin as % of home sales revenues | 23.1% to 24.1% | | Adjusted gross margin (non-GAAP) as % of home sales revenues | 25.0% to 26.0% | | SG&A as % of home sales revenues | 12.5% to 13.5% | | Effective tax rate | 24.0% to 25.0% | About LGI Homes, Inc. LGI Homes, Inc. is a leading homebuilder headquartered in The Woodlands, Texas, recognized for its innovative approach, consistent profitability since 2003, and commitment to quality and customer service across 36 markets in 21 states - LGI Homes, Inc. is a pioneer in the homebuilding industry, employing an innovative and systematic approach to home design, construction, and sales[12] - The company operates across 36 markets in 21 states, has closed over 70,000 homes since its 2003 founding, and has consistently delivered profitable financial results annually[12] - LGI Homes is nationally recognized for quality construction and exceptional customer service, earning a spot on Newsweek's World's Most Trustworthy Companies and awarded Top Workplaces USA 2024[12] Forward-Looking Statements This section clarifies that statements regarding future performance, expectations, and market conditions are forward-looking and inherently subject to various risks, uncertainties, and assumptions, advising readers not to place undue reliance on them - Statements in the press release or Earnings Call that are not historical facts, including beliefs and expectations about future results, constitute forward-looking statements subject to federal securities laws[13][15] - These statements rely on current expectations and assumptions, but actual results may materially differ due to various risks and uncertainties detailed in the Company's SEC filings[15] - The Company assumes no obligation to update or revise any forward-looking statements, even if new information, future events, or other circumstances emerge[15] Earnings Conference Call LGI Homes hosted a conference call via live webcast on April 30, 2024, to discuss its financial results, with an archive available on the company's investor relations website - The Company hosted a conference call via live webcast for investors on Tuesday, April 30, 2024, at 12:30 p.m. Eastern Time[11] - Participants accessed the live webcast through the Investor Relations section of the Company's website, with an archive available for replay for one year[11]