LGI Homes(LGIH) - 2024 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements This section presents LGI Homes, Inc.'s unaudited consolidated financial statements for Q1 2024, detailing financial position, performance, and cash flows with accompanying notes Consolidated Balance Sheets - Total assets increased to $3.52 billion as of March 31, 2024, primarily driven by a rise in real estate inventory. Total liabilities also grew, mainly due to an increase in notes payable[12] Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $3,522,886 | $3,407,851 | | Real estate inventory | $3,229,100 | $3,107,648 | | Cash and cash equivalents | $48,996 | $48,978 | | Total Liabilities | $1,653,683 | $1,551,820 | | Notes payable | $1,383,220 | $1,248,332 | | Total Equity | $1,869,203 | $1,856,031 | Consolidated Statements of Operations - For the three months ended March 31, 2024, home sales revenues decreased to $390.9 million from $487.4 million in the prior-year period. Net income declined to $17.1 million, or $0.72 per diluted share, compared to $27.0 million, or $1.14 per diluted share, in Q1 2023[15] Consolidated Statements of Operations (in thousands, except per share data) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Home sales revenues | $390,851 | $487,357 | | Operating income | $18,733 | $26,051 | | Net income | $17,053 | $26,962 | | Diluted EPS | $0.72 | $1.14 | Consolidated Statements of Equity - Total equity increased from $1.856 billion at December 31, 2023, to $1.869 billion at March 31, 2024. The increase was primarily driven by net income of $17.1 million, partially offset by a $10.0 million stock repurchase[18] Consolidated Statements of Cash Flows - Cash used in operating activities was $99.5 million in Q1 2024, a significant shift from $77.6 million provided by operations in Q1 2023, mainly due to an increase in real estate inventory. Cash from financing activities was $97.5 million, driven by proceeds from notes payable[21] Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(99,493) | $77,600 | | Net cash provided by (used in) investing activities | $2,018 | $(4,855) | | Net cash provided by (used in) financing activities | $97,493 | $(61,777) | | Net increase in cash | $18 | $10,968 | Notes to the Consolidated Financial Statements - The company designs, constructs, and sells new homes across 21 states. The financial statements are prepared under U.S. GAAP for interim periods[23][24] - During Q1 2024, the company repurchased 89,227 shares of its common stock for $10.0 million. As of March 31, 2024, $201.5 million remained available for repurchase under the program[49] Real Estate Inventory (in thousands) | Category | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Land, land under development and finished lots | $2,145,846 | $2,099,133 | | Homes in progress | $419,997 | $313,124 | | Completed homes | $533,284 | $542,996 | | Total owned inventory | $3,151,291 | $3,003,189 | Notes Payable (in thousands) | Instrument | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Notes payable under Credit Agreement | $703,055 | $569,633 | | 4.000% Senior Notes due 2029 | $300,000 | $300,000 | | 8.750% Senior Notes due 2028 | $400,000 | $400,000 | | Total notes payable | $1,383,220 | $1,248,332 | Segment Revenues (in thousands) | Segment | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Central | $103,736 | $150,380 | | Southeast | $116,445 | $104,376 | | Northwest | $36,067 | $74,815 | | West | $73,079 | $78,886 | | Florida | $61,524 | $78,900 | | Total | $390,851 | $487,357 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2024 financial results, highlighting decreased home sales and closings due to affordability pressures, alongside improved gross margins and liquidity analysis - The decrease in home closings was primarily due to pressure on affordability from continued inflation and elevated mortgage rates. The company increased its active communities to 120 at the end of Q1 2024, up from 99 in the prior year[81][82] - The company's lot inventory stood at 70,145 owned or controlled lots as of March 31, 2024, a slight decrease from 71,081 at the end of 2023[88][117] Key Financial Results Summary | Metric | Q1 2024 | Q1 2023 | Change | | :--- | :--- | :--- | :--- | | Home sales revenues | $390.9M | $487.4M | -19.8% | | Homes closed | 1,083 | 1,366 | -20.7% | | Average sales price | $360,897 | $356,777 | +1.2% | | Gross margin % | 23.4% | 20.3% | +310 bps | | Adjusted gross margin % | 25.3% | 22.1% | +320 bps | | Net income | $17.1M | $27.0M | -36.8% | Results of Operations - Home sales revenues decreased by 19.8% to $390.9 million in Q1 2024, driven by a 20.7% decrease in homes closed, which was partially offset by a 1.2% increase in the average sales price per home[93] - Gross margin as a percentage of home sales revenues increased to 23.4% in Q1 2024 from 20.3% in Q1 2023, primarily due to a combination of lower input costs and higher sales prices[96] - Selling expenses as a percentage of home sales revenues increased to 10.5% from 8.8% YoY, driven by increased advertising expenses and lower home sales revenues[97] - The effective tax rate increased to 26.2% for Q1 2024 from 16.7% for Q1 2023, primarily due to changes in deductions for share-based payments and state income taxes[101] Non-GAAP Measures Reconciliation of Gross Margin to Adjusted Gross Margin (in thousands) | Line Item | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | 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 | | Adjusted gross margin % | 25.3% | 22.1% | Reconciliation of Net Income to EBITDA (in thousands) | Line Item | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net income | $17,053 | $26,962 | | Income tax provision | $6,041 | $5,386 | | Depreciation and amortization | $673 | $482 | | Capitalized interest charged to cost of sales | $6,601 | $6,757 | | EBITDA | $30,368 | $39,587 | Backlog - Net orders and ending backlog decreased in Q1 2024 compared to the prior year, primarily due to lower demand resulting from higher mortgage rates. The cancellation rate saw a slight increase[113] Backlog Data | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net orders | 1,828 | 2,219 | | Cancellation rate | 16.8% | 15.9% | | Ending backlog – homes | 1,335 | 1,555 | | Ending backlog – value | $519.5M | $561.4M | Liquidity and Capital Resources - As of March 31, 2024, the company had $49.0 million in cash and cash equivalents[126] - Under its $1.205 billion revolving credit facility, the company had $442.5 million available to borrow as of March 31, 2024[134] - Net cash used in operating activities was $99.5 million for Q1 2024, compared to $77.6 million provided by operating activities in Q1 2023, mainly due to an increase in real estate inventory[141] - The company repurchased $10.0 million of its common stock during Q1 2024[144] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to interest rate risk, as higher mortgage rates can negatively affect housing demand and the ability of homebuyers to secure financing - The company's operations are sensitive to interest rates, as increases can adversely affect housing demand and homebuyer financing[155] - As of March 31, 2024, the company had $703.1 million of variable rate debt outstanding under its Credit Agreement. A hypothetical 100 basis point increase in the SOFR rate would increase annual interest costs by approximately $7.0 million[159] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures as of March 31, 2024, and concluded they were effective - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period[161] - No changes in internal control over financial reporting occurred during Q1 2024 that have materially affected, or are reasonably likely to materially affect, internal controls[164] PART II - OTHER INFORMATION Item 1A. Risk Factors The company states that there have been no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the fiscal year ended December 31, 2023 - There have been no material changes to the risk factors disclosed in the company's 2023 Form 10-K[166] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's stock repurchase activity for the three months ended March 31, 2024, including shares repurchased and remaining authorization - As of March 31, 2024, the approximate dollar value of shares that may yet be purchased under the stock repurchase program was $201.5 million[168] Share Repurchases in Q1 2024 | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | January 2024 | 0 | $0.00 | | February 2024 | 17,693 | $113.06 | | March 2024 | 71,534 | $111.85 | | Total | 89,227 | $112.09 | Item 5. Other Information The company reports that during the first quarter of 2024, no director or officer adopted or terminated a Rule 10b5-1 trading arrangement - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the three months ended March 31, 2024[169] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications pursuant to the Sarbanes-Oxley Act and Inline XBRL documents - The exhibits filed with this report include CEO/CFO certifications (31.1, 31.2, 32.1, 32.2) and Inline XBRL data files (101 series)[172]