LGI Homes, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparisons are to Q1 2021 unless otherwise noted. Amounts are in U.S. dollars. LGI Homes develops communities and builds and sells new homes across multiple U.S. markets.
Financial and operating results
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Home sales revenue | $546.1 million | $706.0 million | Down 22.7% |
| Home closings | 1,599 | 2,561 | Down 37.6% |
| Average sales price per closing | $341,495 | $275,655 | Up 23.9% |
| Gross margin | $158.4 million; 29.0% | $189.9 million; 26.9% | Margin up 2.1 percentage points |
| Operating income | $95.7 million | $122.4 million | Down 21.8% |
| Net income | $78.7 million | $99.7 million | Down 21.0% |
| Diluted EPS | $3.25 | $3.95 | Down 17.7% |
| Operating cash flow | $(137.8) million | $160.7 million | Changed to cash use |
Adjusted gross margin was 30.3% versus 28.5%; EBITDA margin was 19.1% versus 19.0%, and adjusted EBITDA margin was 18.8% versus 19.0%. These are company-defined non-GAAP measures and should be considered alongside GAAP results.
Balance sheet, cash flow and capital
- At March 31, cash and cash equivalents were $53.3 million, real estate inventory was $2.336 billion, total assets were $2.594 billion, and total equity was $1.423 billion.
- Reported notes payable totaled $1.004 billion, including $715.1 million drawn under the revolving credit agreement and $300 million of 4.000% senior notes due 2029, net of debt issuance costs. At quarter-end, $108.3 million was available under the credit agreement after borrowings and letters of credit.
- Operating cash use primarily reflected a $251.6 million increase in real estate inventory, including homes under construction and land acquisition and development. Financing cash inflow included $197.6 million of borrowings, partly offset by $57.7 million of share repurchases.
- In February, the company increased its repurchase authorization by $200 million. It repurchased 475,055 shares for $57.7 million in the quarter, with approximately $249 million remaining under the program at March 31.
Changes, outlook and risks
- Management attributed lower closings and revenue mainly to longer construction and development cycles, supply-chain disruption, labor and materials delays, municipal lead times, fewer average active communities, and slower absorption. Active communities fell to 88 from 110 a year earlier.
- Higher average selling prices and pricing above input-cost increases supported gross-margin expansion. Management said significant cost inflation, material shortages and extended municipal lead times were expected to persist until demand normalizes and supply constraints ease; it provided no specific full-year earnings or revenue guidance in the supplied filing text.
- Net orders were 1,973 versus 5,229; cancellation rate was 15.6% versus 10.5%. Ending backlog was 2,429 homes valued at $849.1 million, compared with 5,632 homes and $1.596 billion a year earlier. The company said it delayed contract timing to better manage cost volatility.
- Management reported $3.8 million of other income, primarily from a gain on the sale of land outside core homebuilding operations. The West segment recorded a $0.2 million pretax loss, attributed primarily to an ongoing local tax audit in Arizona markets.
- Subsequent to quarter-end, on April 29, 2022, the company amended its revolving credit agreement, increasing commitments by $250 million to $1.1 billion and replacing LIBOR with SOFR. The facility matures April 28, 2025. The company said it was in covenant compliance at March 31 and believed it could fund foreseeable needs for at least 12 months, while noting financing availability and market conditions could change.
- Key risks include mortgage-rate increases and affordability, inflation, supply-chain and labor constraints, project approvals and development timing, land availability and costs, and access to capital. The filing reports $268.8 million of letters of credit, surety bonds and performance bonds outstanding; management did not expect material draws. It also disclosed land purchase contracts covering 34,191 lots with $837.0 million of commitments if completed; obligations are generally limited to forfeiture of related nonrefundable deposits.
Most important facts for investors to verify
- Whether closings, net orders, cancellations and backlog recover, and whether contract timing changes affect subsequent-period sales.
- Whether higher selling prices continue to offset land, labor, material and construction-cost inflation without weakening demand or margins.
- Cash conversion and inventory growth, including the pace of construction and land development relative to closings.
- Revolver availability, borrowing-base capacity, interest costs after the SOFR transition, and compliance with debt covenants.
- The outcome of the Arizona tax audit and any material changes in contingencies, bonds, land commitments or repurchases.