LGI Homes, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; financial statements are unaudited. LGI Homes develops, builds and sells homes across U.S. markets, primarily under the LGI Homes and Terrata Homes brands.
Financial and operating performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Home sales revenue | $706.0 million | $454.7 million |
| Homes closed | 2,561 | 1,835 |
| Average sales price per home | $275,655 | $247,808 |
| Gross margin | $189.9 million; 26.9% | $106.6 million; 23.4% |
| Operating income | $122.4 million | $53.9 million |
| Net income | $99.7 million | $42.8 million |
| Diluted earnings per share | $3.95 | $1.67 |
| Net cash from operating activities | $160.7 million | $58.8 million |
Adjusted gross margin, a non-GAAP measure, was 28.5% versus 25.5%; adjusted EBITDA margin was 19.0% versus 14.0%. The company cautions that these measures are supplemental and not substitutes for GAAP results or cash flow.
Balance sheet, debt and liquidity
- At March 31, cash and cash equivalents were $48.2 million; real estate inventory was $1.610 billion; total assets were $1.825 billion; and total equity was $1.219 billion.
- Notes payable totaled $413.9 million, down from $538.4 million at December 31, 2020. This included $117.1 million carrying value under the revolving credit agreement and $296.8 million carrying value of 6.875% senior notes due 2026.
- Under the facility in place at quarter-end, $517.5 million was available to borrow, after accounting for the borrowing base and outstanding letters of credit. The company reported compliance with its financial covenants.
- On April 28, 2021, after quarter-end, LGI amended and restated the revolving facility: commitments increased to $850 million, maturity extended to April 28, 2025, and the letter-of-credit sublimit increased to $50 million. The filing says the company expects to meet foreseeable liquidity needs for at least 12 months using cash, operating cash flow and financing availability.
- Operating cash flow benefited from earnings and a $56.7 million reduction in accounts receivable, partly offset by a $41.7 million inventory increase. Financing activities used $148.9 million, primarily for debt repayments and $25.8 million of share repurchases.
Changes, outlook and risks
- Revenue rose 55.2%, closings increased 39.6%, and average selling price increased 11.2% year over year. Management attributed growth to strong demand, higher absorption in certain markets, favorable pricing and product mix, low mortgage rates, and limited new and existing home supply.
- Gross margin improved partly due to higher selling prices, lower capitalized interest and lower overhead per revenue dollar; management also cited higher lot costs as an offset. Selling and general and administrative expenses increased in dollars but declined as a share of revenue.
- Net orders were 5,229 versus 2,481, ending backlog was 5,632 homes valued at $1.596 billion versus 1,879 homes valued at $446.3 million, and the cancellation rate was 10.5% versus 18.3%. Backlog is operational data, may be cancelled, and is not a guarantee of future closings.
- Owned and controlled lots increased to 67,286 from 61,504 at year-end. Land purchase contracts covered 28,784 lots with potential aggregate purchase commitments of $728.1 million; deposits were $35.5 million. Real estate inventory reached $1.610 billion.
- No specific full-year earnings or revenue guidance is provided. Management expects COVID-19 to continue influencing results but said demand for single-family homes, low mortgage rates and low available housing supply were supportive. The company notes uncertainty around the pandemic, financing and mortgage rates, inflation, lumber and other construction costs, labor and material availability, land development, and seasonal cash needs.
- Outstanding letters of credit, surety bonds and performance bonds totaled $167.6 million, primarily for development obligations. Management did not expect material draws or material effects from ordinary-course claims and regulatory matters. The company also disclosed a three-year interest-rate cap and identified LIBOR replacement as a matter being addressed in the amended facility.
Investor facts to verify
- Whether the large backlog converts to closings as expected, including cancellations and the timing of wholesale contracts.
- Whether higher lot, lumber, labor and other construction costs pressure gross margins or delay construction.
- Available liquidity and covenant headroom under the post-quarter $850 million credit facility, including its borrowing-base terms.
- Land takedown commitments, inventory growth and the cash required to support community development.
- The pace and terms of future share repurchases, and the effect of repurchases on cash and share count.