lgih-20210331

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended March 31, 2021


☐			Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to .

Commission file number 001-36126

LGI HOMES, INC.

(Exact name of registrant as specified in its charter)

Delaware

46-3088013

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

1450 Lake Robbins Drive,

Suite 430,

The Woodlands,

Texas

77380

(Address of principal executive offices)

(Zip code)

(281)

362-8998

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

LGIH

NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of April 30, 2021, there were 24,934,429 shares of the registrant’s common stock, par value $0.01 per share, outstanding.

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TABLE OF CONTENTS


		Page
PART I - FINANCIAL INFORMATION
Item 1.	LGI Homes, Inc. Consolidated Financial Statements (Unaudited)
	Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020	4
	Consolidated Statements of Operations for the three months ended March 31, 2021 and 2020	5
	Consolidated Statements of Equity for the three months ended March 31, 2021 and 2020	6
	Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020	7
	Notes to the Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	34

PART II - OTHER INFORMATION
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 5.	Other Information	35
Item 6.	Exhibits	35

SIGNATURES		37

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

LGI HOMES, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except share data)


	March 31,		December 31,
	2021		2020
ASSETS
Cash and cash equivalents	$	48,157	$	35,942
Accounts receivable	59,229		115,939
Real estate inventory	1,609,693		1,569,489
Pre-acquisition costs and deposits	39,488		37,213
Property and equipment, net	6,160		3,618
Other assets	47,391		44,882
Deferred tax assets, net	3,350		6,986
Goodwill	12,018		12,018
Total assets	$	1,825,486	$	1,826,087

LIABILITIES AND EQUITY
Accounts payable	$	41,552	$	13,676
Accrued expenses and other liabilities	151,348		135,008
Notes payable	413,948		538,398
Total liabilities	606,848		687,082

COMMITMENTS AND CONTINGENCIES
EQUITY
Common stock, par value $0.01, 250,000,000 shares authorized, 26,908,643 shares issued and 24,934,429 shares outstanding as of March 31, 2021 and 26,741,554 shares issued and 24,983,561 shares outstanding as of December 31, 2020	269		267
Additional paid-in capital	276,398		270,598
Retained earnings	1,033,935		934,277
Treasury stock, at cost, 1,974,214 shares and 1,757,993 shares, respectively	(91,964)		(66,137)
Total equity	1,218,638		1,139,005
Total liabilities and equity	$	1,825,486	$	1,826,087

See accompanying notes to the consolidated financial statements.

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LGI HOMES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except share and per share data)


	Three Months Ended March 31,
		2021		2020
Home sales revenues		$	705,953	$	454,727

Cost of sales		516,004		348,163
Selling expenses		42,783		32,763
General and administrative		24,723		19,923
Operating income		122,443		53,878

Other income, net		(833)		(1,011)
Net income before income taxes		123,276		54,889
Income tax provision		23,618		12,050
Net income		$	99,658	$	42,839
Earnings per share:
Basic		$	3.99	$	1.69
Diluted		$	3.95	$	1.67

Weighted average shares outstanding:
Basic		24,950,867		25,323,119
Diluted		25,220,872		25,592,835

See accompanying notes to the consolidated financial statements.

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LGI HOMES, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(Unaudited)

(In thousands, except share data)


	Common Stock			Additional Paid-In Capital		Retained Earnings		Treasury Stock		Total Equity
	Shares	Amount
BALANCE—December 31, 2020	26,741,554	$	267	$	270,598	$	934,277	$	(66,137)	$	1,139,005
Net income	—	—		—		99,658		—		99,658
Restricted stock units granted for accrued annual bonuses	—	—		272		—		—		272
Stock repurchase	—	—		—		—		(25,827)		(25,827)
Compensation expense for equity awards	—	—		3,422		—		—		3,422
Stock issued under employee incentive plans	167,089	2		2,106		—		—		2,108
BALANCE— March 31, 2021	26,908,643	$	269	$	276,398	$	1,033,935	$	(91,964)	$	1,218,638




BALANCE—December 31, 2019	26,398,409	$	264	$	252,603	$	610,382	$	(18,056)	$	845,193
Net income	—	—		—		42,839		—		42,839
Restricted stock units granted for accrued annual bonuses	—	—		222		—		—		222
Stock repurchase	—	—		—		—		(31,335)		(31,335)
Compensation expense for equity awards	—	—		1,853		—		—		1,853
Stock issued under employee incentive plans	282,065	2		831		—		—		833
BALANCE— March 31, 2020	26,680,474	$	266	$	255,509	$	653,221	$	(49,391)	$	859,605

See accompanying notes to the consolidated financial statements.

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LGI HOMES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


	Three Months Ended March 31,
	2021		2020
Cash flows from operating activities:
Net income	$	99,658	$	42,839
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	288		161


Compensation expense for equity awards	3,422		1,853
Deferred income taxes	3,636		2,320
Changes in assets and liabilities:
Accounts receivable	56,710		11,385
Real estate inventory	(41,692)		17,902
Pre-acquisition costs and deposits	(2,276)		(204)
Other assets	(4,192)		(2,953)
Accounts payable	27,876		6,571
Accrued expenses and other liabilities	17,256		(21,071)
Net cash provided by operating activities	160,686		58,803
Cash flows from investing activities:
Purchases of property and equipment	(1,279)		(417)
Return of capital from (investment in) unconsolidated entity	1,683		(1,125)

Net cash provided by (used in) investing activities	404		(1,542)
Cash flows from financing activities:
Proceeds from notes payable	104,844		128,128
Payments on notes payable	(230,000)		(75,000)

Proceeds from sale of stock, net of offering expenses	2,108		833
Stock repurchase	(25,827)		(31,335)


Net cash provided by (used in) financing activities	(148,875)		22,626
Net increase in cash and cash equivalents	12,215		79,887
Cash and cash equivalents, beginning of period	35,942		38,345
Cash and cash equivalents, end of period	$	48,157	$	118,232

See accompanying notes to the consolidated financial statements.

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LGI HOMES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. ORGANIZATION AND BASIS OF PRESENTATION

Organization and Description of the Business

LGI Homes, Inc., a Delaware corporation (the “Company”, “we,” “us,” or “our”), is engaged in the development of communities and the design, construction and sale of new homes in Texas, Arizona, Florida, Georgia, New Mexico, Colorado, North Carolina, South Carolina, Washington, Tennessee, Minnesota, Oklahoma, Alabama, California, Oregon, Nevada, West Virginia, Virginia and Pennsylvania.

Basis of Presentation

The unaudited consolidated financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These financial statements should be read in conjunction with the consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. The accompanying unaudited consolidated financial statements include all adjustments that are of a normal recurring nature and necessary for the fair presentation of our results for the interim periods presented. Results for interim periods are not necessarily indicative of results to be expected for the full year.

The accompanying unaudited financial statements as of March 31, 2021, and for the three months ended March 31, 2021 and 2020, include the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates, and these differences could have a significant impact on the financial statements.

2. REVENUES

Revenue Recognition

Revenues from home sales are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Revenues from home sales are recorded at the time each home sale is closed, title and possession are transferred to the customer and we have no significant continuing involvement with the home. Home sales discounts and incentives granted to customers, which are related to the customers’ closing costs that we pay on the customers’ behalf, are recorded as a reduction of revenue in our consolidated financial statements of operations.

The following table presents our home sales revenues disaggregated by revenue stream (in thousands):


	Three Months Ended March 31,
		2021		2020
Retail home sales revenues		$	643,572	$	410,402
Wholesale home sales revenues		62,381		44,325
Total home sales revenues		$	705,953	$	454,727

The following table presents our home sales revenues disaggregated by geography, based on our determined reportable segments in Note 13 (in thousands):

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	Three Months Ended March 31,
		2021		2020
Central		$	288,750	$	165,775
Southeast		136,551		88,447
Northwest		118,191		101,948
West		81,148		58,485
Florida		81,313		40,072
Total home sales revenues		$	705,953	$	454,727

Home Sales Revenues

We generate revenues primarily by delivering move-in ready entry-level and move-up spec homes sold under our LGI Homes brand and our luxury series spec homes sold under our Terrata Homes brand.

Retail homes sold under both our LGI Homes brand and Terrata Homes brand focus on providing move-in ready homes with standardized features within favorable markets that meet certain demographic and economic conditions. Our LGI Homes brand primarily markets to entry-level or first-time homebuyers, while our Terrata Homes brand primarily markets to move-up homebuyers.

Wholesale homes are primarily sold under a bulk sales agreement and focus on providing move-in ready homes with standardized features to real estate investors that will ultimately use the single-family homes as rental properties.

Performance Obligations

Our contracts with customers include a single performance obligation to transfer a completed home to the customer. We generally determine selling price per home on the expected cost plus margin. Our contracts contain no significant financing terms as customers who finance do so through a third party. Performance obligations are satisfied at a moment in time when the home is complete and control of the asset is transferred to the customer at closing. Home sales proceeds are generally received from the title company within a few business days after closing.

Sales and broker commissions are incremental costs incurred to obtain a contract with a customer that would not have been incurred if the contract had not been obtained. Sales and broker commissions are expensed upon fulfillment of a home closing. Advertising costs are costs to obtain a contract that would have been incurred regardless of whether the contract was obtained and are recognized as an expense when incurred. Sales and broker commissions and advertising costs are recorded within sales and marketing expense presented in our consolidated statements of operations as selling expenses.

3. REAL ESTATE INVENTORY

Our real estate inventory consists of the following (in thousands):


	March 31,		December 31,
	2021		2020
Land, land under development and finished lots	$	1,031,117	$	981,838
Information centers	28,528		30,201
Homes in progress	425,585		337,364
Completed homes	124,463		220,086
Total real estate inventory	$	1,609,693	$	1,569,489

Inventory is stated at cost unless the carrying amount is determined not to be recoverable, in which case the affected inventory is written down to fair value.

Land, development and other project costs, including interest and property taxes incurred during development and home construction, net of expected reimbursable development costs, are capitalized to real estate inventory. Land development and other common costs that benefit the entire community, including field construction supervision and related direct overhead, are allocated to individual lots or homes, as appropriate. The costs of lots are transferred to homes in progress when home construction begins. Home construction costs and related carrying charges are allocated to the cost of individual homes using the specific identification method. Costs that are not specifically identifiable to a home are allocated on a pro rata basis, which we believe approximates the costs that would be determined using an allocation method based on relative sales values since the individual lots or homes within a community are similar in value. Inventory costs for completed homes are expensed to cost of

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sales as homes are closed. Changes to estimated total development costs subsequent to initial home closings in a community are generally allocated to the remaining unsold lots and homes in the community on a pro rata basis.

The life cycle of a community generally ranges from two to five years, commencing with the acquisition of land, continuing through the land development phase and concluding with the construction and sale of homes. A constructed home is used as the community information center during the life of the community and then sold. Actual individual community lives will vary based on the size of the community, the sales absorption rate and whether the property was purchased as raw land or finished lots.

Interest and financing costs incurred under our debt obligations, as more fully discussed in Note 5, are capitalized to qualifying real estate projects under development and homes under construction.

4. ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued and other liabilities consist of the following (in thousands):


	March 31,		December 31,
	2021		2020
Taxes payable	$	45,604	$	26,181
Real estate inventory development and construction payable	31,138		29,938
Accrued compensation, bonuses and benefits	18,680		28,579
Accrued interest	5,262		10,853
Inventory related obligations	3,872		4,515
Lease liability	5,249		5,287
Warranty reserve	5,950		5,350
Contract deposits	27,195		17,151
Other	8,398		7,154
Total accrued expenses and other liabilities	$	151,348	$	135,008

Inventory Related Obligations

We own lots in certain communities in Arizona, Florida and Texas that have Community Development Districts or similar utility and infrastructure development special assessment programs that allocate a fixed amount of debt service associated with development activities to each lot. This obligation for infrastructure development is attached to the land, which is typically payable over a 30-year period and is ultimately assumed by the homebuyer when home sales are closed. Such obligations represent a non-cash cost of the lots.

Estimated Warranty Reserve

We typically provide homebuyers with a one-year warranty on the house and a ten-year limited warranty for major defects in structural elements such as framing components and foundation systems.

Changes to our warranty accrual are as follows (in thousands):


	Three Months Ended March 31,
		2021		2020
Warranty reserves, beginning of period		$	5,350	$	3,500
Warranty provision		2,589		1,420
Warranty expenditures		(1,989)		(1,170)
Warranty reserves, end of period		$	5,950	$

SEC Form 10-Q filed by LGI Homes, Inc.