What changed in this filing

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Item 1. Business

2021-02-25 compared with 2020-02-25 · 108 added, 97 removed, 175 unchanged (54% of the section changed)

We are engaged in the design, construction, and sale of new homes in markets in Texas, Arizona, Florida, Georgia, New Mexico, Colorado, North Carolina, South Carolina, Washington, Tennessee, Minnesota, Oklahoma, Alabama, California, Oregon, Nevada, West Virginia and Virginia.

Our management team has been in the residential land development business since the mid-1990s.

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One of the keys to our successful geographic expansion is our operating model which enables us to enter new markets efficiently and effectively.

During 2020, we expect to open new communities and have homes for sale in additional markets, including Columbia, South Carolina, Richmond, Virginia, Riverside, California, and Sarasota, Florida.

We also expect to enter the Salt Lake City, Utah market, with home construction and sales expected to begin in 2021.

During 2021, we have opened or expect to open new communities and to have homes for sale in additional markets, including Baltimore, Maryland, Norfolk, Virginia and Knoxville, Tennessee, and land under development in Salt Lake City, Utah.

We see opportunities to develop properties with multiple product lines and within the same communities, which we believe will enable us to grow our business by increasing the number of price points in some of our existing markets.

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Our Terrata Homes brand allows us to leverage our systems and process approach, including our customer centric sales system, to deliver move-in ready homes with standardized features.

During 2019 , we closed 134 Terrata Homes, which had an average sales price of $418,000 , compared to 118 Terrata Homes, which had an average sales price of $395,000 , in 2018 .

During 2020, we closed 150 Terrata Homes, which had an average sales price per home closed of $424,132, compared to 134 Terrata Homes, which had an average sales price per home closed of $418,000, in 2019.

Our attached product in certain markets enables us to keep our entry-level price point within reach of more new homebuyers.

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We will continue to focus primarily on entry-level home buyers.

We expect our wholesale home closings will range between 5% to 10% of our annual home closings during 2020 and our home closings in communities with our luxury series will be less than 3% of our annual home closings during 2020 .

We expect our wholesale home closings to represent approximately 10.0% to 15.0% of our annual home closings during 2021.

Additionally, we expect our home closings in communities with our Terrata Homes brand will be less than 2.0% of our annual home closings during 2021.

Sales and Marketing

We utilize a well-defined sales and marketing approach to identify leads for our communities and to educate potential buyers on the process and benefits of homeownership.

For many of our communities, our marketing efforts are focused on converting renters of apartments and single-family homes into homeowners.

We use extensive print and digital advertising to attract potential homebuyers.

We employ various marketing methods such as direct mail, social media and interactive online media as well as directional signage and billboards to attract and drive potential homebuyers to our information centers.

Our advertising methods are extensive and have proven to be effective in placing potential homebuyers in front of our trained sales professionals.

These methods have proven to be effective in reaching our target market and communicating our core message of value and dream fulfillment.

With respect to our communities with higher price points or that include the sale of home sites, our sales and marketing approaches are tailored to the potential purchasers of such homes and home sites and include more involvement by real estate agents and brokers.

Across all price points, our marketing strategy calls for a balanced approach of corporate support and local expertise to attract potential homebuyers in a focused, efficient and cost-effective manner.

Our proprietary customer relationship management system provides our management team with tools to continually monitor and measure the performance level of every sales professional through each phase of the sales process.

Utilization of these tools allows us to assess the cost effectiveness of a particular advertising campaign and marketing medium as well as the strengths and weaknesses of every member of our sales team.

Our marketing efforts are generally designed to encourage the prospective homebuyer to call our information centers to schedule an appointment and our primary objective is to establish direct communication between the prospective homebuyer and the salesperson.

Our professional salespeople are well-trained to determine specific needs and wants of the potential homebuyer and to provide the potential homebuyer with all information required to make a buying decision.

Our information centers are open approximately 12 hours per day, 359 days per year, and generally staffed by two to five sales professionals and supported by an independent on-site loan officer.

Our commission-based sales professionals provide potential homebuyers with a comprehensive and thorough understanding of the steps required to achieve homeownership.

Throughout the sales process, our sales professionals learn about the current housing situation of the potential homebuyers and seek to understand their individual needs while also educating them on the value we provide through superior quality and affordable prices.

We provide information regarding floor plans and pricing, credit and income qualifications and conduct tours of our homes based on the potential homebuyer’s budget.

In addition, we provide each potential homebuyer with a comprehensive introduction to the community and the surrounding area, providing them with detailed information regarding utilities, schools, homeowners association dues and restrictions, local entertainment and nearby dining and shopping options.

We provide our potential homebuyers with a clear understanding of who we are by sharing our history, vision and values.

As a result of our transparent approach, potential homebuyers receive all this information before making a buying decision, which we believe eliminates confusion during the home buying process and sets clear expectations.

In addition, the potential home buyers benefit from the availability of move-in ready homes by seeing the completed or near-completed home that they will own.

Our well-defined sales and marketing approach is primarily focused on converting renters of apartments and single-family homes into homeowners.

We use extensive digital and print advertising to attract potential homebuyers.

We employ various marketing methods such as interactive online media, social media, direct mail and directional signage and billboards.

These methods have proven highly successful in reaching our target market, placing potential homebuyers in front of our trained sales professionals and communicating our core message of value and dream fulfillment.

While a proportion of our business does come from realtors, our marketing efforts are principally designed to connect directly with potential customers who are currently renting their primary residence and to encourage them to schedule an in-person appointment at one of our information centers.

Our information centers are typically open 12 hours per day, 359 days per year, and generally staffed by two to five sales professionals who are supported by an independent on-site loan officer.

Our commission-based sales professionals are trained to learn about the current housing situation of the customer, educate them on the value proposition of owning an LGI home and provide them with a comprehensive and thorough understanding of the steps required to achieve homeownership.

We also educate customers on our history, vision and values.

Our sales professionals will determine credit and income qualifications, provide information regarding floor plans and pricing and conduct tours of our homes based on the customer’s needs and budget.

Our focus on move-in ready homes often allows us to show the customer the completed or near-completed home that they will own.

We also provide each customer with a comprehensive introduction to the community and the surrounding area, furnishing them with detailed information regarding utilities, schools, homeowners association dues and restrictions, local entertainment and nearby dining and shopping options.

As a result of our transparent approach, customers receive all the information needed to make a buying decision, which we believe sets clear expectations and eliminates confusion during the home buying process.

Recruitment, Training and Development

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Our continued commitment to our sales personnel is reflected in the ongoing weekly training sessions held in each of our information centers coupled with quarterly regional training events.

All construction managers, purchasing managers and vice presidents come to our corporate headquarters for a week of training in their first 100 days.

Typically, all construction managers, purchasing managers and vice presidents come to our corporate headquarters for a week of training in their first 100 days.

We also work closely with our subcontractors, training them using a comprehensive construction manual that outlines the most efficient way to build an LGI home.

Many of our subcontractors have worked on our homes since we commenced homebuilding operations in 2003, and therefore, are familiar with our business model.

A number of our subcontractors have worked on our homes since we commenced homebuilding operations in 2003, and therefore, are familiar with our business model.

Homebuilding Operations

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The Midwest division is included in our Central reportable segment and the Mid-Atlantic division is included in our Southeast reportable segment.

Minneapolis, MN

Washington, DC

Charlotte, NC

Albuquerque, NM

San Antonio, TX

Fort Myers, FL

Las Vegas, NV

Colorado Springs, CO

Jacksonville, FL

Sacramento, CA

Oklahoma City, OK

Fort Pierce, FL

Wilmington, NC

Riverside, CA

Winston-Salem, NC

West Northwest Central Midwest Florida Southeast Mid-Atlantic

Phoenix, AZ Seattle, WA Houston, TX Minneapolis, MN Tampa, FL Atlanta, GA Washington, DC

Tucson, AZ Portland, OR Dallas Ft.

Worth, TX Orlando, FL Charlotte, NC Richmond, VA

Albuquerque, NM Denver, CO San Antonio, TX Fort Myers, FL Raleigh, NC Baltimore, MD (1)

Las Vegas, NV Austin, TX Jacksonville, FL Wilmington, NC

Northern CA Oklahoma City, OK Fort Pierce, FL Winston-Salem, NC

Southern CA Daytona Beach, FL Columbia, SC

Sarasota, FL Greenville, SC

Birmingham, AL

Nashville, TN

During 2019, we expanded our geographic presence in the West, Florida and Southeast with the addition of the Riverside, California, Fort Pierce, Florida and Columbia, South Carolina markets.

(1) No active communities in this market at December 31, 2020.

During 2020, we expanded our geographic presence in Florida and the Southeast with the addition of Daytona Beach and Sarasota, Florida, Greenville, South Carolina and Richmond, Virginia.

These operating segments reflect the way the Company evaluates its business performance and manages its operations.

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In each of our markets, we employ construction managers with local market knowledge and expertise.

Additionally, our construction managers monitor our compliance with zoning and other regulations, production schedules, and quality standards for our projects.

Additionally, our construction managers monitor our compliance with zoning, safety, and other regulations, production schedules, and quality standards for our projects.

We endeavor to obtain favorable pricing from subcontractors through long-term relationships and consistent workflow.

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We purchase some components and materials centrally to leverage our purchasing power to achieve volume discounts, a practice that often reduces costs and ensures timely deliveries.

We typically do not store significant inventories of construction

materials, except for work in progress materials for homes under construction.

We typically do not store significant inventories of construction materials, except for work in progress materials for homes under construction.

Consistency of our trade partners is an integral part of our homebuilding operations that also leads us to reduced warranty costs.

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We generally acquire finished lots and raw land in affordable locations that are further away from urban centers than many other suburban communities but have access to major thoroughfares, retail districts and centers of business.

We conduct thorough due diligence on each of our potential land acquisitions, and we look at numerous opportunities before finding one that meets our requirements.

We conduct thorough due diligence on each of our potential land acquisitions, and we typically look at numerous opportunities before finding one that meets our requirements.

We also maintain a pipeline of desirable land positions for replacement communities and new communities.

We increased our active communities to 116 as of December 31, 2020 from 106 as of December 31, 2019.

Our lot inventory decreased to 48,062 owned or controlled lots as of December 31, 2019 from 51,442 owned or controlled lots as of December 31, 2018 .

This decrease is primarily related to controlled lots that were purchased or terminated during the acquisition process within our Southeast and West reportable segments.

Our lot inventory

increased to 61,504 owned or controlled lots as of December 31, 2020 from 48,062 owned or controlled lots as of December 31, 2019, primarily due to overall increased lot counts within the Central, Northwest and West reportable segments.

Our allocation of capital for land investment is performed at the corporate level with a disciplined approach to portfolio management.

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The table below shows (i) home closings by reportable segment for the year ended December 31, 2020 and (ii) our owned or controlled lots by reportable segment as of December 31, 2020.

Year Ended December 31, 2019

As of December 31, 2019

Reportable Segment

Home Closings

Year Ended December 31, 2020 As of December 31, 2020

Reportable Segment Home Closings Owned (1)

Controlled Total

Central 3,654 16,124 10,739 26,863

Southeast 2,382 10,376 6,992 17,368

Northwest 1,000 3,036 3,183 6,219

West 1,043 3,133 3,092 6,225

Florida 1,260 2,599 2,230 4,829

Total 9,339 35,268 26,236 61,504

(1) Of the 35,268 owned lots as of December 31, 2020, 22,132 were raw/under development lots and 13,136 were finished lots.

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When entering a new community, we build a sufficient number of move-in ready homes to meet our budgets.

We base future home starts on closings.

We base future home starts on home closings.

As homes are closed, we start more homes to maintain our inventory.

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The following is a summary of our homes in inventory by reportable segment as of December 31, 2020 (dollar values in thousands):

Reportable Segment

Homes in Inventory (1)

Reportable Segment Homes in Inventory (1)

Inventory Value (1)

Central 1,431 $ 203,152

Southeast 950 125,130

Northwest 393 87,436

West 422 75,469

Florida 533 66,263

Total 3,729 $ 557,450

(1) Includes homes in progress and completed homes;

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We continue to monitor the supply markets to achieve the best prices available.

Typically, the price changes that most significantly influence our operations are price increases in labor, commodities, and lumber.

Typically, the price changes that most significantly influence our operations are price increases in labor and commodities, such as lumber.

Specifically, during the second half of 2020, we saw a significant increase in the cost of our lumber related to undersupply as a result of increased demand and shutdowns of lumber mills due to the COVID-19 pandemic.

We may see additional lumber cost pressures in future quarters.

The homebuilding industry generally exhibits seasonality.

We have historically experienced, and in the future expect to continue to experience, variability in our results on a monthly and quarterly basis.

We have historically experienced, and in the future expect to continue to experience, variability in our results on a quarterly basis.

See discussion included in “ Management’s Discussion and Analysis of Financial Condition and Results of Operations—Seasonality .”

Government Regulation and Environmental Matters

We are subject to numerous local, state, federal and other statutes, ordinances, rules and regulations concerning zoning, development, building design, construction and similar matters which impose zoning and density requirements, the result of which is to limit the number of homes or mandate the type of structure that can be built, within the boundaries of a particular area.

Government Regulation and Environmental, Health and Safety Matters

We are subject to numerous local, state, federal and other statutes, ordinances, rules and regulations concerning zoning, development, building design, construction and similar matters, which impose zoning and density requirements in order to limit the number of homes or mandate the type of structure that can be built within the boundaries of a particular area.

Projects that are not entitled may be subjected to periodic delays, changes in use, less intensive development or elimination of development in certain specific areas due to government regulations.

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Projects for which we have received land use and development entitlements or approvals may still require a variety of other governmental approvals and permits during the development process and can also be impacted adversely by unforeseen health, safety and welfare issues, which can further delay these projects or prevent their development.

We are also subject to a variety of local, state, federal and other statutes, ordinances, rules and regulations concerning the environment.

The particular environmental laws which apply to any given homebuilding site vary according to multiple factors, including the site’s location, its environmental conditions and the present and former uses of the site, as well as adjoining properties.

We are also subject to a variety of local, state, federal and other statutes, ordinances, rules and regulations concerning the environment, health and safety.

Shortly after taking office in January 2021, President Biden issued a series of executive orders designed to address climate change and requiring agencies to review environmental actions taken by the Trump administration, as well as a memorandum to departments and agencies to refrain from proposing or issuing rules until a departmental or agency head appointed or designated by the Biden administration has reviewed and approved the rule.

These executive orders may result in the development of additional regulations or changes to existing regulations.

The particular environmental laws which apply to any given homebuilding site vary according to multiple factors, including the site’s location, its environmental conditions, the present and former uses of the site, the presence or absence of endangered plants or species or sensitive habitats, and environmental conditions at adjoining or nearby properties.

Environmental laws and conditions may result in delays, may cause us to incur substantial compliance and other costs, and can prohibit or severely restrict homebuilding activity in environmentally sensitive regions or areas.

In addition, in those cases where an endangered or threatened species is involved, environmental rules and regulations can result in the restriction or elimination of development in identified environmentally sensitive areas.

From time to time, the United States Environmental Protection Agency (the “EPA”) and similar federal or state agencies review homebuilders’ compliance with environmental laws and may levy fines and penalties for failure to strictly comply with applicable environmental laws or impose additional requirements for future compliance as a result of past failures.

Any such actions taken with respect to us may increase our costs.

Further, we expect that increasingly stringent requirements may be imposed on homebuilders in the future.

From time to time, the United States Environmental Protection Agency (the “EPA”) and similar federal, state or local agencies review land developers’ and homebuilders’ compliance with environmental laws and may levy fines and penalties, among other sanctions, for failure to strictly comply with applicable environmental laws or impose additional requirements for future compliance as a result of past failures.

Any such actions taken with respect to us may increase our costs and result in delays.

Further, we expect that increasingly stringent requirements will be imposed on land developers and homebuilders in the future.

Environmental regulations can also have an adverse impact on the availability and price of certain raw materials such as lumber.

Under various environmental laws, current or former owners of real estate, as well as certain other categories of parties, may be required to investigate and clean up hazardous or toxic substances or petroleum product releases, and may be held liable to a governmental entity or to third parties for related damages, including for bodily injury, and for investigation and clean-up costs incurred by such parties in connection with the contamination.

A mitigation system may be installed during the construction of a home if a cleanup does not remove all contaminants of concern or to address a naturally occurring condition such as methane.

Some homebuyers may not want to purchase a home with a mitigation system.

Under various environmental laws, current or former owners of real estate, as well as certain other categories of parties, may be required to investigate and clean up hazardous or toxic substances or petroleum product releases, and may be held strictly and/or jointly and severally liable to a governmental entity or to third parties for related damages, including property damage or bodily injury, and for investigation and cleanup costs incurred by such parties in connection with the contamination.

A mitigation plan may be implemented during the construction of a home if a cleanup does not remove all contaminants of concern or to address a naturally occurring condition, such as methane or radon.

Some homebuyers may not want to purchase a home that is, or may have been, subject to a mitigation plan.

homebuilding industry is highly competitive.

We compete in each of our markets with numerous other national, regional and local homebuilders for homebuyers, desirable properties, raw materials and skilled labor.

We compete in each of our markets with numerous other national, regional and local homebuilders for homebuyers, desirable properties, financing, raw materials and skilled labor.

We also compete with sales of existing homes and with the rental housing market.

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There has been some consolidation among national homebuilders in the United States, and we expect that this trend may continue.

Human Capital Resources

As of December 31, 2020, we employed 938 people, of whom 90 were located at our corporate headquarters, 579 were on-site sales and support personnel, and 269 were involved with construction.

None of our employees are covered by collective bargaining agreements.

We have built a diverse and inclusive team of professionals with a wide range of industry experience across our markets.

We are dedicated to supporting our employees when times are challenging.

In May 2020, we announced we would not lay off or furlough employees due to the COVID-19 pandemic, and in October 2020, we paid a special bonus to our “frontline” workers whose roles and responsibilities required that they directly interact with the public on a daily basis.

The bonus was in recognition of the extraordinary efforts of such workers during the COVID-19 pandemic.

None of our employees are covered by collective bargaining agreements, and we have not experienced any strikes or work stoppages.

We believe we have good relations with our employees.

Our human capital resources objectives include, as

applicable, identifying, recruiting, training, retaining, incentivizing and integrating our existing and additional employees.

See “—Recruitment, Training and Development.” We offer our employees a wide array of company-paid benefits, which we believe are competitive relative to others in our industry.

We utilize subcontractors and tradespeople to perform the construction of our homes.

We believe we have good relations with our subcontractors and tradespeople.

Available Information

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The following table sets forth information regarding our executive officers as of February 25, 2021:

Chief Executive Officer and Chairman of the Board

Michael Snider

President and Chief Operating Officer

Charles Merdian

Chief Financial Officer and Treasurer

Executive Vice President of Acquisitions

Chief Marketing Officer

General Counsel and Corporate Secretary

Name Age Position

Eric Lipar 50 Chief Executive Officer and Chairman of the Board

Michael Snider 49 President and Chief Operating Officer

Charles Merdian 51 Chief Financial Officer and Treasurer

Jack Lipar 52 Executive Vice President of Acquisitions

Rachel Eaton 39 Chief Marketing Officer

Scott Garber 49 General Counsel and Corporate Secretary

Lipar is our Chief Executive Officer and serves as Chairman of our Board of Directors.

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Lipar has been in the residential land development business since the mid-1990s and is one of our founders.

He has overseen land acquisition, development and the sales of over 35,000 homes since our inception.

Lipar currently serves on the Residential Neighborhood Development Council for the Urban Land Institute and is a Policy Advisor Board Member for the Harvard Joint Center of Housing Studies.

He has overseen land acquisitions, development and the sale of over 45,000 homes since our inception.

Lipar currently serves on the Residential Neighborhood Development Council for the Urban Land Institute and is a member of the Policy Advisory Board for the Harvard Joint Center for Housing Studies.

Michael Snider.

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Merdian is a Certified Public Accountant and is a member of the Texas Society of Certified Public Accountants.

In February 2020, Mr.

Merdian was elected to serve on the Montgomery County Habitat for Humanity Board of Directors.

Merdian also serves on the Montgomery County Habitat for Humanity Board of Directors.

Lipar has served as our Executive Vice President of Acquisitions since March 2013.

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Lipar worked at HP Pelzer, an auto parts manufacturing company based in Germany, as the Vice President of Purchasing and Director of Operations.

Lipar was also the General Manager and a member of the Board of Directors at Alliance Interiors, an affiliate of HP Pelzer.

Lipar was also the General Manager and a member of the Board of Directors of Alliance Interiors, an affiliate of HP Pelzer.

Prior to HP Pelzer, Mr.

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Rachel Eaton.

Eaton serves as our Chief Marketing Officer and is responsible for the overall growth and direction of our marketing initiatives, brand image, social media, recruiting and information technology.

Eaton serves as our Chief Marketing Officer and is responsible for the overall growth and direction of all marketing initiatives, brand image, and social media.

Eaton is also responsible for technology, recruiting and administrative field operations for the Company.

Prior to becoming our Chief Marketing Officer in June 2013, Ms.

Eaton served as our Vice President of Marketing and Administration from May 2012 through May 2013 and Director of Marketing & Special Events from 2007 to May 2012.

Eaton joined the Company in 2003.

Eaton served as our Vice President of Marketing and Administration from May 2012 through May 2013, Director of Marketing & Special Events from 2007 to May 2012 and various other roles assisting with the Company’s growth and success since joining the Company in 2003.

Eaton was recognized as a rising star in the homebuilding industry by Pro Builder Magazine for her outstanding accomplishments in leading the Company’s marketing, talent acquisitions, and community service initiatives.

Eaton is a former member of the Zillow Group Builder Advisory Board.

Scott Garber.

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Prior to joining the Company, Mr.

Garber served as Assistant General Counsel at Chevron Phillips Chemical Company (CPChem), where he was responsible for major company transactions (both domestic and international) and corporate governance of its Qatar-based joint ventures, and managed commercial legal matters for various company product lines and divisions.

Garber served as Assistant General Counsel at Chevron Phillips Chemical Company (CPChem) from March 2012 to April 2018, where he was responsible for major company transactions (both domestic and international), as well as corporate governance of its Qatar-based joint ventures, and commercial legal matters for various company product lines and divisions.

Prior to joining CPChem, Mr.

Garber served as Associate General Counsel for United Airlines (formerly Continental Airlines), then the world’s largest airline, where he was responsible for its litigation, antitrust and intellectual property matters.

Garber served as Associate General Counsel for United Airlines (formerly Continental Airlines), then the world’s largest airline, where he was responsible for the company’s litigation, antitrust and intellectual property matters.

Garber previously worked at Howrey Simon Arnold & White, a major international law firm, where he specialized in all aspects of intellectual property law.

Garber is a member of the State Bar of Texas and is also admitted to practice before the U.S.

Garber is a member of the State Bar of Texas and is admitted to practice before the U.S.

Patent & Trademark Office.

Garber is also a member of the Board of Directors of Archway Insurance, Ltd, a captive insurance company.

Garber is also a member of the Board of Directors of Archway, a captive insurance company.

Board of Directors of LGI Homes, Inc.

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and serves as Chairman of our Board of Directors.

Laura Miller - Former Senior Vice President and Global Chief Information Officer of InterContinental Hotels Group PLC, a multinational hospitality company.

Bryan Sansbury - Chief Executive Officer and a founding partner of AEGIS Energy Risk, LLC.

and serves as our Lead Independent Director.

Ryan Edone - Chief Financial Officer of Petroleum Wholesale L.P., a distributor of branded and wholesale motor fuel products and operator of retail convenience stores/travel centers.

Duncan Gage - Retired.

Former President and Chief Executive Officer of Giant Cement Holdings, Inc.

and currently manages his personal investments.

Steven Smith - Shareholder of Baker Donelson, a law firm.

Duncan Gage - Former President and Chief Executive Officer of Giant Cement Holdings, Inc., a producer of cement, concrete and aggregate for the construction industry.

Laura Miller - Former Senior Vice President and Global Chief Information Officer of InterContinental Hotels Group PLC, a multinational hospitality company.

Miller also serves on the Board of Directors of EVO Payments, Inc., a global merchant acquirer and payment processor.

Bryan Sansbury - Chief Executive Officer, Chairman, and a founding partner of AEGIS Hedging Solutions, LLC, formerly known as AEGIS Energy Risk, LLC.

Sansbury serves as our Lead Independent Director.

Steven Smith - Owner and solo practitioner of Steven R.

Smith Law, LLC.

He is a former shareholder of the law firm Baker Donelson.

Robert Vahradian - Senior Managing Director of GTIS Partners, LP, a global real estate investment firm.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business