What changed in this filing

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Item 1. Financial Statements

2021-05-04 compared with 2020-11-03 · 82 added, 167 removed, 345 unchanged (42% of the section changed)

3 unchanged sentences

(In thousands, except share data)

September 30, December 31,

March 31, December 31,

Cash and cash equivalents $ 48,157 $ 35,942

13 unchanged sentences

COMMITMENTS AND CONTINGENCIES

Common stock, par value $ 0.01 , 250,000,000 shares authorized, 26,706,454 shares issued and 25,100,426 shares outstanding as of September 30, 2020 and 26,398,409 shares issued and 25,359,409 shares outstanding as of December 31, 2019

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

Additional paid-in capital 276,398 270,598

8 unchanged sentences

(In thousands, except share and per share data)

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Three Months Ended March 31,

Home sales revenues $ 705,953 $ 454,727

3 unchanged sentences

Operating income 122,443 53,878

Loss on extinguishment of debt — — — 169

Other income, net ( 833 ) ( 1,011 )

Net income before income taxes 123,276 54,889

Income tax provision (benefit) ( 11,189 ) 15,383 13,834 33,223

Income tax provision 23,618 12,050

Net income $ 99,658 $ 42,839

13 unchanged sentences

Net income — — — 99,658 — 99,658

Issuance of restricted stock units in settlement of accrued bonuses — — 222 — — 222

Restricted stock units granted for accrued annual bonuses — — 272 — — 272

Stock repurchase — — — — ( 25,827 ) ( 25,827 )

2 unchanged sentences

BALANCE— March 31, 2021 26,908,643 $ 269 $ 276,398 $ 1,033,935 $ ( 91,964 ) $ 1,218,638

Net income — — — 55,624 — 55,624

Compensation expense for equity awards — — 2,613 — — 2,613

Stock issued under employee incentive plans 14,705 1 939 — — 940

BALANCE— June 30, 2020 26,695,179 $ 267 $ 259,061 $ 708,845 $ ( 49,391 ) $ 918,782

Net income — — — 89,004 — 89,004

Compensation expense for equity awards — — 3,926 — — 3,926

Stock issued under employee incentive plans 11,275 — 958 — — 958

BALANCE— September 30, 2020

26,706,454 $ 267 $ 263,945 $ 797,849 $ ( 49,391 ) $ 1,012,670

See accompanying notes to the consolidated financial statements.

LGI HOMES, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(In thousands, except share data)

Common Stock Additional Paid-In Capital Retained Earnings Treasury Stock Total Equity

Shares Amount

BALANCE—December 31, 2019 26,398,409 $ 264 $ 252,603 $ 610,382 $ ( 18,056 ) $ 845,193

Net income — — — 42,839 — 42,839

Issuance of restricted stock units in settlement of accrued bonuses — — 217 — — 217

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

1 unchanged sentence

BALANCE— March 31, 2020 26,680,474 $ 266 $ 255,509 $ 653,221 $ ( 49,391 ) $ 859,605

Net income — — — 46,055 — 46,055

Compensation expense for equity awards — — 1,639 — — 1,639

Stock issued under employee incentive plans 14,153 1 614 — — 615

BALANCE— June 30, 2019 23,978,883 $ 240 $ 246,888 $ 496,163 $ ( 18,056 ) $ 725,235

Net income — — — 49,349 — 49,349

Compensation expense for equity awards — — 1,759 — — 1,759

Stock issued under employee incentive plans 10,073 — 704 — — 704

BALANCE— September 30, 2019 23,988,956 $ 240 $ 249,351 $ 545,512 $ ( 18,056 ) $ 777,047

See accompanying notes to the consolidated financial statements.

2 unchanged sentences

(In thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities:

Net income $ 99,658 $ 42,839

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 288 161

Loss on extinguishment of debt — 169

Compensation expense for equity awards 3,422 1,853

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Accrued expenses and other liabilities 17,256 ( 21,071 )

Net cash provided by (used in) operating activities 112,981 ( 104,159 )

Net cash provided by operating activities 160,686 58,803

Cash flows from investing activities:

Purchases of property and equipment ( 1,279 ) ( 417 )

Investment in unconsolidated entity ( 1,125 ) ( 1,059 )

Net cash used in investing activities ( 2,286 ) ( 1,600 )

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:

1 unchanged sentence

Payments on notes payable ( 230,000 ) ( 75,000 )

Loan issuance costs ( 2,155 ) ( 2,067 )

Proceeds from sale of stock, net of offering expenses 2,108 833

1 unchanged sentence

Net cash provided by (used in) financing activities ( 148,875 ) 22,626

Net increase (decrease) in cash and cash equivalents 7,990 ( 9,594 )

Net increase in cash and cash equivalents 12,215 79,887

Cash and cash equivalents, beginning of period 35,942 38,345

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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 and Virginia.

Basis of Presentation

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Results for interim periods are not necessarily indicative of results to be expected for the full year.

The accompanying unaudited financial statements as of September 30, 2020, and for the three and nine months ended September 30, 2020 and 2019, include the accounts of the Company and its subsidiaries.

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.

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Actual results could differ from those estimates, and these differences could have a significant impact on the financial statements.

On March 11, 2020, the World Health Organization declared the current outbreak of the novel strain of coronavirus (“COVID-19”) to be a global pandemic, and on March 13, 2020, the United States declared a national emergency.

In response to these declarations and the rapid spread of COVID-19, federal, state and local governments imposed varying degrees of restrictions on business and social activities to contain COVID-19, including business shutdowns and closures, travel restrictions, quarantines, curfews, shelter-in-place orders and “stay-at-home” orders in certain of our markets.

State and local authorities have also implemented multi-step policies with the goal of re-opening various sectors of the economy.

However, certain jurisdictions began re-opening only to return to restrictions in the face of increases in new COVID-19 cases, while other jurisdictions are continuing to re-open or have nearly completed the re-opening process despite increases in COVID-19 cases.

The COVID-19 outbreak may significantly worsen in the United States during the upcoming winter months, which may cause federal, state and local governments to reconsider restrictions on business and social activities.

In the event governments increase restrictions, the re-opening of the economy may be further curtailed.

We have experienced some resulting disruptions to our business operations, as these restrictions have significantly impacted, and may continue to impact, many sectors of the economy, with various businesses curtailing or ceasing normal operations and subsequently attempting to resume operations.

In March 2020, certain markets in which we do business temporarily stopped our construction of homes.

Beginning in April 2020, we resumed construction of homes in those markets.

Although we continued to build and sell homes in all of our markets, the pace of sales declined and we experienced an increase in the rate of contract cancellations.

Since May 2020, the pace of sales has rebounded and we have experienced a sustained increase in demand in our markets.

The ultimate impacts of COVID-19 and related mitigation efforts will depend on future developments, including, but not limited to, the duration and geographic spread of COVID-19, the impact of government actions designed to prevent the spread of COVID-19, the development and availability of effective treatments and vaccines, actions taken by customers, subcontractors, suppliers and other third parties, workforce availability, and the timing and extent to which normal economic and operating conditions resume.

While we cannot reasonably estimate the length or severity of this pandemic, an extended economic slowdown in the United States could materially impact our consolidated financial statements in 2020 and beyond.

Recently Adopted Accounting Standards

On January 1, 2020, we adopted the Financial Accounting Standards Board (the “FASB”) Accounting Standards Update (“ASU”) No.

2018-15, “Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40):

Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract” (“ASU 2018-15”), which requires entities that are customers in cloud computing arrangements to defer implementation costs if they would be capitalized by the entity in software licensing arrangements under the internal-use software guidance.

The guidance may be applied retrospectively or prospectively to implementation costs incurred after the date of adoption.

The adoption of ASU 2018-15 did not have a material effect on our consolidated financial statements or disclosures.

On January 1, 2020, we adopted the FASB ASU No.

2018-13, “Fair Value Measurement (Topic 820) Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”), which modifies the disclosure requirements of fair value measurements.

ASU 2018-13 was effective for us beginning January 1, 2020.

Certain disclosures are required to be applied on a retrospective basis and others on a prospective basis.

The adoption of ASU 2018-13 did not have a material effect on our consolidated financial statements or disclosures.

On January 1, 2020, we adopted the FASB ASU No.

2017-04, “Intangibles - Goodwill and Other (Topic 350):

Simplifying the Accounting for Goodwill Impairment” (“ASU 2017-04”), which removes the requirement to perform a hypothetical purchase price allocation to measure goodwill impairment.

A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.

ASU 2017-04 was effective for us beginning January 1, 2020, with early adoption permitted, and applied prospectively.

The adoption of ASU 2017-04 did not have a material effect on our consolidated financial statements or disclosures.

On January 1, 2020, we adopted the FASB ASU No.

2016-13, “ Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”), which changes the impairment model for most financial assets and certain other instruments from an “incurred loss” approach to a new “expected credit loss” methodology.

ASU 2016-13 was effective for us beginning January 1, 2020, with early adoption permitted.

The adoption of ASU 2016-13 did not have a material effect on our consolidated financial statements or disclosures.

Revenue Recognition

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Three Months Ended March 31,

Retail home sales revenues $ 643,572 $ 410,402

Other 18,981 25,957 101,401 50,466

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):

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Three Months Ended March 31,

Central $ 288,750 $ 165,775

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Our LGI Homes brand primarily markets to entry-level or first-time homebuyers, while our Terrata Homes brand primarily markets to move-up homebuyers.

Our other revenues are composed of our wholesale home sales under our LGI Homes brand in existing markets.

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.

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

September 30, December 31,

March 31, December 31,

Land, land under development and finished lots $ 1,031,117 $ 981,838

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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 sales as homes are closed.

Inventory costs for completed homes are expensed to cost of

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.

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

September 30, December 31,

March 31, December 31,

Taxes payable $ 45,604 $ 26,181

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

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Three Months Ended March 31,

Warranty reserves, beginning of period $ 5,350 $ 3,500

4 unchanged sentences

Revolving Credit Agreement

On April 30, 2020, we entered into the Second Amendment to Fourth Amended and Restated Credit Agreement (the “Second Amendment”), which amends the Fourth Amended and Restated Credit Agreement, dated as of May 6, 2019 (as amended by the Lender Addition and Acknowledgement Agreement and First Amendment to Fourth Amended and Restated Credit Agreement, dated as of December 6, 2019, the “2019 Credit Agreement” and, together with the Second Amendment, the “Credit Agreement”), with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent.

Credit Agreement, dated as of December 6, 2019, the “2019 Credit Agreement” and, together with the Second Amendment, the “2020 Credit Agreement”), with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent.

In the Second Amendment, certain lenders agreed to extend the maturity of their commitments, while another lender agreed to extend the maturity of its commitment subsequent to the execution of the Second Amendment.

As of September 30, 2020, lenders with $ 566.0 million, or 87 %, of the $ 650.0 million of commitments under the 2019 Credit Agreement agreed to extend the maturity of their commitments to May 31, 2023, with the remaining lenders retaining their existing maturity of May 31, 2022.

Lenders with $ 566.0 million, or 87 %, of the $ 650.0 million of commitments under the 2019 Credit Agreement agreed to extend the maturity of their commitments to May 31, 2023, with the remaining lenders retaining their existing maturity of May 31, 2022.

The Second Amendment also reduced the minimum EBITDA to interest expense ratio from 2.50 to 1.75 , increased the sublimit for letters of credit to $ 40.0 million and established a London Interbank Offered Rate (“LIBOR”) floor of 0.70 %.

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The borrowings and letters of credit outstanding under the 2020 Credit Agreement, together with the outstanding principal balance of our 6.875% Senior Notes due 2026 (the “Senior Notes”), may not exceed the borrowing base under the 2020 Credit Agreement.

As of September 30, 2020, the borrowing base under the Credit Agreement was $ 949.4 million, of which borrowings, including the Senior Notes, of $ 627.6 million were outstanding, $ 15.3 million of letters of credit were outstanding and $ 306.5 million was available to borrow under the Credit Agreement.

As of March 31, 2021, the borrowing base under the 2020 Credit Agreement was $ 949.3 million, of which borrowings, including the Senior Notes, of $ 421.5 million were outstanding, $ 10.3 million of letters of credit were outstanding and $ 517.5 million was available to borrow under the 2020 Credit Agreement.

Interest is paid monthly on borrowings under the 2020 Credit Agreement at LIBOR plus 2.35 %.

The 2020 Credit Agreement applicable margin for LIBOR loans ranges from 2.35 % to 2.75 % based on our leverage ratio.

At September 30, 2020, LIBOR was 0.15 %;

At March 31, 2021, LIBOR was 0.11 %;

however, the 2020 Credit Agreement has a 0.70 % LIBOR floor.

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The 2020 Credit Agreement contains various covenants that, among other restrictions, limit the amount of our additional debt and our ability to make certain investments.

At September 30, 2020, we were in compliance with all of the covenants contained in the Credit Agreement.

Convertible Notes

On November 15, 2019, our 4.25 % Convertible Notes due 2019 (the “Convertible Notes”) matured, which resulted in the principal payment of $ 70.0 million and the issuance of 2,381,751 shares of our common stock for the premium associated with the Convertible Notes.

At March 31, 2021, we were in compliance with all of the covenants contained in the 2020 Credit Agreement.

On April 28, 2021, we entered into that certain Fifth Amended and Restated Credit Agreement with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent (the “Credit Agreement”), which amends and restates the 2020 Credit Agreement.

The Credit Agreement (a) increases the commitments to $ 850.0 million, (b) allows the Company to increase the commitments by up to $ 100.0 million, subject to terms and conditions, (c) extends the maturity to April 28, 2025 for all lenders, (d) increases the sublimit for letters of credit to $ 50.0 million, (e) adds unrestricted cash in excess of $ 10.0 million as a component of the borrowing base and removes certain exclusions from the borrowing base, (f) reduces the applicable margin for LIBOR loans to a range of 2.10 % to 1.45 %, based on our leverage ratio, (g) reduces the LIBOR floor to 0.50 %, (h) increases the minimum tangible net worth requirement to $ 850.0 million plus 75 % of the net proceeds of equity issuances after December 31, 2020 and 50 % of consolidated earnings for each quarter ending after March 31, 2021 and (i) provides for a “hardwired” transition from LIBOR loan pricing that is intended to be economically neutral to the Company;

otherwise, the Credit Agreement is on substantially the same terms as the 2020 Credit Agreement.

Senior Notes Offering

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Notes payable consist of the following (in thousands):

September 30, 2020 December 31, 2019

Notes payable under the Credit Agreement ($ 650.0 million revolving credit facility at September 30, 2020) maturing in part on May 31, 2022 and in part on May 31, 2023;

March 31, 2021 December 31, 2020

Notes payable under the 2020 Credit Agreement ($ 650.0 million revolving credit facility at March 31, 2021) maturing in part on May 31, 2022 and in part on May 31, 2023;

interest paid monthly at LIBOR plus 2.35 %;

net of debt issuance costs of approximately $ 5.5 million and $ 5.0 million at September 30, 2020 and December 31, 2019, respectively

net of debt issuance costs of approximately $ 4.4 million and $ 4.9 million at March 31, 2021 and December 31, 2020, respectively

$ 117,107 $ 241,717

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interest paid semi-annually at 6.875%;

net of debt issuance costs of approximately $ 2.0 million and $ 2.2 million at September 30, 2020 and December 31, 2019, respectively;

and approximately $ 1.5 million and $ 1.8 million in unamortized discount at September 30, 2020 and December 31, 2019, respectively

net of debt issuance costs of approximately $ 1.8 million and $ 1.9 million at March 31, 2021 and December 31, 2020, respectively;

and approximately $ 1.4 million in unamortized discount at March 31, 2021 and December 31, 2020.

296,841 296,681

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Interest activity, including other financing costs, for notes payable for the periods presented is as follows (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Three Months Ended March 31,

Interest incurred $ 7,732 $ 10,156

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Cash paid for interest $ 12,633 $ 15,024

Included in interest incurred was amortization of deferred financing costs and discounts for notes payable of $ 0.8 million and $ 1.1 million for the three months ended September 30, 2020 and 2019, respectively, and $ 2.2 million and $ 3.2 million for the nine months ended September 30, 2020 and 2019, respectively.

Included in interest incurred was amortization of deferred financing costs and discounts for notes payable of $ 0.7 million for the three months ended March 31, 2021 and 2020.

and state income tax returns in jurisdictions with varying statutes of limitations.

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however, audit outcomes and the timing of audit adjustments are subject to significant uncertainty.

For the three and nine months ended September 30, 2020, our effective tax rates of ( 14.4 )% and 6.9 %, respectively, are lower than the Federal statutory rate primarily as a result of the retroactive extension of the federal energy efficient homes tax credit that was enacted into law in December 2019, including the application of the credits to homes closed in prior open tax years.

These credits were extended to apply to homes closed through December 31, 2020.

Total benefits recognized for the federal energy efficient homes tax credit were $ 29.4 million and $ 32.9 million for the three and nine months ended September 30, 2020, respectively.

The impact of the federal energy efficient homes tax credit was partially offset by an increase in the rate for state income taxes, net of the federal benefit payments.

Income taxes paid were $ 46.6 million and $ 14.7 million for the three months ended September 30, 2020 and 2019, respectively.

Income taxes paid were $ 65.5 million and $ 36.3 million for the nine months ended September 30, 2020 and 2019, respectively.

Shelf Registration Statement

We have an effective shelf registration statement on Form S-3 (Registration No.

333-227012) that was filed on August 24, 2018 with the Securities and Exchange Commission, registering the offering and sale of an indeterminate amount of debt securities, guarantees of debt securities, preferred stock, common stock, warrants, depositary shares, purchase contracts and units that include any of these securities.

For the three months ended March 31, 2021, our effective tax rate of 19.2 % is lower than the Federal statutory rate primarily as a result of the extension of the federal energy efficient homes tax credit that was enacted into law in December 2019 and excess compensation cost for share-based payments, partially offset by an increase in the rate for state income taxes, net of the federal benefit payments.

Income taxes paid were $ 0.2 million and $ 18.4 million for the three months ended March 31, 2021 and 2020, respectively.

Stock Repurchase Program

In November 2018, we announced that our Board of Directors (the “Board”) authorized a stock repurchase program, pursuant to which we may purchase up to $ 50.0 million of shares of our common stock through open market transactions, privately negotiated transactions or otherwise in accordance with applicable laws.

We did no t repurchase any shares of our common stock during the three months ended September 30, 2020.

During the nine months ended September 30, 2020, we repurchased 567,028 shares of our common stock for $ 31.3 million to be held as treasury stock.

In October 2020, the Board approved an increase in our stock repurchase program by an additional $ 300.0 million.

During the three months ended March 31, 2021 and 2020, we repurchased 216,221 and 567,028 shares of our common stock for $ 25.8 million and $ 31.3 million, respectively, to be held as treasury stock.

A total of 757,993 shares of our common stock has been repurchased since our stock repurchase program commenced.

As of September 30, 2020, we may purchase up to $ 17.2 million of shares of our common stock under our stock repurchase program.

On October 30, 2020, the Board approved an increase in our stock repurchase program by an additional $ 300.0 million, increasing the available authorization under the program to purchase up to $ 317.2 million of shares of our common stock as of the date of this Quarterly Report on Form 10-Q.

As of March 31, 2021, we may purchase up to $ 274.6 million of shares of our common stock under our stock repurchase program.

The timing, amount and other terms and conditions of any repurchases of shares of our common stock under our stock repurchase program will be determined by our management at its discretion based on a variety of factors, including the market price of our common stock, corporate considerations, general market and economic conditions and legal requirements.

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EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2020 and 2019:

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

The following table sets forth the computation of basic and diluted earnings per share for the three months ended March 31, 2021 and 2020:

Three Months Ended March 31,

Numerator (in thousands):

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Effect of dilutive securities:

Convertible Notes - treasury stock method — 2,336,017 — 2,223,443

Stock-based compensation units 270,005 269,716

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Antidilutive non-vested restricted stock units excluded from calculation of diluted earnings per share 21,510 26,893

In accordance with Accounting Standards Codification (“ASC”) 260-10, Earnings Per Share , we calculated the dilutive effect of the Convertible Notes using the treasury stock method, since we had the intent and ability to settle the principal amount of the outstanding Convertible Notes in cash.

The Convertible Notes matured and were repaid in full on November 15, 2019.

Prior to the maturity of the Convertible Notes, we included the effect of the additional potential dilutive shares if our common stock price exceeded the conversion price of $ 21.52 per share under the treasury stock method.

During the three and nine months ended September 30, 2019, the average market price of our common stock exceeded the conversion price of $ 21.52 per share.

STOCK-BASED COMPENSATION

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The following table summarizes the activity of our time-vested restricted stock units (“RSUs”):

Nine Months Ended September 30,

Three Months Ended March 31,

Shares Weighted Average Grant Date Fair Value Shares Weighted Average Grant Date Fair Value

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Ending balance 134,070 $ 75.79 156,874 $ 59.71

We recognized $ 0.9 million and $ 0.5 million of stock-based compensation expense related to outstanding RSUs for the three months ended September 30, 2020 and 2019, respectively.

We recognized $ 2.6 million and $ 1.6 million of stock-based compensation expense related to outstanding RSUs for the nine months ended September 30, 2020 and 2019, respectively.

We recognized $ 0.8 million of stock-based compensation expense related to outstanding RSUs for the three months ended March 31, 2021 and 2020.

Generally, the RSUs cliff vest on the third anniversary of the grant date and can only be settled in shares of our common stock.

At September 30, 2020, we had unrecognized compensation cost of $ 4.2 million related to unvested RSUs, which is expected to be recognized over a weighted average period of 1.9 years.

At March 31, 2021, we had unrecognized compensation cost of $ 6.2 million related to unvested RSUs, which is expected to be recognized over a weighted average period of 2.2 years.

Performance-Based Restricted Stock Units

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The terms of the PSUs provide that the payouts will be capped at 100 % of the target number of PSUs granted if absolute total stockholder return is negative during the performance period, regardless of EPS performance;

this market condition applies for amounts recorded above target.

market condition applies for amounts recorded above target.

The compensation expense associated with the PSU grants is determined using the derived grant date fair value, based on a third-party valuation analysis, and expensed over the applicable period.

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The PSUs can only be settled in shares of our common stock.

The following table summarizes the activity of our PSUs for the nine months ended September 30, 2020:

Period Granted Performance Period Target PSUs Outstanding at December 31, 2019 Target PSUs Granted Target PSUs Vested Target PSUs Forfeited Target PSUs Outstanding at September 30, 2020 Weighted Average Grant Date Fair Value

The following table summarizes the activity of our PSUs for the three months ended March 31, 2021:

Period Granted Performance Period Target PSUs Outstanding at December 31, 2020 Target PSUs Granted Target PSUs Vested Target PSUs Forfeited Target PSUs Outstanding at March 31, 2020 Weighted Average Grant Date Fair Value

2018 2018 - 2020 60,040 — ( 60,040 ) — — $ 64.60

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Total 229,820 46,027 ( 60,040 ) — 215,807

At September 30, 2020, management estimates that the recipients will receive approximately 152 %, 135 % and 161 % of the 2020, 2019 and 2018 target number of PSUs, respectively, at the end of the applicable three-year performance cycle based on projected performance compared to the target performance metrics.

We recognized $ 1.3 million and $ 1.1 million of total stock-based compensation expense related to outstanding PSUs for the three months ended September 30, 2020 and 2019, respectively.

We recognized $ 3.7 million and $ 3.2 million of total stock-based compensation expense related to outstanding PSUs for the nine months ended September 30, 2020 and 2019, respectively.

PSUs granted in 2017 vested on March 15, 2020 at 199 % of the target amount, and 208,867 shares of our common stock were issued upon such vesting.

At September 30, 2020, we had unrecognized compensation cost of $ 9.4 million, based on the probable amount, related to unvested PSUs, which is expected to be recognized over a weighted average period of 2.0 years.

At March 31, 2021, management estimates that the recipients will receive approximately 100 %, 200 % and 200 % of the 2021, 2020 and 2019 target number of PSUs, respectively, at the end of the applicable three-year performance cycle based on projected performance compared to the target performance metrics.

We recognized $ 2.2 million and $ 0.9 million of total stock-based compensation expense related to outstanding PSUs for the three months ended March 31, 2021 and 2020, respectively.

The 2018 - 2020 performance period PSUs vested and issued on March 15, 2021 at 200 % of the target number.

At March 31, 2021, we had unrecognized compensation cost of $ 16.6 million, based on the probable amount, related to unvested PSUs, which is expected to be recognized over a weighted average period of 2.1 years.

FAIR VALUE DISCLOSURES

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The fair value of financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and certain accrued liabilities approximate their carrying amounts due to the short-term nature of these instruments.

September 30, 2020, the Credit Agreement’s carrying value approximates market value since it has a floating interest rate, which increases or decreases with market interest rates and our leverage ratio.

As of March 31, 2021, the Credit Agreement’s carrying value approximates market value since it has a floating interest rate, which increases or decreases with market interest rates and our leverage ratio.

In order to determine the fair value of the Senior Notes, the future contractual cash flows are discounted at our estimate of current market rates of interest, which were determined based upon the average interest rates of similar senior notes within the homebuilding industry (Level 2 measurement).

The following table below shows the level and measurement of liabilities at September 30, 2020 and December 31, 2019 (in thousands):

September 30, 2020 December 31, 2019

The following table below shows the level and measurement of liabilities at March 31, 2021 and December 31, 2020 (in thousands):

March 31, 2021 December 31, 2020

Fair Value Hierarchy Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value

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Land Purchases from Affiliates

As of September 30, 2020, we have a land purchase contract to purchase a total of 110 finished lots in Pasco County, Florida from an affiliate of one of our directors for a total base purchase price of approximately $ 4.0 million.

As of March 31, 2021, we have a land purchase contract to purchase a total of 110 finished lots in Pasco County, Florida from an affiliate of one of our directors for a total base purchase price of approximately $ 4.0 million.

The lots will be purchased in takedowns, subject to a maximum price escalation of 6 % per annum, and may provide for additional payments to the seller at the time of sale to the homebuyer.

We have a $ 0.2 million non-refundable deposit at September 30, 2020 related to this land purchase contract.

We have a $ 0.2 million non-refundable deposit at March 31, 2021 related to this land purchase contract.

In August 2019, we purchased our first takedown of 58 lots under the Pasco County contract for a base purchase price of approximately $ 2.1 million.

We did not complete any takedowns under this land purchase contract during the three and nine months ended September 30, 2020.

During the three months ended September 30, 2020, we entered into a land purchase contract to purchase 10 finished lots in Montgomery County, Texas from an affiliate of a family member of our chief executive officer for a total base purchase price of approximately $ 0.8 million.

That transaction closed on October 23, 2020.

During the nine months ended September 30, 2020, we purchased 25 finished lots in Montgomery County, Texas from an affiliate of the same family member of our chief executive officer for a total base purchase price of approximately $ 2.0 million.

We did not complete any takedowns under this land purchase contract during the three months ended March 31, 2021 and 2020.

As of March 31, 2021, we have a land purchase contract to purchase a total of 25 finished lots in Burnet County, Texas from an affiliate of a family member of our chief executive officer for a total base purchase price of approximately $ 2.5 million.

COMMITMENTS AND CONTINGENCIES

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The following is a summary of our land purchase deposits included in pre-acquisition costs and deposits (in thousands, except for lot count):

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Land deposits and option payments $ 35,484 $ 34,097

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Lots under land purchase contracts 28,784 26,236

As of September 30, 2020 and December 31, 2019, approximately $ 21.8 million and $ 26.3 million, respectively, of the land deposits are related to purchase contracts to deliver finished lots that are refundable under certain circumstances, such as feasibility or specific performance, and secured by mortgages or letters of credit or guaranteed by the seller or its affiliates.

As of March 31, 2021 and December 31, 2020, approximately $ 25.1 million and $ 24.0 million, respectively, of the land deposits are related to purchase contracts to deliver finished lots that are refundable under certain circumstances, such as feasibility or specific performance, and secured by mortgages or letters of credit or guaranteed by the seller or its affiliates.

Lease Obligations

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As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments.

ROU assets, as included in other assets on the consolidated balance sheets, were $ 5.0 million and $ 5.3 million as of September 30, 2020 and December 31, 2019, respectively.

Lease obligations, as included in accrued expenses and other liabilities on the consolidated balance sheets, were $ 5.3 million and $ 5.6 million at September 30, 2020 and December 31, 2019, respectively.

Operating lease cost, as included in general and administrative expense in our consolidated statements of operations, was $ 0.4 million and $ 0.3 million for the three months ended September 30, 2020 and 2019, respectively.

Operating lease cost, as included in general and administrative expense in our consolidated statements of operations, was $ 1.2 million and $ 0.9 million for the nine months ended September 30, 2020 and 2019, respectively.

Cash paid for amounts included in the measurement of lease liabilities for operating leases during the nine months ended September 30, 2020 and 2019 was $ 0.7 million and $ 0.3 million, respectively.

As of September 30, 2020, the weighted-average discount rate was 5.42 % and our weighted-average remaining life was 5.6 years.

We do not have any significant lease contracts that have not yet commenced at September 30, 2020.

The table below shows the future minimum payments under non-cancelable operating leases at September 30, 2020 (in thousands):

ROU assets, as included in other assets on the consolidated balance sheets, were $ 4.9 million as of March 31, 2021 and December 31, 2020.

Lease obligations, as included in accrued expenses and other liabilities on the consolidated balance sheets, were $ 5.2 million and $ 5.3 million at March 31, 2021 and December 31, 2020, respectively.

Operating lease cost, as included in general and administrative expense in our consolidated statements of operations, was $ 0.4 million for the three months ended March 31, 2021 and 2020.

Cash paid for amounts included in the measurement of lease liabilities for operating leases during the three months ended March 31, 2021 and 2020 was $ 0.2 million and $ 0.4 million, respectively.

As of March 31, 2021, the weighted-average discount rate was 5.24 % and our weighted-average remaining life was 4.8 years.

We do not have any significant lease contracts that have not yet commenced at March 31, 2021.

The table below shows the future minimum payments under non-cancelable operating leases at March 31, 2021 (in thousands):

Year Ending December 31, Operating leases

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Bonding and Letters of Credit

We have outstanding letters of credit and performance and surety bonds totaling $ 120.4 million (including $ 15.3 million of letters of credit issued under the Credit Agreement) and $ 108.7 million at September 30, 2020 and December 31, 2019,

respectively, related to our obligations for site improvements at various projects.

We have outstanding letters of credit and performance and surety bonds totaling $ 167.6 million (including $ 10.3 million of letters of credit issued under the Credit Agreement) and $ 143.8 million at March 31, 2021 and December 31, 2020, respectively, related to our obligations for site improvements at various projects.

Management does not believe that draws upon the letters of credit, surety bonds or financial guarantees if any, will have a material effect on our consolidated financial position, results of operations or cash flows.

Investment in Unconsolidated Entity

In July 2019, we became a limited partner in a real estate investment fund with a maximum $ 30.0 million commitment.

In 2019, we became a limited partner in a real estate investment fund with a maximum $ 30.0 million commitment.

The term of the commitment is eight years and includes renewals of up to two additional years.

As of September 30, 2020 and December 31, 2019, we have a total of $ 2.1 million and $ 1.1 million, respectively, within other assets on the balance sheet.

As of March 31, 2021 and December 31, 2020, we have a total of $ 2.2 million and $ 3.9 million, respectively, within other assets on the balance sheet.

Contributions into the unconsolidated entity are for the use of investing in certain real estate transactions.

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We operate one principal homebuilding business that is organized and reports by division.

We have seven operating segments (our Central, Midwest, Southeast, Mid-Atlantic, Northwest, West, and Florida divisions) that we aggregate into five reportable segments at September 30, 2020:

We have seven operating segments (our Central, Midwest, Southeast, Mid-Atlantic, Northwest, West, and Florida divisions) that we aggregate into five reportable segments at March 31, 2021:

our Central, Southeast, Northwest, West, and Florida divisions.

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

The Central division is our largest division and comprised approximately 35 % and 41 % of total home sales revenues for the nine months ended September 30, 2020 and 2019, respectively.

The Central division is our largest division and comprised approximately 40.9 % and 36.5 % of total home sales revenues for the three months ended March 31, 2021 and 2020, respectively.

In accordance with ASC Topic 280, Segment Reporting , operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision-makers (“CODMs”) in deciding how to allocate resources and in assessing performance.

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Financial information relating to our reportable segments was as follows (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

Three Months Ended March 31,

Central $ 288,750 $ 165,775

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( 1,610 ) ( 1,577 )

Total net income (loss) before income taxes $ 77,815 $ 64,732 $ 201,301 $ 146,961

Total net income before income taxes $ 123,276 $ 54,889

(1) The Corporate balance consists primarily of general and administration unallocated costs for various shared service functions, as well as our warranty reserve.

Actual warranty expenses are reflected within the reportable segments.

September 30, 2020 December 31, 2019

March 31, 2021 December 31, 2020

Central $ 679,525 $ 708,087

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Total assets $ 1,825,486 $ 1,826,087

(1) As of September 30, 2020, the Corporate balance consists primarily of cash, prepaid insurance, ROU assets, prepaid expenses and income tax receivables related to the federal energy efficient homes tax credit.

As of December 31, 2019, the Corporate balance consists primarily of cash, prepaid insurance, ROU assets and prepaid expenses.

(1) The Corporate balance consists primarily of cash, prepaid insurance, ROU assets, prepaid expenses and income tax receivables related to the federal energy efficient homes tax credit.

SUBSEQUENT EVENT

On April 28, 2021, we entered into that certain Fifth Amended and Restated Credit Agreement with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent, which amends and restates the 2020 Credit Agreement, as more fully discussed in Note 5 .

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-Q

Item 1. Financial Statements