What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-05-04 compared with 2020-11-03 · 121 added, 262 removed, 338 unchanged (53% of the section changed)

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

Albuquerque, NM Denver, CO San Antonio, TX Fort Myers, FL Raleigh, NC

Las Vegas, NV Colorado Springs, CO Austin, TX Jacksonville, FL Wilmington, NC

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

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

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

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Since commencing home building operations in 2003, we have constructed and closed over 45,000 homes.

During the nine months ended September 30, 2020, we had 5,931 home closings, compared to 5,175 home closings during the nine months ended September 30, 2019.

During the three months ended March 31, 2021, we had 2,561 home closings, compared to 1,835 home closings during the three months ended March 31, 2020.

We sell homes under the LGI Homes and Terrata Homes brands.

Our 110 active communities at September 30, 2020 included two Terrata Homes communities.

During the three months ended September 30, 2020, we recorded $19.0 million in wholesale revenues as a result of 92 home closings, representing 4.4% of the total homes closed during the three months ended September 30, 2020.

During the three months ended September 30, 2019, we recorded $26.0 million in wholesale revenues as a result of 127 wholesale home closings, representing 6.3% of the total homes closed during the three months ended September 30, 2019.

Our 110 active communities at March 31, 2021 included two Terrata Homes communities.

During the three months ended March 31, 2021, we recorded $62.4 million in wholesale revenues as a result of 283 home closings, representing 11.1% of the total homes closed during the three months ended March 31, 2021.

During the three months ended March 31, 2020, we recorded $44.3 million in wholesale revenues as a result of 199 home closings, representing 10.8% of the total homes closed during the three months ended March 31, 2020.

We believe our wholesale home closings provide opportunities for us to leverage our systems and processes to meet the needs of companies looking to acquire multiple homes for rental purposes, primarily through bulk sales agreements.

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.

There is considerable uncertainty regarding the extent to which COVID-19 will continue to spread and the extent and duration of governmental and other

measures implemented to try to slow the spread of COVID-19.

Such measures have caused, and may continue to cause, us, our subcontractors, suppliers and other business counterparties to experience operational delays.

Demand for our homes is dependent on a variety of macroeconomic factors, such as employment levels, interest rates, changes in stock market valuations, consumer confidence, housing demand, availability of financing for home buyers, availability and prices of new homes compared to existing inventory, and demographic trends.

These factors, and in particular consumer confidence, can be significantly adversely affected by a variety of factors beyond our control.

The outbreak of COVID-19 caused the shutdown of large portions of our national economy during the first half of 2020.

The spread of COVID-19 has also caused significant volatility in U.S.

The spread of COVID-19 has caused significant volatility in U.S.

and international debt and equity markets, which can negatively impact consumer confidence.

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During the COVID-19 outbreak, our main focus beyond the health and safety mentioned above is to continue our efforts to sell homes and complete our homes under construction.

In addition to the measures discussed above, beginning in March 2020, we implemented certain cash management policies, including eliminating business air travel, cancelling in-person group meetings, delaying or canceling land acquisitions, deferring new starts to manage our overall inventory, significantly reducing marketing expenditures and delaying major expenditures.

In May 2020, we began to acquire land and release starts for home construction in addition to increasing marketing expenditures and later began reinstating some necessary travel.

From time to time during the COVID-19 outbreak, we have had to close individual sales offices for a limited period of time, as a result of potential or actual exposure to COVID-19 by one or more of our employees.

In September 2020, our employees working in our corporate headquarters returned to working under modified protocols to ensure health and safety at the office.

We cannot estimate with any degree of certainty the full impact of COVID-19 on our financial condition and future results of operations.

We also cannot predict the full impact that the significant disruption and volatility currently being experienced in the markets will have on our business, cash flows, liquidity, financial condition and results of operations at this time, due to numerous uncertainties.

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.

We cannot predict the full impact that the significant disruption and volatility currently being experienced in the markets will have on our business, cash flows, liquidity, financial condition and results of operations at this time, due to numerous uncertainties.

For additional discussion regarding our operations and COVID-19, see Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II our Annual Report on Form 10-K for the fiscal year ended

December 31, 2020.

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 emergence of more infectious strains of the virus, the impact of government actions designed to prevent the spread of COVID-19 or the decrease in such actions, the availability and timely distribution of, and willingness to accept, 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.

For additional discussion regarding risks associated with the COVID-19 pandemic, see Item 1A.

Risk Factors in Part II of this Quarterly Report on Form 10-Q.

Risk Factors in Part I our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

While we expect COVID-19 to continue to influence our future results, we believe that the desire for single-family homes outside of densely populated urban areas combined with historically low mortgage rates and low availability of existing homes is driving an increase in demand for new homes.

Recent Developments

On October 16, 2020, the Company paid a special one-time appreciation bonus, totaling $1.5 million, to approximately 760 eligible “frontline” employees 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.

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.

Key financial results as of and for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019, were as follows:

During the three months ended March 31, 2021, we purchased 216,221 shares of our common stock for $25.8 million under our previously announced stock repurchase program.

In March 2021, we entered into a joint venture with loanDepot.com, LLC to offer mortgage services within markets we operate.

On April 28, 2021, we entered into the Credit Agreement (as defined herein), 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.

Key financial results as of and for the three months ended March 31, 2021, as compared to the three months ended March 31, 2020, were as follows:

• Home sales revenues increased 55.2% to $706.0 million from $454.7 million.

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• Adjusted EBITDA (non-GAAP) as a percentage of home sales revenues increased to 19.0% from 14.0%.

• Total owned and controlled lots increased 29.1% to 57,185 lots at September 30, 2020 from 44,307 lots at June 30, 2020.

For reconciliations of the non-GAAP financial measures of adjusted gross margin, EBITDA and adjusted EBITDA to the most directly comparable GAAP financial measures, please see “ —Non-GAAP Measures .”

Key financial results as of and for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019, were as follows:

• Home sales revenues increased 19.3% to $1.5 billion from $1.2 billion.

• Homes closed increased 14.6% to 5,931 homes from 5,175 homes.

• Average sales price per home closed increased 4.1% to $247,940 from $238,165.

• Gross margin as a percentage of home sales revenues increased to 24.5% from 23.9%.

• Adjusted gross margin (non-GAAP) as a percentage of home sales revenues increased to 26.5% from 26.0%.

• Net income before income taxes increased 37.0% to $201.3 million from $147.0 million.

• Net income increased 64.8% to $187.5 million from $113.7 million.

• EBITDA (non-GAAP) as a percentage of home sales revenues increased to 15.5% from 13.9%.

• Adjusted EBITDA (non-GAAP) as a percentage of home sales revenues increased to 15.6% from 13.8%.

• Total owned and controlled lots increased 19.0% to 57,185 lots at September 30, 2020 from 48,062 lots at December 31, 2019.

• Total owned and controlled lots increased 9.4% to 67,286 lots at March 31, 2021 from 61,504 lots at December 31, 2020.

Results of Operations

The following table sets forth our results of operations for the periods indicated:

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

2020 2019 2020 2019

The following table sets forth our results of operations for the three months ended March 31, 2021 and 2020:

Three Months Ended March 31,

(dollars in thousands, except per share data and average home sales price)

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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

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We define EBITDA as net income before (i) interest expense, (ii) income taxes, (iii) depreciation and amortization and (iv) capitalized interest charged to the cost of sales.

We define adjusted EBITDA as net income before (i) interest expense, (ii) income taxes, (iii) depreciation and amortization, (iv) capitalized interest charged to the cost of sales, (v) loss on

extinguishment of debt, (vi) other income, net and (vii) adjustments resulting from the application of purchase accounting.

Our management believes that the presentation of EBITDA and adjusted EBITDA provides useful information to investors regarding our results of operations because it assists both investors and management in analyzing and benchmarking the performance and value of our business.

We define adjusted EBITDA as net income before (i) interest expense, (ii) income taxes, (iii) depreciation and amortization, (iv) capitalized interest charged to the cost of sales, (v) loss on extinguishment of debt, (vi) other income, net and (vii) adjustments resulting from the application of purchase accounting.

Our management believes that the presentation of EBITDA and adjusted EBITDA provides useful information to investors regarding our

results of operations because it assists both investors and management in analyzing and benchmarking the performance and value of our business.

EBITDA and adjusted EBITDA provide indicators of general economic performance that are not affected by fluctuations in interest rates or effective tax rates, levels of depreciation or amortization and items considered to be unusual or non-recurring.

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Please see “ —Non-GAAP Measures ” for reconciliations of EBITDA and adjusted EBITDA to net income, which is the GAAP financial measure that our management believes to be most directly comparable.

Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019

Our home sales revenues, home closings, average sales price per home closed (ASP), average community count, average monthly absorption rate and closing community count by reportable segment for the three months ended September 30, 2020 and 2019 were as follows (revenues in thousands):

Three Months Ended September 30, 2020

Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

Our home sales revenues, home closings, average sales price per home closed (ASP), average community count, average monthly absorption rate and closing community count by reportable segment for the three months ended March 31, 2021 and 2020 were as follows (revenues in thousands):

Three Months Ended March 31, 2021 As of March 31, 2021

Revenues Home Closings ASP Average Community Count Average

Absorption Rate

Absorption Rate Community Count at End of Period

Central $ 288,750 1,127 $ 256,211 37.3 10.1 38

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Total $ 705,953 2,561 $ 275,655 106.3 8.0 110

Three Months Ended September 30, 2019

Three Months Ended March 31, 2020 As of March 31, 2020

Revenues Home Closings ASP Average Community Count Average

Absorption Rate

Absorption Rate Community Count at End of Period

Central $ 165,775 741 $ 223,718 34.0 7.3 35

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Total $ 454,727 1,835 $ 247,808 108.7 5.6 113

As of September 30,

Community count 2020 2019

Central 35 34

Southeast 31 27

Northwest 13 14

Florida 19 15

Total community count 110 103

Home sales revenues for the three months ended September 30, 2020 were $534.2 million, an increase of $51.1 million, or 10.6%, from $483.1 million for the three months ended September 30, 2019.

The increase in home sales revenues is primarily due to a 4.4% increase in homes closed and an increase in the average sales price per home closed during the three months ended September 30, 2020 as compared to the three months ended September 30, 2019.

The average sales price per home closed during the three months ended September 30, 2020 was $255,477, an increase of $14,298, or 5.9%, from the average sales price per home closed of $241,179 for the three months ended September 30, 2019.

This increase in the average sales price per home closed is primarily due to changes in product mix, higher price points in certain markets and a favorable pricing environment.

The overall increase in home closings was largely due to deepening our presence within certain markets in the Southeast and Florida reportable segments during the three months ended September 30, 2020 as compared to the three months ended September 30, 2019.

Home sales revenues in our Central reportable segment decreased by $7.0 million, or 3.6%, during the three months ended September 30, 2020 as compared to the three months ended September 30, 2019, primarily due to a 7.3% decrease in the number of homes closed due to the close out of or transition between, and to a lesser extent available inventory in, certain active communities for the three months ended September 30, 2020, partially offset by an increase in the average sales price per home

closed in this reportable segment.

Home sales revenues in our Southeast reportable segment increased by $38.7 million, or 42.3%, primarily due to an increase in community count within existing markets.

Home sales revenues in our Northwest reportable segment decreased by $1.1 million, or 1.2%, primarily due to a decrease in the number of homes closed and due to the close out of or transition between, and to a lesser extent available inventory in, certain active communities for the three months ended September 30, 2020.

Home sales revenues in our West reportable segment increased by $1.5 million, or 2.4%, during the three months ended September 30, 2020 as compared to the three months ended September 30, 2019, primarily due to an 11.7% increase in average sales price per home closed, offset by an 8.3% decrease in the number of homes closed in this reportable segment, as a result of close out of or transition between, and to a lesser extent available inventory in, certain active communities for the three months ended September 30, 2020.

Home sales revenues in our Florida reportable segment increased by $19.0 million, or 43.1%, largely due to an increase in the number of homes closed resulting from an increase in community count for the three months ended September 30, 2020 as compared to the three months ended September 30, 2019.

Our community count at September 30, 2020 increased to 110 from 103 at September 30, 2019.

The overall increase in community count was primarily driven by deepening our existing market presence within the Southeast and Florida reportable segments, and partially offset by close out or transition between communities within certain markets located within our Central, Northwest and West reportable segments during the three months ended September 30, 2020.

Our results of operations for the three months ended March 31, 2021 reflect a significant rebound following the slowdown related to the COVID-19 pandemic that occurred during March and April 2020.

Increase in the demand for our homes driven by benefits of homeownership, low interest rates and an undersupply of new and existing homes available for sale have resulted in an 110.8% increase to our backlog net orders at March 31, 2021 as compared to March 31, 2020.

Home sales revenues for the three months ended March 31, 2021 were $706.0 million, an increase of $251.2 million, or 55.2%, from $454.7 million for the three months ended March 31, 2020.

The increase in home sales revenues is primarily due to a 39.6% increase in homes closed and an increase in the average sales price per home closed during the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.

The average sales price per home closed during the three months ended March 31, 2021 was $275,655, an increase of $27,847, or 11.2%, from the average sales price per home closed of $247,808 for the three months ended March 31, 2020.

This increase in the average sales price per home closed is primarily due to a favorable pricing environment, increased closings at higher price points in certain markets and changes in product mix.

The overall increase in home closings was largely due to a strong demand environment leading to higher average monthly absorption rates within certain markets in the Central and Florida reportable segments during the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.

Our community count at March 31, 2021 decreased to 110 from 113 at March 31, 2020.

Home sales revenues in our Central reportable segment increased by $123.0 million, or 74.2%, during the three months ended March 31, 2021 as compared to the three months ended March 31, 2020, primarily due to a 52.1% increase in the number of homes closed, increased community count at a higher absorption rate and an increase in the average sales price per home closed.

Home sales revenues in our Florida reportable segment increased by $41.2 million, or 102.9%, largely due to an increase in the number of homes closed resulting from an increase in community count and at a higher absorption rate for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.

Home sales revenues in our Southeast reportable segment increased by $48.1 million, or 54.4%, primarily due to increased home closings at higher average sales price, as well as continued expansion into certain Mid-Atlantic geographic markets.

Home sales revenues in our

Northwest reportable segment increased by $16.2 million, or 15.9%, primarily due to increased demand and an increase in the number of homes closed, partially offset by the close out of or transition between, and to a lesser extent available inventory in, certain active communities for the three months ended March 31, 2021.

Home sales revenues in our West reportable segment increased by $22.7 million, or 38.8%, during the three months ended March 31, 2021 as compared to the three months ended March 31, 2020, primarily due to a 31.5% increase in average sales price per home closed, and the close out of or transition between, and to a lesser extent available inventory in, certain active communities for the three months ended March 31, 2021.

Cost of Sales and Gross Margin (home sales revenues less cost of sales).

Cost of sales increased for the three months ended September 30, 2020 to $399.0 million, an increase of $32.5 million, or 8.9%, from $366.4 million for the three months ended September 30, 2019, primarily due to the increase in homes closed and product mix.

As a percentage of home sales revenues, cost of sales decreased as a result of an increase in home sales revenues benefiting our home construction costs, lower capitalized interest and lower overhead, partially offset by higher lot costs during the three months ended September 30, 2020 as compared to the three months ended September 30, 2019.

Gross margin for the three months ended September 30, 2020 was $135.2 million, an increase of $18.6 million, or 15.9%, from $116.7 million for the three months ended September 30, 2019.

Gross margin as a percentage of home sales revenues was 25.3% for the three months ended September 30, 2020 and 24.1% for the three months ended September 30, 2019.

This increase in gross margin as a percentage of home sales revenues is primarily due to an increase in homes closed with a higher average sales price per home closed, lower capitalized interest and lower overhead, offset by higher lot costs for the three months ended September 30, 2020 as compared to the three months ended September 30, 2019.

Cost of sales increased for the three months ended March 31, 2021 to $516.0 million, an increase of $167.8 million, or 48.2%, from $348.2 million for the three months ended March 31, 2020, primarily due to the increase in homes closed.

Gross margin for the three months ended March 31, 2021 was $189.9 million, an increase of $83.4 million, or 78.2%, from $106.6 million for the three months ended March 31, 2020.

Gross margin as a percentage of home sales revenues was 26.9% for the three months ended March 31, 2021 and 23.4% for the three months ended March 31, 2020.

This increase in gross margin as a percentage of home sales revenues is primarily due to an increase in homes closed with a higher average sales price per home closed, lower capitalized interest and lower overhead expense, offset by higher lot costs for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.

Selling Expenses.

Selling expenses for the three months ended September 30, 2020 were $35.5 million, an increase of $2.0 million, or 5.9%, from $33.5 million for the three months ended September 30, 2019.

Sales commissions increased to $20.7 million for the three months ended September 30, 2020 from $17.7 million for the three months ended September 30, 2019, primarily due to a 10.6% increase in home sales revenues during the three months ended September 30, 2020 as compared to the three months ended September 30, 2019.

Selling expenses as a percentage of home sales revenues were 6.6% and 6.9% for the three months ended September 30, 2020 and 2019, respectively.

The decrease in selling expenses as a percentage of home sales revenues reflects sustained cost saving measures implemented and the increased demand for our homes in response to the COVID-19 pandemic, as well as operating leverage realized from the increase in home sales revenues during the three months ended September 30, 2020 as compared to the three months ended September 30, 2019.

Selling expenses for the three months ended March 31, 2021 were $42.8 million, an increase of $10.0 million, or 30.6%, from $32.8 million for the three months ended March 31, 2020.

Sales commissions increased to $26.3 million for the three months ended March 31, 2021 from $16.5 million for the three months ended March 31, 2020, primarily due to a 55.2% increase in home sales revenues during the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.

Selling expenses as a percentage of home sales revenues were 6.1% and 7.2% for the three months ended March 31, 2021 and 2020, respectively.

The decrease in selling expenses as a percentage of home sales revenues reflects operating leverage realized from the increase in home sales revenues during the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.

General and Administrative.

General and administrative expenses for the three months ended September 30, 2020 were $22.3 million, an increase of $3.2 million, or 16.6%, from $19.1 million for the three months ended September 30, 2019.

The increase in the amount of general and administrative expenses is primarily due to increased personnel associated with an increase in active communities during the three months ended September 30, 2020 as compared to the three months ended September 30, 2019.

General and administrative expenses as a percentage of home sales revenues were 4.2% and 4.0% for the three months ended September 30, 2020 and 2019, respectively.

The increase in general and administrative expenses as a percentage of home sales revenues reflects costs primarily related to the identification and certification of available federal energy efficient homes tax credits and, to a lesser extent, increased personnel associated with an increase in active communities during the three months ended September 30, 2020 as compared to the three months ended September 30, 2019.

Operating Income and Net Income before Taxes.

Operating income for the three months ended September 30, 2020 was $77.4 million, an increase of $13.4 million, or 21.0%, from $64.0 million for the three months ended September 30, 2019.

Net income before income taxes for the three months ended September 30, 2020 was $77.8 million, an increase of $13.1 million, or 20.2%, from $64.7 million for the three months ended September 30, 2019.

All reportable segments contributed to net income before income taxes during the three months ended September 30, 2020 as follows:

General and administrative expenses for the three months ended March 31, 2021 were $24.7 million, an increase of $4.8 million, or 24.1%, from $19.9 million for the three months ended March 31, 2020.

The increase in the amount of general and administrative expenses is primarily due to increased personnel and related costs during the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.

General and administrative expenses as a percentage of home sales revenues were 3.5% and 4.4% for the three months ended March 31, 2021 and 2020, respectively.

The decrease in general and administrative expenses as a percentage of home sales revenues reflects operating leverage realized from the increase in home sales revenues during the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.

Operating Income and Net Income before Income Taxes.

Operating income for the three months ended March 31, 2021 was $122.4 million, an increase of $68.6 million, or 127.3%, from $53.9 million for the three months ended March 31, 2020.

Net income before income taxes for the three months ended March 31, 2021 was $123.3 million, an increase of $68.4 million, or 124.6%, from $54.9 million for the three months ended March 31, 2020.

All reportable segments contributed to net income before income taxes during the three months ended March 31, 2021 as follows:

Central - $55.6 million or 45.1%;

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and Florida - $10.8 or 8.8%.

The increases in operating income and net income before income taxes are primarily attributed to operating leverage realized from the increase in home sales revenues and higher average sales price per home closed during the three months ended September 30, 2020 as compared to the three months ended September 30, 2019.

Income Taxes .

Income tax benefit for the three months ended September 30, 2020 was $11.2 million, an increase of $26.6 million, or 172.7%, from income tax provision of $15.4 million for the three months ended September 30, 2019.

The increase in

the amount of income tax benefit is primarily due to the change in our effective tax rate to a 14.4% effective tax benefit from a 23.8% effective tax provision as a result of the tax benefits relating to the federal energy efficient homes tax credits we recognized for the three months ended September 30, 2020, partially offset by the 20.2% increase in net income before taxes.

Federal energy efficient homes tax credits recognized during the three months ended September 30, 2020 totaled $29.4 million, of which $27.1 million related to homes closed in prior open tax years and homes closed in the first and second quarter of 2020.

This federal tax credit was extended to apply to homes closed through December 31, 2020.

We believe this tax credit will continue to impact our results of operations for the duration of 2020.

Net income for the three months ended September 30, 2020 was $89.0 million, an increase of $39.7 million, or 80.4%, from $49.3 million for the three months ended September 30, 2019.

The increase in net income is primarily attributed to operating leverage realized from the increase in home sales revenues, higher average sales price per home closed and $29.4 million of tax benefit relating to the federal energy efficient homes tax credits recognized during the three months ended September 30, 2020 as compared to the three months ended September 30, 2019.

Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019

Our home sales revenues, home closings, average sales price per home closed (ASP), average community count and average monthly absorption rate by reportable segment for the nine months ended September 30, 2020 and 2019 were as follows (revenues in thousands):

Nine Months Ended September 30, 2020

Revenues Home Closings ASP Average Community Count Average

Absorption Rate

Central $ 520,608 2,300 $ 226,351 33.8 7.6

Southeast 347,155 1,512 229,600 34.0 4.9

Northwest 249,455 655 380,847 11.8 6.2

West 182,012 692 263,023 14.2 5.4

Florida 171,301 772 221,892 17.6 4.9

Total $ 1,470,531 5,931 $ 247,940 111.3 5.9

Nine Months Ended September 30, 2019

Revenues Home Closings ASP Average Community Count Average Monthly

Absorption Rate

Central $ 507,951 2,342 $ 216,888 33.1 7.9

Southeast 221,686 1,010 219,491 23.1 4.9

Northwest 207,492 567 365,947 12.0 5.3

West 174,193 667 261,159 12.4 6.0

Florida 121,183 589 205,744 12.2 5.4

Total $ 1,232,505 5,175 $ 238,165 92.8 6.2

Our results of operations for the nine months ended September 30, 2020 reflect a significant rebound following the slowdown related to the COVID-19 pandemic that occurred during March and April 2020.

Since May, we have seen a continued and material increase in the demand for our homes driven by a renewed interest in the benefits of homeownership, low interest rates and an undersupply of new and existing homes available for sale.

Despite high levels of demand, our closings in July and August were limited by our decision to pause our construction and land acquisition activities in March and April as we evaluated the potential impacts of the COVID-19 pandemic on our business.

In May, we resumed construction activities and accelerated the pace of our new home starts and by August, our production began to catch up to demand.

As result, our home closings for the nine months ended September 30, 2020 were higher than our home closings for the nine months ended September 30, 2019.

Home sales revenues for the nine months ended September 30, 2020 were $1.5 billion, an increase of $238.0 million, or 19.3%, from $1.2 billion for the nine months ended September 30, 2019.

The increase in home sales revenues is primarily due to a 14.6% increase in homes closed and an increase in the average sales price per home closed during the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019.

The average sales price per home closed during the nine months ended September 30, 2020 was $247,940, an increase of $9,775, or 4.1%, from the average sales price per home closed of $238,165 for the nine months ended September 30, 2019.

This increase in the average sales price per home closed was primarily due to changes in product mix and higher price points in certain markets, partially offset by additional wholesale home closings.

The overall increase in home closings was primarily driven by deepening our presence within certain markets in the Southeast and Florida reportable segments during the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019.

The average monthly absorption rate fluctuations relate to timing associated with the opening, close out or transition between certain active communities during the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019.

Home sales revenues in our Central reportable segment increased by $12.7 million, or 2.5%, during the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019, primarily due to an increase in average sales price per home closed and increased community count at a slightly lower absorption rate, offset by a 1.8% decrease in the

number of homes closed in this reportable segment.

Home sales revenues in our Southeast reportable segment increased by $125.5 million, or 56.6%, during the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019, primarily due to an increase in community count associated with deepening our presence within existing markets and to a lesser extent our geographic expansion into certain markets in North Carolina and South Carolina at September 30, 2020 as compared to September 30, 2019.

Home sales revenues in our Northwest reportable segment increased by $42.0 million, or 20.2%, during the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019, primarily due to a 15.5% increase in the number of homes closed in this reportable segment, as a result of increased demand during the nine months ended September 30, 2019.

Home sales revenues in our West reportable segment increased by $7.8 million, or 4.5%, during the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019, primarily due to a 3.7% increase in the number of homes closed in this reportable segment.

Home sales revenues in our Florida reportable segment increased by $50.1 million, or 41.4%, largely due to an increased community count at a slightly lower absorption rate and an increase of 7.8% in the average sales price per home closed during the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019.

Cost of Sales and Gross Margin (home sales revenues less cost of sales).

Cost of sales increased for the nine months ended September 30, 2020 to $1.1 billion, an increase of $172.5 million, or 18.4%, from $938.2 million for the nine months ended September 30, 2019.

This overall increase is primarily due to a 14.6% increase in homes closed and product mix.

As a percentage of home sales revenues, cost of sales decreased as a result of the increase in home sales revenues benefiting our home construction costs, lower capitalized interest and lower overhead, partially offset by higher lot costs during the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019.

Gross margin for the nine months ended September 30, 2020 was $359.8 million, an increase of $65.5 million, or 22.3%, from $294.3 million for the nine months ended September 30, 2019.

Gross margin as a percentage of home sales revenues was 24.5% for the nine months ended September 30, 2020 and 23.9% for the nine months ended September 30, 2019.

This increase in gross margin as a percentage of home sales revenues for the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019 is primarily due to an increase in homes closed with a higher average sales price per home closed, which was driven by our product mix, favorable pricing environments and operating leverage obtained, partially offset by an increase in wholesale home closings as a percentage of total home closings.

Selling Expenses.

Selling expenses for the nine months ended September 30, 2020 were $98.2 million, an increase of $4.0 million, or 4.3%, from $94.2 million for the nine months ended September 30, 2019.

Sales commissions increased to $55.2 million for the nine months ended September 30, 2020 from $47.4 million for the nine months ended September 30, 2019, partially due to a 19.3% increase in home sales revenues during the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019.

Selling expenses as a percentage of home sales revenues were 6.7% and 7.6% for the nine months ended September 30, 2020 and 2019, respectively.

The decrease in selling expenses as a percentage of home sales revenues was driven primarily by lower advertising expenses and to a lesser extent operating leverage obtained from the increase in home sales revenues during the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019.

General and Administrative.

General and administrative expenses for the nine months ended September 30, 2020 were $62.4 million, an increase of $5.9 million, or 10.4%, from $56.6 million for the nine months ended September 30, 2019.

The increase in the amount of general and administrative expenses is primarily due to increased personnel associated with an increase in active communities during the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019.

General and administrative expenses as a percentage of home sales revenues were 4.2% and 4.6% for the nine months ended September 30, 2020 and 2019, respectively.

The decrease in general and administrative expenses as a percentage of home sales revenues reflects operating leverage realized from the increase in home sales revenues and cost saving measures implemented as a result of COVID-19 during the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019.

Operating Income and Net Income before Income Taxes.

Operating income for the nine months ended September 30, 2020 was $199.2 million, an increase of $55.6 million, or 38.7%, from $143.5 million for the nine months ended September 30, 2019.

Net income before income taxes for the nine months ended September 30, 2020 was $201.3 million, an increase of $54.3 million, or 37.0%, from $147.0 million for the nine months ended September 30, 2019.

All reportable segments contributed to net income before income taxes during the nine months ended September 30, 2020 as follows:

Central - $86.7 million or 43.1%;

Southeast - $42.1 million or 20.9%;

Northwest - $40.9 million or 20.3%;

West - $19.1 million or 9.5%;

and Florida - $17.0 million or 8.4%.

The increases in operating income and net income before income taxes are primarily attributed to operating leverage realized from the increase in home sales revenues and higher average sales price per home closed during the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019.

The increases in operating income and net income before income taxes are primarily attributed to higher gross margins, operating leverage realized from the increase in home sales revenues and higher average sales price per home closed during the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.

Income Taxes .

Income tax provision for the nine months ended September 30, 2020 was $13.8 million, a decrease of $19.4 million, or 58.4%, from income tax provision of $33.2 million for the nine months ended September 30, 2019.

The decrease in the amount of income tax provision is primarily due to the change in our effective tax rate to 6.9% from 22.6%

effective tax provision as a result of the tax benefits relating to the federal energy efficient homes tax credits we recognized during the nine months ended September 30, 2020, partially offset by the 37.0% increase in net income before taxes.

Federal energy efficient homes tax credits recognized during the nine months ended September 30, 2020 totaled $32.9 million, of which $26.6 million related to homes closed in prior open tax years.

This federal tax credit was extended to apply to homes closed through December 31, 2020.

We believe this tax credit will continue to impact our results of operations for the duration of 2020.

Net income for the nine months ended September 30, 2020 was $187.5 million, an increase of $73.7 million, or 64.8%, from $113.7 million for the nine months ended September 30, 2019.

The increase in net income is primarily attributed to operating leverage realized from the increase in home sales revenues, higher average sales price per home closed and $32.9 million of tax benefit relating to the federal energy efficient homes tax credits recognized during the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019.

Income tax provision for the three months ended March 31, 2021 was $23.6 million, an increase of $11.6 million, or 96.0%, from income tax provision of $12.1 million for the three months ended March 31, 2020.

The increase in the amount of income tax provision is primarily due to the 124.6% increase in net income before taxes, partially offset by the decrease in our effective tax rate to a 19.2% effective tax rate from a 22.0% effective tax rate as a result of the tax benefits relating to the federal energy efficient homes tax credits, as well as excess compensation cost for share-based payments, we recognized for the three months ended March 31, 2021.

Net income for the three months ended March 31, 2021 was $99.7 million, an increase of $56.8 million, or 132.6%, from $42.8 million for the three months ended March 31, 2020.

The increase in net income is primarily attributed to higher gross margins, operating leverage realized from the increase in home sales revenues, higher average sales price per home closed and the federal energy efficient homes tax credits recognized during the three months ended March 31, 2021 as compared to the three months ended March 31, 2020.

Non-GAAP Measures

In addition to the results reported in accordance with accounting principles generally accepted in the United States (“GAAP”), we have provided information in this Quarterly Report on Form 10-Q relating to adjusted gross margin, EBITDA and adjusted EBITDA, adjusted net income and adjusted earnings per share.

Adjusted Gross Margin

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The following table reconciles adjusted gross margin to gross margin, which is the GAAP financial measure that our management believes to be most directly comparable (dollars in thousands):

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

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Purchase accounting adjustments (1)

1,396 671 3,271 2,257

Adjusted gross margin $ 201,433 $ 116,117

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We define EBITDA as net income before (i) interest expense, (ii) income taxes, (iii) depreciation and amortization and (iv) capitalized interest charged to the cost of sales.

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The following table reconciles EBITDA and adjusted EBITDA to net income, which is the GAAP measure that our management believes to be most directly comparable (dollars in thousands):

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

2020 2019 2020 2019

Three Months Ended March 31,

Net income $ 99,658 $ 42,839

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Purchase accounting adjustments (1)

1,396 671 3,271 2,257

Loss on extinguishment of debt — — — 169

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

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(2) Calculated as a percentage of home sales revenues.

Adjusted Net Income and Adjusted Earnings per Share

Adjusted net income and adjusted earnings per share are non-GAAP financial measures used by management as supplemental measures in evaluating operating performance.

We define adjusted net income as net income less the federal energy efficient homes tax credits.

We define adjusted earnings per share as adjusted net income divided by weighted average shares outstanding.

Our management believes that the presentation of adjusted net income and adjusted earnings per share provides useful information to investors because such measures isolate the impact that material retroactive tax adjustments have on net income and earnings per share.

However, because adjusted net income and adjusted earnings per share information excludes the federal energy efficient homes tax credits, which have real economic effects and could impact our results, the utility of adjusted net income and adjusted earnings per share as measures of our operating performance may be limited.

In addition, other companies may not calculate adjusted net income and adjusted earnings per share in the same manner that we do.

Accordingly, adjusted net income and adjusted earnings per share information should be considered only as a supplement to net income and earnings per share information as measures of our performance.

The following table reconciles adjusted net income and adjusted earnings per share to net income and earnings per share, respectively, which are the GAAP measures that our management believes to be most directly comparable (dollars in thousands):

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

2020 2019 2020 2019

Numerator (in thousands):

Net income (Numerator for basic and diluted earnings per share) $ 89,004 $ 49,349 $ 187,467 $ 113,738

Retroactive federal energy efficient homes tax credits 27,141 — 26,595 —

Adjusted net income (Numerator for adjusted basic and diluted earnings per share) $ 61,863 $ 49,349 $ 160,872 $ 113,738

Basic weighted average shares outstanding 25,089,424 22,939,907 25,162,162 22,870,948

Diluted weighted average shares outstanding 25,257,053 25,521,946 25,328,555 25,329,461

Basic earnings per share $ 3.55 $ 2.15 $ 7.45 $ 4.97

Diluted earnings per share $ 3.52 $ 1.93 $ 7.40 $ 4.49

Adjusted basic earnings per share $ 2.47 $ 2.15 $ 6.39 $ 4.97

Adjusted diluted earnings per share $ 2.45 $ 1.93 $ 6.35 $ 4.49

We sell our homes under standard purchase contracts, which generally require a homebuyer to pay a deposit at the time of signing the purchase contract.

The amount of the required deposit is minimal (generally $1,000).

The deposits are refundable if the retail homebuyer is unable to obtain mortgage financing.

The amount of the required deposit is minimal (typically $1,000 to $5,000).

We permit our retail homebuyers to cancel the purchase contract and obtain a refund of their deposit in the event mortgage financing cannot be obtained within a certain period of time, as specified in their purchase contract.

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Only purchase contracts that are signed by homebuyers who have met the preliminary criteria to obtain mortgage financing are included in new (gross) orders.

As a result of COVID-19, it has been, and may continue to be, more difficult for our homebuyers to qualify for and obtain mortgage financing to purchase a home.

Our “backlog” consists of homes that are under a purchase contract that has been signed by homebuyers who have met the preliminary criteria to obtain mortgage financing but have not yet closed and wholesale contracts for which vertical construction is generally set to occur within the next six to twelve months .

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As of the dates set forth below, our net orders, cancellation rate and ending backlog homes and value were as follows (dollars in thousands):

Backlog Data Nine Months Ended September 30,

Backlog Data Three Months Ended March 31,

Net orders (1)

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(2) Cancellation rate for a period is the total number of purchase contracts cancelled during the period divided by the total new (gross) orders for the purchase of homes during the period.

(3) Ending backlog consists of homes at the end of the period that are under a purchase contract that has been signed by homebuyers who have met our preliminary financing criteria but have not yet closed and wholesale contracts for which vertical construction is generally set to occur within the next six to twelve months.

(3) Ending backlog consists of retail homes at the end of the period that are under a purchase contract that has been signed by homebuyers who have met our preliminary financing criteria but have not yet closed and wholesale contracts for which vertical construction is generally set to occur within the next six to twelve months.

Ending backlog is valued at the contract amount.

(4) As of September 30, 2020, we have 821 units related to bulk sales agreements associated with our wholesale business.

(5) As of September 30, 2019, we have 267 units related to bulk sales agreements associated with our wholesale business.

(4) As of March 31, 2021, we have 1,344 units related to bulk sales agreements associated with our wholesale business.

(5) As of March 31, 2020, we have 338 units related to bulk sales agreements associated with our wholesale business.

Land Acquisition Policies and Development

We increased our active communities to 110 as of September 30, 2020 from 106 as of December 31, 2019.

Our lot inventory increased to 57,185 owned or controlled lots as of September 30, 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.

The table below shows (i) home closings by reportable segment for the nine months ended September 30, 2020 and (ii) our owned or controlled lots by reportable segment as of September 30, 2020.

Nine Months Ended September 30, 2020 As of September 30, 2020

We had 110 and 116 active communities as of March 31, 2021 and December 31, 2020, respectively.

Our lot inventory increased to 67,286 owned or controlled lots as of March 31, 2021 from 61,504 owned or controlled lots as of December 31, 2020 primarily due to overall increased lot counts within the Southeast, Northwest, West and Florida reportable segments.

The table below shows (i) home closings by reportable segment for the three months ended March 31, 2021 and (ii) our owned or controlled lots by reportable segment as of March 31, 2021.

Three Months Ended March 31, 2021 As of March 31, 2021

Reportable Segment Home Closings Owned (1)

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Total 2,561 38,502 28,784 67,286

(1) Of the 32,628 owned lots as of September 30, 2020, 19,814 were raw/under development lots and 12,814 were finished lots.

(1) Of the 38,502 owned lots as of March 31, 2021, 26,213 were raw/under development lots and 12,289 were finished lots.

Homes in Inventory

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

As of September 30, 2020, we had a total of 1,163 completed homes, including information centers, and 4,029 homes in progress.

As of March 31, 2021, we had a total of 797 completed homes, including information centers, and 3,554 homes in progress.

Raw Materials and Labor

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

Specifically, for the three months ended September 30, 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 could see additional cost pressures in lumber in future quarters.

We could see additional cost pressures associated with lumber in future quarters.

In all of our reportable segments, we have historically experienced similar variability in our results of operations and in capital requirements from quarter to quarter due to the seasonal nature of the homebuilding industry.

We generally close more homes in our second, third and fourth quarters.

Thus, our revenue may fluctuate on a quarterly basis and we may have higher capital requirements in our second, third and fourth quarters in order to maintain our inventory levels.

Our revenue and capital requirements are generally similar across our second, third and fourth quarters.

Thus, our revenues may fluctuate on a quarterly basis and we may have higher capital requirements in our second, third and fourth quarters in order to maintain our inventory levels.

Our revenues and capital requirements are generally similar across our second, third and fourth quarters.

As a result of seasonal activity, our quarterly results of operations and financial position at the end of a particular quarter, especially the first quarter, are not necessarily representative of the results we expect at year end.

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Liquidity and Capital Resources

As of September 30, 2020, we had $46.3 million of cash and cash equivalents.

As of March 31, 2021, we had $48.2 million of cash and cash equivalents.

Cash flows for each of our active communities depend on the status of the development cycle and can differ substantially from reported earnings.

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Under the shelf registration statement, we have the ability to access the debt and equity capital markets as needed as part of our ongoing financing strategy.

While the COVID-19 pandemic and related mitigation efforts have created significant uncertainty as to general economic and housing market conditions for the remainder of 2020 and beyond, as of the date of this Quarterly Report on Form 10-Q, we believe that we will be able to fund our current and foreseeable liquidity needs for at least the next twelve months with our cash on hand, cash generated from operations and cash expected to be available from the Credit Agreement or through accessing debt or equity capital, as needed.

As of the date of this Quarterly Report on Form 10-Q, we believe that we will be able to fund our current and foreseeable liquidity needs for at least the next twelve months with our cash on hand, cash generated from operations and cash expected to be available from the Credit Agreement or through accessing debt or equity capital, as needed.

However, with the uncertainty surrounding COVID-19, our ability to engage in the transactions described above may be constrained by volatile or tight economic, capital, credit and financial market conditions, as well as moderated investor or lender interest or capacity and our liquidity, leverage and net worth, and we can provide no assurance as to successfully completing, the costs of, or the operational limitations arising from any one or series of such transactions.

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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.

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

In July 2017, the Financial Conduct Authority in the United Kingdom, which regulates LIBOR, announced that it intends to phase out LIBOR as a benchmark by the end of 2021.

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We are currently evaluating the potential impact of the eventual replacement of the LIBOR interest rate on the 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.

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

Senior Notes Offering

On July 6, 2018, we issued $300.0 million aggregate principal amount of the Senior Notes in an offering to persons reasonably believed to be qualified institutional buyers in the United States pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and to certain non-U.S.

persons in transactions outside the United States pursuant to Regulation S under the Securities Act.

persons in transactions outside the United States pursuant to

Regulation S under the Securities Act.

Interest on the Senior Notes accrues at a rate of 6.875% per annum, payable semi-annually in arrears on January 15 and July 15 of each year, commencing on January 15, 2019, and the Senior Notes mature on July 15, 2026.

Terms of the Senior Notes are governed by an Indenture and First Supplemental Indenture thereto, each dated as of July 6, 2018, and a Second Supplemental Indenture thereto, dated as of April 30, 2020, as may be supplemented from time to time, among us, our subsidiaries that guarantee our obligations under the 2020 Credit Agreement and Wilmington Trust, National Association, as trustee.

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.

Letters of Credit, Surety Bonds and Financial Guarantees

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Under these letters of credit, surety bonds and financial guarantees, we are committed to perform certain development and construction activities and provide certain guarantees in the normal course of business.

Outstanding letters of credit, surety bonds and financial guarantees under these arrangements, totaled $120.4 million as of September 30, 2020.

Outstanding letters of credit, surety bonds and financial guarantees under these arrangements, totaled $167.6 million as of March 31, 2021.

Although significant development and construction activities have been completed related to the improvements at these sites, the letters of credit and surety bonds are not generally released until all development and construction activities are completed.

We do not believe that it is probable that any outstanding letters of credit, surety bonds or financial guarantees as of September 30, 2020 will be drawn upon.

We do not believe that it is probable that any outstanding letters of credit, surety bonds or financial guarantees as of March 31, 2021 will be drawn upon.

Stock Repurchase Program

In November 2018, we announced that the Board of Directors 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 not 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 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.

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 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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Operating Activities

Net cash provided by operating activities was $113.0 million for the nine months ended September 30, 2020.

Net cash provided by operating activities was $160.7 million for the three months ended March 31, 2021.

The primary drivers of operating cash flows are typically cash earnings and changes in inventory levels, including land acquisition and development.

Net cash provided by operating activities during the nine months ended September 30, 2020 was primarily driven

by net income of $187.5 million, and included cash outflow from the $48.8 million increase in the net change in real estate inventory, which was primarily related to our homes under construction and land acquisitions and development level of activity and to a lesser extent changes in non-inventory balances of $25.7 million.

Net cash used in operating activities was $104.2 million for the nine months ended September 30, 2019, primarily driven by net income of $113.7 million, and included cash outflow from the $249.9 million increase in the net change in real estate inventory, which was primarily related to our homes under construction and land acquisitions and development level of activity offset by changes in non-inventory balances of $32.0 million.

Net cash provided by operating activities during the three months ended March 31, 2021 was primarily driven by net income of $99.7 million, and included cash outflow from the $41.7 million increase in the net change in real estate inventory, which was primarily related to our homes under construction and land acquisitions and development level of activity and a $56.7 million increase in the net change in accounts receivable.

Net cash provided by operating activities was $58.8 million for the three months ended March 31, 2020.

The primary drivers of operating cash flows are typically cash earnings and changes in inventory levels, including land acquisition and development.

Net cash provided by operating activities during the three months ended March 31, 2020 was primarily driven by net income of $42.8 million, and included cash inflow from the $17.9 million decrease in the net change in real estate inventory, which was primarily related to our homes under construction and land acquisitions and development level of activity offset by changes in non-inventory balances of $1.9 million.

Investing Activities

Net cash used in investing activities was $2.3 million for the nine months ended September 30, 2020, primarily due to the additional investment in an unconsolidated entity and purchase of property and equipment.

Net cash used in investing activities was $1.6 million for the nine months ended September 30, 2019, primarily due to the additional investment in an unconsolidated entity and purchase of property and equipment.

Net cash provided by investing activities was $0.4 million for the three months ended March 31, 2021, primarily due to the return of capital with our investment in an unconsolidated entity offset by the purchase of property and equipment.

Net cash used in investing activities was $1.5 million for the three months ended March 31, 2020, primarily due to the additional investment in an unconsolidated entity and purchase of property and equipment.

Financing Activities

Net cash used in financing activities was $102.7 million for the nine months ended September 30, 2020, primarily driven by $275.0 million of payments on the Credit Agreement and by the $31.3 million payment for shares repurchased under our stock repurchase program to be held as treasury stock, offset by borrowings of $203.1 million under the Credit Agreement.

Net cash provided by financing activities was $96.2 million for the nine months ended September 30, 2019, primarily driven by net borrowings under the 2019 Credit Agreement.

Net cash used in financing activities was $148.9 million for the three months ended March 31, 2021, primarily driven by $230.0 million of payments on the 2020 Credit Agreement and by the $25.8 million payment for shares of our common stock repurchased under our stock repurchase program to be held as treasury stock, offset by borrowings of $104.8 million under the 2020 Credit Agreement.

Net cash provided by financing activities was $22.6 million for the three months ended March 31, 2020, primarily driven by borrowings of $128.1 million under the 2019 Credit Agreement, offset by $75.0 million of payments on the 2019 Credit Agreement and by the $31.3 million payment for shares of our common stock repurchased under our stock repurchase program to be held as treasury stock.

Off-Balance Sheet Arrangements

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In addition, our deposit may also be refundable if the land seller does not satisfy all conditions precedent in the respective contract.

As of September 30, 2020, we had $32.5 million of cash deposits pertaining to land purchase contracts for 24,557 lots with an aggregate purchase price of $663.2 million.

Approximately $21.8 million of the cash deposits as of September 30, 2020 are secured by third-party guarantees or indemnity mortgages on the related property.

As of March 31, 2021, we had $35.5 million of cash deposits pertaining to land purchase contracts for 28,784 lots with an aggregate purchase price of $728.1 million.

Approximately $25.1 million of the cash deposits as of March 31, 2021 are secured by third-party guarantees or indemnity mortgages on the related property.

Our utilization of land purchase contracts is dependent on, among other things, the availability of land sellers willing to enter into contracts at acceptable terms, which may include option takedown arrangements, the availability of capital to financial intermediaries to finance the development of optioned lots, general housing conditions and local market dynamics.

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Contractual Obligations

As of September 30, 2020, there have been no material changes to our contractual obligations appearing in the “Contractual Obligations” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

As of March 31, 2021, there have been no material changes to our contractual obligations appearing in the “Contractual Obligations” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

Critical Accounting Policies

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Actual results could differ from these estimates using different estimates and assumptions, or if conditions are significantly different in the future.

We believe that there have been no significant changes to our critical accounting policies during the nine months ended September 30, 2020 as compared to those disclosed in Management ’ s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

We believe that there have been no significant changes to our critical accounting policies during the three months ended March 31, 2021 as compared to those disclosed in Management ’ s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

Cautionary Statement about Forward-Looking Statements

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The following are some of the factors that could cause actual results to differ materially from those expressed or implied in forward-looking statements:

• the impact of the COVID-19 pandemic and its effect on us, our business, customers and subcontractors, and the markets in which we operate, U.S.

• the impact of the COVID-19 pandemic and its effect on us, our business, customers, subcontractors and suppliers, and the markets in which we operate, U.S.

and world financial markets, mortgage availability, potential regulatory actions, changes in customer and stakeholder behaviors and impacts on and modifications to our operations, business and financial condition relating to COVID-19;

• adverse economic changes either nationally or in the markets in which we operate, including, among other things, potential impacts from political uncertainty, civil unrest, increases in unemployment, volatility of mortgage interest rates and inflation and decreases in housing prices;

• a slowdown in the homebuilding industry;

• a slowdown in the homebuilding industry or changes in population growth rates in our markets;

• volatility and uncertainty in the credit markets and broader financial markets;

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• our ability to develop our projects successfully or within expected timeframes;

• our ability to identify potential acquisition targets and close such acquisitions;

• our ability to identify potential acquisition targets, close such acquisitions and realize the benefits of such acquisitions;

• our ability to successfully integrate any acquisitions with our existing operations;

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• the cost and availability of insurance and surety bonds;

• changes in, liabilities under, or the failure or inability to comply with, governmental laws and regulations;

• changes in (including as a result of the change in the U.S.

presidential administration), liabilities under, or the failure or inability to comply with, governmental laws and regulations, including environmental laws and regulations;

• the timing of receipt of regulatory approvals and the opening of projects;

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• increases in taxes or government fees;

• our ability to qualify for additional federal energy efficient homes tax credits;

• our continued ability to qualify for additional federal energy efficient homes tax credits and the extension of the availability of such tax credits beyond December 31, 2021;

• negative publicity or poor relations with the residents of our projects;

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• other factors we discuss under the section entitled “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ”;

• the risk factor set forth in Item 1A.

Risk Factors in this Quarterly Report on Form 10-Q;

• the risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

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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 2. Management’s Discussion and Analysis