What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-11-02 compared with 2021-08-03 · 187 added, 175 removed, 388 unchanged (48% of the section changed)

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Tucson, AZ Portland, OR Dallas Ft.

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

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

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

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

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

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

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 50,000 homes.

During the six months ended June 30, 2021, we had 5,417 home closings, compared to 3,840 home closings during the six months ended June 30, 2020.

During the nine months ended September 30, 2021, we had 7,916 home closings, compared to 5,931 home closings during the nine months ended September 30, 2020.

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

Our 106 active communities at June 30, 2021 included two Terrata Homes communities.

During the three months ended June 30, 2021, we recorded $94.7 million in wholesale revenues as a result of 430 home closings, representing 15.1% of the total homes closed during the three months ended June 30, 2021.

During the three months ended June 30, 2020, we recorded $38.1 million in wholesale revenues as a result of 199 home closings, representing 9.9% of the total homes closed during the three months ended June 30, 2020.

During the six months ended June 30, 2021, we recorded $157.1 million in wholesale revenues as a result of 713 home closings, representing 13.2% of the total homes closed during the six months ended June 30, 2021.

During the six months ended June 30, 2020, we recorded $82.4 million in wholesale revenues as a result of 398 home closings, representing 10.4% of the total homes closed during the six months ended June 30, 2020.

Our 103 active communities at September 30, 2021 included three Terrata Homes communities.

During the three months ended September 30, 2021, we recorded $101.6 million in wholesale revenues as a result of 433 home closings, representing 17.3% of the total homes closed during the three months ended September 30, 2021.

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 nine months ended September 30, 2021, we recorded $258.6 million in wholesale revenues as a result of 1,146 home closings, representing 14.5% of the total homes closed during the nine months ended September 30, 2021.

During the nine months ended September 30, 2020, we recorded $101.4 million in wholesale revenues as a result of 490 home closings, representing 8.3% of the total homes closed during the nine months ended September 30, 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.

COVID-19 and COVID-19 Variants

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

The spread of COVID-19 and COVID-19 variants (hereinafter collectively referred to as “COVID-19”) has caused significant volatility in U.S.

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

In response to COVID-19, we continue to take steps to prioritize the health and safety of our employees, customers, subcontractors and suppliers, including expanded safety policies and practices based on Center for Disease Control guidelines to reduce the spread of COVID-19.

As a homebuilder and developer, we provide an important service to our customers.

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.

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.

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 and resulting increased business and social activities, the availability and timely distribution of, and willingness to accept, effective treatments and vaccines, vaccine hesitancy, 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 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

During the three months ended June 30, 2021, we purchased 335,000 shares of our common stock for $55.8 million under our previously announced stock repurchase program.

On May 6, 2021, we acquired the real estate assets of Minneapolis, Minnesota-based KenRoe, Inc., a privately held homebuilder and land development company, for approximately $27.3 million at closing, subject to certain potential post-closing adjustments.

KenRoe is recognized for building quality homes targeted at entry-level buyers.

The acquired assets include approximately 85 homes under construction, 130 finished lots, and 390 lots either raw or under development.

Additionally, we acquired approximately 2,500 controlled lots in the Minneapolis, Minnesota market.

On June 28, 2021, we completed an offering of $300.0 million aggregate principal amount of our 4.000% Senior Notes due 2029 (the “2029 Senior Notes”).

We received net proceeds from the offering of the 2029 Senior Notes of approximately $296.6 million, after deducting the initial purchasers’ discounts and commissions and offering expenses.

The net proceeds from the offering were used to temporarily repay borrowings under the Credit Agreement and subsequently in July 2021, to optionally redeem all $300.0 million aggregate principal amount of our outstanding 6.875% Senior Notes due 2026 (the “2026 Senior Notes”).

On June 14, 2021, the Company delivered a notice of conditional full redemption for all of the outstanding 2026 Senior Notes.

On July 15, 2021, we redeemed all of the outstanding 2026 Senior Notes, which resulted in the principal payment of $300.0 million and a redemption premium of $10.3 million.

Additionally, we expensed $3.0 million of deferred financing costs and discounts that were being previously amortized in association with the 2026 Senior Notes.

On July 14, 2021, we acquired the real estate assets of Buffington Homebuilding Group, Ltd., one of the largest privately held homebuilders in Austin, Texas, for approximately $40.0 million in cash at closing, subject to certain potential post-closing adjustments.

This acquisition further expands our land position in the Austin, Texas market.

The acquired assets include over 100 homes under construction, over 350 finished lots and control of approximately 150 additional finished lots that will be available for future sales.

The acquired communities introduce the Terrata Homes brand to the Austin, Texas market.

Key financial results as of and for the three months ended June 30, 2021, as compared to the three months ended June 30, 2020, were as follows:

Additionally, during the three months ended September 30, 2021, significant supply chain disruptions extended construction cycles across our markets.

While we have carefully managed our supply chain to limit impacts to our business and customers, we believe these global shortages are directly related to COVID-19 and will continue to impact our operations as long as the pandemic persists.

Although 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.

Key financial results as of and for the three months ended September 30, 2021, as compared to the three months ended September 30, 2020, were as follows:

• Home sales revenues increased 40.7% to $751.6 million from $534.2 million.

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• Adjusted EBITDA (non-GAAP) as a percentage of home sales revenues increased to 19.7% from 16.5%.

• Total owned and controlled lots increased 12.8% to 75,910 lots at June 30, 2021 from 67,286 lots at March 31, 2021.

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 six months ended June 30, 2021, as compared to the six months ended June 30, 2020, were as follows:

• Home sales revenues increased 59.9% to $1.5 billion from $936.3 million.

Key financial results as of and for the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020, were as follows:

• Home sales revenues increased 52.9% to $2.2 billion from $1.5 billion.

• Homes closed increased 33.5% to 7,916 homes from 5,931 homes.

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• Adjusted EBITDA (non-GAAP) as a percentage of home sales revenues increased to 19.6% from 15.6%.

• Total owned and controlled lots increased 23.4% to 75,910 lots at June 30, 2021 from 61,504 lots at December 31, 2020.

We owned and controlled 87,512 lots at September 30, 2021 as compared to 75,910 lots at June 30, 2021 and 61,504 lots at December 31, 2020.

Results of Operations

The following table sets forth our results of operations for the three and six months ended June 30, 2021 and 2020:

Three Months Ended June 30, Six Months Ended June 30,

The following table sets forth our results of operations for the three and nine months ended September 30, 2021 and 2020:

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

2021 2020 2021 2020

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(4) EBITDA and adjusted EBITDA are non-GAAP financial measures used by management as supplemental measures in evaluating operating performance.

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.

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.

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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 June 30, 2021 Compared to Three Months Ended June 30, 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 June 30, 2021 and 2020 were as follows (revenues in thousands):

Three Months Ended June 30, 2021 As of June 30, 2021

Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 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 September 30, 2021 and 2020 were as follows (revenues in thousands):

Three Months Ended September 30, 2021 As of September 30, 2021

Revenues Home Closings ASP Average Community Count Average

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Total $ 751,608 2,499 $ 300,764 102.7 8.1 103

Three Months Ended June 30, 2020 As of June 30, 2020

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

Revenues Home Closings ASP Average Community Count Average

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Total $ 534,202 2,091 $ 255,477 109.3 6.4 110

Our results of operations for the three months ended June 30, 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 a 53.2% increase to our backlog net orders at June 30, 2021 as compared to June 30, 2020.

Home sales revenues for the three months ended June 30, 2021 were $791.5 million, an increase of $309.9 million, or 64.3%, from $481.6 million for the three months ended June 30, 2020.

The increase in home sales revenues is primarily due to a 42.4% increase in homes closed and an increase in the average sales price per home closed during the three months ended June 30, 2021 as compared to the three months ended June 30, 2020.

The average sales price per home closed during the three months ended June 30, 2021 was $277,140, an increase of $36,940, or 15.4%, from the average sales price per home closed of $240,200 for the three months ended June 30, 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 all reportable segments during the three months ended June 30, 2021 as compared to the three months ended June 30, 2020.

Our community count at June 30, 2021 decreased to 106 from 117 at June 30, 2020.

The decrease in community count is due to close out of or transition between certain active communities for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020.

Home sales revenues in our Central reportable segment increased by $180.0 million, or 107.2%, during the three months ended June 30, 2021 as compared to the three months ended June 30, 2020, primarily due to an 80.5% 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 Southeast reportable segment increased by $31.1 million, or 24.2%, 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 $49.8 million, or 88.4%, 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 June 30, 2021.

revenues in our West reportable segment increased by $20.2 million, or 33.4%, during the three months ended June 30, 2021 as compared to the three months ended June 30, 2020, primarily due to a 35.7% 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 June 30, 2021.

Home sales revenues in our Florida reportable segment increased by $28.7 million, or 42.1%, largely due to an increase in the number of homes closed resulting from an increase in community count and a higher absorption rate for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020.

Home sales revenues for the three months ended September 30, 2021 were $751.6 million, an increase of $217.4 million, or 40.7%, from $534.2 million for the three months ended September 30, 2020.

The increase in home sales revenues is primarily due to a 19.5% increase in homes closed and an increase in the average sales price per home closed during the three months ended September 30, 2021 as compared to the three months ended September 30, 2020.

The average sales price per home closed during the three months ended September 30, 2021 was $300,764, an increase of $45,287, or 17.7%, from the average sales price per home closed of $255,477 for the three months ended September 30, 2020.

This increase in the average sales price per home closed is primarily due to increased closings at higher price points in certain markets and a favorable pricing environment, partially offset by additional wholesale home closings.

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 all reportable segments during the three months ended September 30, 2021 as compared to the three months ended September 30, 2020.

Our community count at September 30, 2021 decreased to 103 from 110 at September 30, 2020.

The decrease in community count is due to close out of or transition between certain active communities for the three months ended September 30, 2021 as compared to the three months ended September 30, 2020.

Home sales revenues in our Central reportable segment increased by $101.0 million, or 54.0%, during the three months ended September 30, 2021 as compared to the three months ended September 30, 2020, primarily due to an 32.0% increase in the number of homes closed, increased average community count at a higher absorption rate and an increase in the average sales price per home closed.

Home sales revenues in our Southeast reportable segment increased by $16.0 million, or 12.3%, primarily due to higher average sales price per home closed, as well as continued expansion into certain Mid-Atlantic geographic markets, partially offset by the close out of active communities.

Home sales revenues in our Northwest reportable segment increased by $57.4 million, or 63.0%, primarily due to increased demand and an increase in the number of homes closed, increased average community count at a higher absorption rate and an increase in the average sales price per home closed for the three months ended September 30, 2021.

Home sales revenues in our West reportable segment increased by $27.7 million, or 43.9%, during the three months ended September 30, 2021 as compared to the three months ended September 30,

2020, primarily due to a 27.7% 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 September 30, 2021.

Home sales revenues in our Florida reportable segment increased by $15.4 million, or 24.4%, largely due to an increase in the number of homes closed resulting from an increase in the average sales price per home closed, increased average community count and a higher absorption rate for the three months ended September 30, 2021 as compared to the three months ended September 30, 2020.

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

Cost of sales increased for the three months ended June 30, 2021 to $577.4 million, an increase of $213.8 million, or 58.8%, from $363.6 million for the three months ended June 30, 2020, primarily due to the increase in homes closed.

Gross margin for the three months ended June 30, 2021 was $214.1 million, an increase of $96.1 million, or 81.5%, from $118.0 million for the three months ended June 30, 2020.

Gross margin as a percentage of home sales revenues was 27.0% for the three months ended June 30, 2021 and 24.5% for the three months ended June 30, 2020.

This increase in gross margin as a percentage of home sales revenues was primarily due to raising prices higher than increases in input costs for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020.

Cost of sales increased for the three months ended September 30, 2021 to $549.3 million, an increase of $150.3 million, or 37.7%, from $399.0 million for the three months ended September 30, 2020, primarily due to the increase in homes closed and increased construction costs.

Gross margin for the three months ended September 30, 2021 was $202.3 million, an increase of $67.1 million, or 49.6%, from $135.2 million for the three months ended September 30, 2020.

Gross margin as a percentage of home sales revenues was 26.9% for the three months ended September 30, 2021 and 25.3% for the three months ended September 30, 2020.

This increase in gross margin as a percentage of home sales revenues was primarily due to raising prices higher than increases in input costs for the three months ended September 30, 2021 as compared to the three months ended September 30, 2020.

Selling Expenses.

Selling expenses for the three months ended June 30, 2021 were $44.8 million, an increase of $14.8 million, or 49.5%, from $30.0 million for the three months ended June 30, 2020.

Sales commissions increased to $30.4 million for the three months ended June 30, 2021 from $18.0 million for the three months ended June 30, 2020, primarily due to a 64.3% increase in home sales revenues during the three months ended June 30, 2021 as compared to the three months ended June 30, 2020.

Selling expenses as a percentage of home sales revenues were 5.7% and 6.2% for the three months ended June 30, 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 June 30, 2021 as compared to the three months ended June 30, 2020.

Selling expenses for the three months ended September 30, 2021 were $39.9 million, an increase of $4.4 million, or 12.4%, from $35.5 million for the three months ended September 30, 2020.

Sales commissions increased to $28.0 million for the three months ended September 30, 2021 from $20.7 million for the three months ended September 30, 2020, primarily due to a 40.7% increase in home sales revenues during the three months ended September 30, 2021 as compared to the three months ended September 30, 2020.

Selling expenses as a percentage of home sales revenues were 5.3% and 6.6% for the three months ended September 30, 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 September 30, 2021 as compared to the three months ended September 30, 2020.

General and Administrative.

General and administrative expenses for the three months ended June 30, 2021 were $23.3 million, an increase of $3.1 million, or 15.3%, from $20.2 million for the three months ended June 30, 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 June 30, 2021 as compared to the three months ended June 30, 2020.

General and administrative expenses as a percentage of home sales revenues were 2.9% and 4.2% for the three months ended June 30, 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 June 30, 2021 as compared to the three months ended June 30, 2020.

General and administrative expenses for the three months ended September 30, 2021 were $24.5 million, an increase of $2.2 million, or 9.7%, from $22.3 million for the three months ended September 30, 2020.

The increase in the amount of general and administrative expenses is primarily due to timing of personnel and related costs during the three months ended September 30, 2021 as compared to the three months ended September 30, 2020.

General and administrative expenses as a percentage of home sales revenues were 3.3% and 4.2% for the three months ended September 30, 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 September 30, 2021 as compared to the three months ended September 30, 2020.

Loss on Extinguishment of Debt.

Loss on extinguishment of debt for the three months ended September 30, 2021 was $13.3 million, due to the redemption premium associated with our 6.875% Senior Notes due 2026 (the “2026 Senior Notes”), as well as debt issuance costs and discount previously capitalized that were associated with our 2026 Senior Notes.

There was no loss on extinguishment of debt for the three months ended September 30, 2020.

Other Income.

Other income, net of other expenses was $3.8 million for the three months ended June 30, 2021, an increase of $3.0 million from $0.8 million for the three months ended June 30, 2020.

The increase in other income primarily reflects the gain realized from the sale of lots and land not directly associated with our core homebuilding operations.

Other income, net of other expenses was $2.4 million for the three months ended September 30, 2021, an increase of $2.0 million from $0.4 million for the three months ended September 30, 2020.

The increase in other income primarily reflects the gain realized from the sale of lots not directly associated with our core homebuilding operations.

Operating Income and Net Income before Income Taxes.

Operating income for the three months ended June 30, 2021 was $146.0 million, an increase of $78.2 million, or 115.2%, from $67.8 million for the three months ended June 30, 2020.

Net income before income taxes for the three months ended June 30, 2021 was $149.1 million, an increase of $80.5 million, or 117.4%, from $68.6 million for the three months ended June 30, 2020.

All reportable segments contributed to net income before income taxes during the three months ended June 30, 2021 as follows:

Operating income for the three months ended September 30, 2021 was $137.9 million, an increase of $60.5 million, or 78.1%, from $77.4 million for the three months ended September 30, 2020.

Net income before income taxes for the three months ended September 30, 2021 was $127.0 million, an increase of $49.2 million, or 63.2%, from $77.8 million for the three months ended September 30, 2020.

All reportable segments contributed to net income before income taxes during the three months ended September 30, 2021 as follows:

Central - $55.8 million or 43.9%;

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and Florida - $11.9 million or 9.4%.

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 June 30, 2021 as compared to the three months ended June 30, 2020.

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 September 30, 2021 as compared to the three months ended September 30, 2020.

Income Taxes .

Income tax provision for the three months ended June 30, 2021 was $31.0 million, an increase of $18.0 million, or 138.9%, from income tax provision of $13.0 million for the three months ended June 30, 2020.

The increase in the amount of income tax provision is primarily due to the 117.4% increase in net income before taxes, partially offset by tax benefits relating to the federal energy efficient homes tax credits we recognized during the three months ended June 30, 2021 as compared to the three months ended June 30, 2020.

Net income for the three months ended June 30, 2021 was $118.1 million, an increase of $62.5 million, or 112.4%, from $55.6 million for the three months ended June 30, 2020.

The increase in net income is primarily attributed to higher gross margins, operating leverage realized from the increase in home sales revenues and higher average sales price per home closed recognized during the three months ended June 30, 2021 as compared to the three months ended June 30, 2020.

Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020

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 six months ended June 30, 2021 and 2020 were as follows (revenues in thousands):

Six Months Ended June 30, 2021

Income tax provision for the three months ended September 30, 2021 was $26.4 million, an increase of $37.6 million, or 336.3%, from income tax benefit of $11.2 million for the three months ended September 30, 2020.

The increase in the amount of income tax provision is primarily due to the retroactive federal energy efficient homes tax credits recognized during the three months ended September 30, 2020 and the 63.2% increase in net income before taxes, partially offset by tax benefits relating to the federal energy efficient homes tax credits we recognized during the three months ended September 30, 2021.

Net income for the three months ended September 30, 2021 was $100.6 million, an increase of $11.5 million, or 13.0%, from $89.0 million for the three months ended September 30, 2020.

The increase in net income is primarily attributed to higher gross margins, operating leverage realized from the increase in home sales revenues and higher average sales price per

home closed recognized during the three months ended September 30, 2021 as compared to the three months ended September 30, 2020.

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

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, 2021 and 2020 were as follows (revenues in thousands):

Nine Months Ended September 30, 2021

Revenues Home Closings ASP Average Community Count Average

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Total $ 2,249,073 7,916 $ 284,117 104.7 8.4

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

Revenues Home Closings ASP Average Community Count Average Monthly

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

Home sales revenues for the six months ended June 30, 2021 were $1.5 billion, an increase of $561.1 million, or 59.9%, from $0.9 billion for the six months ended June 30, 2020.

The increase in home sales revenues is primarily due to a 41.1% increase in homes closed and an increase in the average sales price per home closed during the six months ended June 30, 2021 as compared to the six months ended June 30, 2020.

The average sales price per home closed during the six months ended June 30, 2021 was $276,438, an increase of $32,602, or 13.4%, from the average sales price per home closed of $243,836 for the six months ended June 30, 2020.

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 strong demand in all reportable segments during the six months ended June 30, 2021 as compared to the six months ended June 30, 2020.

The overall decrease in average community count relates to timing associated with the opening, close out or transition between certain active communities during the six months ended June 30, 2021 as compared to the six months ended June 30, 2020.

Home sales revenues in our Central reportable segment increased by $303.0 million, or 90.8%, during the six months ended June 30, 2021 as compared to the six months ended June 30, 2020, primarily due to a 66.3% increase in the number of homes closed at a higher average sales price per home closed and increased average community count at a higher absorption rate in this reportable segment.

Home sales revenues in our Southeast reportable segment increased by $79.2 million, or 36.5%, during the six months ended June 30, 2021 as compared to the six months ended June 30, 2020, primarily due to higher average sales price per home closed and improved absorption rate associated with increased demand in certain markets in North Carolina and South Carolina during the six months ended June 30, 2021 as compared to the six months ended June 30, 2020.

Home sales revenues in our Northwest reportable segment increased by $66.1 million, or 41.7%, during the six months ended June 30, 2021 as compared to the six months ended June 30, 2020, primarily due to a 29.3% increase in the number of homes closed in this reportable segment, as a result of increased demand during the six months ended June 30, 2021.

Home sales revenues in our West reportable segment increased by $42.9 million, or 36.0%, during the six months ended June 30, 2021 as compared to the six months ended June 30, 2020, primarily due to higher average sales price per home closed and improved absorption rate associated with increased demand in certain markets in this reportable segment.

Home sales revenues in our Florida reportable segment increased by $69.9 million, or 64.6%, largely due to an increase of 10.9% in the average sales price

per home closed as a result of strong demand and complemented by increased average community count at an improved absorption rate during the six months ended June 30, 2021 as compared to the six months ended June 30, 2020.

Home sales revenues for the nine months ended September 30, 2021 were $2.2 billion, an increase of $778.5 million, or 52.9%, from $1.5 billion for the nine months ended September 30, 2020.

The increase in home sales revenues is primarily due to a 33.5% increase in homes closed and an increase in the average sales price per home closed during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.

The average sales price per home closed during the nine months ended September 30, 2021 was $284,117, an increase of $36,177, or 14.6%, from the average sales price per home closed of $247,940 for the nine months ended September 30, 2020.

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

The overall increase in home closings was primarily driven by strong demand in all reportable segments during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.

The overall decrease in average community count relates to timing associated with the opening, close out or transition between certain active communities during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.

Home sales revenues in our Central reportable segment increased by $404.0 million, or 77.6%, during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020, primarily due to a 54.2% increase in the number of homes closed at a higher average sales price per home closed and increased average community count at a higher absorption rate in this reportable segment.

Home sales revenues in our Southeast reportable segment increased by $95.3 million, or 27.4%, during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020, primarily due to higher average sales price per home closed and improved absorption rate associated with increased closings in certain markets in North Carolina and South Carolina, partially offset by lower community count during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.

Home sales revenues in our Northwest reportable segment increased by $123.4 million, or 49.5%, during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020, primarily due to a 33.7% increase in the number of homes closed in this reportable segment, as a result of increased demand during the nine months ended September 30, 2021.

Home sales revenues in our West reportable segment increased by $70.5 million, or 38.8%, during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020, primarily due to higher average sales price per home closed and improved absorption rate associated with increased demand in certain markets in this reportable segment, partially offset by lower average community count.

Home sales revenues in our Florida reportable segment increased by $85.3 million, or 49.8%, largely due to

an increase of 11.9% in the average sales price per home closed as a result of strong demand and complemented by increased average community count at an improved absorption rate during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.

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

Cost of sales increased for the six months ended June 30, 2021 to $1.1 billion, an increase of $381.6 million, or 53.6%, from $711.8 million for the six months ended June 30, 2020.

This overall increase is primarily due to a 41.1% 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, lower capitalized interest and lower overhead, partially offset by higher lot costs during the six months ended June 30, 2021 as compared to the six months ended June 30, 2020.

Gross margin for the six months ended June 30, 2021 was $404.0 million, an increase of $179.5 million, or 79.9%, from $224.5 million for the six months ended June 30, 2020.

Gross margin as a percentage of home sales revenues was 27.0% for the six months ended June 30, 2021 and 24.0% for the six months ended June 30, 2020.

This increase in gross margin as a percentage of home sales revenues was primarily due to raising prices higher than increases in input costs for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020.

Cost of sales increased for the nine months ended September 30, 2021 to $1.6 billion, an increase of $532.0 million, or 47.9%, from $1.1 billion for the nine months ended September 30, 2020.

This overall increase is primarily due to a 33.5% increase in homes closed, higher construction costs and product mix.

As a percentage of home sales revenues, cost of sales decreased as a result of the increase in home sales revenues, lower capitalized interest and lower overhead, partially offset by higher lot costs during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.

Gross margin for the nine months ended September 30, 2021 was $606.3 million, an increase of $246.5 million, or 68.5%, from $359.8 million for the nine months ended September 30, 2020.

Gross margin as a percentage of home sales revenues was 27.0% for the nine months ended September 30, 2021 and 24.5% for the nine months ended September 30, 2020.

This increase in gross margin as a percentage of home sales revenues was primarily due to raising prices higher than increases in input costs for the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.

Selling Expenses.

Selling expenses for the six months ended June 30, 2021 were $87.6 million, an increase of $24.9 million, or 39.6%, from $62.7 million for the six months ended June 30, 2020.

Sales commissions increased to $56.7 million for the six months ended June 30, 2021 from $34.5 million for the six months ended June 30, 2020, partially due to a 59.9% increase in home sales revenues during the six months ended June 30, 2021 as compared to the six months ended June 30, 2020.

Selling expenses as a percentage of home sales revenues were 5.8% and 6.7% for the six months ended June 30, 2021 and 2020, respectively.

The decrease in selling expenses as a percentage of home sales revenues was driven primarily by operating leverage obtained from the increase in home sales revenues and to a lesser extent lower advertising expenses during the six months ended June 30, 2021 as compared to the six months ended June 30, 2020.

Selling expenses for the nine months ended September 30, 2021 were $127.5 million, an increase of $29.3 million, or 29.8%, from $98.2 million for the nine months ended September 30, 2020.

Sales commissions increased to $84.7 million for the nine months ended September 30, 2021 from $55.2 million for the nine months ended September 30, 2020, partially due to a 52.9% increase in home sales revenues during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.

Selling expenses as a percentage of home sales revenues were 5.7% and 6.7% for the nine months ended September 30, 2021 and 2020, respectively.

The decrease in selling expenses as a percentage of home sales revenues was driven primarily by operating leverage obtained from the increase in home sales revenues and to a lesser extent lower advertising expenses during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.

General and Administrative.

General and administrative expenses for the six months ended June 30, 2021 were $48.0 million, an increase of $7.9 million, or 19.7%, from $40.1 million for the six months ended June 30, 2020.

The increase in the amount of general and administrative expenses is primarily due to increased compensation during the six months ended June 30, 2021 as compared to the six months ended June 30, 2020.

General and administrative expenses as a percentage of home sales revenues were 3.2% and 4.3% for the six months ended June 30, 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 six months ended June 30, 2021 as compared to the six months ended June 30, 2020.

General and administrative expenses for the nine months ended September 30, 2021 were $72.5 million, an increase of $10.1 million, or 16.1%, from $62.4 million for the nine months ended September 30, 2020.

The increase in the amount of general and administrative expenses is primarily due to timing of compensation during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.

General and administrative expenses as a percentage of home sales revenues were 3.2% and 4.2% for the nine months ended September 30, 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 nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.

Loss on Extinguishment of Debt.

Loss on extinguishment of debt for the nine months ended September 30, 2021 was $14.0 million, primarily due to the redemption premium associated with our 2026 Senior Notes, as well as debt issuance costs and discount previously capitalized that were associated with our 2026 Senior Notes and debt issuance costs previously capitalized that were associated with our 2020 Credit Agreement.

There was no loss on extinguishment of debt for the nine months ended September 30, 2020.

Other Income.

Other income, net of other expenses was $4.6 million for the six months ended June 30, 2021, an increase of $2.8 million from $1.8 million for the six months ended June 30, 2020.

The increase in other income primarily reflects the gain realized from the sale of land not directly associated with our core homebuilding operations.

Other income, net of other expenses was $7.0 million for the nine months ended September 30, 2021, an increase of $4.8 million from $2.1 million for the nine months ended September 30, 2020.

The increase in other income primarily reflects the gain realized from the sale of lots and land not directly associated with our core homebuilding operations.

Operating Income and Net Income before Income Taxes.

Operating income for the six months ended June 30, 2021 was $268.5 million, an increase of $146.7 million, or 120.6%, from $121.7 million for the six months ended June 30, 2020.

Net income before income taxes for the six months ended June 30, 2021 was $272.4 million, an increase of $148.9 million, or 120.6%, from $123.5 million for the six months ended June 30, 2020.

All reportable segments contributed to net income before income taxes during the six months ended June 30, 2021 as follows:

Operating income for the nine months ended September 30, 2021 was $406.4 million, an increase of $207.2 million, or 104.1%, from $199.2 million for the nine months ended September 30, 2020.

Net income before income taxes for the nine months ended September 30, 2021 was $399.4 million, an increase of $198.1 million, or 98.4%, from $201.3 million for the nine months ended September 30, 2020.

All reportable segments contributed to net income before income taxes during the nine months ended September 30, 2021 as follows:

Central - $180.5 million or 45.2%;

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and Florida - $37.5 million or 9.4%.

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 six months ended June 30, 2021 as compared to the six months ended June 30, 2020.

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, 2021 as compared to the nine months ended September 30, 2020.

Income Taxes .

Income tax provision for the six months ended June 30, 2021 was $54.6 million, an increase of $29.6 million, or 118.2%, from income tax provision of $25.0 million for the six months ended June 30, 2020.

The increase in the amount of income tax provision is primarily due to the 120.6% increase in net income before taxes, partially offset by tax benefits relating to the federal energy efficient homes tax credits we recognized during the six months ended June 30, 2021, that resulted in a decrease in our effective tax rate to 20.0% from 20.3%.

Net income for the six months ended June 30, 2021 was $217.8 million, an increase of $119.3 million, or 121.2%, from $98.5 million for the six months ended June 30, 2020.

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 benefits relating to the federal energy efficient homes tax credits recognized during the six months ended June 30, 2021 as compared to the six months ended June 30, 2020.

Income tax provision for the nine months ended September 30, 2021 was $81.0 million, an increase of $67.2 million, or 485.9%, from income tax provision of $13.8 million for the nine months ended September 30, 2020.

The increase in the amount of income tax provision is primarily due to the retroactive tax benefits relating to the federal energy efficient homes tax credits we recognized during the nine months ended September 30, 2020 and the 98.4% increase in net income before taxes, which resulted in an increase in our effective tax rate for the nine months ended September 30, 2021 to 20.3% from 6.9% for the nine months ended September 30, 2020.

Net income for the nine months ended September 30, 2021 was $318.3 million, an increase of $130.9 million, or 69.8%, from $187.5 million for the nine months ended September 30, 2020.

The increase in net income is primarily attributed to operating leverage realized from the increase in home sales revenues and higher average sales price per home closed, partially offset by tax benefits relating to the federal energy efficient homes tax credits we recognized during the nine months ended September 30, 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 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 June 30, Six Months Ended June 30,

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

2021 2020 2021 2020

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Although we use EBITDA and adjusted EBITDA as financial measures to assess the performance of our business, the use of these measures is limited because they do not include certain material costs, such as interest and taxes, necessary to operate our business.

EBITDA and adjusted EBITDA should be considered in addition to, and not as a substitute for, net income in accordance with GAAP as a measure of performance.

EBITDA and adjusted EBITDA should be considered in addition

to, and not as a substitute for, net income in accordance with GAAP as a measure of performance.

Our presentation of EBITDA and adjusted EBITDA should not be construed as an indication that our future results will be unaffected by unusual or non-recurring items.

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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 June 30, Six Months Ended June 30,

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

2021 2020 2021 2020

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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 retroactive 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 retroactive 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,

2021 2020 2021 2020

Numerator (in thousands):

Net income (Numerator for basic and diluted earnings per share) $ 100,550 $ 89,004 $ 318,342 $ 187,467

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

Adjusted net income (Numerator for adjusted basic and diluted earnings per share) $ 100,550 $ 61,863 $ 318,342 $ 160,872

Basic weighted average shares outstanding 24,508,134 25,089,424 24,766,260 25,162,162

Effect of dilutive securities:

Stock-based compensation units 316,186 167,629 263,901 166,393

Diluted weighted average shares outstanding 24,824,320 25,257,053 25,030,161 25,328,555

Basic earnings per share $ 4.10 $ 3.55 $ 12.85 $ 7.45

Diluted earnings per share $ 4.05 $ 3.52 $ 12.72 $ 7.40

Adjusted basic earnings per share $ 4.10 $ 2.47 $ 12.85 $ 6.39

Adjusted diluted earnings per share $ 4.05 $ 2.45 $ 12.72 $ 6.35

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.

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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 .

Since our business model is generally based on

building move-in ready homes before a purchase contract is signed, the majority of our homes in backlog are currently under construction or complete.

Since our business model is generally based on building move-in ready homes before a purchase contract is signed, the majority of our homes in backlog are currently under construction or complete.

Ending backlog represents the number of homes in backlog from the previous period plus the number of net orders (new orders for homes less cancellations) generated during the current period minus the number of homes closed during the current period.

Our backlog at any given time will be affected by cancellations, the number of our active communities and the timing of home closings.

Homes in backlog are generally closed within one to two months, although home closings have been, and may continue to be, delayed during the COVID-19 pandemic.

Homes in backlog are generally closed within one to two months, although home

closings have been, and may continue to be, delayed during the COVID-19 pandemic.

In addition, we may experience cancellations of purchase contracts at any time prior to closing.

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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 Six Months Ended June 30,

Backlog Data Nine Months Ended September 30,

Net orders (1)

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Ending backlog is valued at the contract amount.

(4) As of June 30, 2021, we have 940 units related to bulk sales agreements associated with our wholesale business.

(5) As of June 30, 2020, we have 208 units related to bulk sales agreements associated with our wholesale business.

(4) As of September 30, 2021, we had 563 units related to bulk sales agreements associated with our wholesale business.

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

Land Acquisition Policies and Development

We had 106 and 116 active communities as of June 30, 2021 and December 31, 2020, respectively.

Our lot inventory increased to 75,910 owned or controlled lots as of June 30, 2021 from 61,504 owned or controlled lots as of December 31, 2020 due to an overall increased lot count within all reportable segments.

The table below shows (i) home closings by reportable segment for the six months ended June 30, 2021 and (ii) our owned or controlled lots by reportable segment as of June 30, 2021.

Six Months Ended June 30, 2021 As of June 30, 2021

We had 103 and 116 active communities as of September 30, 2021 and December 31, 2020, respectively.

The overall decrease in community count is seen as transitory, primarily due to the close out of active communities and to a lesser extent available finished lots in certain active markets.

Generally, it takes us two to three years to turn raw or undeveloped land into an active community.

Our lot inventory increased to 87,512 owned or controlled lots as of September 30, 2021 from 61,504 owned or controlled lots as of December 31, 2020 due to an overall increased lot count within all reportable segments.

The table below shows (i) home closings by reportable segment for the nine months ended September 30, 2021 and (ii) our owned or controlled lots by reportable segment as of September 30, 2021.

Nine Months Ended September 30, 2021 As of September 30, 2021

Reportable Segment Home Closings Owned (1)

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Total 7,916 44,174 43,338 87,512

(1) Of the 42,492 owned lots as of June 30, 2021, 29,885 were raw/under development lots and 12,607 were finished lots.

(1) Of the 44,174 owned lots as of September 30, 2021, 32,250 were raw/under development lots and 11,924 were finished lots.

Homes in Inventory

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

As of June 30, 2021, we had a total of 481 completed homes, including information centers, and 4,267 homes in progress.

As of September 30, 2021, we had a total of 568 completed homes, including information centers, and 4,014 homes in progress.

Raw Materials and Labor

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

Generally, we have been able to increase the sales prices of our homes to absorb these increased costs.

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.

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Liquidity and Capital Resources

As of June 30, 2021, we had $111.7 million of cash and cash equivalents.

As of September 30, 2021, we had $46.7 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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We also rely on our ability to obtain performance, payment and completion surety bonds as well as letters of credit to finance our projects.

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.

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.

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.

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Revolving Credit Facility

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 that certain Fourth Amended and Restated Credit Agreement, dated as of May 6, 2019 (as amended, the “2020 Credit Agreement”).

restates that certain Fourth Amended and Restated Credit Agreement, dated as of May 6, 2019 (as amended, 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 1.45% to 2.10%, 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;

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The Credit Agreement is guaranteed by each of our subsidiaries that have gross assets of at least $0.5 million.

The borrowings and letters of credit outstanding under the Credit Agreement, together with the outstanding principal balance of the 2026 Senior Notes and the 2029 Senior Notes, may not exceed the borrowing base under the Credit Agreement.

As of June 30, 2021, the borrowing base under the Credit Agreement was $1.3 billion, of which borrowings, including the 2026 Senior Notes and the 2029 Senior Notes, of $600.3 million were outstanding, $10.3 million of letters of credit were outstanding and $714.5 million was available to borrow under the Credit Agreement.

The borrowings and letters of credit outstanding under the Credit Agreement, together with the outstanding principal balance of our 4.000% Senior Notes due 2029 (the “2029 Senior Notes”), may not exceed the borrowing base under the Credit Agreement.

As of September 30, 2021, the borrowing base under the Credit Agreement was $1.1 billion, of which borrowings, including the 2029 Senior Notes, of $679.0 million were outstanding, $8.3 million of letters of credit were outstanding and $459.6 million was available to borrow under the Credit Agreement.

Interest is paid monthly on borrowings at LIBOR plus 1.45%.

The Credit Agreement applicable margin for LIBOR loans ranges from 1.45% to 2.10% based on our leverage ratio.

At June 30, 2021, LIBOR was 0.09%;

At September 30, 2021, LIBOR was 0.08%;

however, the Credit Agreement has a 0.50% LIBOR floor.

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

At June 30, 2021, we were in compliance with all of the covenants contained in the Credit Agreement.

At September 30, 2021, we were in compliance with all of the covenants contained in the Credit Agreement.

Senior Notes Offerings

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

Interest on the 2026 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 2026 Senior Notes mature on July 15, 2026.

Terms of the 2026 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.

On June 14, 2021, the Company delivered a notice of conditional full redemption for all of the outstanding 2026 Senior Notes.

The redemption price for the 2026 Senior Notes was equal to 103.438% (expressed as a percentage of the principal amount of the 2026 Senior Notes redeemed), plus accrued and unpaid interest, if any, on the 2026 Senior Notes to be redeemed.

The Company financed the redemption of the 2026 Senior Notes with a portion of the net proceeds from the offering of the 2029 Senior Notes, together with cash on hand.

The Company’s obligation to redeem the 2026 Senior Notes was conditioned upon the prior consummation of the issuance of the 2029 Senior Notes.

On July 15, 2021, we redeemed all of the outstanding 2026 Senior Notes, which resulted in the principal payment of $300.0 million and a redemption premium of $10.3 million.

Additionally, we expensed $3.0 million of deferred financing costs and discounts that were being previously amortized in association with the 2026 Senior Notes.

We financed the redemption of the 2026 Senior Notes with a portion of the net proceeds from the offering of the 2029 Senior Notes, together with cash on hand.

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 $182.3 million as of June 30, 2021.

Outstanding letters of credit, surety bonds and financial guarantees under these arrangements, totaled $199.7 million as of September 30, 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 June 30, 2021 will be drawn upon.

believe that it is probable that any outstanding letters of credit, surety bonds or financial guarantees as of September 30, 2021 will be drawn upon.

Stock Repurchase Program

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

During the three months ended June 30, 2021, we repurchased 335,000 shares of our common stock for $55.8 million to be held as treasury stock.

During the six months ended June 30, 2021, we repurchased 551,221 shares of our common stock for $81.6 million to be held as treasury stock.

During the three months ended September 30, 2021, we repurchased 358,817 shares of our common stock for $56.1 million to be held as treasury stock.

During the nine months ended September 30, 2021, we repurchased 910,038 shares of our common stock for $137.7 million to be held as treasury stock.

A total of 1,668,031 shares of our common stock has been repurchased since our stock repurchase program commenced.

As of June 30, 2021, we may purchase up to $218.8 million of shares of our common stock under our stock repurchase program.

As of September 30, 2021, we may purchase up to $162.7 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 $139.9 million for the six months ended June 30, 2021.

Net cash provided by operating activities was $101.1 million for the nine months ended September 30, 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 six months ended June 30, 2021 was primarily driven by net income of $217.8 million, and included cash outflow from the $158.7 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 increases of $46.4 million and $43.9 million in the net change in accounts receivable and accounts payable, respectively.

Net cash provided by operating activities was $146.1 million for the six months ended June 30, 2020.

Net cash provided by operating activities during the nine months ended September 30, 2021 was primarily driven by net income of $318.3 million, and included cash outflow from the $286.6 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 increases of $66.8 million and $20.6 million in the net change in accounts receivable and accounts payable, respectively.

Net cash provided by operating activities was $113.0 million for the nine months ended September 30, 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 six months ended June 30, 2020 was primarily driven by net income of $98.5 million, and included cash inflow from the $41.7 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 in addition to changes in non-inventory balances of $5.9 million.

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 in addition to changes in non-inventory balances of $25.7 million.

Investing Activities

Net cash used in investing activities was $29.8 million for the six months ended June 30, 2021, primarily due to the payment for business acquisition, additional investment in unconsolidated entities and purchase of property and equipment.

Net cash used in investing activities was $1.7 million for the six months ended June 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 $69.8 million for the nine months ended September 30, 2021, primarily due to the payment for business acquisitions, additional investment in unconsolidated entities and purchase of property and equipment.

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.

Financing Activities

Net cash used in financing activities was $34.3 million for the six months ended June 30, 2021, primarily driven by $564.0 million of payments on the 2020 Credit Agreement and the Credit Agreement and by the $81.6 million payment for shares of our common stock repurchased under our stock repurchase program to be held as treasury stock, offset by $617.7

million related to the proceeds received for the 2029 Senior Notes, and borrowings under the 2020 Credit Agreement and the Credit Agreement.

Net cash used in financing activities was $133.6 million for the six months ended June 30, 2020, primarily driven by $235.0 million of payments on the 2020 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, offset by borrowings of $133.0 million under the 2020 Credit Agreement.

Net cash used in financing activities was $20.5 million for the nine months ended September 30, 2021, primarily driven by $944.0 million of payments on the 2026 Senior Notes, the 2020 Credit Agreement and the Credit Agreement and by the $137.7 million payment for shares of our common stock repurchased under our stock repurchase program to be held as treasury stock, offset by $1.1 billion related to the proceeds received for the 2029 Senior Notes, and borrowings under the 2020 Credit Agreement and the Credit Agreement.

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 2020 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, offset by borrowings of $203.1 million under the 2020 Credit Agreement.

Off-Balance Sheet Arrangements

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These contracts typically require cash deposits and the purchase of properties under these contracts is generally contingent upon satisfaction of certain requirements by the sellers, which may include obtaining applicable property and development entitlements or the completion of development activities and the delivery of finished lots.

We also utilize contracts with land sellers as a method of acquiring lots and land in staged takedowns, which helps us manage the financial and market risk associated with land holdings and minimize the use of funds from our corporate financing sources.

We also utilize contracts with land sellers as a method of acquiring lots and land in staged takedowns, which helps us manage the financial and

market risk associated with land holdings and minimize the use of funds from our corporate financing sources.

Such contracts generally require a non-refundable deposit for the right to acquire land or lots over a specified period of time at pre-determined prices.

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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 June 30, 2021, we had $36.1 million of cash deposits pertaining to land purchase contracts for 33,418 lots with an aggregate purchase price of $781.3 million.

Approximately $21.0 million of the cash deposits as of June 30, 2021 are secured by third-party guarantees or indemnity mortgages on the related property.

As of September 30, 2021, we had $46.3 million of cash deposits pertaining to land purchase contracts for 43,338 lots with an aggregate purchase price of $1.0 billion.

Approximately $25.1 million of the cash deposits as of September 30, 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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In addition, inflation can lead to higher mortgage rates, which can significantly affect the affordability of mortgage financing to homebuyers.

During the nine months ended September 30, 2021, we have experienced a significant increase in land, labor, materials and construction costs, which we currently expect to continue for the fourth quarter of 2021 and into 2022.

Generally, we have been able to increase the sales prices of our homes to absorb such increased costs.

Contractual Obligations

As of June 30, 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.

As of September 30, 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 six months ended June 30, 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.

We believe that there have been no significant changes to our critical accounting policies during the nine months ended September 30, 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

From time to time we make statements concerning our expectations, beliefs, plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements that are not historical facts.

These statements are

“forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.

These statements are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those expressed or implied by these statements.

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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