What changed in this filing

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Item 1. Financial Statements

2022-05-03 compared with 2021-11-02 · 112 added, 183 removed, 302 unchanged (49% of the section changed)

3 unchanged sentences

(In thousands, except share data)

September 30, December 31,

March 31, December 31,

Cash and cash equivalents $ 53,325 $ 50,514

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COMMITMENTS AND CONTINGENCIES

Common stock, par value $ 0.01 , 250,000,000 shares authorized, 26,941,222 shares issued and 24,273,191 shares outstanding as of September 30, 2021 and 26,741,554 shares issued and 24,983,561 shares outstanding as of December 31, 2020

Common stock, par value $ 0.01 , 250,000,000 shares authorized, 27,187,895 shares issued and 23,666,284 shares outstanding as of March 31, 2022 and 26,963,915 shares issued and 23,917,359 shares outstanding as of December 31, 2021

Additional paid-in capital 297,451 291,577

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(In thousands, except share and per share data)

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

2021 2020 2021 2020

Three Months Ended March 31,

Home sales revenues $ 546,050 $ 705,953

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Operating income 95,720 122,443

Loss on extinguishment of debt 13,314 — 13,976 —

Other income, net ( 3,830 ) ( 833 )

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BALANCE— March 31, 2022 27,187,895 $ 271 $ 297,451 $ 1,442,608 $ ( 317,579 ) $ 1,422,751

Net income — — — 118,134 — 118,134

Stock repurchase — — — — ( 55,776 ) ( 55,776 )

Compensation expense for equity awards — — 3,395 — — 3,395

Stock issued under employee incentive plans 18,050 — 2,015 — — 2,015

BALANCE— June 30, 2021 26,926,693 $ 269 $ 281,808 $ 1,152,069 $ ( 147,740 ) $ 1,286,406

Net income — — — 100,550 — 100,550

Stock repurchase — — — — ( 56,083 ) ( 56,083 )

Compensation expense for equity awards — — 3,352 — — 3,352

Stock issued under employee incentive plans 14,529 — 1,549 — — 1,549

BALANCE— September 30, 2021 26,941,222 $ 269 $ 286,709 $ 1,252,619 $ ( 203,823 ) $ 1,335,774

See accompanying notes to the consolidated financial statements.

LGI HOMES, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(In thousands, except share data)

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

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

Net income — — — 55,624 — 55,624

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

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

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

Net income — — — 89,004 — 89,004

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

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

BALANCE— September 30, 2020 26,706,454 $ 267 $ 263,945 $ 797,849 $ ( 49,391 ) $ 1,012,670

See accompanying notes to the consolidated financial statements.

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(In thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities:

Net income $ 78,686 $ 99,658

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

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

Equity in income of unconsolidated entities ( 178 ) —

Distributions of earnings from unconsolidated entities 129 —

Depreciation and amortization 348 288

Loss on extinguishment of debt 13,976 —

Gain on disposal of assets ( 1,564 ) —

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Accrued expenses and other liabilities 10,464 17,256

Net cash provided by operating activities 101,087 112,981

Net cash provided by (used in) operating activities ( 137,787 ) 160,686

Cash flows from investing activities:

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Investment in unconsolidated entities ( 380 ) ( 977 )

Payment for business acquisitions ( 66,864 ) —

Net cash used in investing activities ( 69,829 ) ( 2,286 )

Return of capital from unconsolidated entities — 2,660

Net cash provided by (used in) investing activities ( 1,373 ) 404

Cash flows from financing activities:

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Payments on notes payable — ( 230,000 )

Redemption Premium ( 10,314 ) —

Loan issuance costs ( 10,572 ) ( 2,155 )

Proceeds from sale of stock, net of offering expenses 2,013 2,108

Stock repurchase ( 57,659 ) ( 25,827 )

Net cash used in financing activities ( 20,483 ) ( 102,705 )

Net cash provided by (used in) financing activities 141,971 ( 148,875 )

Net increase in cash and cash equivalents 2,811 12,215

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

The accompanying unaudited financial statements as of September 30, 2021, and for the three and nine months ended September 30, 2021 and 2020, include the accounts of the Company and its subsidiaries.

The accompanying unaudited financial statements as of March 31, 2022, and for the three months ended March 31, 2022 and 2021, include the accounts of the Company and its subsidiaries.

All intercompany balances and transactions have been eliminated in consolidation.

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

Revenue Recognition

Revenues from home sales are recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services.

Revenues from home sales are recorded at the time each home sale is closed, title and possession are transferred to the customer and we have no significant continuing involvement with the home.

Home sales discounts and incentives granted to customers, which are related to the customers’ closing costs that we pay on the customers’ behalf , are recorded as a reduction of revenue in our consolidated financial statements of operations.

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

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

2021 2020 2021 2020

Retail home sales revenues $ 650,041 $ 515,221 $ 1,990,439 $ 1,369,130

Wholesale home sales revenues 101,567 18,981 258,634 101,401

Total home sales revenues $ 751,608 $ 534,202 $ 2,249,073 $ 1,470,531

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

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

2021 2020 2021 2020

Central $ 287,878 $ 186,909 $ 924,591 $ 520,608

Southeast 146,166 130,131 442,431 347,155

Northwest 148,515 91,138 372,903 249,455

West 90,592 62,935 252,553 182,012

Florida 78,457 63,089 256,595 171,301

Total home sales revenues $ 751,608 $ 534,202 $ 2,249,073 $ 1,470,531

Home Sales Revenues

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

Retail homes sold under both our LGI Homes brand and Terrata Homes brand focus on providing move-in ready homes with standardized features within favorable markets that meet certain demographic and economic conditions.

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

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

Performance Obligations

Our contracts with customers include a single performance obligation to transfer a completed home to the customer.

We generally determine selling price per home on the expected cost plus margin.

Our contracts contain no significant financing terms as customers who finance do so through a third party.

Performance obligations are satisfied at a moment in time when the home is complete and control of the asset is transferred to the customer at closing.

Home sales proceeds are generally received from the title company within a few business days after closing.

Sales and broker commissions are incremental costs incurred to obtain a contract with a customer that would not have been incurred if the contract had not been obtained.

Sales and broker commissions are expensed upon fulfillment of a home closing.

Advertising costs are costs to obtain a contract that would have been incurred regardless of whether the contract was obtained and are recognized as an expense when incurred.

Sales and broker commissions and advertising costs are recorded within sales and marketing expense presented in our consolidated statements of operations as selling expenses.

Recent Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No.

2020-04, “Reference Rate Reform (“Topic 848”):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”), which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) or by another reference rate expected to be discontinued because of reference rate reform.

The guidance was effective beginning March 12, 2020 and can be applied prospectively through December 31, 2022.

In January 2021, the FASB issued ASU No.

2021-01, “Reference Rate Reform (Topic 848):

Scope” (“ASU 2021-01”), which clarified the scope and application of the original guidance.

We expect to adopt ASU 2020-04 and ASU 2021-01 when the Second Amendment (as defined herein) replaces LIBOR as the benchmark interest rate with the Secured Overnight Financing Rate (“SOFR”).

We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements or related disclosures.

REAL ESTATE INVENTORY

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

September 30, December 31,

March 31, December 31,

Land, land under development and finished lots $ 1,625,290 $ 1,499,761

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Home construction costs and related carrying charges are allocated to the cost of individual homes using the specific identification method.

Costs that are not specifically identifiable to a home are allocated on a pro rata basis, which

we believe approximates the costs that would be determined using an allocation method based on relative sales values since the individual lots or homes within a community are similar in value.

Inventory costs for completed homes are expensed to cost of sales as homes are closed.

Costs that are not specifically identifiable to a home are allocated on a pro rata basis, which we believe approximates the costs that would be determined using an allocation method based on relative sales values since the individual lots or homes within a community are similar in value.

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

Inventory costs for completed homes are expensed to cost of sales as homes are closed.

The life cycle of a community generally ranges from two to five years , commencing with the acquisition of land, continuing through the land development phase, and concluding with the construction and sale of homes.

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Interest and financing costs incurred under our debt obligations, as more fully discussed in Note 4 , are capitalized to qualifying real estate projects under development and homes under construction.

On May 6, 2021, we acquired certain real estate assets owned by KenRoe Inc.

and its affiliated entities, including R Home LLC and Paxmar Land Development (collectively, “KenRoe”), and assumed certain related liabilities.

As a result of the KenRoe acquisition, we expanded our Minnesota presence in the Minneapolis market.

We acquired approximately 100 homes under construction and more than 3,000 owned and controlled lots.

The total purchase price for the KenRoe assets, primarily consisting of inventory, was approximately $ 27.3 million in cash, subject to certain potential post-closing adjustments.

The acquisition is accounted for in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”).

Our purchase accounting for KenRoe as of September 30, 2021 is preliminary and we expect to complete the working capital adjustment and valuation of the tangible assets, intangible assets and liabilities assumed as of the acquisition date within one year from the acquisition date.

On July 14, 2021, we acquired the real estate assets of Buffington Homebuilding Group, Ltd.

(“Buffington”) and assumed certain related liabilities.

The total purchase price for the Buffington assets, primarily consisting of inventory, was approximately $ 39.1 million in cash, 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, and more than 500 owned and controlled lots.

The acquisition is accounted for in accordance with ASC 805.

Our purchase accounting for Buffington as of September 30, 2021 is preliminary and we expect to complete the working capital adjustment and valuation of the tangible assets, intangible assets and liabilities assumed as of the acquisition date within one year from the acquisition date.

During May and July of 2021, we acquired certain real estate assets owned by two private home builders and assumed certain related liabilities within the states of Minnesota and Texas for $ 67.0 million.

These acquisitions are accounted for in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”).

As of March 31, 2022, our purchase accounting for these acquisitions is final.

ACCRUED EXPENSES AND OTHER LIABILITIES

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

September 30, December 31,

Taxes payable $ 7,818 $ 26,181

March 31, December 31,

Real estate inventory development and construction payable $ 54,122 $ 48,656

Accrued compensation, bonuses and benefits 10,166 24,914

Taxes payable 28,918 11,604

Contract deposits 14,721 12,182

Accrued interest 4,047 7,431

Inventory related obligations 7,945 8,803

Lease liability 4,844 5,287

Warranty reserve 8,350 7,850

Contract deposits 16,122 17,151

Lease liability 5,382 5,333

Other 12,270 9,836

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This obligation for infrastructure development is attached to the land, which is typically payable over a 30-year period and is ultimately assumed by the homebuyer when home sales are closed.

Such obligations represent a non-cash cost of the lots.

The obligations assumed by the homebuyer represent a non-cash cost of the lots.

Estimated Warranty Reserve

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

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

2021 2020 2021 2020

Three Months Ended March 31,

Warranty reserves, beginning of period $ 7,850 $ 5,350

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Revolving 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 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;

otherwise, the Credit Agreement is on substantially the same terms as the 2020 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 (as defined herein), 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 September 30, 2021, LIBOR was 0.08 %;

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 “2021 Credit Agreement”), which amended and restated that certain Fourth Amended and Restated Credit Agreement, dated as of May 6, 2019.

The 2021 Credit Agreement had revolving commitments of $ 850.0 million.

On April 29, 2022, we entered into that certain Lender Addition and Acknowledgement Agreement and Second Amendment to Fifth Amended and Restated Credit Agreement with several financial institutions, and Wells Fargo Bank, National Association, as administrative agent (the “Second Amendment”), which amends the 2021 Credit Agreement (as so amended and as otherwise amended prior to the date of the Second Amendment, the “Credit Agreement”).

The Second Amendment, among other things, (a) increases the commitments under the 2021 Credit Agreement by an additional $ 250.0 million, bringing the total commitments under the Credit Agreement to $ 1.1 billion, and (b) replaces LIBOR as the benchmark interest rate with SOFR.

Borrowings under the Credit Agreement will bear interest, payable monthly in arrears, at the Company’s option, at either (1) term SOFR (based on 1, 3 or 6 month interest periods, as selected by the Company) plus a 10 , 15 or 25 basis point adjustment, respectively, which rate will be subject to a 50 basis point floor, plus an applicable margin (ranging from 145 basis points to 210 basis points (the “Applicable Margin”)) based on the Company’s leverage ratio as determined in accordance with a pricing grid, and (2) term SOFR based on a 1 month interest period plus a 10 basis point adjustment, subject to a 50 basis point floor, plus the Applicable Margin.

The Credit Agreement matures on April 28, 2025.

Before each anniversary of the Credit Agreement, we may request a one-year extension of its maturity date.

The Credit Agreement is guaranteed by, among others, 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 our 4.000 % Senior Notes due 2029 (the “2029 Senior Notes”), may not exceed the borrowing base under the Credit Agreement.

The borrowing base primarily consists of a percentage of commercial land, land held for development, lots under development and finished lots held by the Company and its subsidiaries that guarantee the obligations under the Credit Agreement.

As of March 31, 2022, the borrowing base under the 2021 Credit Agreement was $ 1.1 billion, of which borrowings, including the 2029 Senior Notes, of $ 1.0 billion were outstanding, $ 25.0 million of letters of credit were outstanding and $ 108.3 million was available to borrow under the 2021 Credit Agreement.

Prior to the Second Amendment, interest was paid monthly on borrowings under the 2021 Credit Agreement at LIBOR plus 1.60 %.

Prior to the Second Amendment, the 2021 Credit Agreement applicable margin for LIBOR loans ranged from 1.45 % to 2.10 % based on our leverage ratio.

At March 31, 2022, LIBOR was 0.40 %;

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

Senior Notes Offerings

On June 28, 2021, we issued $ 300.0 million aggregate principal amount of our 4.000 % Senior Notes due 2029 (the “2029 Senior Notes”) in an offering to persons reasonably believed to be qualified institutional buyers in the United States pursuant to Rule 144A (“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 (“Regulation S”) under the Securities Act.

Interest on the 2029 Senior Notes accrues at a rate of 4.000 % per annum, payable semi-annually in arrears on January 15 and July 15 of each year, commencing on January 15, 2022.

At March 31, 2022, we were in compliance with all of the covenants contained in the 2021 Credit Agreement.

Senior Notes Offering

On June 28, 2021, we issued $ 300.0 million aggregate principal amount of the 2029 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.

Interest on the 2029 Senior Notes accrues at a rate of 4.000 % per annum, payable semi-annually in arrears on January 15 and July 15 of each year.

The 2029 Senior Notes mature on July 15, 2029.

Terms of the 2029 Senior Notes are governed by an Indenture, dated as of July 6, 2018, and Third Supplemental Indenture thereto, dated as of June 28, 2021, as may be supplemented from time to time, among us, our subsidiaries that guarantee our obligations under the Credit Agreement and Wilmington Trust, National Association, as trustee.

On July 6, 2018, we issued $ 300.0 million aggregate principal amount of our 6.875 % Senior Notes due 2026 (the “2026 Senior Notes”) in an offering to persons reasonably believed to be qualified institutional buyers in the United States pursuant to Rule 144A and to certain non-U.S.

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

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.

Notes payable consist of the following (in thousands):

September 30, 2021 December 31, 2020

Notes payable under the Credit Agreement ($ 850.0 million revolving credit facility at September 30, 2021) maturing on April 28, 2025;

March 31, 2022 December 31, 2021

Notes payable under the 2021 Credit Agreement ($ 850.0 million revolving credit facility at March 31, 2022) maturing on April 28, 2025;

interest paid monthly at LIBOR plus 1.60 %.

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interest paid semi-annually at 4.000 %.

6.875 % Senior Notes due July 15, 2026;

interest paid semi-annually at 6.875 %.

Net discount and debt issuance costs ( 12,947 ) ( 8,223 )

300,000 300,000

Net debt issuance costs ( 11,461 ) ( 12,203 )

Total notes payable $ 1,003,596 $ 805,236

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

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

2021 2020 2021 2020

Three Months Ended March 31,

Interest incurred $ 7,027 $ 7,732

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Cash paid for interest $ 9,668 $ 12,633

Included in interest incurred was amortization of deferred financing costs and discounts for notes payable of $ 0.8 million for each of the three months ended September 30, 2021 and 2020, and $ 2.2 million for each of the nine months ended September 30, 2021 and 2020.

Included in interest incurred was amortization of deferred financing costs and discounts for notes payable of $ 0.7 million for each of the three months ended March 31, 2022 and 2021.

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

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

For the three and nine months ended September 30, 2021, our effective tax rates of 20.8 % and 20.3 %, respectively, are lower than the Federal statutory rate primarily as a result of the federal energy efficient homes tax credit and excess compensation cost for share-based payments, partially offset by an increase in the rate for state income taxes, net of the federal benefit payments.

Income taxes paid were $ 36.0 million and $ 46.6 million for the three months ended September 30, 2021 and 2020, respectively.

Income taxes paid were $ 99.7 million and $ 65.5 million for the nine months ended September 30, 2021 and 2020, respectively.

For the three months ended March 31, 2022, our effective tax rate of 21.0 % is equal to the Federal statutory rate primarily as a result of the deductions in excess of compensation cost for share-based payments, offset by an increase in the rate for the compensation limitation under Section 162(m) of the Internal Revenue Code, as amended, and for state income taxes, net of the federal benefit payments.

Income taxes paid were $ 0.4 million and $ 0.2 million for the three months ended March 31, 2022 and 2021, respectively.

Stock Repurchase Program

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

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

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.

In February 2022, our Board of Directors (the “Board”) approved a $ 200.0 million increase to our previously authorized stock repurchase program, pursuant to which we may purchase up to $ 550.0 million of shares of our common stock through open market transactions, privately negotiated transactions or otherwise in accordance with applicable laws.

During the three months ended March 31, 2022, we repurchased 475,055 shares of our common stock for $ 57.7 million to be held as treasury

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

A total of 2,521,611 shares of our common stock has been repurchased since our stock repurchase program commenced.

As of September 30, 2021, we may purchase up to $ 162.7 million of shares of our common stock under our stock repurchase program.

As of March 31, 2022, we may purchase up to $ 249.0 million of shares of our common stock under our stock repurchase program.

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

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EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2021 and 2020:

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

2021 2020 2021 2020

The following table sets forth the computation of basic and diluted earnings per share for the three months ended March 31, 2022 and 2021:

Three Months Ended March 31,

Numerator (in thousands):

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

Nine Months Ended September 30,

Three Months Ended March 31,

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

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Ending balance 114,607 $ 101.18 134,070 $ 75.79

We recognized $ 0.8 million and $ 0.9 million of stock-based compensation expense related to outstanding RSUs for each of the three months ended September 30, 2021 and 2020, respectively.

We recognized $ 2.5 million and $ 2.6 million of stock-based compensation expense related to outstanding RSUs for each of the nine months ended September 30, 2021 and 2020, respectively.

We recognized $ 0.8 million of stock-based compensation expense related to outstanding RSUs for each of the three months ended March 31, 2022 and 2021.

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

At September 30, 2021, we had unrecognized compensation cost of $ 4.5 million related to unvested RSUs, which is expected to be recognized over a weighted average period of 2.0 years.

At March 31, 2022, we had unrecognized compensation cost of $ 7.4 million related to unvested RSUs, which is expected to be recognized over a weighted average period of 2.2 years.

Performance-Based Restricted Stock Units

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

The following table summarizes the activity of our PSUs for the nine months ended September 30, 2021:

Period Granted Performance Period Target PSUs Outstanding at December 31, 2020 Target PSUs Granted Target PSUs Vested Target PSUs Forfeited Target PSUs Outstanding at September 30, 2021 Weighted Average Grant Date Fair Value

The following table summarizes the activity of our PSUs for the three months ended March 31, 2022:

Period Granted Performance Period Target PSUs Outstanding at December 31, 2021 Target PSUs Granted Target PSUs Forfeited Target PSUs Vested Target PSUs Outstanding at March 31, 2022 Weighted Average Grant Date Fair Value

2019 2019 - 2021 81,242 — ( 767 ) ( 80,475 ) — $ 56.49

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Total 215,807 66,909 ( 2,261 ) ( 80,475 ) 199,980

At September 30, 2021, management estimates that the recipients will receive approximately 185 %, 200 % and 200 % of the 2021, 2020 and 2019 target number of PSUs, respectively, at the end of the applicable three-year performance cycle based on projected performance compared to the target performance metrics.

We recognized $ 2.3 million and $ 1.3 million of total stock-based compensation expense related to outstanding PSUs for the three months ended September 30, 2021 and 2020, respectively.

We recognized $ 6.7 million and $ 3.7 million of total stock-based compensation expense related to outstanding PSUs for the nine months ended September 30, 2021 and 2020, respectively.

The 2018 - 2020 performance period PSUs vested

and issued on March 15, 2021 at 200 % of the target number.

At September 30, 2021, we had unrecognized compensation cost of $ 13.8 million, based on the probable amount, related to unvested PSUs, which is expected to be recognized over a weighted average period of 2.0 years.

At March 31, 2022, management estimates that the recipients will receive approximately 100 %, 200 % and 200 % of the 2022, 2021 and 2020 target number of PSUs, respectively, at the end of the applicable three-year performance cycle based on projected performance compared to the target performance metrics.

We recognized $ 2.3 million and $ 2.2 million of total stock-based compensation expense related to outstanding PSUs for the three months ended March 31, 2022 and 2021, respectively.

The 2019 - 2021 performance period PSUs vested and issued on March 15, 2022 at 200 % of the target number.

At March 31, 2022, we had unrecognized compensation cost of $ 17.6 million, based on the probable amount, related to unvested PSUs, which is expected to be recognized over a weighted average period of 2.3 years.

FAIR VALUE DISCLOSURES

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

As of September 30, 2021, the Credit Agreement’s carrying value approximates market value since it has a floating interest rate, which increases or decreases with market interest rates and our leverage ratio.

In order to determine the fair value of the 2029 Senior Notes and the 2026 Senior Notes, the future contractual cash flows are discounted at our estimate of current market rates of interest, which were determined based upon the average interest rates of similar senior notes within the homebuilding industry (Level 2 measurement).

The following table below shows the level and measurement of liabilities at September 30, 2021 and December 31, 2020 (in thousands):

September 30, 2021 December 31, 2020

As of March 31, 2022, the 2021 Credit Agreement’s carrying value approximates market value since it has a floating interest rate, which increases or decreases with market interest rates and our leverage ratio.

In order to determine the fair value of the 2029 Senior Notes, the future contractual cash flows are discounted at our estimate of current market rates of interest, which were determined based upon the average interest rates of similar senior notes within the homebuilding industry (Level 2 measurement).

The following table below shows the level and measurement of liabilities at March 31, 2022 and December 31, 2021 (in thousands):

March 31, 2022 December 31, 2021

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

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Level 2 $ 300,000 $ 269,352 $ 300,000 $ 299,302

2026 Senior Notes (2)

$ — $ — $ 300,000 $ 340,388

(1) On June 28, 2021, we completed an offering of $ 300.0 million aggregate principal amount of the 2029 Senior Notes.

See Note 5 for more details regarding this offering.

(2) On July 15, 2021, we redeemed all of the outstanding 2026 Senior Notes.

See Note 5 for more details regarding the redemption.

(1) See Note 4 for more details regarding the offering of the 2029 Senior Notes.

RELATED PARTY TRANSACTIONS

Land Purchases from Affiliates

We did not complete any land purchase contracts with affiliates during the three months ended September 30, 2021.

During the nine months ended September 30, 2021, we completed a land purchase contract to purchase a total of 110 finished lots in Pasco County, Florida from an affiliate of one of our directors for a total base purchase price of approximately $ 4.0 million.

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

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

In April 2021, we purchased the remaining land in a takedown of 52 lots under the Pasco County contract for a base purchase price of approximately $ 1.9 million.

During the nine months ended September 30, 2021, we completed a land purchase contract to purchase a total of 25 finished lots in Burnet County, Texas from an affiliate of a family member of our chief executive officer for a total base purchase price of approximately $ 2.5 million.

We did not enter into or complete any land purchase contracts with affiliates during the three months ended March 31, 2022.

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

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

As of December 31, 2021, we completed both the land purchase contracts in Burnet County and Pasco County.

COMMITMENTS AND CONTINGENCIES

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

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Land deposits and option payments $ 34,905 $ 37,499

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Lots under land purchase contracts 34,191 36,978

As of September 30, 2021 and December 31, 2020, approximately $ 25.1 million and $ 24.0 million, respectively, of the land deposits are related to purchase contracts to deliver finished lots that are refundable under certain circumstances, such as feasibility or specific performance, and secured by mortgages or letters of credit or guaranteed by the seller or its affiliates.

As of March 31, 2022 and December 31, 2021, approximately $ 19.4 million and $ 19.3 million, respectively, of the land deposits are related to purchase contracts to deliver finished lots that are refundable under certain circumstances, such as feasibility or specific performance, and secured by mortgages or letters of credit or guaranteed by the seller or its affiliates.

Lease Obligations

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

ROU assets, as included in other assets on the consolidated balance sheets, were $ 4.6 million and $ 4.9 million at September 30, 2021 and December 31, 2020, respectively.

Lease obligations, as included in accrued expenses and other liabilities on the consolidated balance sheets, were $ 4.8 million and $ 5.3 million at September 30, 2021 and December 31, 2020, respectively.

Operating lease cost, as included in general and administrative expense in our consolidated statements of operations, was $ 0.5 million and $ 0.4 million for the three months ended September 30, 2021 and 2020, respectively.

Operating lease cost, as included in general and administrative expense in our consolidated statements of operations, was $ 1.3 million and $ 1.2 million for the nine months ended September 30, 2021 and 2020, respectively.

Cash paid for amounts included in the measurement of lease liabilities for operating leases during the nine months ended September 30, 2021 and 2020 was $ 1.2 million and $ 0.7 million, respectively.

As of September 30, 2021, the weighted-average discount rate was 5.20 % and our weighted-average remaining life was 4.3 years.

We do not have any significant lease contracts that have not yet commenced at September 30, 2021.

The table below shows the future minimum payments under non-cancelable operating leases at September 30, 2021 (in thousands):

ROU assets, as included in other assets on the consolidated balance sheets, were $ 5.1 million as of each of March 31, 2022 and December 31, 2021.

Lease obligations, as included in accrued expenses and other liabilities on the consolidated balance sheets, were $ 5.4 million and $ 5.3 million at March 31, 2022 and December 31, 2021, respectively.

Cash paid for amounts included in the measurement of lease liabilities for operating leases during the three months ended March 31, 2022 and 2021 was $ 0.4 million and $ 0.2 million, respectively.

As of March 31, 2022, the weighted-average discount rate was 5.2 % and our weighted-average remaining life was 3.1 years.

We do not have any significant lease contracts that have not yet commenced at March 31, 2022.

The table below shows the future minimum payments under non-cancelable operating leases at March 31, 2022 (in thousands):

Year Ending December 31, Operating leases

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Bonding and Letters of Credit

We have outstanding letters of credit and performance and surety bonds totaling $ 199.7 million (including $ 8.3 million of letters of credit issued under the Credit Agreement) and $ 143.8 million at September 30, 2021 and December 31, 2020, respectively, related to our obligations for site improvements at various projects.

We have outstanding letters of credit and performance and surety bonds totaling $ 268.8 million (including $ 25.0 million of letters of credit issued under the 2021 Credit Agreement) and $ 206.8 million at March 31, 2022 and December 31, 2021, respectively, related to our obligations for site improvements at various projects.

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

Investment in Unconsolidated Entities

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

In 2019, we entered as a limited partner into a real estate investment fund with a maximum $ 30.0 million commitment.

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

Additionally, during the nine months ended September 30, 2021, we entered into a joint venture with a mortgage lender.

As of September 30, 2021 and December 31, 2020, we have a total of $ 5.3 million and $ 3.9 million, respectively, within other assets on the balance sheet relating to our investment in this real estate investment fund and this mortgage joint venture.

Additionally, in 2021, we entered into a joint venture with a mortgage lender.

As of March 31, 2022 and December 31, 2021, we have a total of $ 6.0 million and $ 5.6 million, respectively, within other assets on the balance sheet relating to our investment in this real estate investment fund and this mortgage joint venture.

Contributions into the unconsolidated entities are for the use of investing in certain real estate transactions and residential mortgage servic es, respectively.

Home Sales Revenues

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

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

Three Months Ended March 31,

Retail home sales revenues $ 494,206 $ 643,572

Wholesale home sales revenues 51,844 62,381

Total home sales revenues $ 546,050 $ 705,953

Our home sales revenues are disaggregated by geography, based on our determined reportable segments.

See Note 13 for tabular presentation of this information.

SEGMENT INFORMATION

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

We have seven operating segments (our Central, Midwest, Southeast, Mid-Atlantic, Northwest, West, and Florida divisions) that we aggregate into five qualifying reportable segments at September 30, 2021:

We have seven operating segments (our Central, Midwest, Southeast, Mid-Atlantic, Northwest, West, and Florida divisions) that we aggregate into five qualifying reportable segments at March 31, 2022:

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

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

The Central division is our largest division and comprised approximately 41.1 % and 35.4 % of total home sales revenues for the nine months ended September 30, 2021 and 2020, respectively.

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

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

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

2021 2020 2021 2020

Three Months Ended March 31,

Central $ 262,298 $ 288,750

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Total net income before income taxes $ 99,550 $ 123,276

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

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

Actual warranty expenses are reflected within the reportable segments.

September 30, 2021 December 31, 2020

March 31, 2022 December 31, 2021

Central $ 894,491 $ 857,174

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Total assets $ 2,594,233 $ 2,351,865

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

(1) The Corporate balance consists primarily of cash, prepaid insurance, ROU assets, prepaid expenses, investments in unconsolidated entities and tax receivables.

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

What changed 10-Q

Item 1. Financial Statements