What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-21 compared with 2022-02-15 · 153 added, 158 removed, 571 unchanged (35% of the section changed)

31 unchanged sentences

and potential cost reimbursements from various municipalities.

Auditing the Company's land development cost measurement to unsold lots and homes was complex and subjective due to the significant estimation required to determine the costs to complete land development.

Specifically, the land development cost estimate is sensitive to significant management assumptions, including the project’s schedule, estimated cost of materials and labor and potential reimbursements.

How We Addressed the Matter in Our Audit We obtained an understanding and tested the design and operating effectiveness of the Company's process and controls over its land development cost measurement and allocation to unsold lots and homes, including controls over management's review of the estimated costs to complete.

To test the Company's land development cost measurement and allocation to unsold lots and homes, our audit procedures included, among others, testing the significant assumptions used to develop the estimated costs to complete the land development projects and testing the completeness and accuracy of the underlying data and allocation calculation.

Auditing the Company's land development cost measurement was complex and subjective due to the significant estimation required to determine the costs to complete land development.

Specifically, the land development cost estimate is sensitive to significant management assumptions, including the project’s schedule, estimated cost of labor, materials and subcontractors and potential reimbursements.

How We Addressed the Matter in Our Audit We obtained an understanding and tested the design and operating effectiveness of the Company's process and controls over its land development cost measurement, including controls over management's review of the estimated costs to complete.

To test the Company's land development cost measurement, our audit procedures included, among others, testing the significant assumptions used to develop the estimated costs to complete the land development projects and testing the completeness and accuracy of the underlying data.

For example, we sampled the Company’s land development project budgets and agreed the estimated development costs and cost reimbursements to supporting documentation, including underlying contracts;

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Net income — — — 323,895 — 323,895

Issuance of shares in settlement of Convertible Notes 2,381,751 24 ( 24 ) — — —

Stock repurchase — — — — ( 48,081 ) ( 48,081 )

Restricted stock units granted for accrued annual bonuses — — 222 — — 222

23 unchanged sentences

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

Equity in income of unconsolidated entities ( 5,507 ) — —

Distributions of earnings from unconsolidated entities 4,593 — —

Depreciation and amortization 1,576 1,154 710

Loss on extinguishment of debt — 13,976 —

Loss (gain) on disposal of assets ( 717 ) ( 4 ) 37

Gain on sale of interest rate cap ( 7,055 ) — —

Gain on disposal of assets ( 2,206 ) ( 717 ) ( 4 )

Compensation expense for equity awards 9,188 13,595 13,517

11 unchanged sentences

Investment in unconsolidated entities ( 5,016 ) ( 1,692 ) ( 2,956 )

Return of capital from unconsolidated entities 235 — —

Payment for business acquisitions — ( 66,970 ) —

3 unchanged sentences

Payments on notes payable ( 308,000 ) ( 969,000 ) ( 530,000 )

Proceeds from financing arrangements 149,526 — —

Payments on financing arrangements ( 8,813 ) — —

Redemption premium — ( 10,314 ) —

12 unchanged sentences

LGI Homes, Inc., a Delaware corporation (the “Company”, “we,” “us,” or “our”), is headquartered in The Woodlands, Texas.

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

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

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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 December 31, 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.

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

Our purchase accounting for KenRoe as of December 31, 2022 was final.

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

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The acquisition is accounted for in accordance with ASC 805.

Our purchase accounting for Buffington as of December 31, 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.

Our purchase accounting for Buffington as of December 31, 2022 was final .

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

14 unchanged sentences

Real Estate Inventory

Inventory consists of land, land under development, finished lots, information centers, homes in progress, and completed homes.

Inventory consists of land, land under development, finished lots, information centers, homes in progress, completed homes and real estate not owned.

Inventory is stated at cost unless the carrying amount is determined not to be recoverable, in which case the affected inventory is written down to fair value.

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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.

A constructed home is used as the community information center during the life of the community and then sold.

We purchase both finished lots and land to be developed.

Generally, the life cycle of a community ranges from two to five years .

For projects we develop, the period between the acquisition of a raw piece of land and completion of the development of that land generally ranges from two to three years .

During the life of a project, a constructed home is used as the community information center and then sold.

Actual individual community lives will vary based on the size of the community, the sales absorption rate, and whether the property was purchased as raw land or finished lots.

Interest and financing costs incurred under our debt obligations, as more fully discussed in Note 6 , are capitalized to qualifying real estate projects under development and homes under construction.

We have land banking financing arrangements with a third-party land banker to repurchase land that we sold to the land banker as a method of acquiring finished lots in staged takedowns, while limiting risk and minimizing the use of funds from our available cash or other financing sources.

In consideration for this repurchase option, we paid a non-refundable commitment fee.

Based on our right to control the ultimate economic outcome of these finished lots, these assets will be held as real estate not owned within our inventory as shown in tabular form in Note 3 and a corresponding obligation was established within our accrued liabilities as more fully discussed in Note 5 to recognize this relationship.

While we are not legally obligated to repurchase the balance of the lots, we will be subject to certain performance obligations, financial and other penalties if the lots are not purchased.

We do not have any ownership interest or title to the assets that we have sold to the land banker and we do not guarantee any of the land banker’s liabilities.

In accordance with ASC Topic 360, Property, Plant, and Equipment , real estate inventory is evaluated for indicators of impairment by each community during each reporting period.

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Under ASC Topic 810, Consolidation (“ASC 810”), a nonrefundable deposit paid to an entity is deemed to be a variable interest that will absorb some or all of the entity’s expected losses if they occur.

Non-refundable land purchase and lot option deposits generally represent our maximum exposure if we elect not to purchase the optioned property.

Non-refundable land purchase and lot option

deposits generally represent our maximum exposure if we elect not to purchase the optioned property.

In some instances, we may also expend funds for due diligence, development and construction activities with respect to optioned land prior to close.

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Deferred loan costs represent debt issuance costs related to a recognized debt liability and are presented in the balance sheet as a direct deduction from the carrying amount of that debt liability.

Other assets consist primarily of municipal utility district reimbursements, income tax receivables related to the federal energy efficient homes tax credit, prepaid insurance, prepaid expenses, right-of-use (“ROU”) assets, investments in unconsolidated entities and other receivables.

Other assets consist primarily of municipal utility district reimbursements, income tax receivables related to the federal energy efficient homes tax credit, prepaid insurance, prepaid expenses, financing arrangement commitment fees, right-of-use (“ROU”) assets, investments in unconsolidated entities and other receivables.

Our prepaid insurance and prepaid expenses were $ 8.3 million and $ 12.0 million as of December 31, 2022 and 2021, respectively.

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Under the equity method of accounting, we recognize our proportionate share of the earnings and losses of this entity.

In the event we buy land from this entity we intend to defer the recognition of profits from such activities until the time we ultimately sell the related land.

Additionally, in 2021, we entered into a mortgage joint venture, which is engaged in mortgage activities and primarily provides services to our retail homebuyers.

We evaluate our investments in unconsolidated entities for recoverability in accordance with ASC Topic 323, Investments - Equity Method and Joint Ventures .

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If after assessing these qualitative factors, we determine it is “more-likely-than-not” that the fair value of the reporting unit is less than the carrying value, then performing a quantitative test is necessary.

Annually, we have performed a qualitative analysis and determined that it is not “more likely than not” that the fair values of the reporting units were less than their carrying amounts.

Annually, we have performed a qualitative analysis and determined that it is not “more likely than not” that the fair values of

the reporting units were less than their carrying amounts.

No goodwill impairment charges were recorded in 2022, 2021 and 2020.

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Under the liability method, deferred tax assets and liabilities are recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities.

Changes in tax rate are recognized in the year of enactment.

Changes in tax rates are recognized in the year of enactment.

Deferred tax assets are reduced by a valuation allowance if it is more likely than not that some portion or all of the net deferred tax assets will not be realized.

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Diluted earnings per share is based on the weighted average number of shares of common stock and dilutive securities outstanding.

In accordance with ASC 260-10, Earnings Per Share , we calculated the dilutive effect of our 4.25 % Convertible Notes due 2019 (the “Convertible Notes”) using the treasury stock method, since we had the intent and ability to settle the principal amount of the outstanding Convertible Notes in cash.

Diluted earnings per share excludes all dilutive potential shares of common stock if their effect is antidilutive.

2 unchanged sentences

Compensation costs for performance-based restricted stock awards also contain a market condition.

These costs are measured using the derived grant date fair value, based on a third party valuation analysis, and are expensed in accordance with ASC 718-10-25-20, Compensation - Stock Compensation , which requires an assessment of probability of attainment of the performance target.

These costs are measured

using the derived grant date fair value, based on a third party valuation analysis, and are expensed in accordance with ASC 718-10-25-20, Compensation - Stock Compensation , which requires an assessment of probability of attainment of the performance target.

Once the performance target outcome is determined to be probable, the cumulative expense is adjusted, as needed, to recognize compensation expense on a straight-line basis over the award’s requisite service period.

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):

For the Year Ended December 31,

2021 2020 2019

Retail home sales revenues $ 2,700,866 $ 2,191,301 $ 1,714,277

Wholesale home sales revenues 349,283 176,628 123,877

Total home sales revenues $ 3,050,149 $ 2,367,929 $ 1,838,154

The following table presents our home sales revenues disaggregated by geography, based on our determined reportable segments in Note 15 (in thousands):

For the Year Ended December 31,

2021 2020 2019

Central $ 1,252,782 $ 850,375 $ 724,981

Southeast 594,742 559,226 347,817

Northwest 510,497 389,523 304,294

West 351,219 286,130 271,186

Florida 340,910 282,675 189,876

Home sales revenues $ 3,050,149 $ 2,367,929 $ 1,838,154

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

Effective April 29, 2022, we adopted the Financial Accounting Standards Board (the “FASB”) 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.

Effective April 28, 2022, we adopted FASB ASU No.

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

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

The adoption of both ASU 2020-04 and ASU 2021-01 replaced LIBOR as the benchmark interest rate with the Secured Overnight Financing Rate (“SOFR”) and did not have a material effect on our consolidated financial statements or related disclosures.

REAL ESTATE INVENTORY

4 unchanged sentences

Completed homes 523,054 107,736

Total owned inventory 2,756,504 2,085,904

Real estate not owned 141,792 —

Total real estate inventory $ 2,898,296 $ 2,085,904

Our real estate not owned relates to land banking financing arrangements with a third-party land banker to repurchase land that we sold to the land banker as a method of acquiring finished lots in staged takedowns, while limiting risk and minimizing the use of funds from our available cash or other financing sources.

See “Real Estate Inventory” under Note 2 for more information.

Interest and financing costs incurred under our debt obligations, as more fully discussed in Note 7 , are capitalized to qualifying real estate projects under development and homes under construction.

Interest and financing costs incurred under our debt obligations and financing arrangements, as more fully discussed in Note 6 and Note 5 , respectively, are capitalized to qualifying real estate projects under development and homes under construction.

PROPERTY AND EQUIPMENT

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Asset Life 2022 2021

Rental properties 30

29,833 13,390

Computer software and equipment 2 - 5

$ 3,894 $ 2,950

Machinery and equipment 5

Furniture and fixtures 2 - 5

Rental properties 30

Leasehold improvements 5 - 10

Furniture and fixtures 2 - 5

Machinery and equipment 5

Total property and equipment 36,380 18,751

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

Land banking financing arrangements

Real estate inventory development and construction payable 73,678 48,656

2 unchanged sentences

Contract deposits 5,545 12,182

Accrued interest 7,431 10,853

Inventory related obligations 13,039 8,803

Lease liability 5,333 5,287

Warranty reserve 10,750 7,850

Accrued interest 10,906 7,431

Lease liability 5,182 5,333

Other 19,299 9,836

Total accrued expenses and other liabilities $ 340,128 $ 136,609

Land Banking Financing Arrangements

We have entered into land banking financing arrangements with a third-party land banker to repurchase land that we sold to the land banker as a method of acquiring finished lots in staged takedowns.

Principal payments on these financing arrangements will generally coincide with the repurchase of lot takedowns from the land banker.

We expect to complete the repurchase of all lots via takedowns associated with these transactions over the course of approximately two to four years.

Inventory Related Obligations

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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 December 31, 2021, the borrowing base under the Credit Agreement was $ 1.1 billion, of which borrowings, including the 2029 Senior Notes (as defined herein), of $ 817.4 million were outstanding, $ 9.1 million of letters of credit were outstanding and $ 321.3 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 December 31, 2021, LIBOR was 0.10 %;

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

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” and, as so amended, the “Credit Agreement”), which amended that certain Fifth Amended and Restated Credit Agreement, dated as of April 28, 2021, with several financial

institutions, and Wells Fargo Bank, National Association, as administrative agent (the “2021 Credit Agreement”).

The Second Amendment, among other things, (a) increased 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) replaced LIBOR as the benchmark interest rate with SOFR.

Borrowings under the Credit Agreement 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 is 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 December 31, 2022, the borrowing base under the Credit Agreement was $ 1.4 billion, of which borrowings, including the 2029 Senior Notes, of $ 1.1 billion were outstanding, $ 33.4 million of letters of credit were outstanding and $ 236.6 million was available to borrow under the Credit Agreement.

Interest is paid monthly on borrowings under the Credit Agreement at SOFR plus 1.85 %.

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

At December 31, 2022, SOFR was 4.32 %, subject to the 0.50 % SOFR floor as included in the Credit Agreement.

The Credit Agreement contains various financial covenants, including a minimum tangible net worth, a leverage ratio, a minimum liquidity amount and an EBITDA to interest expense ratio.

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At December 31, 2022, 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.

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.

The 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.

Notes payable consist of the following (in thousands):

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

interest paid monthly at LIBOR plus 1.45 %.

Notes payable under the Credit Agreement ($ 1.1 billion revolving credit facility at December 31, 2022) maturing on April 28, 2025;

interest paid monthly at SOFR plus 1.85 %.

$ 828,350 $ 517,439

1 unchanged sentence

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 ( 12,203 ) ( 8,223 )

300,000 300,000

Net debt issuance costs ( 11,349 ) ( 12,203 )

Total notes payable $ 1,117,001 $ 805,236

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Capitalized Interest

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

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

Year Ended December 31,

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Cash paid for interest $ 41,593 $ 28,850 $ 34,924

Included in interest incurred was amortization of deferred financing costs and discounts for notes payable of $ 2.9 million for each of the years ended December 31, 2021 and 2020 and $ 4.1 million for the year ended December 31, 2019.

Included in interest incurred was amortization of deferred financing costs and applicable discounts for notes payable and financing arrangements of $ 3.5 million for the year ended December 31, 2022 and $ 2.9 million for each of the years ended December 31, 2021 and 2020.

The provision for income taxes consisted of the following (in thousands):

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Tax at effective rate $ 91,549 21.9 % $ 113,130 20.8 % $ 43,954 11.9 %

The 2021 effective tax rate differs from the federal statutory rate primarily due to benefits associated with the federal energy efficient homes tax credits enacted into law in December 2019 and the deductions in excess of compensation cost (“windfalls”) for share-based payments, partially offset by state income tax expense on current year earnings and non-deductible salaries related to Section 162(m) of the Internal Revenue Code of 1986, as amended.

The 2022 effective tax rate differs from the federal statutory rate primarily due to state income tax expense on current year earnings and non-deductible salaries related to Section 162(m) of the U.S.

Internal Revenue Code, as amended (the “Code”) partially offset by benefits associated with the federal energy efficient homes tax credits enacted into law in December 2019 and the deductions in excess of compensation cost (“windfalls”) for share-based payments.

The 2021 effective tax rate differs from the federal statutory rate primarily due to benefits associated with the federal energy efficient homes tax credits enacted into law in December 2019 and the windfalls for share-based payments, partially offset by state income tax expense on current year earnings and non-deductible salaries related to Section 162(m) of the Code.

The 2020 effective tax rate differs from the federal statutory rate primarily due to benefits associated with the federal energy efficient homes tax credits enacted into law in December 2019, partially offset by state income tax expense on current year earnings.

The 2019 effective tax rate differs from the federal statutory rate primarily due to non-deductible salaries related to Section 162(m) of the Internal Revenue Code of 1986, as amended, and state income tax expense on current year earnings offset by the windfalls for share-based payments.

Income tax expense for 2021 includes a benefit of $ 16.2 million associated with the extension of federal energy efficient homes tax credits.

Income tax expense for 2022 and 2021 includes a benefit of $ 9.1 and $ 16.2 million, respectively, associated with the extension of federal energy efficient homes tax credits.

Income tax expense for 2020 includes a benefit of $ 41.2 million associated with the extension of federal energy efficient homes tax credits, including $ 29.7 million related to homes closed in prior open tax years.

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Accruals and reserves $ 3,947 $ 5,163

Leases 959 946

Inventory 470 239

Stock-based compensation 3,210 4,397

Inventory 1,060 470

Leases 926 959

Other 1,673 310

Total deferred tax assets 10,816 11,299

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Leases ( 1,103 ) ( 1,137 )

Tax depreciation in excess of book depreciation ( 488 ) ( 499 )

Goodwill and other assets amortized for tax ( 982 ) ( 860 )

Tax depreciation in excess of book depreciation ( 707 ) ( 488 )

Other ( 288 ) ( 183 )

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At December 31, 2021, we had 26,963,915 shares of common stock issued and 23,917,359 shares of common stock outstanding, including 3,046,556 treasury shares of our common stock.

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

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.

For the year ended December 31, 2021, we repurchased 1,288,563 shares of our common stock for $ 193.8 million to be held as treasury stock.

For the year ended December 31, 2020, we repurchased 718,993 shares of our common stock for $ 48.1 million to be held as treasury stock.

For the year ended December 31, 2019, we did not repurchase any shares of our common stock.

In October 2020 and February 2022, the Board approved an increase in our stock repurchase program by an additional $ 300.0 million and $ 200.0 million, respectively.

For the years ended December 31, 2022, 2021 and 2020, we repurchased 892,916 shares of our common stock for $ 95.1 million to be held as treasury stock, 1,288,563 shares of our common stock for $ 193.8 million to be held as treasury stock and 718,993 shares of our common stock for $ 48.1 million to be held as treasury stock, respectively.

A total of 2,939,472 shares of our common stock has been repurchased since our stock repurchase program commenced.

As of December 31, 2022, we may purchase up to $ 211.5 million of shares of our common stock under our stock repurchase program.

On February 11, 2022, the Board approved an increase in our stock repurchase program by an additional $ 200.0 million, increasing the available authorization under the program to purchase up to $ 306.6 million of shares of our common stock as of the date of this Annual Report on Form 10-K.

including the market price of our common stock, corporate considerations, general market and economic conditions and legal requirements.

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.

Our stock repurchase program may be modified, discontinued or suspended at any time.

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Effect of dilutive securities:

Convertible Notes - treasury stock method — — 1,966,639

Stock-based compensation units 244,305 301,760 245,483

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Antidilutive non-vested restricted stock units excluded from calculation of diluted earnings per share 50,003 5,970 9,482

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

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

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

Throughout 2019 to the maturity date of the Convertible Notes, the average market price of our common stock exceeded the conversion price of $ 21.52 per share;

therefore, the calculation of diluted earnings per share for 2019 prior to the maturity date includes the effect of our common stock related to the conversion spread of the Convertible Notes.

STOCK-BASED COMPENSATION

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In 2021, we issued 11,511 RSUs to senior management for the time-based portion of our 2021 long-term incentive compensation program and 8,094 RSUs for 2020 annual bonuses to managers, which generally cliff vest on the third anniversary of the grant date.

In 2019, we issued 20,847 RSUs to senior management for the time-based portion of our 2019 long-term incentive compensation program and 16,159 RSUs for 2018 annual bonuses to managers, which generally cliff vest on the third anniversary of the grant date.

In 2020, we issued 22,141 RSUs to senior management for the time-based portion of our 2020 long-term incentive compensation program and 15,585 RSUs for 2019 annual bonuses to managers, which generally cliff

vest on the third anniversary of the grant date.

In addition, during the years ended December 31, 2022, 2021 and 2020, we issued 56,116 , 10,059 and 19,009 RSUs, respectively, to certain employees, executives and non-employee directors, which vest over periods ranging from one to three years .

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

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

The following table summarizes the activity of our PSUs:

Period Granted Performance Period Target PSUs Outstanding at December 31, 2021 Target PSUs Granted Target PSUs Forfeited Target PSUs Vested Target PSUs Outstanding at December 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 ( 9,413 ) ( 80,475 ) 192,828

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

At December 31, 2022, management estimates that the recipients will receive approximately 50 %, 97 %, and 200 % of the 2022, 2021, and 2020 target number of PSUs at the end of the applicable three-year performance cycle based on projected performance compared to the target performance metrics.

We recognized $ 4.5 million, $ 9.0 million, and $ 9.2 million of total stock-based compensation expense related to PSUs for the years ended December 31, 2022, 2021 and 2020, respectively.

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ASC Topic 820, Fair Value Measurements (“ASC 820”) , defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date” within an entity’s principal market, if any.

The principal market is the market in which the reporting entity would sell the asset or transfer the liability with the greatest volume and level of activity, regardless of whether it is the market in which the entity will ultimately transact for a particular asset or liability or if a different market is potentially more advantageous.

The principal market is the market in which the reporting entity would sell the asset or transfer the liability with the most significant volume and level of activity, regardless of whether it is the market in which the entity will ultimately transact for a particular asset or liability or if a different market is potentially more advantageous.

Accordingly, this exit price concept may result in a fair value that differs from the transaction price or market price of the asset or liability.

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As of December 31, 2022, 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).

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 December 31, 2022 and 2021 (in thousands):

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Level 2 $ 300,000 $ 246,969 $ 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 7 for more details regarding this offering.

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

See Note 7 for more details regarding the redemption.

(1) See Note 6 for more details regarding the offering of the 2029 Senior Notes.

RELATED PARTY TRANSACTIONS

Land Purchases from Affiliates

We did not complete any related party transactions during the year ending December 31, 2022.

For the year ended December 31, 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 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.

For the year ended December 31, 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.

For the year ended December 31, 2020, we purchased in three separate transactions a total of 55 finished lots in Montgomery County and Travis County, Texas from an affiliate of a family member of our chief executive officer for a total base purchase price of approximately $ 4.7 million.

RETIREMENT BENEFITS

Our employees are eligible to participate in a 401(k) savings plan.

Employees are eligible to participate after completing 90 days of service and having attained the age of 21 .

Salary deferrals are allowed in amounts up to 100 % of an eligible employee’s salary, not to exceed the maximum allowed by law.

A discretionary match may be made by us of up to 100 % of the first 4 % of an eligible employee’s deferral, not to exceed the maximum allowed by law.

Employees are eligible to participate beginning in the quarterly period after completing 30 days of service and attaining the age of 21 .

Salary deferrals are allowed in amounts up to 100 % of an eligible employee’s salary, not to exceed the maximum permitted by law.

We may make a discretionary match of up to 100 % of the first 4 % of an eligible employee’s deferral, not to exceed the maximum allowed by law.

For each of the years ended December 31, 2022, 2021 and 2020, our matching contributions were $ 4.5 million, $ 4.6 million and $ 4.0 million, respectively.

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Land deposits and option payments (1)

$ 22,406 $ 37,499

Commitments under the land purchase contracts if the purchases are consummated $ 411,776 $ 921,345

Lots under land purchase contracts (1)

13,184 36,978

(1) Includes land banking financing arrangements, see No tes 3 and 5 for more details regarding real estate not owned.

As of December 31, 2022 and 2021, approximately $ 12.8 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

We recognize lease obligations and associated ROU assets for our existing non-cancelable leases.

We recognize lease obligations and associated right-of-use (“ROU”) assets for our existing non-cancelable leases.

Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

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ROU assets, as included in other assets on the consolidated balance sheets, were $ 4.9 million and $ 5.1 million as of December 31, 2022 and 2021, respectively.

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

Lease obligations, as included in accrued expenses and other liabilities on the consolidated balance sheets, were $ 5.2 million and $ 5.3 million as of December 31, 2022 and 2021, respectively.

Operating lease cost, as included in general and administrative expense in our consolidated statements of operations, totaled $ 2.1 million, $ 1.7 million and $ 1.6 million for the years ended December 31, 2022, 2021 and 2020, respectively.

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

As of December 31, 2021 and 2020, we have a total of $ 5.6 million and $ 3.9 million, respectively, within other assets on the balance sheet relating to our investment in the real estate investment fund and the mortgage joint venture.

Contributions into these unconsolidated entities are used by the entities to invest in certain real estate transactions and to provide residential mortgage services, respectively.

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

As of December 31, 2022 and 2021, we have a total of $ 11.2 million and $ 5.6 million, respectively, within other assets on the balance sheet relating to our investment in this real estate investment fund and the mortgage joint venture.

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

Income associated with our investment in unconsolidated entities was $ 5.5 million for the year ended December 31, 2022.

We did not have any income recognized for our investment in unconsolidated entities for the year ended December 31, 2021.

Revenue Recognition

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.

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

For the Year Ended December 31,

2022 2021 2020

Retail home sales revenues $ 1,963,896 $ 2,700,866 $ 2,191,301

Wholesale home sales revenues 340,559 349,283 176,628

Total home sales revenues $ 2,304,455 $ 3,050,149 $ 2,367,929

The following table presents our home sales revenues disaggregated by geography, based on our determined reportable segments in Note 15 (in thousands):

For the Year Ended December 31,

2022 2021 2020

Central $ 1,011,844 $ 1,252,782 $ 850,375

Southeast 455,340 594,742 559,226

Northwest 253,416 510,497 389,523

West 300,968 351,219 286,130

Florida 282,887 340,909 282,675

Home sales revenues $ 2,304,455 $ 3,050,149 $ 2,367,929